subscribe to our newsletter
Ratings agency pays $1.1bn in GFC settlement

Ratings agency pays $1.1bn in GFC settlement

The United States Justice Department and the District of Columbia have reached a US$864 million ($1.1 billion) settlement agreement with a global credit ratings agency.

In a statement on Friday, the Justice Department said the settlement resolves allegations arising from ratings agency Moody’s role in providing credit ratings for residential mortgage-backed securities (RMBS) and collateralized debt obligations (CDO), contributing to “the worst financial crisis since the Great Depression”.

“Moody’s failed to adhere to its own credit rating standards and fell short on its pledge of transparency in the run-up to the Great Recession,” principal deputy associate attorney general Bill Baer said.

“Today’s settlement contains not only a significant penalty and factual admissions of its conduct, but also a commitment by Moody’s to new and continued compliance measures designed to ensure the integrity of credit ratings going forward,” he said.

Principal deputy assistant attorney general Benjamin C. Mizer, head of the Justice Department’s civil division, said Moody’s has now acknowledged that it used a more lenient standard than it had itself published.

“Investors relied on Moody’s credit ratings to be objective and independent, and they naturally expected Moody’s to follow its own published methods,” he said.

The settlement includes a US$437.5 million ($583.4 million) federal civil penalty, the second largest payment of this type ever made to the federal government by a ratings agency. The remainder will be distributed among the settlement member states in alignment with terms of the agreement.

[Related: Subprime mortgages now 25% of RMBS: RBA]

Ratings agency pays $1.1bn in GFC settlement
mortgagebusiness logo

Latest News

The corporate regulator has issued guidance in relation to its oversight of a newly formed external dispute resolutions body, the Australian...

The federal government has announced the appointment of the inaugural chair of the National Housing Finance and Investment Corporation. ...

An alternative funder of residential property developments is confident that Australia’s banks will never again offer mezzanine funding fo...

Promoted Stories

podcast

LATEST PODCAST: How the market has changed in the last 25 years, royal commission hearings, broker advocacy

Do you expect access to credit to get harder this year?