The Liquidity Coverage Ratio imposed by Basel III requires a bank:
A) to keep enough highly liquid assets to cover its net liabilities for the next 10 days to guard against severe liquidity stress
B) to keep enough highly liquid assets to cover its net liabilities for the next 30 days to guard against severe liquidity stress
C) to keep enough highly liquid assets to cover its net liabilities for the next 60 days to guard against severe liquidity stress
D) to retain enough liquidity to cover its assets against severe default risk

Question

Quizplus · Accepted Answer

The Liquidity Coverage Ratio (LCR) imposed by Basel III requires a bank to keep enough highly liquid assets to cover its net liabilities for the next 30 days to guard against severe liquidity stress. Therefore, choice B is correct. Choice A (10 days) and C (60 days) are not correct answers as they do not align with the regulatory requirement set by Basel III. Choice D is also incorrect as it does not correctly describe the purpose of the LCR, which is to guard against severe liquidity stress, not severe default risk.

The Liquidity Coverage Ratio Imposed by Basel III Requires a Bank