What is liquidity coverage ratio under Basel III?

The minimum liquidity coverage ratio that banks must have under the new Basel III standards are phased in beginning at 70% in 2016 and steadily increasing to 100% by 2019. The year-by-year liquidity coverage ratio requirements for 2016, 2017, 2018 and 2019 are 70%, 80%, 90% and 100%, respectively.

What are the 3 pillars of Basel?

The on-going reform of the Basel Accord relies on three “pillars”: capital adequacy requirements, centralized supervision and market discipline.

What is liquidity coverage ratio for banks?

The liquidity coverage ratio is the requirement whereby banks must hold an amount of high-quality liquid assets that’s enough to fund cash outflows for 30 days. 1 Liquidity ratios are similar to the LCR in that they measure a company’s ability to meet its short-term financial obligations.

What is capital and liquidity?

Liquidity is a measure of the cash and other assets banks have available to quickly pay bills and meet short-term business and financial obligations. Capital is a measure of the resources banks have to absorb losses.

What is the Basel 2?

Basel II is an international business standard that requires financial institutions to maintain enough cash reserves to cover risks incurred by operations. The Basel accords are a series of recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision (BSBS).

What are the types of liquidity risk?

There are two different types of liquidity risk. The first is funding liquidity or cash flow risk, while the second is market liquidity risk, also referred to as asset/product risk.

What is the difference between LCR and NSFR?

The LCR aims to “promote short-term resilience of a bank’s liquidity risk profile by ensuring that it has sufficient high-quality liquid resources to survive an acute stress scenario lasting for one month.” In contrast, the NSFR takes a longer-term perspective and aims to create “additional incentives for a bank to …