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Liquidity Position
The Basel III framework introduced two minimum liquidity READING 17: ANALYSIS OF FINANCIAL INSTITUTIONS
standards:
MODULE 17.4: LIQUIDITY POSITION AND SENSITIVITY TO MARKET RISK
Liquidity coverage ratio (LCR) is calculated as the value of
a bank’s highly liquid assets divided by its expected cash
outflows.
Highly liquid assets are those that are easily convertible
into cash, while expected cash flows are the estimated
one-month liquidity needs in a stress scenario. The
standards recommend a minimum LCR of 100%.
Net stable funding ratio (NSFR) is the % of required stable
funding that is sourced from available stable funding.
Available stable funding is a function of the
composition and maturity distribution of a
bank’s funding sources (i.e., capital,
deposits, and other liabilities). Required
stable funding is a function of the
composition and maturity distribution of the
bank’s asset base.
Available stable funding (ASF) is determined
based on an ASF factor that is assigned to
each funding source:
