What is Pillar 2 guidance?
The Pillar 2 Guidance is a bank-specific recommendation that indicates the level of capital that the ECB expects banks to maintain in addition to their binding capital requirements. It serves as a buffer for banks to withstand stress.
How does Icaap and Srep work together in Pillar 2?
To supplement the SREP of QCB, banks will be required to have a well-defined ICAAP. SREP in conjunction with ICAAP assessments by QCB will enable an active dialogue with banks when warranted and appropriate intervention would enable to reduce risk exposure, or augment, and or restore capital.
What is Pillar 1 and Pillar 2 capital?
Basel regulation has evolved to comprise three pillars concerned with minimum capital requirements (Pillar 1), supervisory review (Pillar 2), and market discipline (Pillar 3). Today, the regulation applies to credit risk, market risk, operational risk and liquidity risk.
Does bank Protect second pillar?
The second Pillar: The Network Infrastructure.
What is the combined buffer requirement?
According to Article 128 of Directive 2013/36/EU (CRD), the ‘combined buffer requirement’ means the total Common Equity Tier 1 capital required to meet the requirement for the capital conservation buffer (Articles 128 and 129 CRD) – the level of which may be increased under Article 458 (2) lit.
What is tier1 and Tier 2 capital?
Tier 1 capital is the primary funding source of the bank. Tier 1 capital consists of shareholders’ equity and retained earnings. Tier 2 capital includes revaluation reserves, hybrid capital instruments and subordinated term debt, general loan-loss reserves, and undisclosed reserves.
What are Pillar 2 risks?
The Pillar 2 Requirement (P2R) is a bank-specific capital requirement which applies in addition to, and covers risks which are underestimated or not covered by, the minimum capital requirement (known as Pillar 1). The P2R is binding and breaches can have direct legal consequences for banks.
What are Pillar II risks?
Pillar 2 can be tailored to the risks, needs and circumstances of a particular jurisdiction and bank. Examples of these risks are interest rate risk in the banking book; non-financial risks such as strategic risk, business model risk and reputational risk; and aspects of credit concentration risk.
Is stress testing part of Icaap?
ICAAP and Stress Testing Stress testing is an integral part of the ICAAP and being able to demonstrate that your capital resources are sufficient to cover your risks.