Part V Supervisory Review and Evaluation Process and Pillar 2 Capital, 18 Supervisory Review and Evaluation Process (SREP) in the Context of the Exercise of Supervisory Powers and Extraordinary Measures

Abstract

This chapter discusses the concepts of Pillar 2 and Supervisory Review and Evaluation Process (SREP), which were adopted by Basel II to promote a better measurement and management by credit institutions of their risks and to make capital requirements more risk-sensitive and more individually tailored than under previous Basel Committee on Banking and Supervision (BCBS) standards. The SREP’s relational supervisory model helps to bridge the gap between supervisory and crisis-management situations. Should the SREP show that the institution does not meet the prudential requirements or is likely to breach the same within the following 12 months, Article 102 CRD V provides that competent authorities must require an institution to take the necessary measures at an early stage to address relevant problems. This includes relying on a wide set of supervisory powers listed in Article 104 CRD V. The EBA Guidelines extensively detail the use of these supervisory powers, giving a number of examples for each of the SREP element and, as to capital adequacy, for each of the risks to capital. They also clarify that in addition to such supervisory powers, the competent authorities may also adopt measures provided for under national law and, when applicable, early intervention measures as specified in Article 27 BRRD.