Finance lease and Liquidity Coverage Ratio: Difference between pages

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A finance lease usually involves the lessee (user of the asset) paying - over the life of the lease - the full cost of the asset plus a return on the finance effectively provided by the lessor.
''Bank regulation''.
 
The lessee-user effectively retains substantially all the risks and rewards of ownership.
However, the lessee does not obtain legal title to the leased asset.


Accounting standards require finance leases to be accounted for 'on balance sheet' by the user of the asset.
(LCR).


This means that the liability to pay (the capital element of) the future lease instalments is recognised and disclosed on the face of the balance sheet.
The LCR is a requirement under Basel III for a bank to hold high-quality liquid assets (HQLAs) sufficient to cover 100% of its net cash requirements over 30 days.  


It applies throughout the European Union.


Relevant accounting standards include [[IAS 17]], Section 20 of [[FRS 102]] which incorporates practice from the former [[SSAP 21]], and IFRS 16.
The LCR has been implemented in stages from 2015, to reach the 100% requirement by January 2019.  




Finance leases are also known as ''capital leases'', especially in the US.
It reduces the value to a bank of cash deposits of less than 30 days tenor because they are only worth the income on the HQLAs if a bank forecasts no short term cash receipts to cover repayment.
 
The purpose of this requirement is to ensure that banks can manage stressed market conditions, under which the bank is assumed to suffer substantial outflows of the cash previously deposited with it.




== See also ==
== See also ==
* [[Actuarial method]]
* [[Basel III]]
* [[Finance charge]]
* [[European Union]]
* [[Hire purchase]]
* [[Net Stable Funding Ratio]]
* [[IFRS 16]]
* [[Cash investing in a new world]]
* [[IAS 17]]
* [[HQLA]]
* [[FRS 102]]
* [[Level 1 liquid assets]]
* [[SSAP 21]]
* [[Level 2 liquid assets]]
* [[Implied rate of interest]]
* [[Leverage Ratio]]
* [[Lease]]
* [[Liquidity buffer]]
* [[Off-balance sheet finance]]
* [[Liquidity risk]]
* [[Operating lease]]
* [[LR]]
 
* [[OLAR]]
 
* [[Pillar 1]]
 
* [[Required Stable Funding]]
===Other links===
* [[Survival period]]
[http://www.treasurers.org/node/8924 Students: A Lesson on leases, The Treasurer, April 2013]


[[Category:Accounting,_tax_and_regulation]]
[[Category:Compliance_and_audit]]
[[Category:Corporate_finance]]
[[Category:Liquidity_management]]

Revision as of 11:55, 17 November 2016

Bank regulation.

(LCR).

The LCR is a requirement under Basel III for a bank to hold high-quality liquid assets (HQLAs) sufficient to cover 100% of its net cash requirements over 30 days.

It applies throughout the European Union.

The LCR has been implemented in stages from 2015, to reach the 100% requirement by January 2019.


It reduces the value to a bank of cash deposits of less than 30 days tenor because they are only worth the income on the HQLAs if a bank forecasts no short term cash receipts to cover repayment.

The purpose of this requirement is to ensure that banks can manage stressed market conditions, under which the bank is assumed to suffer substantial outflows of the cash previously deposited with it.


See also