What is the LCR formula?

Eligible HQLA divided by stressed net cash outflows over 30 calendar days, multiplied by 100%. The standard net-outflow calculation caps eligible inflows at 75% of outflows.

Must LCR always remain above 100%?

Basel requires at least 100% absent financial stress. During stress, banks may use HQLA and fall below the minimum, with notification and supervisory assessment.

Do all Level 2B assets have a 50% haircut?

No. Qualifying residential mortgage-backed securities have a 25% Basel haircut, while other specified Level 2B categories have 50%. Eligibility, national discretion and composition caps still apply.

Does a 130% LCR guarantee survival for 30 days?

No. It covers modelled net outflows under specified assumptions. Actual outflows, timing and asset monetisation can differ.

Can Pineify’s ordinary financial ratios replace an LCR disclosure?

No. Regulatory HQLA and stressed outflows require specialised disclosure data. Read the bank’s own regulatory liquidity report and the relevant local rules.

Bank Regulatory Liquidity and Acute Stress Testing

Liquidity Coverage Ratio: LCR Formula, Basel III Rules, and HQLA Stress

The liquidity coverage ratio (LCR) compares eligible high-quality liquid assets (HQLA) with modelled net cash outflows over 30 calendar days. Basel sets a 100% minimum in normal conditions, while allowing the buffer to be used during stress under supervisory oversight. It is a specified stress measure, not a guarantee against every bank run.

See the decision guide

What counts as HQLA?

Eligible assets must meet the framework’s quality and operational requirements, including availability to meet outflows. Not all cash balances, government bonds or investment-grade securities qualify. National implementation and permitted options matter.

Category	Basel treatment	Important condition
Level 1	Generally no haircut or composition cap	Qualifying cash, central bank reserves and specified securities; eligibility is not automatic for all sovereign debt.
Level 2A	15% haircut	Qualifying assets; combined Level 2 stock is subject to a 40% cap.
Level 2B: qualifying RMBS	25% haircut	National authorities may permit qualifying assets; Level 2B is subject to a 15% cap.
Other qualifying Level 2B assets	50% haircut	Specified debt or equities must meet detailed criteria; the combined Level 2 cap also applies.

Calculate net outflows before dividing

Apply the relevant regulatory rates to qualifying liability and inflow categories. The rates are scenario assumptions, not forecasts of actual withdrawals. Non-operational wholesale funding is not uniformly assigned 100%: counterparty type and other conditions affect treatment.

Calculate stressed outflows, including relevant deposits, maturing funding, commitments and contingent obligations. Apply the correct rules to each category.
Calculate eligible inflows and apply the inflow cap. Do not count the same asset both as HQLA and as an inflow that produces cash from that asset.
For the standard calculation: net outflows = outflows - min(eligible inflows, 0.75 × outflows). Apply any jurisdiction-specific exceptions only when supported by the relevant rule.
Hypothetical example: outflows of 100 and eligible inflows of 90 permit only 75 of inflows. Net outflows are 25. HQLA of 32.5 therefore gives LCR = 32.5 / 25 × 100% = 130%, not 325%.
Asset illustration only: 60 of qualifying Level 1 plus 40 of Level 2A market value becomes 60 + 34 = 94 after the 15% haircut. Level 2 is about 36.17% of that stock, below 40%. This simplified example assumes no other positions or required transaction adjustments.

Understand the limits of the 30-day measure

Actual deposit withdrawals, collateral calls and market liquidity can differ from the prescribed scenario. LCR is therefore one input to liquidity risk management, alongside concentrations, available collateral, currency needs and contingency funding.

Measure	Purpose	Boundary
LCR	Modelled net liquidity needs over 30 calendar days	Does not predict the exact timing or size of every outflow.
NSFR	Available versus required stable funding over a one-year horizon	Does not guarantee access to funding in every market condition.
Capital ratios	Loss-absorbing capital relative to exposures	Regulatory capital is not a stock of withdrawable cash.

What if LCR falls below 100%?

Basel explicitly allows banks to use HQLA during stress. Banks must notify supervisors when LCR falls, or is expected to fall, below 100%. The response should consider causes, severity, duration and market conditions; rebuilding the buffer too abruptly can worsen stress.

Read the disclosed numerator, denominator, reporting basis and observation period. An average LCR and a period-end LCR are different measurements.
Compare the reason for a change: a higher ratio can reflect more HQLA or lower modelled outflows. Neither alone proves deposits are stable.
There is no general Basel classification of 120% as unrestricted distributions or 100–110% as borderline. Capital distribution rules and market funding costs require separate analysis.
Use the bank’s applicable local rule and disclosures. Coverage and implementation differ across jurisdictions and institutions.

Where Pineify fits

AI Finance Agent

Organize available bank financial information and questions for further research. Obtain regulatory capital and liquidity inputs from the bank’s own disclosures; ordinary financial ratios do not establish regulatory compliance.

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Related resources

Loan to Deposit Ratio Bank Efficiency Ratio Capital Adequacy Ratio Cash Ratio Net Interest Margin AI Finance Agent

Frequently asked questions

Educational financial information only, not investment advice. Bank regulatory compliance standards vary by jurisdiction, and LCR values should be evaluated alongside capital adequacy and net stable funding disclosures.

Sources and verification

Last verified: 2026-10-20