According to an unnamed source, Morgan Stanley, Citigroup, UBS, Credit Suisse and Goldman Sachs are among the eight financial institutions being probed by federal prosecutors, the New York Times reported.
Andrew Cuomo, attorney general, has launched an investigation in conjunction with the Securities and Exchange Commission into whether any of the banks inflated ratings surrounding mortgage securities.
The examination will assess whether any of the credit rating agencies were tricked by the banks into providing inaccurate information, which could have potentially provided a more positive impression of a security to an investor.
Ratings, provided by firms such as Standard & Poorâs and Moodyâs, are used to assess the risk associated with an investment.
Hank Paulson, ex-head of the US Treasury, recently criticised the agencies for having too much power.
In comments made to the Financial Crisis Inquiry Commission, Mr Paulson described ratings as a âdangerous crutchâ which investors should not solely rely on to inform their decisions.
By Jim Ottewill