Threshold means boundary, so threshold is also called critical value, which refers to the lowest or highest value that an effect can produce.

In the absence of cumulative default probability data for many years. The threshold of expected loss rate should be conservative enough. The difference between the one-year expected loss rate threshold and the multi-year expected loss rate threshold also means that the bank's risk preference for multi-year loans or credit business is different from that for one year. The threshold of loss rate is based on the change of capital in extreme cases. The decomposition process of loss rate threshold capital from top to bottom to a single business is much more complicated than that of expected loss. Considering the correlation between individual debtors' default, the loss rate threshold can consider the idea of replacing default correlation with asset correlation proposed by IRB.