Basel 3 Liquidity
Overview
The liquidity coverage ratio is designed to give bank managers an idea of how many days of liquidity they
would have available in a liquidity crisis. The minimum LCR is 100%.
Liquidity Coverage Ratio
{% LCR = \frac{High \; Quality \; Assets}{Total \; Net \; Cash \; Flows} %}
For information about coding and implementation, please see
LCR Implementation.
High Quality Assets
High quality assets include cash and central bank reserves, government obligations for which there is an active market.
Other assets can be considered as high quality if they trade in large active markets and exhibit low volatility and usually
rise in value during a crisis. The assets must be unencumbered, and enough operational sophistication needs to be present
that would enable the bank to sell the asset.
High quality assets are divided into three classes.
- Level 1
- Level 2A -
- LEvel 2B
