Liquidity Risk: The 30-Day LCR Illusion

In this video, Professor Moorad Choudhry examines the Liquidity Coverage Ratio (LCR) under Basel III and questions whether the standard 30-day framework remains fit for purpose in today’s banking environment. Originally introduced as a universal minimum standard for liquidity risk management, the LCR requires banks to hold sufficient high-quality liquid assets to withstand a 30-day stress scenario. While acknowledging the value of the LCR as a simple and globally consistent baseline metric, Professor Choudhry explores what he describes as the “30-day illusion.” Drawing on lessons from recent bank failures and the increasing speed of digital deposit withdrawals, he considers whether 30 days may in practice be both too short and too long. Structural funding gaps beyond 30 days may not be captured, while modern bank runs can unfold in a matter of days rather than weeks. The discussion also highlights the role of Pillar 2 liquidity requirements and suggests practical enhancements to internal liquidity risk management, including the potential introduction of a shorter-term liquidity metric focused on immediate cash resources. This video provides a structured and critical perspective on regulatory liquidity standards and their real-world application in a rapidly evolving financial system. 🔔 Subscribe for more expert insights on banking, regulation, and financial markets. Recommended Reading: The Principles of Banking (2nd Edition) 📘 https://amzn.to/3l224LE Wikipedia: https://en.wikipedia.org/wiki/The_Pri...