The LCR: outflows and inflows

RiskAtoms Bank holds £22,000m of insured current accounts. In the LCR they weigh £1,100m. It holds £2,400m of deposits from banks and funds due within the month, and they weigh £2,400m: more than all three retail lines together. The denominator of the LCR is a table of rates, one per kind of money, and the table decides which funding a bank can afford. This lesson reads it row by row.

L3.5.07: LCR and NSFR in practice computed the denominator once. Here each line meets its paragraph in LCR40, with the condition that puts it there:

Retail deposits

A stable depositStable deposit: a retail deposit fully covered by an effective deposit insurance scheme and held in a transactional account or by a customer with an established relationship (LCR40.7). Insurance alone is not enough (LCR40.10). runs off at 5%; the supervisor may allow 3% where the deposit insurance scheme is prefunded, can raise more money quickly and pays out fast (LCR40.11). Every other retail deposit runs at 10% or more, and supervisors are told to build higher buckets for the riskier ones (LCR40.13). Fixed-term deposits are outflows only if they fall due within 30 days, or if the customer can withdraw early without a significant penalty (LCR40.16–40.17): of the bank's £6,000m of retail term deposits, only £300m count. Retail in all: £2,130m, 21% of outflows from 60% of the liabilities.

Wholesale deposits

An operational depositOperational deposit: a deposit a company keeps for clearing, custody or cash management, where it depends substantively on the bank (LCR40.26). Only the amount needed for those services qualifies. runs at 25% because the company cannot move its payroll or cash management overnight (LCR40.26); a bank that places such a deposit elsewhere counts a 0% inflow on it (LCR40.31). The part fully covered by deposit insurance may run at the stable retail rate (LCR40.36). The book keeps all £5,000m at 25%: conservative. Other deposits from companies run at 40% (LCR40.40): £4,200m of the bank's £5,500m fall due or can be withdrawn within 30 days. Money from banks, funds and other financial firms, and the bank's own paper falling due, run at 100% (LCR40.42–40.43). Together £3,100m, 31% of all outflows.

Secured funding

When a repo matures in a stress, the question is whether the collateral would raise the money again. The rate follows the collateral (LCR40.48): 0% on Level 1 or with a central bank, 15% on Level 2A, 25% on RMBS and on domestic sovereign lenders, 50% on other Level 2B, 100% on anything else. The bank's £1,500m of gilt repo runs at 0%; the same repo on BBB bonds would cost £750m.

Facilities, derivatives and collateral

Undrawn committed lines are drawn at rates that rise with the customer's access to other money (LCR40.64): 5% for retail, 10% (credit) or 30% (liquidity) for companies, 40% for banks, up to 100% for liquidity lines to other financial firms. Lines the bank can cancel at any time are not commitments; they fall under other contingent funding at a rate the supervisor sets (LCR40.67, 40.73). The book keeps all £3,000m of retail limits at 5%, though most are card and overdraft limits of that kind.

Derivatives and collateral bring several more outflows (LCR40.49–40.58). Five matter here, and the bank has two:

Inflows, and the 75% cap

Only contractual inflows due within 30 days from loans that are performing count, and the bank is assumed to keep lending (LCR40.86–40.87): retail and corporate repayments at 50%, money due from banks at 100%. Reverse repos on Level 1 count 0%, because the bank is assumed to roll them (LCR40.78). Bonds already in the stock cannot count again as inflows when they mature (LCR40.4, 40.88).

The inflow capInflow cap: inflows may offset at most 75% of total outflows (LCR40.77), so at least a quarter of stressed outflows is always met from the stock of HQLA. lets inflows offset at most 75% of outflows (LCR40.77), here £7,560m. The bank's £1,375m is far below it: inflows would have to be 5.5 times larger before the cap bit. It is written for banks with large short-term loans to other banks, whose LCR would otherwise rest on money owed by the very institutions in trouble.

Three what-ifs

The downgrade is the subtle one illustrative. The £400m the bank posts leaves the stock, and the window moves: LCR40.51 now asks for whatever the next three notches would call, assumed at £250m. The £400m just posted is now the largest 30-day collateral flow of the past two years, so the look-back outflow rises from £300m to £400m. The ratio falls from 157.4% to 153.7%.

