Objectives

The Basel capital framework rests on three pillars. Pillar 1 constitutes the minimum regulatory capital requirement. Pillar 3 requires disclosure to enhance market discipline. In between, Pillar 2 seeks to address, through capital and non-capital-based measures, risks that are not captured at all or not sufficiently captured under Pillar 2 and can be expressed as a mandatory requirement or a supervisory expectation. Often supervisors apply stress tests to assess the risk profile of a bank and inform their decisions on scope and calibration of Pillar 2 requirements and expectations. The seminar will discuss stress tests as a supervisory tool.