Projo Biz Blog

Moody’s, one of the three major credit rating agencies, has announced plans to adopt a common rating system to evaluate public and corporate bonds.

Moody’s plans follow a campaign by state and federal officials across the country to end the double standard used by credit rating agencies to grade corporate and municipal bonds on different scales.

Rhode Island General Treasurer Frank Caprio, an advocate of the new system, praised Moody’s for demonstrating leadership and for scrutinizing the ratings process after the subprime mortgage crisis highlighted problems with the system.

Many state and municipal bond issues which had to obtain bond insurance in order to secure coveted AAA ratings were frustrated when those same ratings were handed out to mortgage-backed securities which were revealed to be insolvent as a result of the subprime crisis.

“One of the lessons coming out of the subprime crisis is that municipalities were being held to a higher standard for their bond issues, even though many state and municipal bonds have a long history of being safe and reliable investments,” said Caprio. “We need a rating system that reflects a fair and consistent approach to comparing public and corporate debt and Moody’s is moving in that direction.”

Caprio added, “A single rating system will be fair for the taxpayers who stand behind public bonds, while providing investors with a consistent means of judging public bonds.”

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