Basel working group suggests "pragmatic" approach to credit risk expected losses

BASEL - A working group of the Basel Committee of banking supervisors has proposed "a pragmatic approach" to treating expected losses in arriving at a capital charge for credit risk under the internal ratings based (IRB) approach of the proposed Basel II banking accord.

The Basel Committee noted that the IRB approach as outlined in its January consultative paper on Basel II entails capital charges being calibrated to cover both unexpected and expected credit losses in loan portfolios.

The Committee said the capital charge for unexpected losses (UL) is uncontroversial, but the banking industry's reaction to a capital charge for expected losses (EL) is generally negative.

In a paper issued in July, the Committee's Joint Accounting Task Force/Models Task Force

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