>> well, i can give it a stab. i try to be constructive and helpful to the committee. probably the person better to answer that my colleague dominique crawley, who was in front of you last month. the bigger methodology is an assessment designed to evaluate and compare on a global basis banking systems. not individual banks within the jurisdiction, but the banking system overall. when we assess, and that's also true for the uk as for all the other 84, 85 systems that we analyze in this way. the two main areas which the economic risk and the industry risk. the three score, which is the big score, not a rating. it is a score. ranges strength.

it's held back largely by the economic risks which have to do with the imbalances in the uk economy, in which you could fesh measure for example, in the leverage of private households in particular, and, therefore, with a credit risk in the books of banks. the -- so this, for example, is a theme that you see in other sovereigns as well. if you look at the root causes for the current financial crisis, it's our view that a lot of it is found, it's not a fiscal crisis per se but a crisis of credit growth, too fast credit growth and credit risk in the economy, and the uk certainly is one of those cases. it's our view that the uk is currently in what we would call a correction phase. basically what you have now is banks becoming much more cautious and reluctant to extend

you credit, which, of course, comes with new credit risk exposure. >> sure. could i just stop you there, because you break down -- >> yes. >> -- your assessment of banking risk to credit risk, and you've observed in your, in some of the evidence, that there is a downside risk of commercial real estate. in the united kingdom. i'd like to you amplify on that. >> i would probably think this would have been better covered on the march 7 session, because there you had the man in charge of this particular process in front of you. i can talk in general term about the main pillars. try to -- >> can i just switch to mr. wilson on the banking methodology. that's the methodologist that mr. kramer has talk and.

something you ascribe to as well. is it not xwlanchts ? >> what is something i subscribe to? we have a separate banking methodology. the bank strength methodology. >> fine. okay. now, have you any view on -- well, let me track back a bit. what were your banking ratings in 2007, before the crash? how were you rating the uk economy? how good was your outset? what was it assessing as the systemic risk in the uk banking system? >> of the uk's rating, aaa in 2007. >> but were it good? as it turned out your rating was -- >> i'm sorry. i don't understand the question. >> what do you think -- are you aware there's been a financial crash in the united kingdom? what i sent you, what was your

rating prior to that crash of the uk banking system? >> we don't have a single rating for the uk's banking system. we don't -- >> you don't? >> our methodology is not to take a system and give it a rating. we only apply ratings to individual institutions which is why i found it difficult to answer the question about the rating for the system as a whole. >> right. so you don't subscribe to the system, for instance, that fitch has for -- for countries. mr. riley, you have a system, do you not, which rates the banking strength of a country? >> we do. there's two aspects of system rating. one is actually just simply taking the rating of the standard loans, the standard loan rating. >> let's just talk about the country. because there is a submission here that you've actually said

that the uk sbcbudget is neutra under aaa and risk assessment for the uk economy. and you have an interimmediate r risk for the risk for potential dynamics, which is competition in the banking system and systemic wide funding. now, on the assessment that you make for the uk banking, what is that now? >> well, assessment on the uk banking -- >> uk banking system. you've scored it. haven't you? >> well, a banking team has made the scoring on the uk banking system. that's their primary responsibility and lead. we do -- >> just so we're talking about the same thing. break it down. institutional framework, inlt

mated compensation to diematics, a system worth funding. >> i understand that to be correct. >> i'm reading from fitch ratings, 21st of march 2012 where it says uk budget is neutral for aaa status. >> sorry. you're switching between a comment about the uk budget and -- >> no. can you stop talking. i asked questions. you answer the questions. is it the case you put out something called uk sbcht neutral for aaa status fitch ratings 21 march. you are or are you not fitch ratings? >> that's correct. >> thank you. do you know what i'm talking about? >> i don't have a copy of the document that you're referring to in front of me. >> right. and it actually -- at length, breaks down the fact that you give a score for the united kingdom. and you break it down, risk on institutional framework. intermediate risk for dynamic,

the competition in the uk banking system and low risk assessment for systemic wide bank funding. now, have you been familiar with the letter i'm talking about? this is your own document. do you think it's not good to come to this briefing without knowing offown business' brief jgs. >> i think that's an unfair comment. >> you just said you didn't know what this document was about. how is this -- unable -- to ask questions when you come along complacent, sometimes smirking. i want to know what your assessment is and why of the uk banking system of the moment. now, answer the question. >> if you give a short reply, i'll be bringing in somebody else. >> no. i want to ask a question after that and a quick one. >> ask the supplementary now. >> i want to know what the rating you give from fitch.

