Standard & Poor's, under fire for its role in the U.S. housing market meltdown, is taking steps to ensure its ratings are sound and is reviewing its rated transactions more frequently, the credit rating agency told a Senate panel on Wednesday.
S&P, a unit of McGraw Hill Cos Inc., also said it has hired a chief compliance officer to improve its internal controls procedures and is looking at its policies to protect it against conflicts of interest.
Vickie Tillman, S&P's executive vice president of credit market services, described the credit rater's actions in written testimony for a Senate Banking Committee hearing.
The committee is examining how credit rating agencies like S&P, Moody's and Fitch, part of Fimalac SA, contributed to the current housing market crisis.
Credit rating agencies have been criticized for not responding quickly enough to deteriorating conditions in the subprime mortgage market. They have also been accused of conducting weak analyses and granting higher ratings because they are paid by the firms whose securities they rate.
Tillman defended the credit rating industry, saying that if issuers did not pay the rating agencies, the firms would have to charge a subscription, which would severely limit the transparency and broad dissemination of ratings.
This would result in less, not more, information in the market, Tillman said.
She said the conflict of interest can be managed and said S&P has rigorous procedures in place to do so. For example, S&P analysts are not compensated on the revenue they generate or involved in negotiating fees, Tillman said.
She defended S&P's practice of working with companies when rating their transactions and securities. The dialogue does not amount to structuring securities, even in cases where the discussion is about the effect different structures may have on ratings, she said.
S&P does not tell issuers what they should or should not do, Tillman said.
S&P said it warned as early as January 2006 that there were risks in the mortgage-backed securities market, including securities backed by subprime mortgage loans.
(Additional reporting by John Poirier)