Liquidity Coverage Ratio Calculator

Understanding the Liquidity Coverage Ratio (LCR)

The Liquidity Coverage Ratio (LCR) is an essential financial metric introduced under the Basel III international regulatory framework. It ensures that financial institutions maintain a sufficient cushion of unencumbered High-Quality Liquid Assets (HQLA) to survive a severe 30-day liquidity stress scenario.

Key Basel III LCR Formulas

The ratio compares available unencumbered liquid assets against estimated short-term net cash outflows:

• $$\text{Capped Inflows} = \min(\text{Expected Inflows}, 0.75 \times \text{Expected Outflows})$$
• $$\text{Net Cash Outflows} = \text{Expected Outflows} - \text{Capped Inflows}$$
• $$\text{LCR (\%)} = \left(\frac{\text{HQLA}}{\text{Net Cash Outflows}}\right) \times 100$$

What Qualifies as HQLA?

High-Quality Liquid Assets are assets that can be easily and immediately converted into cash in private markets with little or no loss of value during a financial crisis:

• Level 1 Assets: Central bank reserves and marketable government bonds (subject to 0% haircut).
• Level 2A Assets: High-rating sovereign bonds and corporate bonds (15% haircut).
• Level 2B Assets: Qualifying common stock equities and lower-grade corporate bonds (50% haircut).