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Gleeson on the International Regulation of Banking, 3rd Edition by Gleeson, Simon (30th August 2018)

Part V Liquidity and Leverage, 22 Liquidity Coverage Ratio and Net Stable Funding Ratio

From: Gleeson on the International Regulation of Banking (3rd Edition)

Simon Gleeson

From: Oxford Legal Research Library (http://olrl.ouplaw.com). (c) Oxford University Press, 2015. All Rights Reserved.date: 11 December 2019

Subject(s):
Banking — Balance sheet — Liquidity

This chapter discusses the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR). The LCR is designed to make sure that the bank has sufficient liquidity to survive short-term shocks; the NSFR is designed to make sure that the bank's balance sheet is not too excessively mismatched between long- and short-term funding. In essence, LCR is a requirement that the bank has sufficient liquid assets to get through a 30-day period of high stress, whilst NSFR is a requirement that the bank's long-term assets be substantially funded by long-term liabilities. Both of these tests require some heroic assumptions about access to funding, likely roll-off of liabilities, and so on.

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