As implementation of Basel II becomes a reality, Standard & Poor’s (S&P) Ratings Services is exploring ways to facilitate better international comparison of capital adequacy under the new regime. S&P believes the implementation of Basel II risk-sensitive regulatory capital measures by 2007-2009 is a positive development. But it also thinks that despite clear progress towards achieving a more risk-sensitive measure, banks’ capital ratios under Basel II will have less comparability than generally thought.
S&P says besides multiple options for national discretion in applying the rules, the move to a regulatory system that allows several approaches to measuring the same type of risk creates potential for significant inconsistencies among banks’ capital requirements, even within the same country.
