Liquidity coverage ratio (LCR) explained: Measuring liquidity risk (Excel)

[@NEDLeducation]

You can find the spreadsheets for this video and some additional materials here: drive.google.com/drive/folders/1sP40IW0p0w5IETCgo464uhDFfdyR6rh7 Please consider supporting NEDL on Patreon: www.patreon.com/NEDLeducation

[@mdini4785]

Just came across your material. Great content. Silly question-- how does =MIN( lvl1 + lvl2a + lvl2b , lvl1 / 0.6 , lvl1 + lvl2 * 8 / 5 ) get you the result of 228502 (sum of all three HQLA levels)? I understand the order of operations concern you've mentioned below, but I'm puzzled as to how Excel outputs that figure given the formula as-written.

[@RamKumar-ns9kr]

Brother, This is what I am actually looking for a long time. Insightful video many thanks

[@paduraruovidiu201]

My man, thank you for showing me this you're so so helpful. I just got assigned a project at FRM, your content is exactly what I'm required to do.

[@NEDLeducation]

Hi Paduraru, and happy to hear the videos help in real-world practice. Stay tuned for more content in risk management.

[@khurram908]

Thanks for posting the video - it's incredibly insightful.

[@ubayethossain9757]

Excellent piece as always! Thanks!

[@Cherryy999]

Thank you very much. More insightful!

[@adimoron007]

Thank you 🙏. This is extremely helpful. I will surely make a patreon contribution. This was an amazing video for a high level understanding of LCR.

[@NEDLeducation]

Hi Aditya, and thanks so much for the kind words. Appreciate your support as well!

[@shreyajallan7651]

great great help, answers a lot of my questions

[@mac4u51]

Thank you for sharing the video.

[@henriqueramos6947]

Great explanation!

[@englishcorners9949]

Hello please did you find the spreadsheet used for the video? If yes, would please share it to me? I can't find it

[@swamivivekananda-cyclonicm8781]

Rare video, nice help. Thank you

[@scooby7877]

What does 'other outflow' on 17:10 represent? I thought you only need the run off rates for all outflows and the rate that inflows will be returned?

[@englishcorners9949]

Hello @nedl thanks for this video however I could not find the spreadsheet used for the video in the drive shared, could you help me find it?

[@niteeshsharma9906]

Thanks for sharing, it is really helpful.

[@NEDLeducation]

Hi Niteesh, and glad you liked the video! Stay tuned for more content on risk management :)

[@srijanathapa6257]

Thank you!

[@AmitGupta-no8xb]

Thanks for this.

[@rajeshpr6568]

Why are they not reporting the actual LCR they got, they are reducing it by some value. Can you please explain why?

[@sylviakivuva8365]

I have a question in computation of expected cash inflows why haven't we included the sum of other outflows( liabilities in E35 + deposits in E36 +other liabilities in E37) and instead computed only for E37. Kindly clarify. Aside from that, this is a helpful video.

[@gegaoli]

Some nontransaction deposit accounts in the U.S., such as time deposits are subject to early withdrawal penalties.

[@danielrojaspardo]

Hello! Something to discuss, do you think this ratio works for liquidity risk in funds?

[@kamipanero3567]

good morning, I wanted to download the templates but I can't find them on your drive, can you tell me where they are? thanks and congratulations

[@DawudJoadat]

hi, on cell f6 "30-day proxy" why are we dividing by 3?

[@ridhi_sinha]

Hi NEDL. Would the cash inflow from recurring deposits be considered contractual inflow in the LCR calculations ?

[@albertorasile2338]

Hi how could try to forecast this for the next 30 calendar days?

[@santabanter]

I think there's something wrong with your HQLA formula. Currently, 2A and 2B together add up to 81,038 which means no capping needed b/c it's below the 40% threshold. 2B alone is 31,748 which is under the 15% threshold. So levels 1 + 2A + 2B comes to 230,676. Isn't that what it's supposed to be?

[@NEDLeducation]

Hi, and thanks for the question! Right now, the formula works so that if there is a 40% allowance for Level 2 assets totally, Level 2B assets do not take more than 37.5% of this allowance (corresponding to 15% of total HQLA). You are correct it would be better to enforce the 15% threshold for Level 2B directly. This would require changing the last equation in the HQLA formula to (B13 + B14)/0.85, as Level 1 and Level 2A assets together must correspond to at least 85% of total HQLA. Hope it makes sense!

[@f.radanov3871]

@@NEDLeducation I have calculated according to formula in the Basel document and find 230,676. Just could not understand your explanation.

[@Gus-mi2fv]

I get 230,676 too. I thought i was losing my mind for a second.

[@sharmainesibanda2117]

Thank goodness, using the formulae in the document, I also get 230,676.

[@kawamura2459]

correct: 2A + 2B is about 35%, 2B is around 14%

[@DawudJoadat]

Cant dowload the excel file. could you save it here?

[@sayalivichare9690]

How did you get 766 in column E

[@millyhome7507]

What happens if the LCR ratio is not met?

[@NEDLeducation]

Hi, and thanks for the excellent question! If a bank systematically violates LCR, just like any other regulatory requirement, it can be (provided it comes from a BCBS-affiliated jurisdiction) fined or even put under administration by its country's central bank. Obviously, a one-off violation would most likely result in a simple warning, however the market reaction to such an increase of liquidity and regulatory risk would be enough of a deterrent.

[@thuantrinh1688]

Some segments in the video are stamped not adjacent to each other