What is LCR & NSFR and its purpose?

Question

Accepted Answer

LCR & NSFR are regulatory requirements that banks must meet to ensure they have enough liquidity to withstand financial stress.

LCR stands for Liquidity Coverage Ratio and measures a bank's ability to meet its short-term obligations with high-quality liquid assets.
NSFR stands for Net Stable Funding Ratio and assesses a bank's long-term stability by comparing available stable funding to required stable funding.
The purpose of LCR and NSFR is to ensure banks have enough liquidity to survive financial crises without relying on government bailouts.
These ratios were introduced after the 2008 financial crisis to prevent banks from facing liquidity shortages during times of stress.

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