What is the Liquidity Coverage Ratio?

What is the Liquidity Coverage Ratio?

In this video January breaks down the Liquidity Coverage Ratio and explains its importance with a Northern Rock case study.
Overview

Many banks tend to fund long-term lending commitments with short-term debt, hence creating a shortage of liquidity. The Liquidity Coverage Ratio was introduced to ensure banks have sufficient highly liquid assets to meet their short-term financial obligations.

Key learning objectives:

  • Discuss the different types of HQLA and the conditions in which they are traded

  • Explain the potential drawbacks of having a surplus of liquidity

  • Understanding the importance of Deposit Insurance Schemes, such as the FSCS in protecting deposits

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Summary
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Expert
January Carmalt

January Carmalt

January began her career in 1999 with Bank of America in Charlotte, NC. From the Credit Products team, she moved into fixed income bond research covering Telecoms and Financials. While in London, January focused on financial institutions bond research until her Director and head bond analyst role at Deutsche Bank. As of 2011, January has worked as a freelance writer.

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