how to calculate the lcr
calculating lcr is as follows l c r high quality liquid asset amount hqla total net cash flow amount lcr frac text high quality liquid asset amount hqla text total net cash flow amount lcr total net cash flow amounthigh quality liquid asset amount hqla for example let s assume bank abc has high quality liquid assets worth 55 million and 35 million in anticipated net cash flows over a 30 day stress period in this case the bank s lcr is 55 million 35 million that works out to 157 which meets the requirement under basel iii implementation of the lcrthe lcr was proposed in 2010 followed by revisions and final approval in 2014 its implementation was then phased in with the full 100 minimum not required until 2019 4in the united states the 100 lcr rule applies only to banking institutions with more than 250 billion in total consolidated assets 5lcr vs other liquidity ratiosliquidity ratios of various kinds are used not only in bank regulation but throughout the business and financial world typically as a measure of a company s ability to pay off its current debt obligations without raising external capital well known examples include the current ratio quick ratio and operating cash flow ratio limitations of the lcra limitation of the lcr is that it requires banks to hold more cash than they might otherwise and as a consequence lend out less money to businesses and individual consumers one could argue that if banks issue fewer loans it could lead to slower economic growth since companies often need access to debt in order to fund their operations and expand similarly consumers would conceivably purchase fewer cars appliances and other products which they often borrow money to pay for another limitation is that we won t know until the next major financial crisis if the lcr provides enough of a financial cushion for banks until other institutions come to their rescue 