Central Bank has the following balance sheet (in millions of dollars). Assets Liquidity Level Liabilities and Equity Run-off factor Cash $ 15 Level 1 Stable retail deposits $ 190 3% Deposits at the Fed 30 Level 1 Less stable retail deposits 70 10% Treasury bonds 145 Level 1 CDs maturing in 6 months 100 0% Qualifying marketable securities 50 Level 1 Unsecured wholesale funding from: GNMA bonds 60 Level 2A Stable small business deposits 125 5% Loans to AA- corporations 540 Level 2A Less stable small business deposits 100 10% Mortgages 285 Nonfinancial corporates 450 75% Premises 40 Equity 130 Total $1,165 Total $1,165 Cash inflows over the next 30 days from the bank’s performing assets are $7.5 million. Calculate the LCR for Central Bank.

Central Bank

Computation of the LCR for Central Bank:

The LCR = 23%

Explanation:

Data and Calculations:

Central Bank balance sheet (in millions of dollars)

Assets                                                       Liabilities and Equity

                                                                Level 1

Cash                                                $15  Stable retail deposits             $ 190

Deposits at the Fed                         30  Less stable retail deposits         70

Treasury bonds                              145  CDs maturing in 6 months       100

                                                                Level 2A:

Qualifying marketable securities   50  Unsecured wholesale funding from:

GNMA bonds                                  60     Stable small biz deposits       125

Loans to AA-rated corporations 540      Less-stable biz deposits        100

Mortgages                                   285      Non-financial corporates       450

Premises                                       40    Equity                                         130

Total                                        $1,165    Total                                      $1,165

Cash inflows over the next 30 days from the bank's performing assets are $7.5 million. Calculate the LCR for Central Bank.

High Quality Liquid Assets:

Cash                                             $15

Deposits at the Fed                      30

Treasury bonds                            145

Qualifying marketable securities 50

Total HQLA                               $240

Outflows:

Stable retail deposits             $ 190

Less stable retail deposits         70

CDs maturing in 6 months      100

Stable small biz deposits         125

Less-stable biz deposits         100

Non-financial corporates       450

Total outflows                    $1,035

Cash inflows                            ($7.5)

Total cash flows                $1,027.5

LCR = High Quality Liquid Assets/Total Cash flows

= $240/$1,027.5 = 0.23

b) The LCR is calculated by dividing the central bank's high-quality liquid assets by its total net cash flows over a 30-day stress period.  The central bank's high-quality liquid assets include only those with a high potential to be converted easily and quickly into cash and can be categorized into three of level 1, level 2A, and level 2B.

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