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

Abstract

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

Bevilacqua, Marco and Cannata, Francesco and Cardarelli, Silvia and Cristiano, Raffaele Arturo. and Gallina, Simona and Petronzi, Michele, The Evolution of the Pillar 2 Framework for Banks: Some Thoughts after the Financial Crisis (April 29, 2019). Bank of Italy Occasional Paper No. 494, April 2019, Available at SSRN: https://ssrn.com/abstract=3433083 or http://dx.doi.org/10.2139/ssrn.3433083

Marco Bevilacqua

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Francesco Cannata (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Silvia Cardarelli

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Raffaele Arturo. Cristiano

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Simona Gallina

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Michele Petronzi

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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