Moody’s Rating Transparency: The Critical Need for Timely Municipal Bond Reviews

Would you want to own muni bond that hasn’t been given a sniff test for 20 years?

Imagine investing in a municipal bond that hasn’t been evaluated in two decades. This concerning reality faces many municipal bond investors today, as revealed in a recent New York Times investigation titled “When Bond Ratings Get Stale.”

The troubling lack of ongoing monitoring at Moody’s has recently come to light through testimony from Scott McCleskey, who served as the rating agency’s head of compliance from 2006 to 2008. In his congressional testimony, McCleskey exposed a systematic failure in Moody’s review process: once initial ratings are issued, thousands of municipal bonds remain unexamined for years or even decades.

This revelation isn’t just bureaucratic oversight – it’s a critical issue for both individual and institutional investors who rely on these ratings to make informed investment decisions. Multiple former Moody’s employees have corroborated these concerns, suggesting a widespread problem within the organization’s monitoring practices.

The Solution: Mandatory Disclosure of Rating Dates

A straightforward solution exists: rating agencies should be required to disclose two crucial pieces of information:

• The original rating date
• The date of the most recent review

This simple transparency measure would empower investors to:

• Assess the reliability of current ratings
• Make more informed investment decisions
• Identify potentially outdated evaluations

By implementing this disclosure requirement, the municipal bond market would benefit from increased transparency and accountability, ultimately protecting investor interests and promoting market efficiency.