This pillar aims to promote greater stability in the financial system.
Market discipline
supplements regulation as sharing of information facilitates assessment of the
bank by others including investors, analysts, customers, other banks and rating
agencies. It leads to good corporate governance. The aim of pillar 3 is to
allow market discipline to operate by requiring lenders to publicly provide details
of their risk management activities, risk rating processes and risk
distributions. It sets out the public disclosures that banks must make that
lend greater insight into the adequacy of their capitalization. When
marketplace participants have a sufficient understanding of a bank’s activities
and the controls it has in place to manage its exposures, they are better able
to distinguish between banking organizations so that they can reward those that
manage their risks prudently and penalize those that do not.