LCRs Under US Rules Are More Volatile Than Under Basel Standard: OFR

The Liquidity Coverage Ratios (LCR) computed under the U.S. rules are more volatile and difficult to interpret than LCRs computed under the Basel standard, notes the Office of Financial Research.

Jill Cetina and Katherine Gleason of OFR in their October 7, 2015 research report titled: “The Difficult Business of Measuring Banks’ Liquidity: Understanding the Liquidity Coverage Ratio” point out that unlike some other regulatory ratios, bank supervisors, and analysts need to have a clear understanding of the mechanics of LCR calculations to perform informed peer analysis.

LCRs to measure bank’s liquidity risk

Cetina and Gleason point out that after the financial crisis of 2007-09, the Basel Committee introduced the LCR to measure and limit a bank’s liquidity risk over 30...