THE U.S. Federal Reserve may scrap international measures aimed at assessing bank health in favor of imposing its own rules, frustrating bankers who have spent billions of dollars retooling their books to meet global standards.

    Fed officials are concerned that parts of a key tool that regulators have developed to measure banks’ riskiness — known as “Basel III capital rules” — are flawed and can be gamed by the companies.

    Under Basel, banks can determine how much debt they can take on by using their own models and computer systems to calculate how risky their assets are, among other methods. The higher the risk, the less money banks can borrow and lend, in turn cutting income banks can earn. In other words, the Basel rules give banks a chance to monkey with their risk models to boost profit.

    In a May speech, Fed Governor Daniel Tarullo condemned the latitude that Basel III gives banks to use their own models. While he was expressing his own views, a source said that Tarullo’s opinion is held by other governors.

    Instead of the Basel rules, Tarullo promoted the use of the Fed’s own yardstick of bank health, a test of how bank assets would perform during market turmoil or an economic slump. That process, which the Fed has developed separately from the Basel regulations, is known as the “stress test.” (SD-Agencies)