>> i am not familiar wit document you're referring to so i cannot answer that question. i apology. >> which is it? >> for being in -- >> by being incompetent. >> on the uk banking sector. i'm responsible for the sovereign ratings at fitch, not for all of oush banking k. i ask one final question? >> briefly. >> fitch as an organization what did it rate uk back in 2007? >> i'm not in a position to -- tell you. >> absolutely useless. >> these are issues which you are not directly responsible, as i understand it? >> and that is correct. >> yes. >> george. >> i'm the good cop. right. you've got a fairly dismal report with -- the last

inspection. transfer of methodology. problems with disclosure of presentation and ratings. inadequate government arrangements. inadequate resources supporting ratings. and the use of new and experienced staff on too many occasions. apart from that, was everything else all right? now, were these criticisms were just -- >> i can speak to the on-site inspection conducted at fitch with respect to sovereign ratings. detailed discussions and reviewed our files while on-site. my understanding at the time of that inspection was that broadly speaking, that the -- what they were doing to procedures and regulations that they were reviewing, my understanding is

we are waiting as ratings agency the detailed feedback from asmer. if we need to address, we will address them. >> are you not aware of these findings? is that what you're saying, or you knew of them, but are waiting for a detailed official formal letter? >> i think the -- i'm certainly aware and have read the report that you're referring to, which i'd like to kind of, a generic overvufr t overview of the three -- >> all at table. it's either one or two of you that fit into this, but do you think they're justified? >> and i think i've highlighted a number of potential risks relating to things like resources. as you've highlighted. which we recognize as potential risks and if it's identified there's a shortcoming on the

side of fitch, we would address those. i think they're highlighting potential shortcomings and risks, was my understanding, rather than saying that these are, is systemic shortcomings in the conduct of the rating agencies with respect to the regulations that asmer is governing and the rating agencies. >> i'm not sure -- i take you up on that. i'm not sure of the potential of what they found, nothing potential about that. systemic is another question, but they raised important points after the inspections and indicated that one or more of the three of you were guilty, were found wanting in these areas. there's nothing potential about it. >> well, can i speak to fitch and it's my understanding at this point, it's my

understanding that the works -- the shortcomings hasn't been undertaken, but i also understand that asmer has yet to release details of all of their review. >> okay. do you have anything to add? >> it's my understanding that i can talk about the part of the process i was involved in, which was the on-site process, or the sovereign ratings team and confirm that asmer did a robust and thorough investigation looking into our files. it my understanding that the final conclusions are still to come. there was an initial draft, that's my information. i believe -- and we take that very seriously from what i took away is that asmer did comment on certain areas of improvement which have to do with recordkeeping, which have to do with areas of sort of recording committee conclusions, which are

measured -- when are remarks we take very seriously and have been working on those areas to make sure that this -- >> the four areas i've mentioned, are you looking at these four areas as a result of your interim knowledge of their findings? >> well, the -- i'm not sure i recall all that you mentioned. i don't think there would be -- they would be applicable. experienced analysts which i think is the gravest of all concerns here for me an an analytical manager it's something i would be very worried about. sorry? >> that must have been one of the other two that -- >> well, as i said. i this final -- the final agency by agency conclusions are still outstanding. so i would, from my perspective, i would actually not subscribe to that view. >> so do you want to add anything? >> my personal responsibilities

for raising policy, not for communication of regulators. it's rather off my patch. as my colleagues said, these are generic findings. not knowing precisely what is specific to any rating agency until we see specific findings. >> two questions. one of the important points of methodology and transparency of that, they found credit risk -- connolly found -- methodologists for from products continued to be found in multiple documents published in different periods not easily identified on the web pages. went on to say, methodologies published by one or more of you on the example, not always provide a clear and exhaustive view of the criteria and models used, and how these criteria

