LCR explained simply. How banks survive 30 day stress. #IndustryPortal #LCR #Liquidity #banking
7 April 2026·1 min
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Welcome to Liquidity Day 5 from the Industry Portal liquidity management course.
In this session, we take a deep dive into one of the most important regulatory metrics in modern banking: the Liquidity Coverage Ratio (LCR). We explain what the LCR is, why it was introduced after the global financial crisis, how it is calculated, and how banks manage it in practice.
You will learn how the LCR is designed to ensure banks can survive a severe 30 day liquidity stress scenario without relying on central bank support. We break down the ratio step by step, covering high quality liquid assets and how net cash outflows are determined under regulatory assumptions.
The session explores the composition of liquidity buffers, including Level 1, Level 2A, and Level 2B assets, along with haircuts, eligibility rules, and usability requirements. On the cash flow side, we explain how banks model outflows and inflows across retail deposits, wholesale funding, derivatives, and committed facilities, and why these assumptions are intentionally conservative.
We also cover how banks manage the LCR day to day, including monitoring, internal buffers, governance, and the balance between maintaining resilience and optimising profitability. You will understand why the LCR can be volatile and how Treasury and Risk teams respond to sudden changes.
From a regulatory perspective, we explain how supervisors such as the Prudential Regulation Authority and European Central Bank monitor LCR, how it feeds into ILAAP and SREP, and how liquidity buffers may be used during periods of stress.
By the end of this session, you will understand why the LCR is a frontline defence in banking stability and why effective management goes far beyond simple compliance.
This session sets the foundation for the next stage of the course, where we explore the Net Stable Funding Ratio and long term funding strategy.
Subscribe to Industry Portal for the full liquidity management series.
#IndustryPortal #LiquidityManagement #Banking #Finance #Treasury #RiskManagement #LCR #BaselIII
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