By James Langton

(January 19 – 12:15 ET) – The new Basel capital accord is likely to lead to more competitive and safer banking, says Moody’s Investor Service, but small, local banks could be at a disadvantage.

“It would likely open the door to a more competitive, challenging, but also safer banking world. In this new landscape, however, smaller banks could find themselves at a disadvantage in developing and using the more sophisticated capital allocation methods,” says Moody’s in a memo to clients.

Moody’s managing director Samuel Theodore says, “the new Basel proposals will clearly lead to a much better correlation of regulatory capital requirements with banks’ true economic-capital needs.” He suggests that there will be more impetus for more sustainable asset quality, safer lending policies, more market transparency, and a more global credit-risk culture.

He cautions, however, that “both bankers and regulators know full well that banking remains first and foremost a people’s business, whose success is assured by experience, acumen, good sense, and prudent risk-taking, and that systems alone cannot master the better end of it.”

“It is unlikely that many of these banks will have the financial resources, intellectual capital, skills, and large-scale commitment that their larger competitors have to build performing sophisticated systems to allocate regulatory capital optimally for both credit and operational risk.” The fallout of this could be accelerated consolidation in the banking industry.