At last week’s American Securitization Forum Sunset Seminar, panelists discussed how the proposed Franken amendment creates unintended consequences in applying credit ratings.
The amendment is part of the Senate's version of the financial reform bill. The amendment aims to remove the “issuer-pays” conflict of interest. Under Senator Al Franken’s (D-Minn.) proposal, the issuer will still pay for the rating, but it will not have a say as to which agency provides it. Instead, the government will be choosing the rating agency through the Credit Rating Agency Board, which is tasked with rotating rating assignments.