Seeking to end the babel of rating terminology, the Securities and Exchange Commission is requesting public comment on the feasibility of forcing credit rating agencies to adhere to a standardized set of terms.
With the efficacy and trustworthiness of credit rating cited as a primary cause for the financial crisis, the study was mandated by Section 939(h) of the Dodd- Frank Wall Street Reform and Consumer Protection Act of 2010. According to the posting in the Federal Register, the study seeks to find desirability of: “Standardizing credit ratings terminology, so that all credit rating agencies issue credit ratings using identical terms; standardizing the market stress conditions under which ratings are evaluated; requiring a quantitative correspondence between credit ratings and a range of default probabilities and loss expectations under standardized conditions of economic stress; and standardizing credit rating terminology across asset classes, so that named ratings correspond to a standard range of default probabilities and expected losses independent of asset class and issuing entity.”
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