After the economic and financial crisis outbreak in the year 2007, various regulators concluded that regulation of international liquidity not only requires harmonization but it also involves substantial improvements. The crux of response to International policy lies in 2 ratios which are, Liquidity Coverage and the Net Stable Funding ratio. The main aim of Liquidity coverage ratio lies in reduction of the dependence of bank on shorter term sources with fragility in their funding such as, insecure deposits between banks with below one month tenors (Krishnamurthy, et al., 2012). The definition of LCR or Liquidity Coverage ratio is, the asset with liquidity of higher quality over outflows net cash over a period of 1 month (in ratio form). Therefore it is important for banks to sustain their Liquidity ratio either 100 percent or over. High quality liquid assets are those credits with not only higher quality but also higher liquidity of market (King, 2012). Therefore, the benefit of Liquidity ratio can in brief be acknowledged as presence of a regulation on liquidity making the banks be independent from fragile sources of funding.
Since the last several months, the core players have focused on regulating and supervising their area as with LCR there will be dramatic changes casted over them. However due to the presence of lacking liquidity standards there have been considerable shortcomings in the Liquidity ratio measure (Nover, 2012). This is the main reason why the benefits of liquidity ratio are often shadowed. By bringing changes to the LCR, Basil III has tried to incorporate changes for attaining high quality liquid assets and total outflows of cash. The banks will also temporarily fall below the requirement of minimum range because internationally banks will be required to make use of their liquid assets pool. It is one of the many important reforms that have been considered by the Basil Committee in order to make the global capital’s strong and regulate the liquidity with the aim of a more resilient sector of banking being promoted throughout nations in the global environment (Macroeconomic Assessment Group, 2011). Therefore, the consensus of international policies is provided through regulating liquidity and dissolving it from the inside of the nations. This proves its valid focus of Liquidity ratio on international scenarios.