Description: The Liquidity Coverage Ratio (LCR) is a crucial measure that assesses a bank’s ability to meet its short-term liquidity obligations. This indicator is calculated by dividing a financial institution’s high-quality liquid assets by its expected net cash outflows over a 30-day period. An LCR above 100% indicates that the bank has sufficient liquid assets to cover its liquidity needs in times of stress. This ratio is fundamental for ensuring financial stability, as it allows banks to withstand temporary crises without resorting to external financing. The regulation of the LCR was introduced by the Basel Committee on Banking Supervision as part of the post-2008 financial crisis reforms, aimed at strengthening the resilience of the global banking system. In summary, the Liquidity Coverage Ratio is an essential tool for risk management in the banking sector, ensuring that institutions maintain an adequate level of liquidity to face adverse economic events.
