Liquidity Coverage Ratio (LCR)

The Liquidity Coverage Ratio (LCR) is a financial measure that ensures banks can cover their short-term obligations during a financial crisis. Specifically, it compares a bank's high-quality liquid assets (like cash or government bonds) to its total net cash outflows over a 30-day stress period. A higher LCR indicates that a bank has sufficient liquid assets to withstand financial stress, reflecting its overall stability and reducing the risk of insolvency. Regulatory frameworks require banks to maintain a minimum LCR, promoting a stronger, more resilient banking system.