S&P warns banks against reducing capital too soon in anticipation of Basel II

Standard and Poor's will review, and possibly downgrade, issuers that will be found to have reduced their capital levels in anticipation of the effect of the new Basel Accord, also known as Basel II, according to Paris-based Scott Bugie, the rating firm's managing director for financial services ratings.

Bugie said during a teleconference call in mid-October that there was a danger that financial firms under Basel II would be tempted to reduce their capital levels in anticipation of a widely expected Basel II effect – regulatory capital reduction. He said even after the implementation of Basel II, a bank that will adjust its regulatory capital downwards without a change in its economic capital would face a ratings review. But S&P will not review the ratings of banks that will fail to