Christine Stuart photo

Attorney General Richard Blumenthal wrote a letter to Federal Reserve Chairman Ben Bernanke on Monday asking him to revise a policy which he said steers up to $400 million to the “Big Three” credit rating agencies.

The Federal Reserve’s rules for its $1 trillion Term Asset-Backed Securities Loan Facility prefers Standard and Poor’s, Moody’s Investors Service, and Fitch Ratings over four other security rating companies, and undermines recent federal legislation aimed at encouraging competition in the credit rating business and possibly violates Connecticut’s Antitrust laws, Blumenthal said.

“The Federal Reserve is rewarding the same companies who helped burn down the house, in effect steering them cash to rebuild what they destroyed,” he said. 

The Term Asset-Backed Securities Loan Facility or TALF is intended to restart consumer lending and requires financial institutions to have securities rated by two or more of the “major nationally recognized statistical rating agencies.” Because Moody’s, Fitch, and Standard and Poor’s are the only credit rating agencies that fit that criteria the requirement effectively shuts out their competitors, Blumenthal said.

In addition to the letter Blumenthal sent to Bernanke this morning the Attorney General’s office subpoenaed all three credit rating agencies to see if they violated Connecticut’s Antitrust laws in steering the business.

“The Federal Reserve should not be favoring large market participants, whose mistakes helped precipitate the current crisis, over smaller ones seeking to break into the market,” Blumenthal wrote Bernanke.