Liquidity Coverage Ratio - LCR

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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.

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BREAKING DOWN '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.

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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. What is the difference between a Debit Order and a Standard Order in a bank reconciliation?

    While both debit orders and standard orders represent recurring transactions that must be considered in bank reconciliations, ... Read Full Answer >>

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