Senate to probe bond-ratings firms: report

Senator Norm Coleman speaks at the second session of the 2008 Republican National Convention in St. Paul, Minnesota September 2, 2008. REUTERS/Brian Snyder

(Reuters) - A U.S. Senate subcommittee is opening a probe into causes of the global financial crisis, focusing in part on whether bond-ratings firms, driven by conflicts of interest, boosted mortgage investments which have since collapsed, the Wall Street Journal said.

The ranking Republican on the Senate’s Permanent Subcommittee on Investigation, Senator Norm Coleman, told the WSJ in an interview that investigators want to know whether competition among firms led them to issue certain ratings in order to win business from banks.

“We’re going to look at the root causes of this, looking at whether the inherent conflict clouded the judgment of the agencies,” Senator Coleman said.

“We’ve instituted a number of initiatives to mitigate conflicts,” a Moody’s Investors Service spokesman told the paper.

McGraw-Hill Cos Inc’s Standard & Poor’s, Fimalac SA’s Fitch Ratings and Moody’s could not be immediately reached for comment by Reuters.

Critics of the firms have accused them of fuelling the credit crisis by wrongly assigning high ratings to structured debt, including debt tied to risky mortgages, in the hope of winning fees from issuers.

U.S. securities regulators on Wednesday delayed action on adopting stricter rules to rein in the credit rating agencies until December 3.

Senator Carl Levin, a Democrat who heads the subcommittee, has called attention to financial derivatives known as credit default swaps, which he says are “one of the prime culprits responsible for this financial disaster,” the paper added.

Investigators are expected to look into how those derivatives were marketed and used by banks, according to the paper.

Reporting by Ajay Kamalakaran in Bangalore; Editing by Jon Loades-Carter