Bill Overview
Title: Risk-Based Credit Examination Act
Description: This bill provides the Securities and Exchange Commission's Office of Credit Ratings with discretion concerning reviewable matters during its annual examination of nationally recognized statistical rating organizations.
Sponsors: Rep. Wagner, Ann [R-MO-2]
Target Audience
Population: People using financial markets influenced by credit ratings
Estimated Size: 150000000
- The bill relates to the Securities and Exchange Commission's oversight of credit rating agencies.
- Credit rating agencies influence financial markets and affect companies, governments, and individual investors who rely on credit ratings to make decisions.
- There are numerous companies and organizations whose securities may be subject to review by these rating organizations.
- Investors, both institutional and individual, use credit ratings to assess risks in their investment portfolios.
- Globally, millions of individual investors take part in financial markets that are influenced by credit ratings.
Reasoning
- The policy primarily affects investors and stakeholders in the financial sector, including individual and institutional investors, financial analysts, and companies reliant on credit ratings.
- The estimated budget constraints necessitate focusing on areas where the policy can have a meaningful impact—such as improving oversight processes without drastically increasing operational costs.
- Given the widespread nature of the US population's involvement in financial markets, the policy is likely to have nuanced and diverse impacts depending on individual or organizational reliance on credit ratings.
- The SEC's improvements and discretion in credit rating oversight could enhance market transparency and investor confidence, possibly yielding broader economic benefits.
- Selecting individuals across different demographics helps capture varying degrees of impact—from highly involved institutional investors to casual retail investors.
Simulated Interviews
Retired Financial Advisor (New York, NY)
Age: 64 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 10.0 years
Commonness: 10/20
Statement of Opinion:
- I believe this policy will improve the reliability of credit ratings, which is crucial for my retirement portfolio.
- Increased scrutiny could help catch any discrepancies early and make markets safer for retirees like me.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 7 |
| Year 2 | 7 | 7 |
| Year 3 | 8 | 7 |
| Year 5 | 8 | 7 |
| Year 10 | 9 | 7 |
| Year 20 | 9 | 7 |
Tech Startup Owner (San Francisco, CA)
Age: 35 | Gender: male
Wellbeing Before Policy: 5
Duration of Impact: 5.0 years
Commonness: 5/20
Statement of Opinion:
- Any improvement in the transparency of ratings can help me gauge financial health more accurately when seeking investors.
- I hope this policy forces rating agencies to be more diligent.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 5 |
| Year 2 | 7 | 5 |
| Year 3 | 8 | 5 |
| Year 5 | 8 | 6 |
| Year 10 | 8 | 6 |
| Year 20 | 8 | 6 |
Middle Manager in Insurance Company (Chicago, IL)
Age: 48 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 7.0 years
Commonness: 4/20
Statement of Opinion:
- We rely on these credit ratings for our assessments, and any enhancement in their accuracy will improve our risk strategies.
- I see potential for reduced volatility in our models with better oversight.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 6 |
| Year 2 | 7 | 6 |
| Year 3 | 7 | 6 |
| Year 5 | 8 | 6 |
| Year 10 | 8 | 6 |
| Year 20 | 8 | 6 |
Recent College Graduate (Los Angeles, CA)
Age: 22 | Gender: male
Wellbeing Before Policy: 4
Duration of Impact: 1.0 years
Commonness: 12/20
Statement of Opinion:
- I think the policy might improve my understanding of market stability if credit ratings become more reliable.
- I am cautious about traditional markets and look forward to any positive changes.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 4 |
| Year 2 | 5 | 4 |
| Year 3 | 5 | 4 |
| Year 5 | 6 | 5 |
| Year 10 | 6 | 5 |
| Year 20 | 6 | 5 |
Pension Fund Manager (Boston, MA)
Age: 55 | Gender: female
Wellbeing Before Policy: 6
Duration of Impact: 10.0 years
Commonness: 7/20
Statement of Opinion:
- Policy impacts could lead to more predictable investment environments, beneficial for long-term fund returns.
