Basel Framework: CRE31.2 / CRE32.4

Sovereign exposures are exempt from the 0.05% PD floor, yet the risk-weight function uses ln(PD) and G(PD), which are undefined at PD = 0.

Consequence

Position: Sovereign exposure, PD estimate 0%, LGD 45%, EAD 100, M = 2.5. Reading a: Literal formula: ln(0) and G(0) undefined, RWA not defined. Reading b: Implicit positive PD: RWA defined. Difference: RWA undefined vs finite (not executed)

Proposed correction

Clarify or correct the cited passage so that the rule and its references give one result for the stated case.

Issued by

Basel Committee on Banking Supervision

Act

Basel Framework CRE31 (in force 2023-01-01, published 2020-03-27)

Place

CRE31.2 / CRE32.4

Record

Discrepancy

Class

Text of the act

Where it arose

The text of the act

Arxo's conclusion

Confirmed

Official text

Unchanged at last check

Last checked

2026-10-31

Evidence

Contradiction within the text. Quotations are verbatim from the official material; translations are ours and marked.

ln denotes the natural logarithm

With the exception of exposures in the sovereign asset class, the PD for each exposure that is used as input into the risk weight formula and the calculation of expected loss must not be less than 0.05%.

How to check it without Arxo's tools

1. Open Basel Framework CRE31 (in force 2023-01-01, published 2020-03-27) and find CRE31.2 / CRE32.4. Compare the text with the quotation above. A copy is kept in this register: 21ddb3898b983c0c-CRE31@2023-01-01~2020-03-27.txt (SHA-256 21ddb3898b983c0cfb3eb1575511e20150becdf628cbd124dc649c8a9127657e, copy of the official file).
2. Open Basel Framework CRE32 (in force 2023-01-01, published 2020-03-27) and find CRE32.4. Compare the text with the quotation above. A copy is kept in this register: 380431d29284c71d-CRE32@2023-01-01~2020-03-27.txt (SHA-256 380431d29284c71db0c84ae1bac673344896b480f941dbb303fa487ad814e015, copy of the official file).
3. The finding holds if the quoted passages read as shown and the comparison gives the result stated at the top of this page. If it does not, write to us with the record ID.

How this finding was made

AI models read the texts, built the examples and reviewed the findings.

Responsible institutions

• Basel Committee on Banking Supervision — maintains the Basel Framework

Reported to

Responses

No response recorded.

History

1. 2026-10-31Confirmed by Arxo
2. 2026-10-31Entered in the register
3. 2026-10-31Reported to Basel Committee on Banking Supervision (e-mail)

Cite this record

Arxo Law, Arxo Findings Register, ARXO-2026-0363, https://arxo.io/findings/ARXO-2026-0363/ (status as of 2026-10-31). Data: ARXO-2026-0363.json.