Liquidity coverage ratio
LCRAlso called liquidity coverage requirement
The liquidity coverage ratio (LCR) is a Basel III standard that measures whether a bank holds enough high-quality liquid assets to cover its net cash outflows over a 30-day stress period. Banks must keep the ratio at 100% or above in normal times. It is calculated and reported to supervisors on a regular basis.
How it works
Treasury and finance teams calculate the ratio by dividing the stock of high-quality liquid assets, such as central bank reserves and government bonds, by stressed net cash outflows over 30 days. Outflow rates are set by rule for each funding type, with retail deposits treated as more stable than wholesale funding. The figure feeds monthly regulatory returns and daily internal monitoring.
The LCR was built after the 2008 crisis, when banks with adequate capital ran out of cash. A ratio below 100% triggers supervisory scrutiny and a plan to restore it. Because the calculation draws on treasury, deposit and collateral data, errors in data lineage show up quickly. Supervisors treat repeated misreporting as a governance failure.
The rules
Sets the LCR at a minimum of 100%, defines high-quality liquid assets and stressed outflow rates over a 30-day horizon.
Internationally active banksSpecifies the detailed LCR calculation under Article 412(1) of the Capital Requirements Regulation, applying from 1 October 2015.
EU credit institutionsCarries the former EU LCR rules into the PRA Rulebook, applying from 1 January 2022.
PRA-regulated CRR firmsJoint OCC, Federal Reserve and FDIC rule requiring a minimum LCR of 100%, effective 1 January 2015.
Large US banking organisationsCommon questions
What counts as a high-quality liquid asset?
High-quality liquid assets are assets that can be turned into cash quickly with little loss of value in a stress. Level 1 assets include cash, central bank reserves and top-rated government bonds. Level 2 assets, such as some covered bonds and corporate debt, face haircuts and caps.
What happens if a bank's LCR falls below 100%?
The Basel standard allows banks to use their liquid asset buffer in a stress, so the ratio can dip below 100%. The bank must notify its supervisor promptly and set out how it will restore the ratio. Supervisors can then impose further measures.
How is the LCR different from the NSFR?
The LCR covers short-term resilience over a 30-day stress. The net stable funding ratio looks at a one-year horizon and requires stable funding to match the liquidity profile of assets. Both form part of the Basel III liquidity framework.
How often is the LCR reported?
Under EU and UK rules banks report the LCR to supervisors monthly through standard liquidity templates. Many banks also calculate it daily for internal risk management. Supervisors can request more frequent reporting during periods of stress.
