shocks to emulate from the euro area as a consequence of the debt crisis. >> if i pressed you and asked you about the key risks to the uk's aaa rating status, would you say it would more extend to exposure to problems of the eurozone or the trajectory of fiscal policy? >> the risks -- i think there's a first step and a second step. the risk -- our view is that in the absence of further macro economic shocks, the debt to debt would be restored and the debt, then, would become sustainable as a result of plans. the threats to the plans are in the macro economic arena and those threats are both within, as a consequence of the uk's domestic macro environment and as a consequence of the situation in euro area. we haven't sought to try to weight those two broad underlying threats to the debt consolidation trajectory. >> mr. kramer, do you -- just going back to what the chairman asked you about the u.s. experience. do you accept that you and the markets reached a very different verdict about the u.s., given that after you were downgrading bond yields failed by 1/5? >> no. i think the markets in the great ratings agency almost by definitions look at different things. we look at the long-term fundamental strengths and weaknesses of an issue. whereas market participants in -- will look at sort of the profitability of being in certain instruments at a shorter period of time, and i would -- i would think there are many examples of that where sort of rating action is not being followed immediately by similar yield changes, and we don't have to go as far as the united states. you can see many of that happening in europe, for example, where it's standard & poor's. we lowered the ratings of greece as early as 2004 and still the markets of bonanza went on another four years before it took a negative view as well. so i think this is quite unsurprising and not a judgment on whether the fundamental analysis of a ratings agency ask right or wrong, and this is, i want to express some surprise there is a perception at the ratings agencies always seeing from the shame sheet because we've been discussing to credits right now, the u.s. and the uk, the three ratings agencies did you invite today has come to different conclusions. so i think the rating is certainly a point of observation of market participants taken into account. first of all, the ratings do not always agree and secondly, there are many other factors that investors take into account. i would not agree that we should as a rating agency try to replicate what the market is doing, trying to have the sort of rank ordering of ratings according to yields. not least because this would undermine the stability of ratings, because if you analyze the yield developments, you will see that they're much more volatile and almost locastic at times compared to ratings over time, and therefore others give a longer term benchmark of credit risk than what markets of doing. >> mr. riley, mr. kramer just told us ratings are one thing and market another. which is the more important? >> i think the more important is the judgment made by the market in terms of, of course, the investors or potential investors who are choosing to lend to an entity or a national government, or choosing not to. and the terms in which that borrowing is extended. so in many respects i do think that the role of the rating agencies, to be frank, is overstated. partly because one of the strengths, one of the strengths of the rating system is its simplicity. the simple rating scale, which obviously you're aware of, and so if there's a positive or negative rating action, it's something which, you know, the media can report on very easily. but if a particular investor, you know, is taking a position in credit defaults, short markets or selling uk yields to buy german bonds or vice versa, that's something that is actually quite hard to communicate and is not actually as transparent as the judgments being made by the rating agencies. so first and foremost, it's investors in the market deciding not the rating agencies. >> i mean, this is interesting. there's a huge political sensitivity around these ratings. the uk, the u.s., other countries. and europe, the rating agencies, you're basically telling us it's not unimportant. it's what the markets say that matters. in which case, why do people pay so much attention to your debits? >> well, because the -- well, i think -- you asked me the question who is the most important and i gave you the response to that. do the rating agencies have a, an influence and a role, and i think they do in terms of providing information to investors important to their investment decisions. when investors are looking at a range of investment opportunities, particularly international investors, they're looking at the uk, maybe looking at canada. might be looking at sweden. might be looking at germany or the u.s. and the ratings which are providing a relative guide to credit quality along with the supporting research are wanting in the decision. >> would you agree with this promissory note, referring to this negative -- taken by a couple of ratings agencies and he said, now what we have seen is that the action the rating agencies recently have no impact of the people in the market were willing to lend to the uk government. what matters are the views of people in the market. not the view of the ratings agencies. >> well, as i think perhaps an agreement on speaking for myself on behalf of fitch, is that we are not making recommendations in terms of buying or selling nor, say, conducting such operations. does that mean that the ratings are irrelevant if that's the question really that you're asking, then i think there is a lot of academic research and research conducted, for example, by the fund that demonstrates over the longer