Recognizing that supervisors need to relate capital requirements of individual banks more closely to their unique risk profiles, the Basel Committee’s second pillar - the supervisory review of capital emphasizes principles such as these: •  that supervisors should expect, and have the authority to require, banks to operate above the minimum regulatory capital ratios  •  that they should require their banks to assess and maintain overall capital adequacy in relation to underlying risks  •  that supervisors should review and evaluate the internal capital adequacy assessments and strategies of banks, as well as their compliance with regulatory capital ratios  •  that supervisors should intervene at an early stage to prevent capital from falling below prudent levels and should require remedial action quickly if capital becomes inadequate.
I believe it is essential to have effective supervisory oversight and assessment of individual bank capital as a complement to meeting regulatory capital requirements. This does not mean, however, that supervisors have ultimate responsibility for determining the adequate level of capital at each bank nor that supervisory judgment should replace that of bank management.