WASHINGTON -- Lawmakers rewriting financial regulations took aim Friday at credit rating agencies, whose analysts often gave safe ratings to risky investments that contributed to the financial crisis.

Sen. Carl Levin, D-Mich., said the Senate's regulatory overhaul should go further to curb the industry's inherent conflicts of interest, since the agencies are paid by the banks whose investments they rate.

And banks generally want higher ratings to make the securities they offer more attractive to investors.

At a hearing Levin chaired Friday, former executives acknowledged that competition within the industry often led the agencies' analysts to rate high-risk securities as safe.

Levin suggested the co- dependent relationship between the agencies and the banks is a dangerous flaw in the financial system. He offered an analogy: "It's like one of the parties in court paying the judge's salary."

Levin was chairing a hearing of the Permanent Subcommittee on Investigations, which has been investigating the causes of the financial crisis.

The Senate next week is expected to take up a version of the financial regulatory legislation that would require only a study of the industry's conflict of interest.

The House-passed bill would go further. It would instruct the Securities and Exchange Commission to produce a policy that would either bar the conflicts or require the agencies to disclose their relationships with banks.

Former executives of Moody's and Standard & Poor's testified that pressure from competitors and management pushed their analysts to award safe ratings to risky investments.

There was a "disconnect" between senior managers and the analytical managers responsible for assigning bond ratings, said Frank Raiter, a former managing director for Standard & Poor's. He said this helped lead agencies to award high ratings to risky investments.

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Raiter said management placed increasing pressure on analysts to earn fees by attracting business from banks. Many former colleagues had quit after clashing with management, he said.

He said some analysts had tried to persuade management to lower ratings on some securities as the housing market became distressed. But he said those analysts were told "revenues would go down."

Raiter also blamed weak government regulation, in part, for allowing agencies to inflate their ratings of bank securities.

The SEC's oversight of credit rating agencies is limited under current laws. The agencies have escaped legal liability by claiming their ratings are protected by the First Amendment right to free speech.