What is the Pillar 2 requirement?
The Pillar 2 Requirement (P2R) is a bank-specific capital requirement which applies in addition to, and covers risks which are underestimated or not covered by, the minimum capital requirement (known as Pillar 1). The P2R is binding and breaches can have direct legal consequences for banks.
What is the purpose of Pillar 2?
The Pillar 2 supervisory review process is an integral part of the Basel Framework. It is intended to ensure that banks not only have adequate capital to support all the risks in their business but also develop and use better risk management techniques in monitoring and managing these risks.
Who is responsible for Icaap?
Management bodies
The seven principles of the new guidance can be summarised as follows: Management bodies are responsible for ICAAP & ILAAP. Management boards, senior managers and risk committees need to take full ownership of the processes and also the capital adequacy statement and liquidity adequacy statement, respectively.
Is stress testing part of Icaap?
ICAAP and Stress Testing Stress testing is an integral part of the ICAAP and being able to demonstrate that your capital resources are sufficient to cover your risks.
What is difference between Icaap and Ilaap?
Two important processes are central to making banks more resilient and avoiding adverse situations: the internal capital adequacy assessment process (ICAAP) and the internal liquidity adequacy assessment process (ILAAP). Implementing the ICAAP and ILAAP proportionately is the responsibility of the banks themselves.
How is CET1 calculated?
The Tier 1 Capital Ratio is calculated by taking a bank’s core capital relative to its risk-weighted assets. The risk-weighted assets are the assets that the bank holds and that are evaluated for credit risks. The assets are assigned a weight according to their level of credit risk.
What is CET1 composed of?
Common equity Tier 1 comprises a bank’s core capital and includes common shares, stock surpluses resulting from the issue of common shares, retained earnings, common shares issued by subsidiaries and held by third parties, and accumulated other comprehensive income (AOCI).
When did Basel 3 start?
2009
Basel III is a 2009 international regulatory accord that introduced a set of reforms designed to mitigate risk within the international banking sector, by requiring banks to maintain proper leverage ratios and keep certain levels of reserve capital on hand.
What is the purpose of enhancing Pillar 2?
Enhancing Pillar 2 Capital. It is driven by the bank’s Internal Capital Adequacy Assessment Process (ICAAP), and the PRA’s review of that ICAAP. The main purpose of Pillar 2 is to address any firm specific risks that are not adequately covered by Pillar 1, and ensure that sufficient capital against those risks.
What are the capital requirements for Pillar 2?
In addition to the uniform capital requirements that apply to UK banks (Pillar 1), all banks are subject to an Individual Capital Guidance (ICG) requirement under Pillar 2. The ICG requirement is unique to each bank. It is driven by the bank’s Internal Capital Adequacy Assessment Process (ICAAP), and the PRA’s review of that ICAAP.
What does the SS31 / 15 update on pillar 2A mean?
SS31/15 UPDATE ‘The Internal Capital Adequacy Assessment Process (ICAAP) and the Supervisory Review and Evaluation Process (SREP)’ This consultation paper (CP) sets out proposed adjustments to the Prudential Regulation Authority’s (PRA) Pillar 2A capital framework. It is relevant to all banks, building societies and PRA-designated investment firms.
Is there a disclosure policy for pillar 2A?
The PRA also proposes a revised disclosure policy in which the PRA expects firms to disclose their TCR or, where a Pillar 2A capital requirement has not yet been set, total Pillar 1 and Pillar 2A guidance. Finally, the PRA also proposes to provide clarity on when and how individual (solo) Pillar 2 capital requirements may be set.
