Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools
The LCR is one of the Basel Committee's key reforms to strengthen global capital and liquidity regulations with the goal of promoting a more resilient banking sector. The LCR promotes the short-term resilience of a bank's liquidity risk profile. It does this by ensuring that a bank has an adequate stock of unencumbered high-quality liquid assets (HQLA) that can be converted into cash easily and immediately in private markets to meet its liquidity needs for a 30 calendar day liquidity stress scenario. It will improve the banking sector's ability to absorb shocks arising from financial and economic stress, whatever the source, thus reducing the risk of spillover from the financial sector to the real economy. This document sets out the LCR standard and timelines for its implementation.
The LCR was first published in December 2010. At that time, the Basel Committee put in place a rigorous process to review the standard and its implications for financial markets, credit extension and economic growth. It committed to address unintended consequences as necessary. The revisions to the LCR developed and agreed by the Basel Committee over the past two years include an expansion in the range of assets eligible as HQLA and some refinements to the assumed inflow and outflow rates to better reflect actual experience in times of stress. In addition, the Basel Committee has agreed a revised timetable for phase-in of the standard and additional text to give effect to the Committee's intention for the stock of liquid assets to be used in times of stress.
International Endorsement: G20