S&P balks at SEC proposal to reveal rating errors

* S&P fears SEC will dictate error disclosure policy

* S&P says SEC should not define “significant error”
* Letter comes three days after U.S. debt downgrade
* Letter comes after Treasury accused S&P of major error
By Sarah N. Lynch
WASHINGTON, Aug 9 (Reuters) – Standard & Poor’s, whose unprecedented downgrade of U.S. debt triggered a worldwide stocks sell-off, is pushing back against a U.S. government proposal that would require credit raters to disclose “significant errors” in how they calculate their ratings.
S&P, which was accused by the Obama administration of making an error in its calculations leading to Friday’s downgrade, raised concern about the proposed new corrections policy and other issues in an 84-page letter to the Securities and Exchange Commission, dated Aug. 8.
The SEC is weighing sweeping new rules designed to improve the quality of ratings after their poor performance in the financial crisis.
The 517-page proposal includes a requirement that ratings agencies post on their websites when a “significant error” is identified in their methodology for a credit rating action.
The letter was sent three days after the U.S. Treasury Department accused S&P of miscalculating — by some $2 trillion — the U.S. debt in the next 10 years. That calculation was in a draft press release announcing a downgrade in the government’s credit rating from AAA to AA-plus.
S&P vehemently denied it had made an error, but acknowledged that it changed its long-term economic assumptions after discussions with the Treasury Department. It switched to another economic scenario that resulted in a debt load $2 trillion smaller by 2021. But it said that did not affect its decision to downgrade the U.S. debt. [ID:nN1E77725M]
S&P’s criticism of the “significant error” proposal is part of a broader concern that the SEC’s reforms prompted by the Dodd-Frank financial oversight law could give the U.S. government undue influence over its ratings decisions.
S&P in particular is facing a tense relationship with Washington. Its downgrade sparked a Click here to read the article backlash from Administration officials and lawmakers from both sides of the aisle. A Senate Banking Committee aide on Monday said the panel has begun looking into S&P’s decision to downgrade the U.S. credit rating. [ID:nN1E7771XF]
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