Economics • Banking & FinanceMedium
What does the term 'Liquidity Coverage Ratio (LCR)' under Basel III standards specifically require banks to maintain?
A. An adequate stock of unencumbered high-quality liquid assets (HQLA) to survive a 30-day acute stress scenario✓ Correct Answer
B. A minimum ratio of core equity capital to total risk-weighted assets
C. Stable funding sources relative to the liquidity requirements of assets over a one-year horizon
D. A fixed percentage of total deposits maintained directly with the central bank
💡 Solution & Explanation
The Liquidity Coverage Ratio under Basel III requires banks to hold a sufficient reserve of unencumbered high-quality liquid assets to survive a thirty-day severe stress scenario defined by regulators. Other banking choices describe distinct regulatory metrics such as the Capital Adequacy Ratio or the Net Stable Funding Ratio.
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