Fil-71-2008

Financial Institution Letter
FIL-71-2008
July 31, 2008

Federal Deposit Insurance Corporation
550 17th Street NW, Washington, D.C. 20429-9990

CAPITAL STANDARDS
Supervisory Review Process of Capital Adequacy (Pillar 2) Related to
the Implementation of the Basel II Advanced Capital Framework
Summary: The federal bank and thrift regulatory agencies have jointly issued the attached final
guidance on the Supervisory Review Process of Capital Adequacy (Pillar 2) under the Basel II
Advanced Capital Framework. While this guidance reflects a continuation of the longstanding
approach employed by the agencies in the supervision of banks, it provides the clarification
necessary to support the implementation of the advanced approaches final rule. The final guidance
takes effect on September 2, 2008.
Distribution:
FDIC-Supervised Banks (Commercial and
Savings)

Suggested Routing:
Chief Executive Officer
Chief Financial Officer
Chief Risk Officer

Related Topics:
Risk-Based Capital Rules
12 CFR Part 325
Basel II

Attachment:
Supervisory Guidance: Supervisory Review
Process of Capital Adequacy (Pillar 2) Related to
the Implementation of the Basel II Advanced
Capital Framework

Contact:
Gloria Ikosi, Senior Quantitative Risk Analyst, at
[email protected] or (202) 898-3997
Ryan D. Sheller, Capital Markets Specialist, at
[email protected] or (202) 898-6614

Highlights:
This guidance only applies to banking organizations
that use the advanced approaches final rule to calculate
their risk-based capital requirements.
In general, the guidance:

• Focuses on three areas: (1) comprehensive
supervisory review of capital adequacy, (2)
compliance with regulatory capital requirements,
and (3) the internal capital adequacy assessment
process (ICAAP).

• Highlights the fundamental objectives of a sound
ICAAP: (1) identifying and measuring material risks,
(2) setting and assessing internal capital adequacy
goals that relate directly to risk, and (3) ensuring the
integrity of internal capital adequacy assessments.
Capital must meet or exceed regulatory minimum
requirements, regardless of ICAAP results.

Note:
FDIC financial institution letters (FILs) may be
accessed from the FDIC's Web site at
http://www.fdic.gov/news/news/financial/2008/inde
x.html
To receive FILs electronically, please visit
http://www.fdic.gov/about/subscriptions/fil/html
Paper copies of FDIC financial institution letters
may be obtained through the FDIC’s Public
Information Center, 3501 Fairfax Drive, E-1002,
Arlington, VA 22226 (1-877-275-3342 or 703562-2200).

• Supports the agencies' existing ability to intervene
when necessary to prevent an individual bank’s
regulatory capital from falling below the level needed
to support all material risks to which the bank is
exposed.
This guidance neither supersedes nor alters the
functioning of the Prompt Corrective Action or leverage
capital requirements.