term sovereign ratings in particular have provided a good relative indicator and actually there is content in rating actions taken by the rating agencies and the market over the longer term does correct things for these other factors, which influence the decision, taken into account what rating agencies are saying. >> thank you. >> michael fowler. >> mr. riley, you've worked hard at the uk public finances. what kind of credit rating would a scot attract? >> if i may, i mean, the controversy around our ratings of sovereigns that do currently exist, don't want to speculate on those that don't exist. we don't know the arrangements under which a potentially independent scotland would come into existence, and so i really don't think i can provide any real value in speculating as to what the rating may or may not be at that future point in time. >> but if we assumed, say, around 9% to 10% share of gdp on what would the rating be? straight position? >> well, as you're aware, there is a lot of other issues associated with the governance of a potentially newly independent scotland. so it wouldn't just be the decision of the liabilities and assets of the united kingdom. obviously, that the treatment of the oil receipts what would be the monetary arrangements of an independent scotland, what would be the financial sector in banking supervisory arrangements? so there's a huge number of factors that would actually influence what would be what would actually be the rating. so i genuinely don't think it's appropriate or really providing speculation as to what that rating would be. >> -- a country that doesn't have any history in the public finance markets to have a top aaa rating? sovereign without any history? >> and, well, history and track records are, can be important in terms of building credibility and, in fact, in our methodology and in our rating model, for example, we have an explicit variable for payment records. you get benefit for having a clean payment record, and your rating is affected if you have an issue of failure of payments. >> can you deduce from that it would be pretty hard for scotland on day one to get anything near a aaa rating? >> i think you're -- with all due respect, i think you're trying to get me to make a pronouncement about -- >> just asking -- >> -- in which i'm happy to -- >> must have done this for others that merged from eastern europe. this must have happened before? you must have done it for montenegro and so on. so how would it work with scotland? >> we would go through the same process of analyzing the information and data that was available. i mean, scotland doesn't even have the national accounts. at this point in time. and obviously talk to policy authorities and then a sovereign rating. it your question is -- i mean, i'm not aware -- i'm not aware of these intensive fitch, and others can comment if they're aware of different circumstance, whereby a newly independent sovereign entity emerging in central, eastern europe, emerging from the end of the cold war has been assigned a aaa rating, but i think scotland, the transition of scotland from the united kingdom, i would suggest, would be very fundamentally different from the transition of some eastern europe countries from, you know, essentially the former soviet empire. >> i just want to know how likely it is scotland will attract a aaa rating on day one. >> um -- and i -- i think i've answered the question. >> can mr. kramer help on that? >> i have nothing to say to that, and we have not said anything about this. i would take a similar line as mr. riley. there is basically no basis of information on which to -- if you look at our methodology, you will see that one of the factors that we analyze when concluding at a sovereign rating, none of these factors are known. i think it would be irresponsible to comment on what a rating might look like. >> can you be sure that scotland would have a aaa rating on day one? >> it's a highly hypothetical situation and any answer i gave would be highly speculative and misleading. >> have you given aaa ratings to any other newly emerged nation? >> i don't know the answer to that, i'm afraid. >> not that -- as i suggest, none that i'm aware of. i'm fairly certain that there has not been the case. >> it hasn't been the case. >> it has not been the case with respect to fitch. >> some newly nation gets a aaa on day one? >> correct. i'm not aware of any situation where we have assigned a aaa rating to a newly independent sovereign nation. >> thank you very much. >> mr. chairman. mr. wilson, i see that you support, relatively speaking, a role -- support taken about the u.s. prepared to take your view of scotland. why are you competing with each other? >> why are we competing with -- >> why aren't you competing with each other? >> why aren't we competing? >> yes. >> our role is to offer opinions on credit standing. the way we're structured is to, certainly the way moody's is structured is to dry a clear divide between commercial parts of the organization and rating parts of the organization. my role is within the credit policy area. the rating of the organization, and we focus on ratings. we focus on expressing opinions on credit standing, and that's -- >> has the euro crisis, the view of the importance in the factors of your ratings, when you rate sovereigns? >> the euro crisis has -- >> has it caused you to rethink the way you rate sovereigns? >> no, it hasn't. we apply the same methodology now as we've applied for the last 3.5 years, which takes into account economic factors, institutional factor, government financial factor, and the potential event risks to emerge, and it's those four factors that we've applied consistently in determining ratings throughout the crisis. >> so the forefront again, the potential for risk -- and