What does the 30-day liquidity coverage ratio measure?

The 30-day liquidity coverage ratio is a measure designed to ensure that financial institutions maintain an adequate level of high-quality liquid assets (HQLA) to meet their cash flow needs for a stressed 30-day period. It is calculated as the ratio of high-quality liquid assets to the total net cash outflows expected over the next 30 calendar days.

This measure is crucial for assessing the short-term liquidity position of a bank or financial institution, particularly during periods of financial stress when cash flow might be strained. High-quality liquid assets are defined as assets that can be easily and immediately converted into cash with little or no loss in value, which is indispensable for meeting short-term obligations.

Therefore, the correct option accurately reflects the essence of the liquidity coverage ratio, emphasizing the importance of maintaining sufficient liquid asset levels to cover net cash outflows in a potential crisis scenario. This ensures that an institution can endure liquidity shocks and remain solvent.