Banking
Liquidity coverage ratio (LCR)
Whether a bank holds enough easy-to-sell assets to survive 30 days of stress.
Last reviewedWhat does Liquidity coverage ratio (LCR) mean?
The LCR is a bank's stock of high-quality liquid assets (cash, central bank reserves and top-rated government bonds) divided by the net cash it could lose over 30 days in a severe stress, such as a run on deposits. The Basel Committee's 2013 Basel III standard requires it to be at least 100 percent. Example: if the stress scenario says 80 could flow out and the bank holds 100 of liquid assets, its LCR is 125 percent. Capital protects a bank against losses; liquidity protects it against running out of cash. Banks can fail from either.
Where does it come up in case interview prep?
Related terms
- CET1 capital ratio (and risk-weighted assets)A bank's highest-quality capital as a share of its risk-weighted assets.
- Loan-to-deposit ratio (LDR)Loans divided by deposits: how much of its deposit base a bank has lent out.
- Net interest margin (NIM)What a bank earns on its loans and investments after paying for its funding, as a share of those assets.
- Cost-to-income ratioOperating costs as a share of operating income. Lower means a more efficient bank.
- Cost of riskLoan loss charges as a share of loans, usually quoted in basis points.
- Non-performing loan (NPL) ratioThe share of a bank's loans that borrowers have stopped paying.
- CASA ratioThe share of deposits held in low-cost current and savings accounts.
- Return on equity (ROE)Net income as a share of shareholders' equity.