July 14, 2011
WASHINGTON – Congressman Barney Frank, Ranking Member of the House Financial Services Committee, today released the attached letter to Deven Sharma, President of Standard & Poor’s regarding the credit rating agency’s July 12th report entitled “The U.S. Government Says Support For Banks Will Be Different ‘Next Time’- But Will It?”
In the letter, Congressman Frank strongly rejects the claim by S&P that it is likely that there will be future bailouts of large financial institutions and suggested that “you reconsider your apparent decision to diversify into legislative analysis and political prognostication.”
Frank also states that “any fair reading of the mood of the American public and the appetite of Congress suggests that there is absolutely no support for more bank bailouts.”
July 14, 2011
Mr. Deven Sharma
Standard & Poor’s
55 Water Street
New York, New York 10041
Dear Mr. Sharma:
I can certainly understand that after your disastrous, and unfortunately consequential, attempt to appropriately rate credit default swaps and other derivatives, Standard & Poor’s appears to be looking for a new business model. Having read your July 12th report, “The U.S. Government Says Support For Banks Will Be Different ‘Next Time’- But Will It?” I would suggest that you reconsider your apparent decision to diversify into legislative analysis and political prognostication.
On page two of that report you state “we believe that under certain circumstances and with selected systemically important financial institutions, future extraordinary government support is still possible.” That is a clear misreading of Title II of the Wall Street Reform and Consumer Protection Act, which eliminates any possibility of a new round of measures designed to bail out any financial institution. Your report also omits the fact that the financial reform law, by repealing Section 13.3 of the Federal Reserve Act, prohibits that institution from engaging in any activity aimed at propping up a single firm as they did in the case of AIG.
Apparently, whoever wrote page two of your report did not read page three where you conclude that “amendments to the current legislation or outright changes in a future crisis might prove necessary.” It is precisely because the Wall Street Reform and Consumer Protection Act eliminates the possibility of future bailouts that a legislative change to enable that would be required.
Your report characterizes the current posture of the United States government toward the financial sector in a category which you call “supportive”; your definition of supportive specifically includes “mechanisms to support failing banks.” But in order for such a mechanism to exist fundamental legislative changes would be required. Any fair reading of the mood of the American public and the appetite of Congress suggests that there is absolutely no support for more bank bailouts. The fact that you have come to a contrary conclusion reinforces my recommendation that you focus on your core business.