STCR

STCR, or Short-Term Capital Requirements, is a regulatory framework implemented by the European Banking Authority (EBA) to ensure that banks maintain sufficient capital to absorb losses from short-term risks. The primary objective of STCR is to enhance the resilience of the banking system by requiring banks to hold additional capital against certain short-term assets and liabilities.

The framework was introduced in response to the financial crisis of 2007-2008, which highlighted the vulnerabilities of banks' short-term funding and liquidity positions. STCR aims to address these vulnerabilities by mandating that banks hold a minimum amount of capital against their short-term exposures, thereby reducing the risk of bank runs and systemic instability.

Under STCR, banks are required to hold capital against their short-term exposures, which include assets such as cash, deposits, and securities with maturities of up to two years. The amount of capital required is determined by the risk profile of the assets and liabilities, with higher-risk assets requiring more capital. The framework also includes provisions for risk-weighted assets (RWA) and risk-weighted liabilities (RWL), which are used to calculate the capital requirements.

STCR is designed to be flexible and adaptable, allowing banks to manage their short-term risks effectively while minimizing the impact on their overall capital adequacy. The framework is regularly reviewed and updated by the EBA to ensure its continued relevance and effectiveness in the face of evolving financial risks.