contribute to the event you're rating decisions. well, that's fairly important, i would say soup. -- would assume? >> i think it's an important comment. i would say this -- >> they are not guilty. >> well, for the sovereign -- talking about sovereign ratings here. we have one piece of methodology, which is two click as way from our standard & poor's.com website and something we put out in june 2011, superseding our previous criteria, adding a lot of layers of transparency. >> the methodology i would find it all in one place. not as they're suggesting, broken up? >> you would. >> and you're -- >> because in the case of our save sovereign rating in methodology that is the case. it reveals across all assets that are rated by each of the

agencies, and i don't know. they looked in particular in addition to sovereigns covered bonds and that of banks and inasmuch as the transparency of the accessibility, et cetera, then we will certainly make changes to make it more accessible and more transparent rp to sovereign ratings, we have a gel doctrine which sets this out. >> mr. wilson, is this your area? >> not really my area. >> okay. right. that's important, because in all the written evidence, you each get very upset about the commission's three, the commission's further proposals for further action, and one of them is rating agencies will have to seek and receive approval from asmer before making changes to methodologies and criteria and also be

required to development a ratings scale parallel with their existing ratings scale. so you could be compared. now, that's one you are getting hot under the collar about. could you just take the opportunity to explain why you are so excited about that? they're simply saying that you should not make any changes without clearing it with the regulator, and secondly, you should run parallel in methodology, transparent model, that is similar to each. so you can be a customer can look at you and see how you are doing. >> yeah. well i think what you're referring to is in the cr-3 legislative proposal. the asmer's power to approve or disapprove of rating change, rating methodology changes.

we do indeed believe this would be a negative development. it would -- first of all it would lead to, or be considered undue regulatory influence into the substance of the rating into the true analytics rather than the processes surrounding the ratings which is actually something the current regulation of rating agencies precludes. there was a clear division of labor between regulation and analytical work. this clear demarcation would fall by the wayside. it would also lead to unintended consequences potentially that what you seem to be worried about, that the rating agency speaks with one voice and why is there three of you or certain of many, if asma were in a situation to prove certainly methodologists. chances are the methodologists would be very similar and lead to less diversity of opinions and more alliant ratings across the competition, which i think

would be negative for investors, because it would reduce the information available to them. it could also potentially slow down the methodological adjustments to new realities. the methodology is not something that's cast in stone. that is under sort of annual revision at least. sometimes as the case may be, a short notice if the situation changes. if you have sort of a, an approval process, you have to go through, these changes which may be warranted from the analytical point of view may take longer to take and, therefore, reduce the quality of the ratings. it may furthermore, lastly, and i stop after this, it may increase another risk that some -- some politicians are worried about, the overreliance on ratings. if you are an investors and the proved methodology you might think, well, that should be all right and actually reduce the analytical effort rather than

increase it, which i understand is the intention of the european policymaker. >> well, just briefly, because i think the arguments have been well set out by mr. kramer. jus. there was a fundamental principal that is recognized in european -- existing european regulatory framework. that is maintaining the independence of the rating opinions. and those ratings opinions are based on criteria methodology developed by each of the rating agencies. it is important to respect and maintain the independents of other rating opinions and not undermine that inadvertently or otherwise as a result of approval process with respect to -- the aspects of what by do.

>> if we went ahead with this, what would you do? >>. >> that's a question i generally couldn't answer. that's an answer above my pay grade. >> we would work according to the europe ran regulation. >> i want to ask a final question. do you understand why the politicians and deregulators are so concerned about the credit rating agency's impact on government policy in and, you know, specifically nicolas sarkozy was quoted in the financial times the only thing he had to worry about was preserving the aaa. you're seeing that as well in uk where you're talking about austerity measures needed to preserve aaa.

