Capital Adquacy in a Time of Bank Failures - Basel II, Pillar Two

As the probability of increasing bank failures looms large in the public consciousness, more attention will appropriately focus on capital adequacy.  How Basel II implementation will square with the need for an adequate capital buffer against hard times is an even more critical question today than it has been over the past couple of years.

Take a good look at the Federal Banking Agencies' issuance of Final Guidance on Basel II, Pillar Two (which covers supervisory review of capital adequacy):  http://www.federalreserve.gov/newsevents/press/bcreg/bcreg20080715a1.pdf

Remember that the three pillars of Basel II are:

Pillar One:  Minimum risk-based capital requirements;

Pillar Two:  Supervisory review; and

Pillar Three:  Market disciplinethrough enhanced public disclosures.

(ag) July 29, in Capital Adequacy/Basel II