Part I The Elements of Bank Financial Supervision, 5 The Bank Capital Calculation—Basel II
- Basel 2 — Tier 1 capital — Tier 2 capital — Regulation of banks — UK Financial Services Authority (FSA) — Bondholder
5.01 The basis of the calculation of a bank's capital requirements is very straightforward under the Basel II regime. Basel adopts a three-pillar approach, set out here. Pillar One Pillar Two Pillar Three Minimum Capital Requirements Supervisory Review Process Market Discipline Pillar one is classical ‘arithmetical’ prudential supervision, involving the allocation of percentage capital requirements for individual asset items. There are three approaches within Pillar one: Standardized, Foundation IRB, and Full IRB. Pillar two is the ‘discretionary’ element of...