Liquidity Coverage Ratio (LCR)

The liquidity coverage ratio (LCR) refers to the proportion of highly liquid assets that need to be held by a financial institution subject to the Basel III framework.

It ensures that under a wide set of market conditions the firm can meet its short-term obligations.

Essential in the Basel III arrangements regarding the LCR is the definition of what constitutes a highly liquid asset.

The LCR ratio essentially is a stress test (typically measured over a 30-day period) that aims to anticipate a variety of market- and system-wide shocks and the necessity for banks to maintain sufficient liquidity to meet short-term obligations.

Related Terms

High-Quality Liquid Assets (HQLA)

High-Quality Liquid Assets (HQLA) are an essential component of bank liquidity management, playing a crucial role in ensuring that financial institutions can meet their short-term obligations during periods of financial stress High-Quality Liquid Assets (HQLA) is a concept to be situated as part of the “liquidity coverage ratio”, which is part of the Basel III […]

Sortino Ratio

The Sortino Ratio calculates the excess return earned over the risk-free rate, but only considers downside risk.

Payoff Ratio

The payoff ratio is a metric that compares the average profit of winning trades to the average loss of losing trades.

Copper/Gold Ratio

The Copper/Gold ratio is a financial indicator that measures the relative strength of copper prices compared to gold prices.

Fill Ratio

Fill ratio refers to the percentage of a trader’s or investor’s order that is executed or “filled” in the market.