(31)The calculation of the difference between expected loss amounts on the one hand and credit risk adjustments, additional value adjustments and other own funds reductions on the other hand (‘IRB shortfall‘) should be performed on an aggregate level separately for the portfolio of defaulted exposures and the portfolio of exposures that are not in default. The separation between defaulted and non-defaulted exposures is necessary in order to ensure that the negative amounts resulting from the calculation performed for the defaulted portfolio are not used to offset the positive amounts resulting from the calculation performed for the portfolio of exposures that are not in default. Apart from that the overall calculation is in line with the general concept of own funds, according to which the own funds should be fully available to cover unexpected losses in case of insolvency of the institution. Since the amounts of credit risk adjustments, additional value adjustments and other own funds reductions included in the calculation of the IRB shortfall have already been deducted from own funds to cover the expected losses (‘EL’), their excess part on the total EL is fully available to cover losses identified on all defaulted exposures. Therefore, competent authorities should verify that the adjustments to own funds based on the IRB shortfall are calculated and applied correctly.