Using the stock in stress

Follow the run on instant-access savings further. Each £1 that leaves takes £1 out of the stock but only 10p out of outflows, so the ratio falls quickly:

At £5,550m the LCR touches 100%; at £7,000m it is 83.7%. That is what the stock is for. The Basel text says that during a stress “it would be entirely appropriate for banks to use their stock of HQLA”, falling below 100% (LCR20.5), and that supervisors should respond according to the cause, size, duration and frequency of the shortfall (LCR20.6). A ratio that is never allowed to fall is a buffer nobody can use.

For outflow lines $i$ with balances $B_i$ and rates $r_i$, and contractual inflows $A_j$ due within 30 days with inflow rates $q_j$ (LCR20.5, LCR40.1, 40.77):

• $B_i$ is the whole balance for deposits a customer can withdraw within 30 days, the amount falling due within 30 days for term funding, and the undrawn amount for a facility (M-A08: Summation notation).
• The min is the cap (M-A11: Min, max, floors and caps): because of it, NCO is never less than a quarter of outflows.
• A deposit run of $D$ on a line with rate $r$, paid from the stock, moves the ratio to $(H - D)\,/\,(\text{NCO} - rD)$ while the cap does not bind; it reaches 100% at $D = (H - \text{NCO})/(1 - r)$.

Run each lever on its own first. Drain the instant-access savings until the ratio touches 100%; switch the same run to stable deposits and see it take a little less, £5,258m, which falls between two steps of the slider: 100.1% at £5,250m and 99.5% at £5,300m. Trigger the downgrade. Then push the extra inflows up and watch the cap start to bind at 75% of outflows: after that, more inflows do nothing.

£ millions at 31 December 2025, 30-day horizon. Every input is in the Level 3 book.

The base is LCR40 (cash outflows and inflows) and LCR20 (the ratio and its use in stress) of the Basel Framework, in force since 15 December 2019. Statements on jurisdictions are as at 3 November 2026 as at 3 Nov 2026.

Disclosure: banks publish their LCR every quarter in template LIQ1 (DIS85), as simple averages of daily observations over the quarter, with the number of data points used.

• Run-off rates follow the category of funding: stable retail 5% (or 3%), less stable at least 10%, operational 25%, non-financial corporates 40%, financial institutions 100% (LCR40).
• Secured funding runs off according to its collateral: 0% on Level 1 up to 100% on non-HQLA (LCR40.48).
• Derivatives add the downgrade window of three notches at 100% (LCR40.51) and the largest net 30-day collateral flow of the past 24 months (LCR40.56).
• NCO = Σ r_i B_i − min(Σ q_j A_j, 75% × Σ r_i B_i): inflows never cover more than three quarters of outflows.
• RiskAtoms Bank: outflows £10,080m, inflows £1,375m (cap £7,560m not binding), NCO £8,705m. A downgrade gives 153.7%, a £2bn savings run 137.6%; using the stock below 100% in a stress is what it is for (LCR20.5).

Run-off rate

Run-off rate: the share of a funding balance the LCR assumes leaves within the 30-day stress. It is set by the category of funding, not by the bank's own experience.

Stable deposit

Stable deposit: a retail deposit fully covered by an effective deposit insurance scheme and held in a transactional account or by a customer with an established relationship (LCR40.7). Insurance alone is not enough (LCR40.10).

Operational deposit

Operational deposit: a deposit a company keeps for clearing, custody or cash management, where it depends substantively on the bank (LCR40.26). Only the amount needed for those services qualifies.

Historical look-back approach

Historical look-back approach: the outflow for collateral calls from market moves on derivatives is the largest absolute net 30-day collateral flow of the previous 24 months (LCR40.56).

Inflow cap

Inflow cap: inflows may offset at most 75% of total outflows (LCR40.77), so at least a quarter of stressed outflows is always met from the stock of HQLA.

Total net cash outflows (NCO)

Total net cash outflows (NCO): stressed outflows over 30 calendar days less inflows, with inflows capped at 75% of outflows (LCR40.1).

Higher outflow category

Higher outflow category (UK and EU, Art 25): retail deposits with risk features, such as a large balance (above €500,000 in the EU text), internet-only access or a rate well above the market, run at 10–15% or 15–20% instead of 10%.