Part of the debate over the debt ceiling has involved the idea that the credit rating of the U.S. Government would be downgraded by rating agencies if the nation were to default on its debt.
The credit rating agencies have also been criticized by Federal regulators for failing to sound the alarm over the emerging subprime mortgage problems, when certain federal regulatory actions were tied to their assessments.
A House Financial Services subcommittee held an oversight hearing on the credit rating agencies who issue those advisories, and how regulation of the industry has changed under the Dodd-Frank law which took effect one year ago.
On Tuesday, the Securities and Exchange Commission unanimously approved a plan to remove credit ratings from some of its rulemaking procedures, and substitute other ways of evaluating risks.
SEC Chairman Mary Schapiro said in a statement that she believes the new rules "will provide an appropriate and workable alternative to credit ratings.”
Of the so-called "big three" credit rating agencies, both Standard and Poor's (S&P) and Moody's have put the AAA U.S. government credit rating "under review," and may take negative action if there is a default. Fitch Ratings says it's waiting to see what happens and won't make a decision unless the August 2nd deadline passes and the ceiling hasn't been raised.
Representatives of S&P and Moody's testified at the hearing, along with Federal officials from the SEC and Federal Reserve.
Oversight subcommittee chairman Randy Neugebauer said in a statement that the Dodd-Frank Act has "conflicting goals" when it comes to regulating the credit rating agencies: "On the one hand, the Act attempts to de-emphasize the role of credit rating agencies in federal regulations and on the other hand, the Act further perpetuates and entrenches the government-sponsored oligopoly of the big three credit rating agencies."