Basel

II

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 2 - Supervisory
Review Process

Pillar 3 - Market
Discipline (Disclosure)

Pillar Objectives

Pillar 1- Minimum
Capital Requirements

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.

Methods for Computation of Regulatory Capital

Credit Risk

Standardised approach

Market Risk

Standardised approach

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.

Opera0onal Risk

Basic Indicator approach

Principle 1

Internal Models
approach

Principle 2

Standardised approach

Principle 4

Advanced IRB approach

Advanced Measurement
approach

1. Board and Senior

Mgmt Oversight

Internal Capital Adequacy Assessment Process (ICAAP)

Principle 3

Founda9on IRB approach

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

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.

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.

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.

Supervisory Review and Evaluation Process (SREP)

4 Key Principles of Supervisory Review

A complex international standard

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

2. Sound Capital
Assessment

3. Comprehensive
Assessment of Risks

4. Monitoring and
Reporting

5. Internal Control
Review