The Evolution of the Pillar 2 Framework for Banks: Some Thoughts after the Financial Crisis
31 Pages Posted: 7 Aug 2019
Date Written: April 29, 2019
This paper examines the evolution of the Pillar 2 framework for banks, introduced by the Basel 2 Accord, and discusses the main issues at stake in the current policy debate. The main objective of Pillar 2 was to complement the minimum requirements established by regulators (Pillar 1) with tailored supervisory measures based on a thorough assessment of banks’ risk profiles. However, its implementation coincided in most jurisdictions with the outbreak of the global financial crisis: the main policy objective became to restore the stability of the global financial system. In this context, Pillar 2 contributed significantly to enhance supervisory action, in particular by raising capital requirements. Nevertheless, a number of issues still remain. Today, in the run-up to the completion of the post-crisis regulatory reform, the debate has regained momentum and a sound supervisory framework can be finalized under more favorable conditions, to avoid that Pillar 2 loses its key properties.
Keywords: Pillar 2, SREP, Single Supervisory Mechanism, Basel, stress test, ICAAP
JEL Classification: G21, G28
Suggested Citation: Suggested Citation