In addition, on the basis of their knowledge of best industry practices at a range of institutions, supervisors would provide constructive feedback to bank managers on their bank’s capital adequacy and its risk measurement and management practices. Lastly, Pillar 3 seeks to complement Pillars 1 and 2 by encouraging stronger market discipline of banking organizations.
An important element here is requiring a bank to publicly disclose key measures related to its risk and capital positions. Such disclosures should help uninsured creditors of a bank more accurately assess the risks of investing in the uninsured liabilities of the bank, including taking the opposite side of financial derivatives transactions.