Deven Sharma has spent the last two years reforming Standard & Poor's rating, governance and disclosure practices. Here, he tells Forbes India how S&P has coped with the post-crisis backlash
Do you think that after the subprime crisis, there has been some introspection in the ratings industry as to the ways business is won, competed for and the degree of rigour in the rating process?
The answer is, absolutely. In any business, when you go through situations like the one we have, you have to reflect on what you need to do differently. We stepped back, we thought about it and two or three principles sort of guided our direction. One was that we were going to set our own standards to guide the change in the business, in the way we interact with the business, the way we did our analytics, the way we ran our processes. We need to bring more confidence back into our rating. We know that.
Will this recalibration lead to vastly different results in rating?
Sure. It will. For each rating category, we have defined a specific stress level that any asset class must meet. For example, a Triple A must meet an extreme stress level. In this case, we have taken that extreme stress level to be the Great Depression. So, unless the economic environment starts to move towards a Great Depression-like scenario, all Triple A paper — whether it is corporate, structured, sovereign or municipal — must meet that outlook.
How rating agencies got discredited
Wall Street underwrote $3.2 trillion worth of home loans to people with bad credit history and unverified income between 2002 and 2007.
(This story appears in the 11 September, 2009 issue of Forbes India. To visit our Archives, click here.)