Liquidity Coverage Ratio - LCR

AAA

DEFINITION of 'Liquidity Coverage Ratio - LCR'

Highly liquid assets held by financial institutions in order to meet short-term obligations. The Liquidity coverage ratio is designed to ensure that financial institutions have the necessary assets on hand to ride out short-term liquidity disruptions. Banks are required to hold an amount of highly-liquid assets, such as cash or Treasury bonds, equal to or greater than their net cash over a 30 day period (having at least 100% coverage). The liquidity coverage ratio started to be regulated and measured in 2011, but the full 100% minimum won't be enforced until 2015.

INVESTOPEDIA EXPLAINS 'Liquidity Coverage Ratio - LCR'

The liquidity coverage ratio is an important part of the Basel Accords, as they define how much liquid assets have to be held by financial institutions. Because banks are required to hold a certain level of highly-liquid assets, they are less able to lend out short-term debt.

RELATED TERMS
  1. Key Ratio

    A mathematical ratio that illustrates and summarizes the current ...
  2. Acid-Test Ratio

    A stringent indicator that determines whether a firm has enough ...
  3. Liquidity Ratios

    A class of financial metrics that is used to determine a company's ...
  4. Liquidity

    1. The degree to which an asset or security can be bought or ...
  5. Liquid Asset

    An asset that can be converted into cash quickly and with minimal ...
  6. Current Ratio

    A liquidity ratio that measures a company's ability to pay short-term ...
RELATED FAQS
  1. What is the minimum liquidity coverage ratio that a bank must have from 2016 to 2 ...

    The minimum liquidity coverage ratio that banks must have under the new Basel III standards are phased in beginning at 7 ... Read Full Answer >>
  2. What is the difference between a bank's liquidity and its liquid assets?

    A company's liquid assets can easily be converted into cash to meet financial obligations on short notice. Liquidity is the ... Read Full Answer >>
  3. What's the difference between the coverage ratio and the liquidity coverage ratio?

    Investors and analysts use coverage ratios to determine a company's ability to meet its financial obligations. The liquidity ... Read Full Answer >>
  4. How are international investment banking practices regulated?

    The first step in creating international investment banking regulations occurred in 1930, when the Bank for International ... Read Full Answer >>
  5. Are a bank's current assets counted as liquidity?

    The financial statements for most banks in the United States arrange the banks' assets in order of liquidity. In other words, ... Read Full Answer >>
  6. How is minimum transfer price calculated?

    A company that transfers goods between multiple divisions needs to establish a transfer price so that each division can track ... Read Full Answer >>
Related Articles
  1. Personal Finance

    Breaking Down The Balance Sheet

    Knowing what the company's financial statements mean will help you to analyze your investments.
  2. Bonds & Fixed Income

    Six Biggest Bond Risks

    Don't assume that you can't lose money in this market - you can. Find out how.
  3. Investing Basics

    A Look At Primary And Secondary Markets

    Knowing how the primary and secondary markets work is key to understanding how stocks trade.
  4. Markets

    Free Cash Flow: Free, But Not Always Easy

    Free cash flow is a great gauge of corporate health, but it's not immune to accounting trickery.
  5. Savings

    Bank Lingo: Routing Number Vs. Account Number

    Each consumer bank account has its own personal ID. And so does the bank. How do these numbers function and how do they protect the account holder?
  6. Investing Basics

    Calculating Unlevered Free Cash Flow

    Unlevered free cash flow (UFCF) is the free cash flow of a business before interest payments.
  7. Investing Basics

    What Does a Financial Intermediary Do?

    A financial intermediary is an institution that acts as a go-between in a financial transaction.
  8. Fundamental Analysis

    Explaining the Empirical Rule

    The empirical rule provides a quick estimate of the spread of data in a normal statistical distribution.
  9. Economics

    Explaining Demographics

    Demographics is the study and categorization of people based on factors such as income level, education, gender, race, age, and employment.
  10. Fundamental Analysis

    Calculating Degree of Financial Leverage

    Degree of financial leverage (DFL) is a metric that measures the sensitivity of a company’s operating income due to changes in its capital structure.

You May Also Like

Hot Definitions
  1. Bund

    A bond issued by Germany's federal government, or the German word for "bond." Bunds are the German equivalent of U.S. Treasury ...
  2. European Central Bank - ECB

    The central bank responsible for the monetary system of the European Union (EU) and the euro currency. The bank was formed ...
  3. Quantitative Easing

    An unconventional monetary policy in which a central bank purchases private sector financial assets in order to lower interest ...
  4. Current Account Deficit

    A measurement of a country’s trade in which the value of goods and services it imports exceeds the value of goods and services ...
  5. International Monetary Fund - IMF

    An international organization created for the purpose of: 1. Promoting global monetary and exchange stability. 2. Facilitating ...
  6. Risk-Return Tradeoff

    The principle that potential return rises with an increase in risk. Low levels of uncertainty (low-risk) are associated with ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!