panaversity LCR FORMULA
LCR = HQLA Stock / Total Net Cash Outflows (30-day stress) >= 100%
Minimum regulatory: 100% Management buffer best practice: 110-130% (gives operating room above minimum)
HQLA CATEGORISATION AND HAIRCUTS
Level 1 Assets — No Haircut
- Coins and banknotes
- Central bank reserves (eligible for withdrawal in stress)
- Central government / central bank bonds in domestic currency
- Central government / central bank bonds in foreign currency (up to 15% cap per currency)
- Qualifying 0% risk weight sovereign bonds in Basel SA Level 1 assets: NO haircut, NO cap as proportion of HQLA.
Level 2A Assets — 15% Haircut
- Sovereign / central bank / MDB bonds rated AA- or above (not qualifying for Level 1)
- Non-0% RW sovereign bonds from countries with low risk
- Qualifying corporate bonds rated AA- or above
- Qualifying covered bonds rated AA or above Level 2A assets after haircut: capped at 40% of total HQLA after haircuts.
Level 2B Assets — 25-50% Haircuts (national discretion to include)
- Qualifying RMBS (residential mortgage-backed securities): 25% haircut
- Qualifying corporate bonds rated A+ to BBB-: 50% haircut
- Qualifying equities in main stock index: 50% haircut Level 2B assets after haircut: capped at 15% of total HQLA after haircuts. Combined Level 2A + 2B cap: 40% of total HQLA after haircuts.
HQLA CALCULATION EXAMPLE — WITH LEVEL 2 CAP CHECK
Level 1: 800M x 100% = 800M Level 2A: 100M x 85% = 85M Level 2B: 60M x 75% = 45M (after 25% RMBS haircut) Subtotal before cap: 930M Level 2 cap check: Level 2 = 130M. 40% of 930M = 372M. Cap not binding. HQLA Stock = 930M
Example Where Level 2 Cap IS Binding
Level 1: 200M x 100% = 200M Level 2A: 200M x 85% = 170M Level 2B: 100M x 50% = 50M (after 50% equity haircut) Subtotal before cap: 420M Level 2 cap check: Level 2 = 220M. 40% of 420M = 168M. CAP IS BINDING. Adjusted Level 2 = 168M. Excess 52M excluded. HQLA Stock = 200M + 168M = 368M (not 420M)
The Level 2 cap commonly binds for banks with limited sovereign bond portfolios that rely heavily on corporate bonds or RMBS for their liquidity buffer.
CASH OUTFLOWS — KEY RUN-OFF RATES
Retail Deposits
| Category | Run-off Rate |
|---|---|
| Stable retail deposits (insured, established relationship) | 3% |
| Less stable retail deposits (uninsured, online, new customers) | 10% |
| Very high rate / promotional deposits | 20% |
Wholesale Deposits
| Category | Run-off Rate |
|---|---|
| Non-financial corporate (operational) | 25% |
| Non-financial corporate (non-operational) | 40% |
| Financial institution (non-operational) | 100% |
| Central bank / sovereign (operational) | 25% |
| Secured funding (government collateral) | 0% |
| Secured funding (non-HQLA collateral) | 25% |
| Unsecured wholesale < 30 days (financial) | 100% |
Off-Balance-Sheet
| Facility Type | Drawdown Rate |
|---|---|
| Credit facilities to retail customers | 5% |
| Credit facilities to non-financial corporates | 10% |
| Credit facilities to financial institutions | 40% |
| Liquidity facilities to SPVs / conduits | 100% |
| Committed undrawn facilities (unconditional cancellable) | 0% |
CASH INFLOWS — KEY RATES AND 75% CAP
Maturing secured lending collateralised by HQLA: 0% (assumed rolled) Maturing secured lending collateralised by non-HQLA: 100% Retail customer loan repayments: 50% Non-financial corporate loan repayments: 100% Financial institution loan repayments: 100%
CRITICAL: Total inflows are CAPPED at 75% of total outflows. Net Cash Outflows = Total Outflows - MIN(Total Inflows, 75% x Total Outflows)
OPERATIONAL DEPOSITS
Operational deposits (funds held for clearing, custody, cash management): May receive lower run-off treatment (25%) if the bank is the core relationship provider and the customer has no practical alternative for these services. Operational determination requires documented evidence of operational relationship.
INTRADAY LIQUIDITY
LCR measures 30-day liquidity. Banks also need intraday liquidity for payment system settlement. BCBS monitoring tools (April 2013) address intraday liquidity separately — check jurisdiction overlay for monitoring requirements.
OUTPUT FORMAT — LCR REPORT
LCR CALCULATION REPORT
As at: [YYYY-MM-DD]
Entity: [Bank / Group name]
Currency: [Reporting currency]
HIGH QUALITY LIQUID ASSETS (HQLA):
Level 1 assets: [Amount] x 100% = [After haircut]
Level 2A assets: [Amount] x 85% = [After haircut]
Level 2B assets: [Amount] x [%] = [After haircut]
Subtotal before cap: [Amount]
Level 2 cap (40%): [Binding? Y/N — adjusted amount]
TOTAL HQLA: [Amount]
CASH OUTFLOWS (30-day stress):
Retail deposits: [Amount] x [rate] = [Outflow]
Wholesale non-operational: [Amount] x [rate] = [Outflow]
Wholesale operational: [Amount] x [rate] = [Outflow]
Secured funding: [Amount] x [rate] = [Outflow]
Off-balance-sheet: [Amount] x [rate] = [Outflow]
TOTAL OUTFLOWS: [Amount]
CASH INFLOWS:
Maturing secured (non-HQLA): [Amount] x 100% = [Inflow]
Loan repayments: [Amount] x [rate] = [Inflow]
TOTAL INFLOWS (before cap): [Amount]
75% CAP: [75% x Total Outflows]
INFLOWS RECOGNISED: MIN([Inflows], [Cap])
NET CASH OUTFLOWS: [Outflows - Inflows Recognised]
LCR: [HQLA / Net Cash Outflows] = [Ratio]%
Regulatory Minimum: 100%
Management Target: [Target]%
NEVER DO THESE
- NEVER include Level 2B assets without checking if jurisdiction permits them (national discretion)
- NEVER forget the combined 40% Level 2 cap
- NEVER forget the 75% inflow cap (can't assume all counterparties pay)
- NEVER include encumbered assets in HQLA (must be unencumbered)
- NEVER double-count assets that are both HQLA and maturing loan collateral
- NEVER classify deposits as "operational" without documented evidence of the operational relationship — regulators audit operational deposit determinations closely
ALL OUTPUTS REQUIRE REVIEW BY A QUALIFIED PROFESSIONAL BEFORE USE IN REGULATORY FILINGS OR BUSINESS DECISIONS.