The US House Financial Services Subcommittee on Capital Markets held a hearing on 30 September to discuss its recently released discussion draft entitled, 'The Enhanced Accountability and Transparency in Credit Rating Agencies Act', which - among other items - includes draft language on differentiation of ratings for structured finance products. To coincide with the hearing, CMSA issued a statement re-affirming its opposition to any proposals that would require credit ratings to be differentiated for certain types of financial products.

"While CMSA strongly supports efforts to strengthen our system for credit ratings in order to provide investors with the information they need to make sound investment decisions, the association continues to oppose reforms - such as differentiation - that both lack substance and undermine recovery of the commercial real estate capital market finance industry," the Association says.

Generally speaking, 'differentiation' (or the use of 'symbology', such as 'AAA.SF') is an overly simplistic and broad proposal that provides little value or information about credit ratings, according to CMSA. A broad coalition of market participants - including issuers, investors and borrowers seeking access to credit - remain overwhelming opposed to differentiation because it will only serve to increase confusion and implementation costs, while decreasing confidence and certainty regarding ratings.

The statement says that such effects would, in turn, create market volatility and undermine investor confidence and liquidity, which could exacerbate the current constraints on borrowers' access to capital. "Most concerning, these superfluous changes have been re-proposed at a time when policymakers are employing every reasonable means to get credit flowing again and the economy is struggling to regain equilibrium."

It continues: "In this regard, it is worth noting that the concept of differentiation has been examined extensively and rejected in recent years by the Committee on Financial Services, as well as the SEC and the ratings agencies themselves, for most (if not all) of the foregoing reasons. Nothing has changed in the interim. Accordingly, we urge the Subcommittee not to include a differentiation requirement as part of its CRA reform bill."