3 Limiting pro-cyclicality, or being countercyclical, essentially means limiting both the highs and lows of a business cycle. And there can be value in doing so because, among other things, it can help reduce stress on our financial system.
Pillar 2 requires the banks to establish an Internal Capital Adequacy Assessment Process (ICAAP) to capture all the material risks, including those that are partly covered or not covered under the other two Pillars. The ICAAP of the banks is also required to be subject to a supervisory review by the supervisors.