Liquidity Coverage Ratio: Difference between revisions
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imported>Doug Williamson (Update to past tense.) |
imported>Doug Williamson (Remove reference to phase-in period.) |
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The LCR applies throughout the European Union. | The LCR applies throughout the European Union. | ||
Revision as of 16:47, 29 January 2020
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 stressed net cash requirements over 30 days.
The LCR is calculated as:
LCR = HQLAs / Net cash outflows
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.
The LCR applies throughout the European Union.
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.