g.1 the current credit exposure (net replacement values when close-out netting arrangements are in place, otherwise gross replacement values);

g.2 broken down by credit quality class, and/or counterparty type.

Such an approach would provide information about current exposures and likelihood of default, but it would not address potential future exposures.

Example H: A more comprehensive disclosure of credit risk. For its trading and risk management activities, a firm could disclose:

h.1 the information presented in Example G;

h.2 a breakdown of exposures by maturity;

h.3 some indication of the firm's estimate of potential future credit exposure.

This approach provides additional information about likelihood of default through (h.2). Information on maturities is helpful because longer term contracts are associated with greater credit exposures and default risks.

In addition to the above disclosure of credit risks, firms should also move toward disclosing their performance in managing that risk. The next example is illustrative.

Example I: Disclosure of credit risk management performance. For its trading and risk management activity, a firm could disclose:

i.1 the information presented in examples G and H;

i.2 a measure of actual losses over the reporting period;

i.3 a measure of losses relative to capital supporting the activity in which he losses occurred;

i.4 variability of credit exposures over time -- high, low, average gross or net replacement values over the reporting period.

In all the above examples, qualitative discussion should be an integral part of the quantitative disclosure. For example, methodologies used by firms to estimate potential future credit exposures should be described, as well as netting conventions used. Other supplementary information could include discussions of the use of collateral and how credit risk is managed for counterparts that are parts of both the trading portfolio and the loan portfolio.