They also assess bank funding operations, the level and quality of bank capital, bank underwriting standards, the quality of bank earnings, and compliance with consumer banking laws.
Pillar 3 is designed to improve the quality of banks' disclosure on their risk profiles.
But with markets increasingly uncertain about the quality of banks' holdings, lending between banks has slowed and become more expensive.
The Basel club of regulators is working to raise the level and improve the quality of banks' capital.
As many of the more creditworthy companies have gone to the capital markets in recent years, so the quality of banks' loan portfolios has been sharply reduced.
So much for the notion, generally accepted back then, that the quality of banks' risk regimes had, like car components, converged around a high standard.
That would raise long-term concerns about the future quality of banks' assets, but in the short term it would help to keep the economy ticking.
Deposit insurance can make depositors less vigilant about the quality of banks, increasing the likelihood that bankers will make bad gambles with depositors' money, as they did during the savings-and-loan crisis of the eighties.
It appeared that the quality of banks' risk management had, like that of avionics, converged on a high standard, allowing banks to fly higher, more efficiently and more safely.
Securitisation has made it easy to shed assets that seem to require too much capital, which has contributed to a general deterioration in the quality of banks' balance-sheets.
