The liquidity coverage ratio (LCR) is a key component of Basel III regulations that ensures banks have enough liquid assets to handle short-term financial stress.
In simple terms, the LCR measures how prepared a bank is if depositors suddenly rush to withdraw their money or another liquidity crisis occurs.
The formula is: LCR = (High-Quality Liquid Assets / Total Net Cash Outflows over 30 days) and must be at least 100%.
Under Basel III standards, banks must maintain an LCR of 100% or higher — meaning they must hold enough high-quality liquid assets to cover 30 days of financial stress.
In Bangladesh, Bangladesh Bank has set LCR standards for banks following the international Basel III framework.