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NTMA finds shortcomings at agencies rating our debt

Treasury body takes issue with governance in submission sent to EU Commission

Emmet Oliver Deputy Business Editor

Published 12/04/2011 | 05:00

The NTMA has highlighted a range of shortcomings with the credit rating agencies that have been downgrading Ireland's debt over the past six months.

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The state agency makes its remarks in a submission sent to the EU Commission, which is reviewing how the agencies -- Fitch, Moody's and Standard & Poor's -- operate in Europe.

The EU Commission has been taking submissions since January, with a view to moving ahead with a range of reforms later this year.

"The internal governance and procedures of the credit rating agencies needs to be restructured to reflect best practice,'' said the NTMA submission, the only one submitted by an Irish body.

The treasury body said the performance of the agencies should be retrospectively monitored by the authorities over a rolling five-year period to see if their forecasts turn out to be accurate.

The NTMA said the appeal mechanisms used by the agencies also tended to be "deeply flawed'', with the same people who made the original decision also doing the appeal. "As in the case of all genuine appeals, different people should be involved."



Liability

The agency seemed to suggest ratings agencies should be liable legally for their ratings.

"The main benefit of the introduction of civil liability at the EU level would be to impose a greater duty of due diligence on the rating agencies. This should help to improve the quality of the ratings,'' said the submission.

The NTMA also seemed to take issue with the number of people doing the reviews at some of the agencies. "Habitually there is undue reliance on the opinion of one or two people at the credit ratings agencies and/or a reliance on committee votes of individuals who may not be familiar with the details of the country," it said.

"As such, more attention should be paid to who is involved in making the ratings decisions, and how familiar they each are with the credit story,'' said the NTMA submission.

It is understood the submission was sent during the consultation phase earlier this year to the EU which has now closed.

The NTMA took issue publicly with a rating by Standard & Poor's last August, particularly its view on the costs of recapitalising the banks. The agency said that the Standard & Poor's were not making any allowances for NAMA sell-offs.

"We believe this approach is flawed,'' said John Corrigan, the head of the NTMA.

Irish Independent

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