- I endorse any oversight that helps prevent unreliable ratings.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 6 |
| Year 2 | 7 | 6 |
| Year 3 | 8 | 6 |
| Year 5 | 8 | 6 |
| Year 10 | 9 | 6 |
| Year 20 | 9 | 6 |
Freelance Graphic Designer (Austin, TX)
Age: 29 | Gender: other
Wellbeing Before Policy: 6
Duration of Impact: 3.0 years
Commonness: 15/20
Statement of Opinion:
- I might not be directly impacted, but if this policy stabilizes the markets, it could increase my confidence to invest more.
- I appreciate any policy aiming to improve market trust.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 6 | 6 |
| Year 2 | 6 | 6 |
| Year 3 | 6 | 6 |
| Year 5 | 7 | 6 |
| Year 10 | 7 | 6 |
| Year 20 | 7 | 6 |
Risk Analyst (Seattle, WA)
Age: 41 | Gender: male
Wellbeing Before Policy: 7
Duration of Impact: 10.0 years
Commonness: 6/20
Statement of Opinion:
- If rating accuracy improves, it can significantly affect my risk models and outcomes.
- This policy has the potential to reduce uncertainties in credit assessments.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 9 | 7 |
| Year 5 | 9 | 8 |
| Year 10 | 9 | 8 |
| Year 20 | 9 | 8 |
Educator (Denver, CO)
Age: 38 | Gender: female
Wellbeing Before Policy: 5
Duration of Impact: 2.0 years
Commonness: 13/20
Statement of Opinion:
- I believe this policy will slightly improve my outlook on economic education materials.
- Structured oversight is necessary for teaching market reliability.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 5 | 5 |
| Year 2 | 6 | 5 |
| Year 3 | 6 | 5 |
| Year 5 | 6 | 5 |
| Year 10 | 6 | 5 |
| Year 20 | 6 | 5 |
Energy Sector Executive (Houston, TX)
Age: 50 | Gender: male
Wellbeing Before Policy: 6
Duration of Impact: 7.0 years
Commonness: 9/20
Statement of Opinion:
- Enhanced credit rating scrutiny will be beneficial for our energy projects and financial planning.
- Policies like these can mitigate risk exposure in economic downturns.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 7 | 6 |
| Year 2 | 7 | 6 |
| Year 3 | 8 | 6 |
| Year 5 | 8 | 6 |
| Year 10 | 8 | 6 |
| Year 20 | 8 | 6 |
Real Estate Investor (Miami, FL)
Age: 30 | Gender: female
Wellbeing Before Policy: 7
Duration of Impact: 5.0 years
Commonness: 8/20
Statement of Opinion:
- This bill, if executed well, could stabilize rental yield predictions and financing plans.
- Discretion in reviews gives me optimism for fewer overnight surprises in credit ratings.
Wellbeing Over Time (With vs Without Policy)
| Year | With Policy | Without Policy |
|---|---|---|
| Year 1 | 8 | 7 |
| Year 2 | 8 | 7 |
| Year 3 | 8 | 7 |
| Year 5 | 9 | 7 |
| Year 10 | 9 | 7 |
| Year 20 | 9 | 7 |
Cost Estimates
Year 1: $15000000 (Low: $10000000, High: $20000000)
Year 2: $15750000 (Low: $10500000, High: $21000000)
Year 3: $16537500 (Low: $11025000, High: $22050000)
Year 5: $18225000 (Low: $12127500, High: $24270000)
Year 10: $21510000 (Low: $14355000, High: $28770000)
Year 100: $40510000 (Low: $27006750, High: $54013500)
Key Considerations
- The SEC's increased discretionary power may affect the operational requirements and costs of compliance for credit rating agencies.
- The potential need for additional SEC resources could increase government spending in the short term.
- Long-term market confidence may improve, potentially reducing the risk of financial misrating consequences.
- No immediate tax revenue changes are expected, as the bill focuses more on regulatory oversight.