Statutory Liquidity Ratio

Unlike the CRR, SLR holdings earn a return, since they are held mostly in government securities rather than as idle cash — so the SLR is as much a captive market for government borrowing as a prudential tool. It guarantees demand for government paper regardless of what yields do, which lowers the government's cost of borrowing. Banks typically hold well above the required minimum because government securities are convenient collateral. Reductions in the ratio over the decades have been part of a gradual move away from directed lending toward market-determined allocation.