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The introduction of the supervisory review process under Pillar 2 will be a major innovation for some banks and also for some supervisory authorities. It is likely that Pillar 2 will be critical in determining the impact of the Accord on individual banks. For some, the impact could be substantial.
The FBE understands that additional proposals have been added to Pillar 2, including potential capital requirements for residual risk, concentration risk and pro-cyclicality. However, the form and scale of any required Pillar 2 adjustment is not known. The FBE is also concerned about the impact of stress-testing in practice. The FBE urges the Committee to consult on the requirements of Pillar 2 before publication of CP3.