US lawmaker wants SEC to beef up credit rater rules

By Rachelle Younglai

WASHINGTON, April 18 (Reuters) - The U.S. Securities and Exchange Commission may need more power to oversee the credit rating agencies and ensure that the ratings are accurate, a senior Democratic senator said on Friday.

Credit rating agencies like Moody's Corp (MCO.N: Quote, Profile, Research) and Standard & Poor's (MHP.N: Quote, Profile, Research) have come under fire for their role in the subprime mortgage crisis that has roiled the U.S. credit market. Critics say they issued inaccurate ratings on securitized products backed by subprime mortgages, and were too slow to cut ratings after the products performed poorly.

The SEC is considering additional rules for credit raters such as requiring better disclosure of past ratings, limiting conflicts of interest, and requiring rating agencies to differentiate between corporate bonds and more complex structured finance products.

But Sen. Jack Reed, a Democrat from Rhode Island, said the SEC needed to "go beyond this and do much more."

"Do they need more authority? That is an issue that should be on the table," Reed said in an interview with Reuters. "We have seen over the last several months some significant inaccuracies in ratings."

Alternatively, the rating industry may need some kind of market mechanism or self enforcement mechanism that validates ratings, he said.

"This is an issue that is staring the commission right in the face -- who will do it best?," he said.

Reed, the chairman of a Senate banking subcommittee on securities and investment, also wants to give the SEC some $40 million more than it requested for its fiscal 2009 budget.