BASEL II - Three Pillar Approach.

There are three pillars in BASEL II - 

1. Minimum Capital Requirement.
2. Supervisory Review of the Capital Adequacy and
3. Market Discipline/public Disclosures.

Pillar I(Minimum Capital Requirement) -

• Credit Risk 

• Standard Approach
• Internal Rating Based Approach

• IRB Foundation 
• IRB Advanced
• Market Risk
• Standard Measurement method
• Internal Method Approach
• Operational Risk
• Basic Indicators
• Standardization Approach
• Advanced Measurement Approach.

Pillar II(Supervisory Review)  

• Process for accessing the capital adequacy relative to the risk profile(ICAAP =Internal Capital Adequacy Assessment Process)
• Also the risks for which no capital requirement is calculated in pillar I(interest rate and liquidity risk of the banking book, business risks etc).
• Enhance the development and use of better risk management and risk mitigation techniques.
• Supervisory review process.

Four Principles of Supervisory Review-

• Internal process in banks for assessing capital adequacy in relation to risk profile.
• Supervisory review and evaluation of banks internal capital adequacy assessment strategies.
• Supervisors to expect banks to operate above the minimum regulatory capital ratios.
• Supervisory actions intervention at an early stage to prevent slippage.

Pillar III(Market Discipline)

• Disclosure Requirement
• For different risk methodology and instrument type.
• Basic requirements and additional recommendations regarding the disclosed information.