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Credit-rating agencies would be more tightly regulated under legislation approved on Wednesday by the House Financial Services Committee.
In another procedural step forward for the Obama administration's push for financial reform, the committee sent the bill to the full House for a vote, likely next month.
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Firms affected by the bill include Moody's [MCO
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], McGraw Hill's [MHP
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] Standard & Poor's and Fitch Ratings [LBCP
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].
Last month, an industry whistleblower told CNBC that rRatings agencies need to adopt universal standards to prevent the kinds of abuses that helped fuel the collapse of the credit markets.
The agencies use arbitrary parameters and are under pressure to issue ratings favorable to the companies that hire them, Eric Kolchinsky, former managing director of Moody's Analytics, said in a live interview.
The agencies were blamed by giving good ratings to securities that backed up subprime loans, the collapse of which triggered the financial crisis.
"There's just no incentives at the rating agencies still to say 'no' to a deal," Kolchinsky said. "That's the problem that we still have in the capital markets."
Kolchinsky left Moody's after warning the company that it continued to use faulty methodology to evaluate deals backed by leveraged loans even after he warned them about the practice. He is testifying on the issue to Congress next week.
"There's no perfect solution," he said. "What you can do is set standards so you can have liability so ratings agencies can defend themselves."
—CNBC.com contributed to this report.
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