WASHINGTON - As international regulators struggle to implement the Basel II capital rule, Standard & Poor's is developing its own framework that will serve as a separate tool to measure bank performance starting next January.
The credit rating agency on Wednesday detailed the standards it will use to judge capital adequacy.
The framework will not include the leverage ratio - which has sparked opposition in the United States - and will apply to all banks, regardless of whether they adopt Basel II.
The goal, according to the S&P analyst who helped develop the "Risk-Adjusted Capital Framework," is to design a comparable measure.
"There are inconsistencies in the regulatory ratios," said Bernard de Longevialle, a director in bank ratings for S&P. "We need a measure that is consistent in comparing bank capital ratios across the industry.
"Our goal is to set up something that would allow us to have a consistent view whatever the regulation implemented by the banks."
U.S. banks are expected to use a different version of Basel II than banks abroad, and smaller domestic banks may use the less complex Basel I or Basel IA.
Concerns over the competitive inequities that Basel II could create have plagued the rulemaking process.
But Mr. de Longevialle would not criticize the way U.S. regulators have developed Basel II, and he insisted that S&P's framework is simply a means of extracting commonalities in the face of an intricate rule.
"One could argue that Basel I was a bit stupid, but it was consistently stupid. Basel II is much more complex and it's much more complicated," he said.
Still, industry observers argued that S&P would not have been compelled to create a separate framework if implementation in the United States had gone more smoothly.
"Had Basel II done what it was supposed to do, then S&P would not need to do what it did," said Karen Shaw Petrou, the managing partner of Federal Financial Analytics.
S&P plans to use three approaches to gauge a bank's capital adequacy. The "base case approach" will largely stem from a bank's public disclosures and would produce the same capital charge for the same exposure at banks worldwide. For instance, the analysts could apply a 15% capital charge to all prime mortgages held by banks.
The "specific-case assessment" would sharpen the blunt base-case approach by taking into account different classes of assets or geographic regions.
The analysts would talk with individual banks to determine capital charges.
Finally, the "economic capital assessment" would review a bank's internal capital models. The analysts would use their findings in this section to complement the capital charge they developed in the first two approaches.
S&P obviously lacks regulatory authority over financial institutions, but its capital adequacy conclusions could have significant implications for how a bank does business. Mr. de Longevialle said capital would play a larger role in a bank's credit rating as the framework becomes more sophisticated.
S&P sought comments on its proposal last December, and heard from most large American banks as well as federal regulators, Mr. de Longevialle said. A spokeswoman for the Federal Reserve Board, which has led Basel II's implementation in the United States, would not comment on S&P's framework.