Answer: Minimum capital requirement, supervisory review & market discipline
Notes: The three pillars of Basel II are: 1. Minimum Capital Requirements: Banks must maintain a minimum level of capital based on their risk-weighted assets to absorb potential losses. 2. Supervisory Review: Regulatory authorities assess banks' internal processes for risk management and capital adequacy. 3. Market Discipline: Transparency and disclosure requirements encourage market participants to monitor banks' risk profiles and capital adequacy. These pillars aim to enhance the stability of the financial system. Basel II was introduced by the Basel Committee on Banking Supervision in 2004, following the need for a more comprehensive framework after the 1997 Asian financial crisis.
