Basel III - LCR changes

The Basel committee today (6th Jan 2013), watered down the Basel III liquidity coverage ratio (LCR) requirement.  The summary of the key changes impacting small and medium-sized banks are listed below:


1)      The LCR will be phased-in

a.       Minimum LCR in 2015: 60%

b.      Increase by 10% every year to reach 100% in 2019


2)      The list of items that can be considered as high quality liquid assets (i.e., liquid asset buffer) has been extended and this includes:

a.       corporate bonds rated A+ to BBB- (with 50% haircut)

b.      unencumbered securities (with 50% haircut)

c.       These additional items have be capped at 15% of the high quality liquid assets


3)      Outflow changes

a.       Insured retail deposits (reduced from 5% to 3%)

b.      Insured non-financial corporates, government, central bank and public sector entities deposits (reduced from 40% to 20%)

c.       Non-financial corporate deposits, government, central bank and public sector entities deposits (reduced from 75% to 40%)

d.      Committed liquidity facilities to non-financial corporates (reduced from 100% to 30%)

e.      Trade Finance (0% to 5% outflow)



                                      Stock of high quality liquid assets

LCR =       ------------------------------------------------------------------

                Total net cash outflows over the next 30 calendar days







Please refer to the link Risk Management -- Basel III Liquidity for more details about the Basel III liquidity requirements.