LCR Calculator (Liquidity Coverage Ratio)

LCR = HQLA / Net Cash Outflows over 30 days × 100%. Basel III’s liquidity rule, introduced after the 2008 financial crisis. It requires banks to hold enough High-Quality Liquid Assets (HQLA) to cover 30 days of stressed cash outflows. The minimum is 100% — if a bank cannot meet that, regulators force corrective action.

The two components.

HQLA (High-Quality Liquid Assets): assets that can be quickly converted to cash with little or no loss of value, even in stressed markets. Three tiers:

• Level 1 (no haircut, no cap): cash, central bank reserves, government securities (sovereign debt of qualifying countries)
• Level 2A (15% haircut, capped at 40% of HQLA): corporate bonds rated AA- or higher, certain government agency securities
• Level 2B (50% haircut, capped at 15% of HQLA): corporate bonds rated A+ to BBB-, certain equities, residential mortgage-backed securities

Net Cash Outflows over 30 days (under stress):

• Outflows: deposits leaving (different runoff rates by deposit type), credit facility drawdowns, derivative obligations
• Inflows: loans being repaid, securities maturing, other contractual receipts (capped at 75% of outflows)
• Net = Outflows - min(Inflows, 75% of Outflows)

Deposit runoff rates under Basel stress assumptions:

• Stable retail deposits (FDIC-insured, primary relationship): 3% runoff
• Less stable retail deposits: 10% runoff
• Operational corporate deposits: 25% runoff
• Non-operational corporate deposits: 40% runoff
• Wholesale unsecured funding from financial institutions: 100% runoff

The 100% rate on financial-institution funding reflects the 2008 lesson — interbank funding evaporates first in a crisis.

Why 100% is the floor. A 100% LCR means the bank can meet 30 days of net cash outflows from its HQLA stock alone. Below 100%, the bank is reliant on continued normal funding, which the rule assumes will not be available in stress.

LCR thresholds and bank size:

• US banks ≥ $250B assets: full 100% LCR requirement
• US banks $100B - $250B: modified LCR (less stringent)
• US banks < $100B: not subject to LCR (covered by other liquidity rules)
• EU CRR equivalent: similar thresholds
• BIS Basel framework: applies to internationally active banks

Worked example — large US bank.

HQLA stock:

• Cash and reserves: $80B (Level 1)
• US Treasuries: $120B (Level 1)
• AAA corporate bonds: $30B (Level 2A, 85% counts) = $25.5B
• A-rated bonds: $20B (Level 2B, 50% counts) = $10B (capped at 15% of total HQLA)

Total HQLA = 80 + 120 + 25.5 + 10 = $235.5B (after caps)

30-day stressed outflows:

• Retail deposits: $400B × 5% blended = $20B
• Operational corporate deposits: $200B × 25% = $50B
• Non-operational deposits: $100B × 40% = $40B
• Credit facility drawdowns: $30B × 10% = $3B
• Other: $7B
• Total outflows: $120B

30-day inflows (capped at 75% of outflows = $90B):

• Loan repayments: $40B
• Maturing securities: $25B
• Other: $15B
• Total inflows: $80B (under cap, fully counted)

Net outflows = 120 - 80 = $40B

LCR = 235.5 / 40 = 588.75% — well above the 100% minimum. Most US large banks operate in the 110-140% range; some hold higher buffers in stressed periods.

The LCR vs NSFR distinction.

• LCR: 30-day liquidity stress (acute funding crisis)
• NSFR (Net Stable Funding Ratio): 1-year structural funding stability

A bank can have a strong LCR but weak NSFR (over-reliant on short-term wholesale funding for long-term lending). Both are required under Basel III.

Why LCR matters for bank stocks.

• High LCR (above 130%): conservative liquidity, may indicate excess cash earning low yield (drag on ROE)
• LCR near 100%: minimal buffer, regulator scrutiny if it dips below
• Below 100%: regulatory action — restrictions on dividends, buybacks, expansion

The LCR is reported quarterly in 10-K and 10-Q filings and is a closely watched metric by bank analysts and credit rating agencies.

Reform debate. Critics argue LCR has unintended consequences:

• Banks hoard sovereign debt to meet HQLA, distorting government bond markets
• The 30-day window is arbitrary — actual liquidity crises play out over weeks or months
• Stress assumptions (deposit runoff rates) are calibrated to past crises, not future ones

The Silicon Valley Bank failure of March 2023 showed that even technically compliant banks can experience acute liquidity stress through digital deposit runs that exceed Basel assumptions.