Calculate the Liquidity Coverage Ratio (LCR) for Central Bank

What is the Liquidity Coverage Ratio (LCR) and how is it calculated? How do we calculate the LCR for Central Bank based on the given data? The LCR, or Liquidity Coverage Ratio, is a measure that banks use to assess their ability to meet short-term obligations. It is calculated by dividing the bank's high-quality liquid assets by its total net cash outflows over a 30-day period. In this case, the LCR for Central Bank is 772%.

The Liquidity Coverage Ratio (LCR) is a key financial metric used by banks to determine their ability to meet short-term obligations with high-quality liquid assets. It is essential for banks to have enough liquid assets to cover potential funding shortfalls over a 30-day period.

To calculate the LCR for Central Bank based on the given data, we need to follow these steps:

Step 1: Calculate Total Net Cash Outflows

Sum up the products of the run-off factor and the amount for each liability and equity item mentioned in the balance sheet to determine the total net cash outflows. In this case, it is the sum of the products of run-off factors and amounts for Stable Retail Deposits, Less Stable Retail Deposits, CDs maturing in 6 months, Stable Small Business Deposits, Less Stable Small Business Deposits, and Nonfinancial Corporates.

Step 2: Calculate High-Quality Liquid Assets

Sum up the amounts for assets with Liquidity Level 1 and the run-off factor for assets with Liquidity Level 2A multiplied by the amounts to determine the high-quality liquid assets. In this case, it includes Cash, Deposits at the Fed, Treasury Bonds, Qualifying Marketable Securities, and a portion of GNMA Bonds and Loans to AA- Corporations.

Step 3: Calculate the LCR

Divide the high-quality liquid assets by the total net cash outflows and multiply by 100 to express the result as a percentage. This will give you the LCR for Central Bank.

By performing the calculations:

Total Net Cash Outflows = $87.5 million

High-Quality Liquid Assets = $676.25 million

LCR = ($676.25 / $87.5) * 100 = 772%

Therefore, the Liquidity Coverage Ratio (LCR) for Central Bank based on the given data is 772%, indicating that the bank has sufficient high-quality liquid assets to cover its short-term obligations.

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