Friday, July 19, 2024

Liquidity Coverage Ratio (LCR)

In this article, We learn about “Liquidity Coverage Ratio (LCR) “.Let’s Go!

Liquidity Coverage Ratio (LCR) refers to the proportion of highly liquid assets that financial institutions under the Basel III framework need to hold.

It ensures that a company can meet its short-term obligations across a wide range of market conditions.

The essence of the arrangements regarding LCRs in Basel III is to define what constitutes a highly liquid asset.

The LCR ratio is essentially a stress test (usually measured over a 30-day period) designed to anticipate various market and system-wide shocks and the need for banks to maintain sufficient liquidity to meet short-term obligations.

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