Quick Definition

The Liquidity Coverage Ratio (LCR) is a regulatory standard that measures a bank's ability to meet its short-term obligations using highly liquid assets.

Formula

Examples

• 1A bank with $100 million in net cash outflows over the next 30 days needs at least $100 million in high-quality liquid assets to meet the LCR requirement.
• 2During a financial crisis, banks with a high LCR are better positioned to handle sudden withdrawals by customers.
• 3Regulators use the LCR to ensure banks maintain enough liquid assets to cover potential net cash outflows during a 30-day stress scenario.

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