Pillar 2

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1. Banking - regulation.


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).


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


2. Tax - profit shifting - Global Minimum Tax - Organisation for Economic Co-operation and Development (OECD).

Pillar 2 of the OECD's tax reforms agreed in 2021 provides detailed rules to implement a global minimum tax rate of 15% on large multinational enterprises.

Most tax territories expected to implement Pillar 2
"Pillar 2 will require calculation of specific effective tax rates by territory: where this is below 15%, a top-up tax will arise.
Where a territory does not collect this tax (for example, if it does not implement the rules), it is collected by other territories in which the group operates.
Therefore, most territories are expected to implement Pillar 2, because the alternative is to give away tax revenues to others."
Graham Robinson, international tax and treasury partner PwC & Iain McDonald international tax and treasury director PwC - The Treasurer, Issue 4 2022 - December 2022, p40.

See also

External links