The Basel Committee on Banking Supervision (BCBS) introduced two key standards of measurement for liquidity under Basel III reporting – often referred to as “Basel IV” – as part of an effort to revamp liquidity reporting requirements following the 2008 financial crisis: liquidity coverage ratio (LCR) and net stable funding ratio (NSFR).
LCR is the short-term matching of a financial institution’s expected cash inflows, outflows, and available high-quality assets that can be quickly liquidated to cover any gaps between inflows and outflows. It is calculated by dividing a firm’s available stable funding (ASF) by its required stable funding (RSF).
