The Pillar 1, unlike the previous Accord, provides a menu of approaches, from the simplified to the advanced ones, for determining the capital charge for each of the three categories of risks. The credit risk mitigants used by the banks have been specifically recognised to provide appropriate capital relief.
The Pillar 2 of the framework deals with the “Supervisory Review Process” (SRP), and is probably not that well understood as the other two Pillars. In fact, this is the element which makes the revised framework very comprehensive in its sweep by addressing the entire risk domain of the banks. Let me elaborate a little.