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The evolution of the Pillar 2 framework for banks: some thoughts after the financial crisis

Author

Listed:
  • Marco Bevilacqua

    (Bank of Italy)

  • Francesco Cannata

    (Bank of Italy)

  • Raffaele Arturo Cristiano

    (Bank of Italy)

  • Simona Gallina

    (Bank of Italy)

  • Michele Petronzi

    (Bank of Italy)

  • Silvia Cardarelli

    (Bank of Italy)

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.

Suggested Citation

  • Marco Bevilacqua & Francesco Cannata & Raffaele Arturo Cristiano & Simona Gallina & Michele Petronzi & Silvia Cardarelli, 2019. "The evolution of the Pillar 2 framework for banks: some thoughts after the financial crisis," Questioni di Economia e Finanza (Occasional Papers) 494, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:opques:qef_494_19
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    File URL: https://www.bancaditalia.it/pubblicazioni/qef/2019-0494/QEF_494_19.pdf
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    Citations

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    Cited by:

    1. Vincenzo Russo & Valentina Lagasio & Marina Brogi & Frank J. Fabozzi, 2020. "Application of the Merton model to estimate the probability of breaching the capital requirements under Basel III rules," Annals of Finance, Springer, vol. 16(1), pages 141-157, March.
    2. Khalil Ullah Mohammad & Mohsin Raza Khan, 2021. "Bank Capital Structure Dynamics and Covid-19: Evidence from South Asia," iRASD Journal of Economics, International Research Alliance for Sustainable Development (iRASD), vol. 3(3), pages 293-304, December.

    More about this item

    Keywords

    Pillar 2; SREP; Single Supervisory Mechanism; Basel; Stress Test; ICAAP;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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