Which statement describes Basel III concepts: liquidity coverage ratio and net stable funding ratio?

• A. LCR requires sufficient high-quality liquid assets to cover 30 days of net cash outflows; NSFR requires stable funding relative to assets and activities over a one-year horizon.
• B. LCR requires capital equal to 30% of assets
• C. LCR is about funding stability for 5 years
• D. LCR is no longer used after Basel III

Answer: (A)

Basel III uses liquidity measures to ensure banks can handle short-term stress and have stable funding over the longer term. The liquidity coverage ratio requires banks to hold enough high-quality liquid assets to cover net cash outflows over a 30-day stressed period. The net stable funding ratio ensures funding remains stable relative to assets and activities over a one-year horizon. This combination targets both immediate liquidity risk and longer-term funding resilience.

The statement is the best fit because it accurately captures the 30-day horizon for the LCR and the one-year horizon for the NSFR. It’s not about a capital percentage or a multi-year horizon like five years, and Basel III liquidity standards, including the LCR, remain in use rather than being discontinued.