The European Union’s new Capital Adequacy Directive was implemented in Norway on 1 January 2007.
Financial activity entails a need to manage risk. The aim of the capital adequacy framework is to strengthen the stability of the financial system through:
- More risk-sensitive capital charges
- Better risk management and control
- Tighter supervision
- More information to the market
The capital adequacy framework is based on three pillars:
- Pillar 1: Minimum requirements on own funds
- Pillar 2: Assessment of overall capital need and supervisory review
- Pillar 3: Requirements for information disclosure
For further details of the respective pillars, with particular focus on Pillar 3 and its consequences for SpareBank 1 SMN, please read this document (PDF).
Change in Basel II as from 1 January 2011
As a result of amendments to the EU’s Capital Adequacy Directive, the Norwegian regulations governing the calculation of capital charges and own funds were amended as from 1 January 2011. The most important changes were stricter requirements on hybrid capital, higher capital charges for equity risk in the trading book, and higher capital charges and stricter requirements as regards risk management in relation to securitisation positions.