Given the issuer-pay model, there is an ever-present concern that rating agencies have an incentive to understate the risks and provide ratings that are too high. In other words, a conflict of interests exists.

Broadly we are faced with two choices to make the system more functional. The first option is to use partial measures that deal only with the symptoms; this option essentially shields the incumbent ratings agencies from competition.

The second choice is to take bolder action--we abolish the "Nationally Recognized Statistical Rating Organization" status that credit ratings firms currently have (as provided by the U.S. Securities and Exchange Commission) and open up the way for competition that encourages the growth of new and diverse types of credit assessment firms that cater to investor needs with objective and dynamic measures of risk.