The Committee has identified four key principles of supervisory review under Pillar 2. These complement other supervisory guidance published by the Committee, including the Basel Core Principles.

Version effective as of 15 Dec 2019

First version in the format of the consolidated framework.

The four key principles

20.1 Principle 1: Banks should have a process for assessing their overall capital adequacy in relation to their risk profile and a strategy for maintaining their capital levels.

20.2 Principle 2: Supervisors should review and evaluate banks' internal capital adequacy assessments and strategies, as well as their ability to monitor and ensure their compliance with regulatory capital ratios. Supervisors should take appropriate supervisory action if they are not satisfied with the result of this process.

20.3 Principle 3: Supervisors should expect banks to operate above the minimum regulatory capital ratios and should have the ability to require banks to hold capital in excess of the minimum.

20.4 Principle 4: Supervisors should seek to intervene at an early stage to prevent capital from falling below the minimum levels required to support the risk characteristics of a particular bank and should require rapid remedial action if capital is not maintained or restored.

Principle 1 – banks' process for assessing capital adequacy