Circular
Proposed Treatment of Expected and Unexpected Losses Under the New Basel Capital Accord
November 3, 2003
Circular No. 11554

To All Depository Institutions and Others Concerned in the Second Federal Reserve District:

In a press release, the federal bank and thrift agencies (Agencies) issued a statement regarding the Basel Committee on Banking Supervision’s request for comment on a modification to the framework of the internal ratings-based (IRB) approach to credit risk. The Basel Committee’s Third Consultative Paper incorporated both expected loss (EL) and unexpected loss (UL) components into the IRB capital requirement. Based on comments received, the Committee now believes that a separation of the treatment of UL and EL within the IRB approach would lead to a superior framework.

The Basel Committee will accept comments from all interested parties on the proposed modification until December 31, 2003. The Agencies will also consider comments on the proposed treatment of EL plus UL received through December 31, 2003, whether those comments are received directly by the Agencies or by the Committee.

Press release OFFSITE
Joint agency statement OFFSITE PDF

Contact:
Darryll Hendricks
Senior Vice President, Policy & Application Function
darryll.hendricks@ny.frb.org

Zahra El-Mekkawy
Vice President, Policy & Application Function
zahra.elmekkawy@ny.frb.org

Dianne Dobbeck
Bank Supervision Officer, Policy & Application Function
d ianne.dobbeck@ny.frb.org