The extreme loss rate is usually calculated by taking the average annual loss rate over some historical period and estimating the annual standard deviation of loan loss rates around that mean. If the standard deviation is multiplied by 2.33, as long as loan loss rates are normally distributed, this reflects the 99th percentile worst-loss case scenario. In practice, loss rates are not normally distributed, so many FIs use higher multiples of σ. For example, Bank of America uses a multiple of 6 × σ.

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