Concept of Pillar 2A and Pillar 2B

Required under requirements set out by CRD IV, which Prudential Regulation Authority (PRA) uses to
inform the setting of Pillar 2 capital.

Reason for creation – A firm’s capital requirements are defined in accordance with capital
requirements set under Pillar 1. However, PRA believes that, for certain asset classes Standardised
Approach (SA) of assigning risk weights (RW) underestimates the risk (e.g.- 0 risk weight to
sovereigns). Therefore, this is definitely applicable for firms using SA for Pillar 1 capital requirements.
For firms employing Internal Ratings Based (IRB) approach, this applies to exposures/ portfolios
where the firm applies SA in calculating the risk weight.

Two sections:

1. Pillar 2A- Created purposely to cover risk not covered by Pillar 1.

a. Credit concentration risk
b. Counterparty credit risk
c. Interest rate risk on Banking book
d. Pension obligation risk
e. Credit risk
f. Market risk
g. Operational risk.

For definitions, please refer the-pras-methodologies-for-setting-pillar-2a-capital-jan-2022. pdf

2. Pillar 2B – created to tackle weak governance towards risk management

Method of calculation of Pillar 2A in Standard Chartered for any year Yi:

a. IRBBB – (IRBBB for Y0/Total assets Y0)* Total assets Yi

 b. CCR - (CCR for Y0/ Market RWA Y0)* Market RWA Yi
c. Market Risk - (Market Risk Y0/ Market RWA Y0)* Market RWA Yi

Method of calculation of Pillar 2B in Standard Chartered for any year Yi:

1. PRA buffer – 1.4% of (Cr RWA + Market RWA + Op RWA)

2. G-SII buffer – 1% of (Cr RWA + Market RWA + Op RWA)
3. Capital Conservation buffer – 2.5% of (Cr RWA + Market RWA + Op RWA)
4. Countercyclic buffer – 0.41 % of (Cr RWA + Market RWA + Op RWA)