The EU's new capital adequacy directive was introduced in Norway on 1 January 2007. The regulatory framework is built on a new standard for capital adequacy calculations from the Bank for International Settlements (BIS).
Financial activities entail a need to control and manage risk. The purpose of the capital adequacy regulations is to strengthen the stability of the financial system through:
- More risk sensitive capital requirements
- Better risk management and control
- Closer supervision
- Disclosure of more information to the market
The capital adequacy regulations are based on three pillars:
- Pillar 1: Minimum primary capital requirements
- Pillar 2: Evaluation of the overall capital requirements and supervisory follow-up
- Pillar 3: Requirement towards public disclosure of information
A more detailed description of the different pillars is provided in separate pillar 3 reporting for SpareBank 1 SMN.