LiquidityCoverageRatio(LCR)In January 2o13, the BCBS agreed to comprehensiveliquidityregulation (LCR)The reform (LCR) recognizes that banking is a liquidity business"andthat,in addition toamplecapital,banksneedappropriateliquidity buffers to manage ongoing demands of their clients andcounterpartiesThe notion that banksneeda liquiditybufferis, of course,notentirely new. Reserve requirements have been used since the Panicof1837!Liquidityrequirements also reducetheextentto which the centralbank must relyonLOLRwhich canbe important in a crisiswhenthelinebetween“illiquidity"and“insolvency"blurs
Liquidity Coverage Ratio (LCR) In January 2013, the BCBS agreed to comprehensive liquidity regulation (LCR) The reform (LCR) recognizes that banking is a “liquidity business” and that, in addition to ample capital, banks need appropriate liquidity buffers to manage ongoing demands of their clients and counterparties The notion that banks need a liquidity buffer is, of course, not entirely new. Reserve requirements have been used since the Panic of 1837! Liquidity requirements also reduce the extent to which the central bank must rely on LOLR which can be important in a crisis when the line between “illiquidity” and “insolvency” blurs
LiquidityCoverageRatio (LCR)In the intervening 18o years the liquidity servicesoffered by banks expanded greatly - modern banksdo much more than finance term loans with demanddepositsModern LCR recognizes multiple sources of liquiditydemand that require a liquid asset bufferWholesaleunsecured fundingSecured fundingDerivatives(offbalance sheetfunding")
Liquidity Coverage Ratio (LCR) In the intervening 180 years the liquidity services offered by banks expanded greatly – modern banks do much more than finance term loans with demand deposits Modern LCR recognizes multiple sources of liquidity demand that require a liquid asset buffer Wholesale unsecured funding Secured funding Derivatives (“off balance sheet funding”)