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A bank liquidity ratio compares a defined pool of liquid assets with assets or funding. Work through two quarters of bank reports, separate available assets from pledged balances, and interpret the result alongside funding concentration and cash flow.
A bank liquidity ratio measures a stated pool of liquid assets against assets or funding, so its definition must come before its interpretation. Cash, securities, pledged collateral, deposit behavior, and borrowing access all affect the answer. Corporate current and quick ratios do not substitute for bank liquidity measures or regulatory tests.
Liquidity is the ability to fund assets and meet obligations, including customer withdrawals and changing balance sheet needs. The FDIC's liquidity and funds management overview emphasizes both liquid assets and access to borrowing or other stable funding sources.
Bank balance sheets need this specific treatment because deposits are part of the bank's funding business, and loans are earning assets. Sorting a general corporate balance sheet into current assets and current liabilities does not capture the timing and behavior of bank withdrawals, collateral calls, or loan commitments. The broader financial ratios guide addresses corporate measures; use a bank-specific review here.
Read several measures together:
| Measure | Question it answers | Boundary to record |
|---|---|---|
| Available liquid assets / total assets | How much of the balance sheet is available liquidity? | Asset eligibility, restrictions, and valuation |
| Available liquid assets / defined funding | How large is the available pool relative to the selected funding base? | Which deposits and borrowings are included |
| Loan-to-deposit ratio | How do loans compare with deposit funding? | Gross or net loans and deposit scope |
| Liquidity coverage ratio, where applicable | How do eligible liquid assets compare with defined stressed outflows? | Applicable regulatory definitions and reported inputs |
These measures answer different questions. The loan-to-deposit ratio and liquidity coverage ratio have their own detailed treatments; do not substitute an internal liquid-assets percentage for either one.
Obtain the quarter-end balance sheet, securities inventory, collateral schedule, restricted-cash schedule, and funding report. Match the legal entity, currency, date, and accounting scope. Treasury should identify which balances are available and which require exclusions or valuation adjustments.
The FDIC examination manual on liquidity discusses the importance of unencumbered assets, marketability, operational access, and the effect of unrealized securities losses on amounts that can be monetized. A security's label alone does not establish its usable cash value.
For the example, a fictional US commercial bank supplies these simplified balance reports. All amounts are whole USD, and the listed asset, funding, and equity lines are exhaustive for this illustration.
| Reported balance | March 31, 2026 (USD) | June 30, 2026 (USD) |
|---|---|---|
| Cash and due from banks | 60,000,000 | 45,000,000 |
| Securities | 110,000,000 | 125,000,000 |
| Loans, net | 600,000,000 | 620,000,000 |
| Other assets | 30,000,000 | 30,000,000 |
| Total assets | 800,000,000 | 820,000,000 |
| Deposits | 650,000,000 | 660,000,000 |
| Borrowings | 70,000,000 | 75,000,000 |
| Equity | 80,000,000 | 85,000,000 |
| Total funding and equity | 800,000,000 | 820,000,000 |
The availability schedule contains two memorandum items. Restricted operating cash is $10,000,000 in each quarter. Securities unavailable because they are pledged are $30,000,000 in March and $55,000,000 in June. These are subsets of the reported balances, not additional assets or liabilities.
The bank's internal measure includes unrestricted cash and the remaining securities at the supplied valuation. Assume treasury has approved that valuation for this example and has identified no other exclusions. This simplified pool is not a determination of regulatory high-quality liquid assets or stressed sale proceeds.
Available liquid assets = Cash − Restricted cash + Securities − Unavailable pledged securities
Available liquid assets / total assets = Available liquid assets / Total assets
Available liquid assets / funding = Available liquid assets / (Deposits + Borrowings)
Calculate the available pool before dividing. Use the same definitions in each quarter, and retain full precision until displaying percentages to two decimal places.
| Calculation | March 31, 2026 | June 30, 2026 |
|---|---|---|
| Unrestricted cash (USD) | 60,000,000 − 10,000,000 = 50,000,000 | 45,000,000 − 10,000,000 = 35,000,000 |
| Available securities (USD) | 110,000,000 − 30,000,000 = 80,000,000 | 125,000,000 − 55,000,000 = 70,000,000 |
| Available liquid assets (USD) | 50,000,000 + 80,000,000 = 130,000,000 | 35,000,000 + 70,000,000 = 105,000,000 |
| Defined funding (USD) | 650,000,000 + 70,000,000 = 720,000,000 | 660,000,000 + 75,000,000 = 735,000,000 |
| Available liquid assets / assets | 130,000,000 / 800,000,000 = 16.25% | 105,000,000 / 820,000,000 = 12.80% |
| Available liquid assets / funding | 130,000,000 / 720,000,000 = 18.06% | 105,000,000 / 735,000,000 = 14.29% |
The available pool falls by 105,000,000 − 130,000,000 = -$25,000,000. The liquid-assets-to-assets ratio falls by 3.45 percentage points, calculated from the unrounded ratios. Both the smaller numerator and larger asset base contribute.
First tie each balance sheet: deposits + borrowings + equity must equal total assets. March gives 650,000,000 + 70,000,000 + 80,000,000 = $800,000,000; June gives 660,000,000 + 75,000,000 + 85,000,000 = $820,000,000.
Next reconcile gross cash and securities to the available pool. Gross balances total $170,000,000 in each quarter. March restrictions total 10,000,000 + 30,000,000 = $40,000,000; June restrictions total 10,000,000 + 55,000,000 = $65,000,000. Thus 170,000,000 − 40,000,000 = $130,000,000 and 170,000,000 − 65,000,000 = $105,000,000.
This is the finding: unchanged gross cash and securities conceal reduced availability. Cash also declines while securities rise. Treasury should explain the pledging change and compare available resources with upcoming outflows before deciding whether to reposition assets or funding.
The asset-liability committee reviews the implications; treasury owns the availability assessment, and finance ties balances to the reporting pack. The interagency liquidity policy statement also emphasizes cash flow projections, diversified funding, stress testing, contingency plans, and board oversight. A quarter-end percentage is one input to that review.
For a separate look at loss-absorbing capital relative to its exposure base, see the bank leverage ratio.
Bring a file with the reported balances, availability exclusions, and consistent funding definitions for each period. Covirage maps the columns; its tools compute and check the comparisons, and the external AI model explains the results with every figure traced to its rows. Create a free Covirage account and bring a sample of your own report.
See Covirage for commercial banking for the banking context.
There is no single good value across differently defined ratios and bank business models. Compare the same measure over time, against the bank's approved limits, and alongside cash flow and funding concentration. A favorable snapshot can still hide near-term outflows or restricted assets.
Yes. Capital concerns loss absorption, while liquidity concerns meeting cash and collateral obligations when due. A bank can hold valuable assets that cannot be sold or pledged quickly enough to meet withdrawals without significant cost or operational difficulty.
No. Securities may already be pledged, face transfer restrictions, or have values that differ from reported carrying amounts. Treasury should supply availability and valuation information. An analysis should identify those limitations before counting securities toward an available liquidity measure.