Incremental default risk would be defined as the default risk of a covered position that is not reflected in the bank's VaR measure (because, for example, the risk extends beyond the ten-day holding period and the 99 percent confidence level).
Incremental default risk would be measured consistent with a one-year time horizon and a one-tailed, 99.9 percent confidence level – which is comparable to the measures under IRB in the Basel II framework. Consistent with a principles-based approach, banks would have the discretion to use one or more models to measure incremental default risk, subject, of course, to supervisory review.