Liquidity & Balance Sheet
Liquidity Coverage Ratio
Also known as LCR
The Liquidity Coverage Ratio (LCR) measures whether a bank holds enough high-quality liquid assets to survive a 30-day stress scenario. It is the primary post-2008 liquidity rule for large US banks under Basel III.
Formula
High-Quality Liquid Assets (HQLA) are split into Level 1 (cash, central bank reserves, US Treasuries — counted at 100%) and Level 2 (other government and investment-grade securities, haircut and capped at 40% of HQLA). Net cash outflows assume run-off rates against deposits and unfunded commitments.
Why it matters
The LCR is the regulatory acknowledgment that liquidity, not capital, killed most banks in 2008. A 100% minimum applies to Category I-III banks (roughly $250B+); the threshold was eased for Category IV banks in 2019, then partially reinstated after the 2023 regional bank failures revealed the same liquidity gap regulators had patched at the top.
How to interpret
An LCR above 110-120% is the comfortable operating zone for large banks; near 100% is regulator-acceptable but leaves little stress cushion; below 100% triggers a remediation plan and reporting to the supervisor. Smaller banks (under $100B) are not subject to LCR — they are governed by simpler liquidity guidelines and the daily liquidity stress test.
Thresholds
| Range | Label | Interpretation |
|---|---|---|
| ≥ 120% | Comfortable | Buffer above the regulatory minimum. |
| 100–120% | Adequate | Meets minimum but limited stress cushion. |
| 90–100% | Watch | Triggers remediation plan filing. |
| < 90% | Concern | Severe regulatory and market response. |
Worked example
Frequently asked
Which US banks must report the LCR?
Category I (G-SIBs), II (≥$700B), and III (≥$250B) banks must meet a full 100% LCR. Category IV banks (≥$100B) face a modified LCR; smaller banks are not subject to the rule.
Why didn't LCR prevent the 2023 regional bank failures?
Silicon Valley Bank and First Republic were below the $250B threshold and therefore did not have to meet the full LCR. Their deposit runs exposed how concentrated, uninsured deposit bases can outrun the simpler liquidity rules that applied to them.
How does the LCR relate to the NSFR?
LCR is a 30-day stress measure; the Net Stable Funding Ratio is a 1-year structural measure. Together they constrain both short-term run risk and long-term funding maturity mismatches.
Sources
- 12 CFR Part 249 — Federal Reserve Regulation WW (Liquidity Coverage Ratio)
- FFIEC Form FR 2052a — Complex Institution Liquidity Monitoring Report
See LCR across 4,335 US banks
BankRegReports ranks every FDIC-insured institution by LCR, refreshed quarterly within 48 hours of FFIEC release.