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The Pillar 2 supervisory review process is an integral part of the Basel Framework. It is intended to ensure that banks not only have adequate capital to support all the risks in their business but also develop and use better risk management techniques in monitoring and managing these risks.
The Basel Framework does not include prescriptive guidance or direction on supervisory approaches to Pillar 2. Supervisors therefore use a range of approaches, methodologies and strategies to meet the overall objective of a sound supervisory approach to Pillar 2.
Consistent across Basel Committee member supervisors is the prominent role given to assessing banks' risk management. All Basel Committee supervisors use assessment programmes that reinforce and review banks' risk management frameworks.
Furthermore, most supervisors rely on banks' internal capital adequacy assessment process (ICAAP) and other risk reporting. Notwithstanding some differences in supervisory approaches adopted by Basel Committee members, the Pillar 2 outcomes across these jurisdictions are directionally similar.
Furthermore, Basel Committee jurisdictions try to minimise any potential effect on banks from jurisdictional differences through cooperation in supervisory colleges and other forms of collaboration and coordination.