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complex international standard for capital adequacy for commercial banks that adopts a more comprehensive view of risks.

Basel II
Pillar 2 - Supervisory Review Process

Aims to overcome Basel Is failure to account for relative riskiness of assets by assigning higher risk weights to riskier assets a more sensitive framework.

Pillar 1- Minimum Capital Requirements

Pillar 3 - Market Discipline (Disclosure)

Pillar Objectives

Prescribe calculation of minimum capital for credit, market and operational risk.

To ensure banks have adequate capital to support all risks and encourage banks to develop and use better risk management practices.

To encourage market discipline through a set of disclosure requirements which will enable market participants to assess the risk exposure and capital adequacy of the bank.

4 Key Principles of Supervisory Review

Principle 1

Credit Risk

Market Risk

Opera0onal Risk

Banks should have a process for assessing their overall capital adequacy in relation to their risk proEile and a strategy for maintaining their capital levels
Internal Capital Adequacy Assessment Process (ICAAP)

1. Board and Senior Mgmt Oversight

Methods for Computation of Regulatory Capital

Principle 2

Standardised approach

Standardised approach

Basic Indicator approach

Supervisory Review and Evaluation Process (SREP)

Supervisors should review and evaluate bank's internal capital adequacy assessments and strategies, as well as their ability to monitor and ensure their compliance with regulatory capital ratios.

2. Sound Capital Assessment

Principle 3

Founda9on IRB approach

Internal Models approach

Standardised approach

Supervisors should expect banks to operate above the minimum regulatory capital ratios and should have the ability to require banks to hold capital in excess of minimum.

3. Comprehensive Assessment of Risks

4. Monitoring and Reporting

Principle 4

Advanced IRB approach

Advanced Measurement approach

Supervisors should seek to intervene at an early stage to prevent capital from falling below the minimum levels required to support the risk characteristics of a particular bank and should require rapid remedial action if capital is not maintained or restored.

5. Internal Control Review