ECB exposes LCR window-dressing

Liquidity rules are being gamed, the European Central Bank (ECB) has found.

The supervisor conducted a specialised stress test that found a number of banks have taken steps to make themselves look good under the lens of the liquidity coverage ratio (LCR) – a key post-crisis gauge of funding risk – by using dubious trades to fluff their liquid asset buffers and borrowing cash in such a way that it doesn’t show up in the calculation.

The LCR shows the amount of high-quality liquid assets (HQLAs

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