Q. With respect to Liquidity Coverage Ratio (LCR), consider the following statements:
- The Liquidity Coverage Ratio was first recommended after the 2007-09 financial crisis.
- The LCR is designed to ensure that banks hold a minimum amount of cash and cash-equivalents for a 30-day liquidity stress scenario.
Which of the above is/are correct?
Answer:
Both 1 & 2
Notes:
- Correct: The LCR was indeed recommended by the Basel Committee on Banking Supervision following the 2007-09 financial crisis to enhance banks' short-term liquidity resilience.
- Correct: The LCR mandates that banks maintain a sufficient stock of High Quality Liquid Assets (HQLAs) to meet liquidity needs during a 30-day stress scenario, ensuring financial stability.