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DAILY NEWS ANALYSIS

  • 18 February, 2021

  • 4 Min Read

Liquidity Coverage Ratio

Liquidity Coverage Ratio

  • Liquidity Coverage Ratio (LCR) indicates the proportion of highly liquid assets held by banks to ensure their ability to meet short-term obligations.

  • This ratio is essentially a generic stress test that aims to make sure that financial institutions possess suitable capital to ride out any short-term liquidity disruptions.

How to Calculate the Liquidity Coverage Ratio?

  • The LCR is calculated by dividing a bank's high-quality liquid assets by its total net cash flows, over a 30-day stress period.
  • The high-quality liquid assets include only those with a high potential to be converted easily and quickly into cash.

Source: TH


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