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    Question

    Which of the following is/are correct regarding the liquidity ratios under BASEL-III accord defined by Basel Committee on Banking Supervision (BCBS)?

                          I.        Liquidity Coverage Ratio measures adequate level of unencumbered, high-quality assets required by banks to cover short term liquidity stress.

                        II.        To mitigate liquidity mismatches in the longer term, banks are mandated to maintain a net stable funding ratio (NSFR)

                       III.        Liquidity Coverage Ratio needs to maintain to meet liquidity needs over 30-day horizon

                      IV.        Net stable funding ratio (NSFR) cannot be lower than 150%

    A Only I and II Correct Answer Incorrect Answer
    B Only III and IV Correct Answer Incorrect Answer
    C All except II Correct Answer Incorrect Answer
    D All except IV Correct Answer Incorrect Answer
    E All of the above Correct Answer Incorrect Answer

    Solution

    As per BASEL III Norms, Liquidity requirements: Basel III introduced two required liquidity ratios: ·         Liquidity Coverage Ratio (LCR) ensures that sufficient levels of high-quality liquid assets are available for one-month (short term) survival in a severe stress scenario. Liquidity Coverage Ratio (LCR) is designed to ensure that a bank maintains an adequate level of unencumbered, high-quality assets that can be converted into cash to meet its liquidity needs for a 30-day time horizon under an acute liquidity stress scenario. ·         Net Stable Funding Ratio (NSFR) promotes resilience over long-term time horizons by creating more incentives for financial institutions to fund their activities with more stable sources of funding on an ongoing structural basis. NSFR cannot be lower than 100%. The NSFR was designed to address liquidity mismatch.

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