can you understand why sovereign ratings in particular are treading into very dangerous territory vis-a-vis politics. can you tell me, each of you, are you discussing this at the highest levels in your ratings agency, and are you taking into account at all going forward or did you previously take into account at all the political impact of the timing and the consequences of your ratings? >> yes, thank you very much. the two interrelated questions. let me take them in reverse orders about the timing. we hear that regularly. we can understand what you're doing, but why are you doing it now? couldn't you wait until after the smum submit or after the budget or until after we issued the benchmark next week. the answer to all of this is no. we have to -- to disclose our opinions on an up to date basis

to the marketplace. if our opinions change, then we have to communicate this to the investor community. this is our duty. we're not operating in a political environment where we're trying to collaborate with the commission on national governments on producing any certain outcomes this is not our role. the rating agency's role is much more limbed. this is to opine on forward looking fashion on credit risk. sometimes we agree and sometimes we disagree. on the first part of the question do we day care note off political movements of politicians, individual politicians taking ratings as a target for policies. say we want to do, we want to maintain the aaa rating. of course, we notice that. but we need to understand we're not collaborating with the government in a way to say if

you want to keep the aaa rating is a, b and c. again, it is not our role. we could not possibly be in any shape or form in an advisory capacity with the government and afterwards opine on credit risk because we would be part of the process. on the other hand, if there is a government raising the rating on the political agenda, this should not preclude us from playing our role, which is opining on credit risk in a way that we would say, well, we would think that the rating should be lowered, for example, but mr. so and so in government has said this would be against the objectives of the government because this would impede our independence. so the fact that sometimes governments do raise ratings in the official discussion about objectives of the government is something that we note.

it's not necessarily something that we welcome or would have any view on whether it's advisable or not. but it's nothing that should prevent us from doing the job as we understand which is to opine on credit risk in an independent fashion. if we were to take that into account as a factor of what to decide and how to communicate it, our independence would start to go on a slippery slope. we want to prevent that at almost any cost. >> just very quickly to come back at you on that point, how often then -- how often then do you do a review? for example, would you review the british credit rating immediately following the budget announcement as a matter of cost, for example? and in the case of the u.s., if you knew that they were about to renegotiate a debt ceiling, would you then carry out a review in the aftermath of that or do you have a sort of quarterly review that you do regardless, or how does that

work? do you respond to event ors don't you? >> we do respond to events. as a general rule there is a minimum standard that is said where you have to have one credit committee per year. this is very minimalistic and may be appropriate for some sovereigns where there's not much happening. in some cases this is the standard that we apply. in the cases that you refer to, these are important events that you describe. we would call the committee and deliberate on what the implications are for our view of credit worthiness of the uk or the u.s. so indeed we have credit committees much more frequently in most cases and whenever the rating changes, we will of course within the bounds of the regulation communicate this as quickly as well. and sometimes if you don't change the rating we do not communicate it because the day, every day the rating is not changed it is implicitly affirms

if the committee concludes that the rating is all right, we don't have to put out a press release. we can choose to do so if we believe there's investor interest in our views at a particular point in time. the main obligation is to publish as quickly as we can under our regulatory constraints any rating or changes as they are decided by the credit committee. >> mr. wilson, anything to add to that? >> briefly. it would have been on the importance of the development. >> so is there somebody in moody's whose job it is to keep an eye on the uk for example and highlight anything on a minute by minute basis? >> that's the prime responsibility of the lead analyst. it's the entire rating of the sovereign rating team and the responsibility to which the credit policy function will contribute.

it's a responsibility to which random individuals within moodys will contribute. >> we have 12 hours notice of any pending rating action. there are regulations after the dublin disclosure of potentially market sensitive information which sort of applies to applies to ratings. and the issuer has asked us to ask at the end of the business day and accommodate that request and done so. where we've had requests to lay for a longer period because of forthcoming political auctions, that's something we haven't

agreed to. we don't think it's possible for us to provide the market participants and the ratings up to date -- an up to date view. >> mr. kramer, if i can take you back to the discussion we had at the beginning of the session, to clarify one point of fact. did you have a rating committee meeting immediately before the u.s. downgrade and then to take that decision and then a second one in order to take account of the american government's response throughout the publication? >> we do have a series of committees on the u.s. this is a fast occurring story. it was very frequently. since i was not part of the team visiting the treasury, i would not be