LCR Formula
LCR = HQLA / Net Cash Outflows
HQLA = High-Quality Liquid Assets |
Minimum = 100%
LCR Result
Liquidity Coverage Ratio
461.1%
HQLA (after caps)
$65,250M
L2 Cap Applied?
No
Gross Outflows
$29,150M
Net Outflows
$14,150M
Inflow Cap Binding?
No
Surplus / (Deficit)
$51,100M
Buffer vs 100%
361.1%
Formula Breakdown
LCR = HQLA / Net Cash Outflows ≥ 100%
Step-by-step calculation with Basel III haircuts and caps
Visual Breakdown
HQLA Composition
Outflows by Category
Regulatory Interpretation
| LCR Level | Status | Implication |
|---|---|---|
| ≥ 100% | Compliant | Meets Basel III minimum requirement |
| 80% - 100% | Near Threshold | May use buffer during stress; monitor closely |
| < 80% | Non-Compliant | Supervisory action required; restrictions possible |
Understanding the Liquidity Coverage Ratio
What is the LCR?
The Liquidity Coverage Ratio (LCR) is a Basel III requirement ensuring banks hold enough High-Quality Liquid Assets (HQLA) to survive a 30-day stress scenario. Banks must maintain LCR ≥ 100% at all times.
LCR Formula
LCR = HQLA / Net Cash Outflows
Net Outflows = Gross Outflows - min(Inflows, 0.75 × Gross Outflows)
Net Outflows = Gross Outflows - min(Inflows, 0.75 × Gross Outflows)
HQLA Categories & Haircuts
Level 1 (0% haircut)
Cash, central bank reserves, qualifying sovereign bonds. No limit on inclusion.
Level 2A (15% haircut)
Agency securities, covered bonds AA- or higher. Part of 40% Level 2 cap.
Level 2B (50% haircut)
Corporate bonds A+ to BBB-, certain equities. Capped at 15% of total HQLA.
Concentration Caps
- Level 2 Cap: Total Level 2 assets ≤ 40% of HQLA after haircuts
- Level 2B Cap: Level 2B assets ≤ 15% of HQLA after haircuts
- Inflow Cap: Inflows capped at 75% of gross outflows
Important: When Level 1 = 0, all Level 2 assets are excluded from HQLA (caps force recognition to zero).
Key Assumptions
- All HQLA must be unencumbered and operationally eligible for monetization
- 30-day stress scenario with specified runoff rates
- Runoff rates are regulatory minimums; national discretion may increase them
- This calculator uses simplified Basel III standard rates
Related Ratio: The Net Stable Funding Ratio (NSFR) complements the LCR by measuring structural funding stability over a 1-year horizon.
Frequently Asked Questions
The LCR is a Basel III requirement measuring whether banks hold sufficient High-Quality Liquid Assets (HQLA) to survive a 30-day stress scenario. The formula is LCR = HQLA / Net Cash Outflows, with a minimum requirement of 100%.
HQLA are assets that can be easily converted to cash with little or no loss of value. Level 1 assets (cash, central bank reserves, government bonds) have no haircut. Level 2A assets (agency securities, covered bonds) have a 15% haircut. Level 2B assets (corporate bonds, equities) have a 50% haircut.
Basel III limits Level 2 assets to 40% of total HQLA after haircuts, and Level 2B assets to 15% of total HQLA. When caps bind, the excess is proportionally reduced. If Level 1 = 0, all Level 2 assets are excluded from HQLA.
The 75% inflow cap ensures banks cannot rely entirely on incoming cash to meet outflows during stress. Net outflows must be at least 25% of gross outflows, requiring banks to hold meaningful HQLA buffers regardless of expected inflows.
Basel III specifies runoff rates by funding type: stable retail deposits 3%, less stable retail 10%, operational wholesale 25%, non-operational wholesale 40%, secured funding with L1 collateral 0%, secured funding with L2A collateral 15%.
Banks below 100% LCR must notify regulators and submit remediation plans. During stress periods, regulators may temporarily allow LCR usage below 100%, but sustained non-compliance triggers supervisory action and potential restrictions on dividends or business activities.
Disclaimer
This calculator is for educational purposes only and uses simplified Basel III standard runoff rates. Actual LCR calculations involve additional factors including national discretion adjustments, specific asset eligibility criteria, and operational requirements. This tool should not be used for regulatory reporting or compliance decisions.
