It requires the banks to develop an Internal Capital Adequacy Assessment Process (ICAAP) which should encompass their whole risk universe – by addressing all those risks which are either not fully captured or not at all captured under the other two Pillars – and assign an appropriate amount of capital, internally, for all such risks, commensurate with their risk profile and control environment.
Under the Supervisory Review, the supervisors would conduct a detailed examination of the ICAAP of the banks, and if warranted, could prescribe a higher capital requirement, over and above the minimum capital ratio envisaged in Pillar 1.