2016-FRR Exam Dumps | What does Pillar 2 of the Basel II Accord focus on?

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GARP.2016-FRR.v2025-06-21.q161
Question 94

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Question 94/161

What does Pillar 2 of the Basel II Accord focus on?

A. Identifying risk-weighted assets for reputational risk

B. Improving the transparency of the different types of banking risks

C. Ensuring that the bank properly manages all of the risks it takes

D. Ensuring that the bank has minimum levels of capital against market, credit, and operational risk

Correct Answer: C

Comprehensive and Detailed In-Depth Explanation:
Pillar 2 of Basel II (Supervisory Review Process) focuses on ensuring banks have adequate processes to identify, measure, and manage all material risks (beyond just market, credit, and operational risks covered in Pillar 1), including interest rate risk in the banking book, concentration risk, and others. It requires banks to maintain capital above the Pillar 1 minimum if warranted by their risk profile, as assessed by supervisors.
Option D describes Pillar 1, not Pillar 2. Option B aligns with Pillar 3 (disclosure), and Option A (reputational risk) is not a specific Pillar 2 focus.
Reference:BCBS, "Basel II: International Convergence of Capital Measurement and Capital Standards," June
2006, para. 720-729; GARP FRR Study Notes, Regulatory Framework Section.

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