Three Pillars of Capital

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Banking - regulation - capital adequacy

The Three Pillars of Capital is a concept introduced by Basel II.

  • Pillar 1 establishes minimum capital requirements based on market, credit and operational risks, and a minimum leverage ratio.
  • Pillar 2 addresses firm-wide governance and risk management, among other matters. Additional capital requirements may be imposed by supervisors under Pillar 2, depending on their evaluation of the individual bank.
  • Pillar 3 requires banks to make enhanced disclosures to the market. The idea is that those following better practice will enjoy lower-cost funding from the market, thereby encouraging best practice via 'market discipline'.

See also