Which statement describes Basel III concepts: liquidity coverage ratio and net stable funding ratio?

Which statement describes Basel III concepts: liquidity coverage ratio and net stable funding ratio?

• A. LCR requires sufficient high-quality liquid assets to cover 30 days of net cash outflows; NSFR requires stable funding relative to assets and activities over a one-year horizon.
• B. LCR requires capital equal to 30% of assets
• C. LCR is about funding stability for 5 years
• D. LCR is no longer used after Basel III

Answer: (A)

Basel III uses liquidity measures to ensure banks can handle short-term stress and have stable funding over the longer term. The liquidity coverage ratio requires banks to hold enough high-quality liquid assets to cover net cash outflows over a 30-day stressed period. The net stable funding ratio ensures funding remains stable relative to assets and activities over a one-year horizon. This combination targets both immediate liquidity risk and longer-term funding resilience. The statement is the best fit because it accurately captures the 30-day horizon for the LCR and the one-year horizon for the NSFR. It’s not about a capital percentage or a multi-year horizon like five years, and Basel III liquidity standards, including the LCR, remain in use rather than being discontinued.

Basel III uses liquidity measures to ensure banks can handle short-term stress and have stable funding over the longer term. The liquidity coverage ratio requires banks to hold enough high-quality liquid assets to cover net cash outflows over a 30-day stressed period. The net stable funding ratio ensures funding remains stable relative to assets and activities over a one-year horizon. This combination targets both immediate liquidity risk and longer-term funding resilience.

The statement is the best fit because it accurately captures the 30-day horizon for the LCR and the one-year horizon for the NSFR. It’s not about a capital percentage or a multi-year horizon like five years, and Basel III liquidity standards, including the LCR, remain in use rather than being discontinued.