., lower the rating higher the default probability ), stability of the ratings ( i. e., probability that a given rating remain unchanged during a given period ), predictive ability of the ratings, improvement to the rating methodology to reflect current trends etc. reserve bank looks into the default studies, transition matrices, gini coefficient etc. of credit rating agencies to conduct the above assessment. to ensure standardisation of default rates, the reserve bank of india has mandated that all rating agencies shall use a uniform definition of default as far as the bank loan ratings are concerned. independence : basel norms state that a credit rating agency should be independent and not subjected to political or economic pressures while rating. the rating process should also be free from conflict of interest that may arise due to shareholding pattern or composition of board of directors. to assess whether a rating agency is independent, reserve bank of india evaluates the ownership and organisation structure ( presence of independent directors in the board & rating committees ), independence of individuals i. e. conflict of interest - between rating fee and quality of ratings, conflict of interest with shareholders, conflict of interest at rating committee level, separation of business development and rating activities, separation of rating business from other business activities. international access / transparency : under this parameter, reserve bank evaluates whether a credit rating agency makes necessary disclosures with regard to rating methodologies and rating rationales to both domestic as well as international users without any differentiation. disclosure : during the accreditation process, the reserve bank assesses whether a credit rating agency makes the following disclosures : rating methodologies, including the definition of default, the time horizon, and the meaning of each rating ; the actual default rates experienced in each rating category ; and the transitions of the rating. in addition the securities and exchange board of india has also mandated a detailed set of disclosures by credit rating agencies. resources : access to sufficient resources is an important factor in determining a credit rating agencies ability to furnish quality ratings. reserve bank makes an assessment as to whether a credit rating agency has sufficient capabilities in terms of human resources i. e., number of employees, their qualifications and experience etc. further, reserve bank also looks into the technological capabilities of the credit rating agencies before deciding upon their accreditation. in addition, reserve bank requires credit rating agencies to have access to various sources of information on economy, sectors, companies, etc. bis central bankers ’ speeches credibility : credibility of a rating agency is assessed based on the degree of accept

patrick honohan : two - way interdependence between the banking system and the state address by mr patrick honohan, governor of the central bank & financial services authority of ireland, to the small firms association, dublin, 11 may 2010. * * * i would like to take the opportunity of this occasion to speak to about the two - way interdependence between the banking system and the state, which has been illustrated in dramatic fashion in recent weeks. understanding and managing the elements of this interdependence is key to improving the situation with regard to the cost and availability of credit, matters that are of central interest to my hosts tonight, the small firms association. in brief, my message is twofold : – first, continued consolidation of the public finances is key to ensuring a flow of reasonably - priced liquidity to the banks and their customers ; – second, the recapitalization of the banks, which we announced at the end of march, is key to dispelling the cloud of ill - defined banking losses that has been hanging over the public finances for many months. the extraordinary events in european and international financial markets over the past few days show clearly how a better flow of credit does not simply depend on the motivation and skill of bank management. improvements in the flow of credit can only go hand - in - hand with the creation and maintenance of firm foundations in terms of the capital reserves of the banks, the national fiscal stance and national cost competitiveness. credit and finance generally depend crucially on confidence. and in a country as open as ireland – still a world champion in its degree of globalization – that confidence has to extend to the global audience, especially those who have invested in ireland, and those who will continue to invest in ireland. it also means confidence at home on the part of those – like my audience today – whose actions can help restart investment and boost job creation, and those whose job it is to help finance that restart. this week and last the media focus has been on confidence in international financial markets. ireland has not been directly under the spotlight, but the fact that it has been just off - stage is illustrated by what i would regard as wide spreads on irish government debt, which – albeit fluctuating – have been a feature for well over a year. we have been here before. through the 1980s and into the 1990s irish interest rates were kept far too high as a result of market pessimism. in effect,