Capital Requirements

capital requirement: The Swedish Financial Supervisory Authority is planning to follow its Danish counterpart and disclose so-called Pillar 2 requirements as Scandinavia leads Europe in stepping up efforts to improve transparency. In Denmark , which like Sweden has a bank industry whose assets are four times gross domestic product, lenders can be shut down by the regulator if reserves drop below individual requirements, according to Bloomberg. Failure to tell investors a banks individual capital requirement is certainly sub-optimal, Johan Eriksson, senior adviser for bank policy at Swedens FSA, said by phone. Pillar 2 affects significant parts of banks capital requirements , he said. Important Constraints Sweden will start publishing banks individual capital requirements in a step designed to reveal risks investors have so far been unable to measure based on reported buffers. Disclosing bank-specific capital needs, which are set by national regulators, isnt required under Basel III or European capital rules. Pillar 2 requirements can in some cases more than double the minimum amount of equity and debt a bank must hold to absorb losses. The Basel Committee on Banking Supervision sets out three Pillars for a sound financial system. The first imposes industrywide capital requirements, and the third draws on market discipline by forcing banks to show how they meet those requirements. (news.financializer.com). As reported in the news.