INTM267733 | Foreign banks trading in the UK through permanent establishments: The approach in determining an adjustment to funding costs - STEP 2: Risk weighting the assets - the Basel II regulatory regime: Pillar 1

Pillar 1 addresses the three major components of risk that a bank faces i.e. credit risk, market risk and operational risk. In broad terms the impact of Pillar 1 is:

• In relation to credit risk: significant changes to the risk weighting process

• In relation to trading book issues including market risk: minor changes only to the risk weighting process

• In relation to operational risk: major changes as this form of risk is introduced for the first time into the calculation of capital adequacy requirements