4.2.15 Calculation of Net Cash Outflows (NCOF)
Under the US Liquidity Coverage Ratio requirements, a peak cumulative net cash outflow day is identified and an add-on is computed and added to the previous Net cash outflow computation. The agencies elected to employ peak day approach to take into account potential maturity mismatches between a covered company’s outflows and inflows during the 30 calendar-day period; that is, the risk that a covered company could have a substantial amount of contractual inflows that occur late in a 30 calendar-day period while also having substantial outflows that occur early in the same period. Such mismatches have the potential to threaten the liquidity position of the organization during a time of stress and would not be apparent under the Basel III Revised Liquidity Framework denominator calculation.
Cumulative cash inflows have been capped at 75 percent of aggregate cash outflows in the calculation of total net cash outflows. This limit would have prevented a covered company from relying exclusively on cash inflows, which may not materialize in a period of stress, to cover its liquidity needs and ensure that covered companies maintain a minimum HQLA amount to meet unexpected liquidity demands during the 30 calendar-day period
Figure 3-23 Total Net Cash Outflows
Where,
- Cash Outflows from Open Maturity Products and
- Cash outflows occurring over a 30 day period.
- Cash Inflows from Open Maturity Products and
- Cash Inflows occurring over a 30 day period
- The greater of:
- 0; and
- The largest net cumulative maturity outflow amount as calculated for any of the 30 calendar days following the calculation date; minus
- The greater of:
- 0; and
- The net day 30 cumulative maturity outflow amount as calculated.