The US Senate today approved in a 64-35 vote an amendment by Sen. Al Franken (D-MN) on credit ratings to be added to S 3217, the Restoring American Financial Stability Act sponsored by Sen. Chris Dodd (D-CT). The amendment would instruct the Securities and Exchange Commission (SEC) to establish a self-regulatory organization to assign credit-rating agencies (CRAs) to provide initial credit ratings on financial products. It essentially creates a board to assign CRAs to securities, to prevent firms from "shopping around" for the highest ratings. Banks currently choose which CRAs will rate the quality of their bonds and other financial products, which Franken said in a statement results in the agencies giving away "undeserved top ratings" to risky financial products. "This conflict of interest has cost American investors and pensioners billions and billions of dollars because supposedly risk-free investments have failed or been downgraded to junk status," Franken said on the Senate floor today. "My amendment will correct that conflict of interest by having an independent third party assign the credit rating agency that conducts the initial rating for newly issued complex financial products." Sen. Carl Levin (D-MI) said the amendment addresses "flawed and inaccurate credit ratings labeled poor quality mortgage-backed securities and high-risk collateralized debt obligations" as triple-A. It requires firms to submit their financial products to the SEC board, which assigns a CRA at random. “This amendment creates a firewall so that a rating agency can be selected independent of an issuer,” said Sen. Charles Grassley (R-Iowa). “It goes after conflicts of interest between rating agencies and issuers, and that’s a very important area where due diligence was missing leading up to the financial crisis of 2008.” The Senate also passed in a 61-38 vote the George LeMieux (R-FL) amendment as a side-by-side to the Franken amendment. It would take effect two years after the Dodd bill becomes law, and eliminates statutory references to CRAs. "You cannot have the people whose products you rate pay you. [Franken]'s right about that," LeMieux on the Senate floor today. "But I would go further. My amendment writes these organizations out of law." Write to Diana Golobay.