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Credit Rating Agencies under Scrutiny: Professor Lawrence White Testifies Before the House

On September 30, 2009, NYU Stern Professor Lawrence White testified before the US House of Representatives Committee on Oversight and Government Reform during a hearing to examine the role of credit rating agencies in the recent financial crisis, the dangers they pose to investors and whether the agencies need to be regulated.

“[The] urge for greater regulation is understandable – but it is misguided and potentially quite harmful,” explained Professor White. “The heightened regulation of the rating agencies is likely to discourage entry, rigidify a specified set of structures and procedures, and discourage innovation in new ways of gathering and assessing information, new technologies, new methodologies and new models – and may well not achieve the goal of inducing better ratings from the agencies.”

An advocate for increased competition, he proposed the following:

  • Eliminate regulatory reliance on ratings
  • Eliminate the force of law that has been accorded to these third-party judgments
  • Bring market forces to bear

Read Professor White’s full testimony