Professional Documents
Culture Documents
What is Liquidity?
Managing Liquidity
Only higher quality assets – which are easily convertible into cash
through outright sale or repo – no count towards these liquidity
buffers.
Under Basel III guidelines, LCR is the key metric that measures
whether a bank holds sufficient liquidity.
Banks calculate the net cash outflow they would face under
stressed conditions and compare it with the HQLA they hold.
For example, if the net outflow was estimated at Rs 100 Bn and
HQLA are calculated at Rs 130 Bn, the LCR would be 130/100 =
1.3 or 130%. This would imply that the bank can comfortably
meet its liquidity requirements under stressed conditions.
What are some of the major risk drivers to determine the net cash
outflow under stress testing?
Monitoring Tools