A ratio used to ensure that financial institutions have the necessary assets on hand to meet short-term liquidity requirements. Under this standard, the banks must hold a stock of unencumbered liquid assets to cover the total net cash outflows.
Below is the formula for calculating the LCR ratio. This ratio must exceed 1 in order for the financial institution to have enough liquid assets to cover volatile liabilites and remain in a solvent position on the balance sheet.
