Basel II - Pillar 3 - Disclosure Documents
On 26 June 2013 the European Parliament and Council approved the Capital Requirements Regulation (“CRR”) and Capital Requirements Directive (“CRD”), together known as “CRD IV”, and which transposed the new global standards on bank capital (the Basel III agreement) into EU law. The new rules entered into force on 1 January 2014 with the CRR directly binding in all EU Member States while the CRD needed to be implemented into national law. CRD IV replaces the existing capital requirements for credit institutions and investment firms, and is applicable at an entity, sub-consolidated and consolidated basis.
CRD IV introduced a number of changes, including stricter definition of capital resources, increased capital requirements, increased reporting obligations (COREP), binding liquidity ratios and new requirements on remuneration.
The Basel framework consists of three pillars:
- Pillar 1 defines the minimum capital requirements to cover credit, market and operational risks, the eligible capital instruments, and the rules for calculating RWA (Risk Weighed Assets)
- Pillar 2 states that the credit institutions and investment firms must have an internal capital adequacy assessment process (ICAAP) and that national competent authorities must evaluate each credit institution’s and investment firm’s overall risk profile as well as its risk management and internal control processes
- Pillar 3 encourages market discipline through disclosure requirements which allow market participants to assess the risk and capital profile of credit institutions and investment firms banks.