The Supervisory Review and Evaluation Process (SREP) represents the practical application of Pillar 2 of the Basel Accord. It allows regulatory teams to go beyond rigid quantitative metrics and conduct qualitative reviews of a bank’s risk governance.
The Four Core Pillars of SREP Assessment
[SREP Audit Evaluation]
  |- Business Model Analysis ----> Checks long-term viability and profitability strategies
  |- Internal Governance Reviews -> Audits board oversight and independent risk functions
  |- Capital Adequacy Auditing --> Imposes custom Pillar 2 capital add-on requirements
  |- Liquidity Adequacy Checks --> Evaluates contingency funding plans and cash flows

Through the SREP process, supervisors calculate a unified risk score for each institution. If an audit uncovers weak internal risk management systems, regulators possess the authority to enforce custom capital add-ons, forcing the bank to hold reserves above the standard Basel minimums.
 
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