The risk of loss because contracts cannot be enforced, or from lawsuits and changes in law. Netting depends on its enforceability. Where it appears →
Leverage
The use of borrowing or derivatives to increase exposure beyond the capital invested. It magnifies both gains and losses. Where it appears →
Leverage ratio
Tier 1 capital divided by total exposure without risk weighting. It is a backstop that does not depend on risk models. Where it appears →
Liquidity buffer
A stock of liquid assets held to meet cash needs in a stress. Its size is set by stress testing. Where it appears →
Liquidity coverage ratio
A Basel III ratio requiring enough high-quality liquid assets to cover net cash outflows over a 30-day stress. It must be at least 100%. Where it appears →
Liquidity risk
The risk of being unable to meet obligations as they fall due, or of being unable to trade without a large price effect. The first is funding liquidity risk, the second market liquidity risk. Where it appears →
Lognormal distribution
A distribution in which the logarithm of the variable is normal. It is used for asset prices because it cannot fall below zero. Where it appears →
Loss data
Records of operational losses, internal or external, used to understand the frequency and severity of events. Data below a reporting threshold are usually missing. Where it appears →
Loss given default
The share of an exposure that is lost if the borrower defaults, after recoveries. It equals one minus the recovery rate. Where it appears →
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