Liquidity Coverage Ratio

The Liquidity Coverage Ratio (LCR) is a financial measure used by banks to ensure they have enough liquid assets to cover potential short-term obligations, such as customer withdrawals. It requires banks to hold a certain amount of high-quality liquid assets, like cash or government bonds, that can quickly be converted to cash. The goal is to promote the bank’s resilience during financial stress, helping to prevent crises. A higher LCR indicates that a bank is better prepared to meet its immediate financial needs, fostering stability in the overall banking system.