---
title: "Liquidity Coverage Ratio: definition, formula, and thresholds"
description: "The liquidity coverage ratio (LCR) is a bank's stock of high-quality liquid assets divided by its projected net cash outflows over a 30-day stress period. US rules require large banks to keep it at or above 100%, or a reduced level for some, so they can survive a month-long run without new funding."
canonical_url: https://www.bankregreports.com/glossary/liquidity-coverage-ratio/
source: BankRegReports
category: "Liquidity & Balance Sheet"
units: "%"
schedule: "FR 2052a / LCR public disclosure"
---

# Liquidity Coverage Ratio

> The liquidity coverage ratio (LCR) is a bank's stock of high-quality liquid assets divided by its projected net cash outflows over a 30-day stress period. US rules require large banks to keep it at or above 100%, or a reduced level for some, so they can survive a month-long run without new funding.

## Formula

```
LCR = High-Quality Liquid Assets / Total Net Cash Outflows over 30 Days
```

High-quality liquid assets (HQLA) are Level 1 assets (cash, reserves at the Federal Reserve and US Treasuries) counted in full, Level 2A assets (such as GSE securities) after a 15% haircut, and Level 2B assets (such as some investment-grade corporate debt) after a 50% haircut. Level 2 assets may make up at most 40% of HQLA and Level 2B at most 15%. Total net cash outflows apply prescribed run-off rates to each funding source and commitment, then subtract inflows, which may offset no more than 75% of outflows. The US rule, 12 CFR Part 249, adds a peak-day measure for the largest banks.

## Why it matters

Liquidity, not capital, is what usually kills a bank first: the failures of 2008 and 2023 were runs on funding. The LCR forces large banks to pre-fund a month of severe stress with assets they can sell or pledge quickly. Under the 2019 tailoring rule, Category I and II banks must meet 100%; Category III banks meet 100% or 85% and Category IV banks meet 70% or nothing, depending on their weighted short-term wholesale funding.

## How to read it

Large US banks usually report LCRs between 110% and 140%. A ratio near 100% meets the rule but leaves little room before a remediation plan is required. Banks under $100 billion are not subject to the LCR, and it is not on the call report: banks that must meet it publish quarterly LCR disclosures, and for smaller banks liquidity has to be read from call report items such as cash, unpledged securities, uninsured deposits and wholesale funding.

## Thresholds

| Range | Reading | What it means |
|---|---|---|
| ≥ 120% | Comfortable | Buffer above the regulatory minimum. |
| 100–120% | Adequate | Meets the full requirement with a limited cushion. |
| 90–100% | Watch | Below 100% for a full-LCR bank; notice and a plan go to the supervisor. |
| < 90% | Concern | Material liquidity shortfall under the stress assumptions. |


## Worked example

An illustrative bank subject to the full LCR holds $40 billion of Level 1 assets and $8 billion of Level 2A securities, which count as $6.8 billion after the 15% haircut, so HQLA is $46.8 billion. Its 30-day stressed outflows are $50 billion and inflows $12 billion, for net outflows of $38 billion. LCR = $46.8 billion / $38 billion = 123%.

## Questions

### What is the liquidity coverage ratio formula?

LCR = high-quality liquid assets / total net cash outflows over 30 days × 100. Both parts follow the haircuts, caps and run-off rates in 12 CFR Part 249.

### Which US banks must meet the LCR?

Banks in Category I to IV of the 2019 tailoring rule, broadly those with $100 billion or more in assets. Category I and II banks meet 100%; Category III banks meet 100% or 85% and Category IV banks 70% or none, depending on their short-term wholesale funding.

### What counts as a high-quality liquid asset?

Cash, reserves at the Federal Reserve and US Treasuries count in full as Level 1. GSE securities and some corporate debt and equities count as Level 2 after haircuts of 15% or 50%, within caps.

### Why did the LCR not prevent the 2023 bank failures?

Silicon Valley Bank, the largest of the banks that failed, was a Category IV bank that did not have to meet the LCR. Its uninsured deposits also left far faster than the rule's run-off rates assume.

### How does the LCR differ from the net stable funding ratio?

The LCR covers a 30-day stress period. The net stable funding ratio is a one-year structural measure that compares stable funding with the assets that need it.

## Sources

- [12 CFR Part 249: Federal Reserve Regulation WW (Liquidity Risk Measurement Standards)](https://www.ecfr.gov/current/title-12/part-249)
- [12 CFR Part 50: OCC liquidity risk measurement standards](https://www.ecfr.gov/current/title-12/part-50)
- FR 2052a: Complex Institution Liquidity Monitoring Report (Federal Reserve)

## Related metrics

- [Net Stable Funding Ratio](https://www.bankregreports.com/glossary/net-stable-funding-ratio/): The Net Stable Funding Ratio (NSFR) measures whether a bank's long-term assets are matched by long-term funding sources. It is the structural complement to the 30-day Liquidity Coverage Ratio under Basel III.
- [Uninsured Deposit Ratio](https://www.bankregreports.com/glossary/uninsured-deposit-ratio/): The Uninsured Deposit Ratio measures deposits above the $250K FDIC insurance threshold as a percentage of total deposits. Made infamous by the Silicon Valley Bank failure in 2023, it captures deposit base run-risk.
- [Core Deposit Ratio](https://www.bankregreports.com/glossary/core-deposit-ratio/): The Core Deposit Ratio measures 'core' deposits (total deposits less time deposits over $250,000 and less brokered deposits of $250,000 or less) as a percentage of total deposits. Core deposits are the most stable, lowest-cost funding source available to a bank.
- [Brokered Deposits Ratio](https://www.bankregreports.com/glossary/brokered-deposits/): The Brokered Deposits Ratio measures deposits placed through deposit brokers as a percentage of total deposits. Heavy reliance on brokered deposits is a regulatory red flag because of their rate-sensitivity and association with the 1989 thrift crisis.
- [Asset-Liability Committee](https://www.bankregreports.com/glossary/alco/): An asset-liability committee (ALCO) is the group of senior bank managers that manages interest rate risk, liquidity and funding within limits the board of directors sets. That work is called asset-liability management (ALM): deciding how the balance sheet is positioned for changes in interest rates and deposit flows.

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