2.4.6 Liquidity ratios

The GFC showed that the regulatory capital requirements by itself were insufficient to prevent a liquidity crisis.1 Therefore, the liquidity coverage ratio and net stable funding ratio were introduced in CRR.2 The liquidity coverage ratio is a supervisory minimum ratio of short-term liquidity that banks have to hold. In order to achieve the required liquidity coverage ratio of at least 100% (as from 1 January 2018)3, a bank's available liquid assets have to surpass its expected cumulative net cash outflows over a period of at least 30 days. During a period of stress, banks can use their liquid assets to cover their net liquidity outflows.

The net stable funding ratio aims to promote resilience over a longer time horizon by creating incentives for banks to fund their activities with more stable sources of funding on an ongoing basis. There is no finalized EU definition of the net stable funding ratio yet. The EBA therefore monitors compliance with the Basel III standards under which the total available stable funding should equal or exceed 100% of the total required stable funding in order to meet the required ratio.5