the other three? >> the first two are the economic environment, economic strength. the second is institutional strength. the third is the government's financial strength, balance sheet and fourth is event risk. >> so why didn't you predict, for example, the situation in iceland, you know. island had a rickety banking system. you downgraded it three times within a year. >> the financial crisis has brought many lessons for a host of commentators including rating agencies. as did the sovereign crisis. one of the lessons we've seen but hadn't observed before was the propensity for markets to act very, very quickly, from market consensus. change very, very quickly. and that was certainly a factor in the loss of credit worthiness -- >> and you didn't see that factor when you made the assessment? >> certainly we didn't anticipate the speed with which the markets could lose confidence in the banking system, yes. >> do you think that -- let me give you a factor you might want to consider in your sovereign euro crisis. the risk the stronger countries will be used to vet out the weaker ones. do you consider that? >> yes, we do. >> in the political category, of course? >> no. it would be -- i mean, it's something which we would factor into our assessment of government's financial strength, the potential for contingent liabilities to emerge. >> do you think it's a situation of fraud that's been -- is now that is going to be tied to assisting countries that are still very, very weak in a context? >> what we said about france is that clearly we will need to stand back and understand the objectives of any incoming government, once it's in place, but on the basis of what we've seen so far, the broad objectives of the main political parties seem consistent with the debt consolidation plans which already are in place. >> there are other things being equal, do you think countries have their own currency have higher ratings than countries that don't? >> the ability to have independent domestic institutions is certainly a strength. it's a strength that we recognize in the uk. >> and in the case, the ability to create evaluation is a strength as seen in the uk. no? >> it's certainly a factor which can boost economic growth. >> so other things being equal it should promote a higher sort of rating? >> the -- >> methodology that was necessary -- >> the methodology takes in a wide host, range of factors. >> other things being equal, from what you've said, domestic institutions and the ability to -- currency that is of value? that is a value? you say that's a consequence of your view for sovereign rating? >> the ability -- the existence of strong institutions which are able to support government policy is certainly a positive factor. >> i can't get you to say it but it is a consequence of -- words you used. do you think that the -- why is it, do you think, given some of the warm words we have had recently from the imf that people feel so differently about the value for sovereign ratings? what's the explanation for that? >> not sure i understand the question. >> we've had some imf testimony suggesting that there has been a ratings to perform well during the crisis. okay? european commission has been very critical of ratings in the crisis. very wide range of views. why do these institutions -- you guys have disagreed with each other. why don't they disagree with each other? why is there such a difference about sovereign ratings? >> that's really a very difficult question for me at a ratings agent to answer. it's a question that needs to be put to those who hold those views. >> am i to understand that the standard & poor's and your risk assessment, the methodology could you just take us through the basis on which you give the united kingdom a 3, which puts us in the same category as canada, germany, japan and the u.s.? >> well, i can give it a stab. i try to be constructive and helpful to the committee. probably the person better to answer that would be 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 measure, for example, in the leverage of private households in particular, and, therefore, with a credit risk in the books of the 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 on commercial real estate. in the united kingdom. i'd like you to 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 terms 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 talked about. something you ascribe to as well. is it not? >> 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 outfit? what was it assessing as the systemic risk in the uk banking system? >> of the uk's rating, was 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 does not 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 have 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 budget is neutral for aaa and under your system you have risk assessment for the uk economy. and you have an intermediate 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 have 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. you break it down. institutional framework, intimated compensation to dynamics, 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 ask the questions. you answer the questions. is it the case you put out something called uk 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 dynamics, which is 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 sensible to come to this briefing without knowing of your own business' briefings? >> i think that's an unfair comment. >> do you know what i'm talking about? 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. >> i think it would be helpful 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 with the document you're referring to so i cannot answer that question. i apology. >> which is it? >> for being in -- >> by being incompetent.