Pillar II in the New Basel Accord

For a long while, the new Basel Accord has been identified mostly with Pillar I. As Pillar II models have started to be established and validated, banks have become increasingly conscious of the strategic relevance of Pillar II.

Pillar II in the New Basel Accord: The Challenge of Economic Capital takes you through every main strand of Pillar II. It tackles the regulatory framework and shows how to reconcile the various regulatory sources.

Pillar II complements the 'black letter’ requirements of Pillar I and is intended to achieve two objectives: to ensure that banks have adequate capital to support all the risks in their business and to encourage them to use better techniques for monitoring and managing their risks.

The second pillar specifically emphasises the need for a qualitative approach to supervising banks. It constitutes an integral part of the new capital accord and ranks equally alongside the minimum capital requirements and the call for market transparency.

Pillar II in the New Basel Accord: The Challenge of Economic Capital takes you through every main strand of Pillar II. It tackles the regulatory framework, shows how to reconcile the various regulatory sources and focuses on the following sequence of questions:

• What additional capital is required to support Pillar I risks where the Basel II models do not adequately reflect the unique circumstances of the particular bank?
• What additional capital is required to support risks not captured under Pillar I at all?
• What reduction in capital should be allowed to account for the fact that individual risks may be less than perfectly correlated?
• What further adjustment should be made to counteract procyclical movements in regulatory capital resulting from the Pillar I calculation?
• How should a banking group’s economic capital be allocated to its business units and legal entities?
• How will supervisors from different countries interact when assessing Pillar II implementation in international banks?
• How will hybrid capital help in preserving and maintaining the capital adequacy levels dictated by Pillar II?

Pillar II in the New Basel Accord is an indispensable book for any financial practitioner affected by the Basel II accord, including chief financial officers, chief operating officers, chief investment officers, risk managers, credit risk managers, senior compliance officers, and also those working in the fields of operational risk, compliance, regulation, credit, and risk management.