Tuesday, April 21, 2009

S&P Introduces Risk-Adjusted Capital Ratio For Financial Institutions

Earlier today (April 21, 2009) Standard & Poor's introduced a new risk-adjusted capital (RAC) ratio for financial institutions. As described in a press release issued by S&P, "The RAC aims to provide a globally consistent and independent view of capital adequacy for each of the financial institutions we rate.... and we intend to use it as a starting point for our analysis of capital adequacy." Read more in this FEI Summary, which includes a link to an article published today by S&P highlighting why they developed the new RAC ratio and how they intend to apply it.

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William (Bill) P. Magee CPA from Coppell, Texas said...

The purpose of Standard and Poor’s Risk Adjusted Capital Framework (RACF) is as a complimentary measure to Basel II. S&P stresses the term “complimentary” in that the RAC measure will not replace Basel II, but rather serve as a different perspective on the financial health of an institution. This evolutionary measure on the part of S&P is intended to be more globally consistent and less procyclical than Basel II, especially in light of the recent worldwide economic downturn. By “evolutionary” the S&P indicates that the concept of a complimentary measure is not new and that it has created such measures in addition to utilizing Basel I. The RAC ratio will be based on quantitative factors that are publically disclosed by individual institutions so as to maintain a high level of transparency regarding the process. S&P will consider qualitative factors in evaluating individual institutions, but these factors will not be part of the RAC calculation. S&P will strive to use Basel II asset classifications for purposes of consistency as well as minimize the amount of additional workload on institutions.

Scarlett said...

Really worthwhile data, thank you for your post.