By Kevin Drawbaugh and Rachelle Younglai
WASHINGTON (Reuters) - A U.S. congressional committee has dropped a key provision from a financial reform bill aimed at reducing investor reliance on credit ratings, according to draft legislation released on Tuesday.
The provision, first proposed by the Obama administration, calls for across-the-board repeal of passages in U.S. law that mandate the use of credit ratings as a way to reduce their pervasive role in the financial system.
Agencies that provide the ratings have been widely criticized for failing to spot problems in debt markets that resulted in the credit crunch still hurting global economies.
The provision to reduce the agencies' influence would be restored, in part, in an amendment to be offered next week by House of Representatives Financial Services Committee Chairman Barney Frank, according to a committee staff memo obtained by Reuters.
"Chairman Frank will offer a refined version of an amendment to strike selected references to rating agencies in the laws under the jurisdiction of the financial services committee and to require a study of the use and reliance on ratings in other federal laws and regulations," the memo said.
The credit rating legislation is part of the Obama administration's push for financial regulatory reforms to curb the kind of risk taking that sparked last year's market meltdown.
The reforms have begun to gain some headway on Capitol Hill after months of drift and closed-door negotiations with bankers and Republicans fighting to protect profit margins from the Democrats' drive for tougher rules.
The paring back of the repeal provision in the credit rating bill reflects jurisdictional issues among the House committee and does not mean the overall bill is being watered down, said committee spokesman Steven Adamske.
"We have built on what the administration gave us," Adamske said. "A number of provisions in what we will work on next week strengthen both the independence of the agencies and reduce the market's reliance on them."
Frank's committee is dealing with a dozen financial regulation bills from the administration, including the one affecting agencies such as Moody's Investor Service, Standard & Poor's and Fitch Ratings.
The financial services committee has scheduled working sessions on the credit rating agency bill for Tuesday next week and subsequent days if needed.
(Editing by Andrew Hay)
(Reporting by Kevin Drawbaugh and Rachelle Younglai)