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): corporate bonds rated AA- or higher, certain government agency securities
• Level 2B (50% haircut): corporate bonds rated A+ to BBB-, certain equities, residential mortgage-backed securities

Two caps sit on top of the haircuts, and both are stated against total HQLA, the figure that already includes whatever survives the cap. Level 2A and 2B together cannot exceed 40% of the stock, and Level 2B alone cannot exceed 15%. Because the cap is measured against a total it is part of, the working forms are cleaner: Level 2 is limited to two thirds of Level 1, and Level 2B to 15/85 of Level 1 plus Level 2A. Capping against the pre-cap total instead is a common slip, and it quietly lets Level 2 reach about 44% of the final stock.

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. The US does not apply the rule uniformly. Since the 2019 tailoring rules, the requirement is scaled by a bank’s size and its reliance on short-term wholesale funding:

• The largest and most internationally active banks carry the full 100% requirement.
• A middle tier carries a reduced version, at a percentage of the full standard.
• Many banks in the $100B to $250B range carry no LCR requirement at all, depending on their funding profile.
• Below roughly $100B in assets, the LCR does not apply, and other liquidity supervision covers the ground.

That middle tier matters more than it sounds, and the next section explains why.

Worked example: a large US bank.

HQLA stock:

• Cash and central bank reserves: $80B (Level 1)
• US Treasuries: $120B (Level 1)
• AA corporate bonds: $30B (Level 2A, 85% counts after the haircut) = $25.5B
• A-rated bonds: $20B (Level 2B, 50% counts after the haircut) = $10B

Now check the caps. Level 2B is allowed up to 15% of total HQLA, which works out to (15/85) × (80 + 120 + 25.5) = $39.8B, so the $10B counts in full. Level 2 as a whole is allowed up to 40% of total HQLA, which is two thirds of Level 1, or $133.3B. Level 2 here is $35.5B, comfortably under.

Total HQLA = 80 + 120 + 25.5 + 10 = $235.5B

30-day stressed outflows:

• Retail deposits: $900B × 5% blended runoff = $45B
• Operational corporate deposits: $400B × 25% = $100B
• Non-operational corporate deposits: $150B × 40% = $60B
• Credit facility drawdowns: $300B undrawn × 10% = $30B
• Derivative and other contractual outflows: $15B
• Total outflows: $250B

30-day inflows (capped at 75% of outflows, so at $187.5B here):

• Loan repayments: $35B
• Maturing securities: $18B
• Other: $7B
• Total inflows: $60B, well under the cap, so all of it counts

Net outflows = 250 − 60 = $190B

LCR = 235.5 / 190 = 124%. That sits in the 110-140% band where most large US banks actually run. Notice how little of the ratio the Level 2 assets drive: strip them out entirely and the LCR is still 105%. Level 1 does nearly all the work, which is exactly what the caps are designed to force.

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, meaning restrictions on dividends, buybacks, and 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 the LCR has unintended consequences:

• Banks hoard sovereign debt to meet HQLA, which distorts government bond markets
• The 30-day window is a convention, not a finding. Real liquidity crises have run both much shorter and much longer.
• The deposit runoff rates are calibrated to past crises, and the next one does not have to resemble them

Silicon Valley Bank, March 2023, is the case that made the last point concrete. Depositors pulled roughly $42 billion in a single day, and had queued another $100 billion for the following morning. Basel’s stress scenario assumes that scale of outflow over thirty days, not one.

The detail usually left out of the retelling: SVB was in the tier that the 2019 tailoring rules had relieved of the full LCR requirement. So this was not a bank that passed the test and failed anyway. It was a bank the test had largely stopped being applied to, run over by a speed of withdrawal the test does not contemplate. Both halves of that are the lesson.