Uniform Treatment of Nrsros Act
Floor Speech
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Mr. SHERMAN. Mr. Speaker, I move to suspend the rules and pass the bill (H.R. 6934) to amend the CARES Act to require the uniform treatment of nationally recognized statistical rating organizations under certain programs carried out in response to the COVID-19 emergency, and for other purposes, as amended.
The Clerk read the title of the bill.
The text of the bill is as follows: H.R. 6934
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, SECTION 1. SHORT TITLE.
This Act may be cited as the ``Uniform Treatment of NRSROs Act''. SEC. 2. UNIFORM TREATMENT OF NRSROS.
(a) In General.--Section 4003 of the CARES Act (15 U.S.C. 9042), as amended by section 902, is further amended by adding at the end the following:
``(m) Uniform Treatment of NRSROs.--
``(1) In general.--If, in carrying out this section or any other program making use of a facility established under section 13(3) of the Federal Reserve Act in response to the COVID-19 emergency, the Secretary of the Treasury or the Board of Governors of the Federal Reserve System establishes a requirement for an entity, security, or other instrument to carry a minimum credit rating, the Secretary or the Board of Governors shall accept credit ratings provided by any nationally recognized statistical rating organization with respect to such entity, security, or other instrument, if the nationally recognized statistical rating organization is registered with the Securities and Exchange Commission to issue credit ratings with respect to the applicable asset class of the entity, security, or other instrument.
``(2) Exception.--
``(A) In general.--The Secretary or the Board of Governors may exclude a nationally recognized statistical rating organization from the application of paragraph (1) if, in consultation with the Securities and Exchange Commission, the Secretary or Board of Governors, as applicable, determines that the nationally recognized statistical rating organization is unable to provide reliable and accurate ratings for a particular asset class and that such exclusion is in the public interest.
``(B) Report.--If the Secretary or the Board of Governors excludes a nationally recognized statistical rating organization from the application of paragraph (1) pursuant to subparagraph (A), the Secretary or Board of Governors, as applicable, shall, as soon as practicable after such exclusion, disclose to the public the reasoning for such exclusion.
``(3) Nationally recognized statistical rating organization.--In this subsection, the term `nationally recognized statistical rating organization' has the meaning given that term under section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c).''.
(b) GAO Study.--
(1) Study.--The Comptroller General of the United States shall carry out a study on--
(A) the quality of credit ratings across nationally recognized statistical ratings organizations (as defined under section 3 of the Securities Exchange Act of 1934), including during the 2008 economic crisis;
(B) the effect of competition on the quality of credit ratings and on the ability of small- and mid-size companies and financial institutions to access the capital markets; and
(C) the implementation of the amendment made by subsection (a).
(2) Report.--Not later than one year after the date of enactment of this Act, the Comptroller General shall issue a report to the Congress containing all finding and determinations made in carrying out the study required under paragraph (1).
Mr. Speaker, I rise in support of H.R. 6934, the Uniform Treatment of NRSROs, which is sponsored by Congresswoman Dean from Pennsylvania.
This important legislation from Congresswoman Dean will ensure that qualified issuers have fair access to lending facilities, and it will ensure that these facilities are granted on clear terms.
This is not a time where agencies such as the Federal Reserve should just make it up as they go along, especially when these policies disproportionately harm small and mid-sized companies. Thus, my colleague, Ms. Dean, introduced, and I was pleased to cosponsor, legislation to provide clarity in the lending process by ensuring that nationally recognized statistical rating organizations, also referred to as NRSROs, are treated uniformly.
More specifically, the Federal Reserve and Treasury often require a credit rating to apply for participation in a lending facility. When there is such a requirement, the Federal Reserve has, at times, required that the rating be issued by a specific credit rating agency or has required that the rating be from a specific category of NRSROs, such as the so-called major NRSROs.
Often, these categories are self-created by the Federal Reserve and have been undefined and unclear to issuers. These requirements act as an obstacle between issuers and these lending facilities. This clearly was not Congress' intent, as it goes against Dodd-Frank, which mandates that we foster competition among NRSROs rather than trying to make sure that companies rely only on an oligarchy of three NRSROs.
As chair of the Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets, I am quite familiar with the work that has been done in the last decade to end overreliance on the big three credit agencies, which led us into the 2008 crisis. It is those big three that gave AAA ratings to Alt-A lendings, which I believe is what caused the 2008 crisis.
Decisions by the Fed and Treasury with respect to many lending facilities have threatened to undo our work to try to diversify the availability of different NRSROs.
H.R. 6934, which is limited to facilities which have been stood up in response to the COVID-19 pandemic, will set clear credit rating standards for both the Federal Reserve and its issuers. It also clarifies Congress' intent and will ensure that its legislative objectives are carried out at the agency level.
Most importantly, however, the legislation will result in more issuers having access to these lending facilities, an important objective during this pandemic and economic downturn, while it will still ensure that there are standards in effect that will adequately protect the facility and the interests of the taxpayer.
Mr. Speaker, I greatly appreciate Congresswoman Dean's leadership in bringing forth this important legislation, and I reserve the balance of my time.
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Mr. SHERMAN. Dean), the author of this legislation.
Mr. Speaker, I again would like to thank my colleague from Pennsylvania (Ms. Dean) for introducing, supporting, and, in effect, passing this legislation here today. It will help qualified issuers have access to lending facilities; it will ensure that that access to facilities is granted on terms that are clear; and it will ensure that Congress' legislative intent is carried out and is consistent with the policy of Congress that we have focused on in the Investor Protection, Entrepreneurship, and Capital Markets Subcommittee to make sure that we are not overly reliant on just three credit rating agencies.
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