Pillar 2 - banking supervision

Banking - supervision - regulation.

(P2).

Pillar 2 is the aspect of banking supervision which addresses firm-wide governance and risk management, among other matters.

Additional capital requirements may be imposed by bank supervisors under Pillar 2, depending on their evaluation of banks' internal assessments of their risks and capital requirements.

UK Pillar 2 supervisory reviews

The UK supervisor is the Prudential Regulatory Authority (PRA).

There are two main areas that the PRA considers when conducting a Pillar 2 review:

(i) Risks to the firm which are either not captured at all, or not adequately captured, under Pillar 1 capital requirements, referred to as Pillar 2A; and

(ii) Risks to which the firm may become exposed over a forward-looking planning horizon - e.g. due to external stresses - referred to as Pillar 2B.

The assessment will generally include an Internal Capital Adequacy Assessment Process (ICAAP) and Supervisory Review and Evaluation Process (SREP).

IRRBB

Most regulators worldwide treat Interest Rate Risk in the Banking Book (IRRBB) as a Pillar 2 risk.

See also

• Bank supervision
• Basel III
• Capital adequacy
• Interest Rate Risk in the Banking Book
• Internal Capital Adequacy Assessment Process
• Pillar 1
• Pillar 2 - global tax rules
• Pillar 3
• Planning horizon
• PRA buffer
• Prudential Regulation Authority (PRA)
• Regime
• Regulation
• Risk management
• Stress
• Supervision
• Supervisory Review and Evaluation Process (SERP)