Liquidity coverage ratio and often also called liquidity coverage ratio and sometimes liquidity coverage requirement, minimum liquidity ratio and monthly liquidity ratio (LCR)

Based on a thirty-day period, this ratio relates an institution’s stock of highly liquid assets to its net payment liabilities under stress. A minimum level of certain highly liquid assets can be prescribed as a short-term liquidity reserve by means of a lower limit for the LCR. Under Basel III, the calculation of this ratio will become a regulatory requirement for every bank by the beginning of 2015 at the latest. This is intended to ensure the survival of a bank even in the event of a sudden withdrawal of deposits. – The original plan was to include only marketable debt securities issued by governments and public-sector entities with top credit ratings among the highly liquid assets, in addition to cash and balances at the central bank. Mainly at the request of Germany, but also following the experience of the Greek crisis – Greek government bonds fell almost to junk status (rated BB and lower because of the increased possibility of default) – Basel II now also allows up to forty percent of debt securities of private issuers with comparable marketability to be included in highly liquid assets. – See banking supervision, European, capital, funding ratio, medium-term, financial strength, liquidation, core capital, liquidity maturity balance sheet, liquidity requirements versus assets, liquidity ratio, liquidity management, liquidity buffer, liquidity ratio, structural, liquidity risk. – Cf. Deutsche Bundesbank Monthly Report of September 2010, p. 8 f. (introduction date of the liquidity coverage ratio), BaFin Annual Report 2011, p. 65 f. (mandatory introduction of the LCR approaches), Deutsche Bundesbank Annual Report 2012, p. 96 (adjustment requirements), ECB Monthly Report of April 2013, p. 86 ff. (definition. important explanations; introduction date), p. 94 ff. (adjustment steps taken by banks to comply with the LCR; many overviews and explanations), Deutsche Bundesbank Annual Report 2012, p. 105 (statistics), Deutsche Bundesbank Monthly Report of April 2013, p. 53 f. (definitions; assessment; references), ECB Annual Report 2012, p. 132 (timeframe for the LCR; national supervisors may also allow high-quality liquid assets {HQLA} of the new Level 2B; explanation in note 18), Financial Stability Report 2013, p. 105 f. (possibility for national supervisors to issue guidance on the LCR).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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