High-Quality Liquid Assets (HQLA) is a concept to be situated as part of the “liquidity coverage ratio”, which is part of the Basel III standards for deposit-taking regulated banking institutions.
The aim of the requirement is to have sufficient liquidity at all times to meet short-term obligations and deposit withdrawals.
The high-quality liquid assets (HQLA) include only those with a high potential to be converted easily and quickly into cash (in times of distress).
HQLA are cash or assets that can be converted into cash quickly through sales (or by being pledged as collateral) with no significant loss of value.
A liquid asset can be included in the stock of HQLA if it is unencumbered, meets minimum liquidity criteria and its operational factors demonstrate that it can be disposed off to generate liquidity when needed.
The HQLA group includes Level 1 assets, which can be included without limit, and Level 2 assets, which cannot exceed 40% of the liquidity reserve.
Level 2 assets are themselves subdivided into Level 2A assets, whose value is subject to a 15% haircut, and Level 2B assets, which are subject to higher haircuts but cannot exceed 15% of the stock of HQLA.