Basel III framework for liquidity - Frequently asked questions

This document sets out the first set of frequently asked questions that relate to Basel III’s liquidity rules. The first section of the document provides clarification on the calculation of the cap on Level 2 assets with regard to short-term secured funding. Section 2 addresses other questions and answers pertaining to the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) of the rules text. Section 3 sets out miscellaneous edits to the rules text.
Sovereign risk is the extra dimension of risk involved in international, as distinct from domestic, transactions. Sovereign risk is an aspect of the credit proposal that is additional to the usual commercial risks such as credit, foreign exchange and transport risks, and is outside the individual borrower's control; it can override the borrower's willingness and ability to repay financial obligations, even though the borrower may be a government. Sovereign risk implies the possibility that conditions will develop in a country which inhibit repayment of funds due from that country, such as exchange controls, strikes or declarations of war.