Loan-to-Deposit Ratio (LDR)
A bank's total loans as a percentage of its total deposits, indicating liquidity and lending activity.
What is Loan-to-Deposit Ratio?
The loan-to-deposit ratio (LDR) measures how much of a bank's deposits are being lent out to borrowers. It is calculated as total loans divided by total deposits and expressed as a percentage. A high LDR (above 80–90%) may indicate that a bank has limited liquidity reserves and could struggle to meet deposit withdrawals if many depositors demand their money simultaneously. A very low LDR suggests the bank is not fully deploying its deposit base — potentially earning less interest income than possible. Regulators monitor LDR as an indicator of banking system stability, particularly in conjunction with capital adequacy ratios.
Example
Silicon Valley Bank (SVB) had an unusually low LDR of approximately 43% before its failure in March 2023 — it held far more securities than loans relative to deposits. While not directly related to the LDR, SVB's concentrated, interest-rate-sensitive investment portfolio and heavy reliance on uninsured deposits demonstrated how liquidity risks can interact in unexpected ways.