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All glossary entries


See letter of credit (L/C)

labour force

The sum total of persons in employment and the number of unemployed.

labour force participation rate

The labour force as a proportion of the total working age population. The working age population is normally defined as the population aged between 15 and 64 years of age. The labour force comprises both employed and unemployed persons.

labour productivity

The output that can be produced with a given input of labour. It can be measured in several ways, but is commonly measured as GDP at constant prices divided by either total employment or total hours worked.

Lamfalussy standards

See minimum standards of the Lamfalussy report (Lamfalussy standards)

large exposure

An institution's exposure to a client or group of connected clients, the value of which is equal to or exceeds 10% of its eligible capital. Limits to large exposures can be implemented in Europe via Article 458 CRR.

large-value funds transfer system (wholesale funds transfer system)

A funds transfer system through which large-value and/or high-priority funds transfers are made between participants in the system for their own account or on behalf of their customers. Although, as a rule, no minimum value is set for payments made in such systems, the average size of such payments is usually relatively large.

large-value payment

A payment, generally of a very large amount, which is mainly exchanged between banks or between participants in the financial markets and usually requires urgent and timely settlement.


large and complex banking group


See liquidity coverage ratio (LCR)

lead overseer

Eurosystem central bank assigned with the primary oversight responsibility on behalf of the Eurosystem.

leading indicators

Economic variables which anticipate or contain useful information for predicting future developments in other variables.

legal convergence

The process of adaptation by EU Member States of their legislation, in order to make it compatible with the Treaty on European Union, the Treaty on the Functioning of the European Union and the Statute of the European System of Central Banks and of the European Central Bank for the purposes of: i) integrating their national central banks into the European System of Central Banks, and ii) adopting the euro and making their national central banks an integral part of the Eurosystem. See also European System of Central Banks (ESCB), Eurosystem, national central bank (NCB), Treaty on the Functioning of the European Union (TFEU)

legal risk

The risk of a loss being incurred on account of the unexpected application of a law or regulation, or because a contract cannot be enforced.

less significant institution (LSI)

Any institution that is directly supervised by NCAs, and indirectly supervised by the ECB. In contrast, significant institutions are directly supervised by the ECB.

letter of credit (L/C)

An irrevocable commitment by a bank (the issuing bank) or other issuer made at the request of a customer (the applicant third party) to pay a specified sum of money to a third party upon request, subject to terms and conditions drawn up in accordance with uniform customs and practices.

leverage ratio

The Basel III leverage ratio is defined as Tier 1 capital divided by the bank’s total exposure, expressed as a percentage. The prudential use of a leverage ratio limit is intended to restrict the build-up of leverage in the banking sector and to strengthen the risk-based requirements by adding a simple, non-risk-based backstop.




A present obligation of the enterprise arising from past events, the settlement of which is expected to result in an outflow from the enterprise of resources embodying economic benefits.


See cap (limit)

linked trade

A trade where securities are released for delivery only if they become available from another trade.


The ease and speed with which a financial asset can be converted into cash or used to settle a liability. Cash is thus a highly liquid asset. Bank deposits are less liquid, the longer their maturities. The term “liquidity” is also often used as a synonym for money.

liquidity coverage ratio (LCR)

A short-term liquidity requirement which aims to ensure that credit institutions hold sufficient high-quality liquid assets to withstand an acute stress scenario lasting 30 days. It has been implemented in Europe via the Commission Delegated Regulation (EU) 2015/61. The LCR is calculated in accordance with the following formula: liquidity buffer ÷ net liquidity outflows over a 30 calendar-day stress period = liquidity coverage ratio %. Credit institutions must maintain a liquidity coverage ratio of at least 100%.

liquidity risk

The risk that a counterparty will not settle an obligation in full when it becomes due. Liquidity risk does not imply that a counterparty or participant is insolvent, since it may be able to effect the required settlement at some unspecified time thereafter.

Lisbon strategy

A comprehensive agenda of structural reforms aimed at transforming the EU into “the most dynamic and competitive knowledge-based economy in the world”, launched in 2000 by the Lisbon European Council. It has been replaced by the Europe 2020 strategy.

loan-to-income (LTI) ratio

A ratio of the amount borrowed to the total annual income of a borrower.

loan-to-value (LTV) ratio

The ratio of the amount borrowed to the appraised value or market value of the underlying collateral, usually taken into consideration in relation to loans for real estate financing.

loans for house purchase

Credit extended to households for the purpose of investment in housing, including building and home improvements. Included are loans secured by residential property (i.e. mortgage loans) that are used for house purchase and, where identifiable, other loans for house purchase provided on a personal basis or secured by other types of asset.

loans to euro area residents

Funds lent by monetary financial institutions (MFIs) to borrowers and not evidenced by negotiable documents or represented by one single document (if it has become negotiable). This description includes loans granted to households, non-financial corporations and government. Loans to households can take the form of consumer credit (loans granted for personal use in the consumption of goods and services), lending for house purchases (credit extended for the purpose of investing in housing, including building and home improvements) and other lending (loans granted for purposes such as debt consolidation, education, etc.). See also credit to euro area residents

local government

A sector defined in the ESA 2010 as comprising public authorities and/or bodies, excluding social security funds’ local agencies, whose competence extends only to a local area of the country’s economic territory.

longer-term interest rates

The rates of interest or the yield on interest-bearing financial assets with a relatively long period to maturity, for which the yield on government bonds with a maturity of ten years are often used as a benchmark.

longer-term refinancing operation

A regular open market operation executed by the Eurosystem in the form of a reverse transaction. Longer-term refinancing operations are carried out through monthly standard tenders and normally have a maturity of three months. See also reverse transaction

loro account (vostro account)

In correspondent banking, an account held by one bank on behalf of another bank (the “customer bank”); the customer bank regards this account as its “nostro account”. Antonym: nostro account

loss-sharing agreement

An agreement among participants in a clearing or settlement system regarding the allocation of any losses arising from the default of either a participant in the system or the system itself.

loss-sharing rule

The rule or formula stipulating the way in which losses arising from the default of either a participant in the system or the system itself are to be shared among the various parties in the event that a loss-sharing agreement is activated.


See less significant institution (LSI)


loan service-to-income




long-term guarantee




longer-term refinancing operation





lump-sum allowance

A fixed amount which an institution deducts in the calculation of its reserve requirement within the minimum reserve framework of the Eurosystem. See also Eurosystem, minimum reserves