As part of the Sarbanes-Oxley Act of 2002, Congress asked the U.S. Sec to prepare a report entitled „Report on the Role and Function of Credit Rating Agencies in the Operation of the Securities Markets”[157] detailing how ratings are used in U.S. regulations and the policy issues that raise this use. In part as a result of this report, the SEC issued a „conceptual communication” in June 2003 entitled „Rating Agencies and the Use of Credit Ratings under the Federal Securities Laws”[158], which spoke publicly on many of the issues raised in its report. Public comments on this concept version have also been published on the SEC`s website. [159] The use of ratings by regulatory authorities is not a new phenomenon. [161] In the 1930s, U.S. regulators used ratings agencies` ratings to prohibit banks from investing in bonds ranked below the investment ranks. [92] Over the following decades, state regulators described a similar role for agency ratings in limiting insurance companies. [92] [161] From 1975 to 2006, the U.S.
Securities and Exchange Commission (SEC) recognized the largest and most credible agencies as nationally recognized statistical rating agencies and used these agencies exclusively to distinguish credit ratings in various provisions of federal securities laws. [161] [165] The Credit Rating Agency Reform Act of 2006 created a voluntary registration system for credit rating agencies that met certain minimum criteria and gave the SEC broader supervisory authority. [166] Rating agencies also issue credit ratings for public borrowers, including national governments, states, municipalities and state-backed international companies. [151] Government bonds are the largest borrowers in many financial markets. [151] Governments in both developed and emerging countries borrow money by issuing government bonds and selling them to private investors, either abroad or domestically. [152] Governments in emerging and developing countries may also choose to borrow from other governmental and international organizations such as the World Bank and the International Monetary Fund. [152] In order to determine the rating of a loan, a rating agency analyzes the issuer`s accounts and legal arrangements related to the loan[72][73] to establish an effective forecast of the probability of default of the loan, the anticipated loss or a similar ratio. [72] Metrics vary from agency to agency.
