Liquidity Coverage RatioLCR
Enough high-quality liquid assets to survive 30 days of stressed outflows (Basel III).
Why you care
A bank doesn't fail because it's unprofitable; it fails because one morning it can't meet withdrawals. LCR is the post-2008 rule that forces a bank to hold enough truly liquid assets to survive 30 days of a bank run without outside help. It's a survival buffer, not a profit lever.
Run the numbers
LCR = high-quality liquid assets ÷ expected 30-day stressed outflows, and must be ≥ 100%. Hold ₹120 of liquid assets against ₹100 of modelled outflows → LCR 120%. Below 100% and the regulator is at your door.
Where this goes
Why you care
The Liquidity Coverage Ratio (LCR) requires a bank to hold enough high-quality liquid assets (HQLA) — cash, central-bank reserves, top-grade government bonds. Those assets must cover its expected net cash outflows over a 30-day severe stress scenario. It came out of Basel III, written directly in response to 2008, when banks that looked solvent still collapsed because they ran out of cash to meet withdrawals.
The distinction worth holding: solvency and liquidity are different ways to die. A bank can be perfectly profitable on paper and still fail if depositors head for the exit faster than it can turn assets into cash. LCR is the rule that says: whatever else you do, keep a month's worth of a bank run in genuinely liquid assets. It's not there to make money — it's there so a bad week doesn't become a collapse.
Run the numbers
The formula:
LCR = High-Quality Liquid Assets ÷ Total Net Cash Outflows over 30 days ≥ 100%
A simplified bank (illustrative):
- HQLA (cash, reserves, top G-secs): ₹1,20,000 cr
- Modelled net outflows over a 30-day stress (a chunk of deposits fleeing, credit lines drawn): ₹1,00,000 cr
- LCR = 1,20,000 / 1,00,000 = 120%
Comfortably above the 100% floor. The stress scenario is deliberately harsh — it assumes a slice of deposits runs and borrowers draw down committed lines all at once. Note how this overlaps but doesn't duplicate SLR: SLR is a structural rule about holding G-secs against total deposits; LCR is a behavioural rule about surviving a modelled run. A bank can meet SLR and still be caught short on LCR if its funding is flighty.
Where this goes
LCR is a standing constraint rather than a driver — it caps how aggressively a bank can lend down its liquid assets. It sits next to SLR as the two liquid-asset rules (structural versus stress-survival). It's also watched together with the credit-deposit ratio: a bank lending out a high share of deposits is, by definition, holding a thinner buffer against the day the depositors want their money back.