LCR
Liquidity Coverage Ratio
Basel III requirement ensuring banks maintain sufficient liquid assets to survive 30 days of stressed conditions.
LCR requires banks to hold high-quality liquid assets (HQLA) equal to or greater than their net cash outflows over a 30-day stress period. The ratio must be at least 100%, meaning liquid assets fully cover stressed outflows. HQLA includes central bank reserves, government securities, and certain corporate bonds meeting specific criteria. Net cash outflows are calculated using supervisory stress assumptions for different funding sources and commitments. LCR encourages banks to fund activities with stable sources and maintain buffers of liquid assets. The requirement is monitored daily and reported regularly to supervisors. LCR implementation varies by jurisdiction but follows common Basel III principles for promoting banking sector liquidity resilience.
Example
Government bonds and central bank deposits as HQLA, deposit runoff rates under stress scenarios