It stands for high-quality liquid assets; a category of bank assets that consist of cash or very liquid assets (monetary assets)- i.e., those that can be converted into cash quickly through sales (or by being posted as collateral such as eligible securities) with a minimal loss of value, if any.

A liquid asset can be considered part of the stock of HQLA if it meets certain conditions, particularly: the asset is unencumbered, and meets minimum liquidity criteria and it harbors the ability to be disposed of to generate liquidity with an immediate effect.

HQLAs are usually classified into levels: 1) level 1 assets: those which can be included in a bank’s liquidity reserves without limit, and 2) level 2 assets, which cannot exceed a certain percentage (e.g., 40%) of the liquidity reserve.

The quality of such assets is the main factor determining a haircut (margin) in case of collateral. Level 2 assets may be subclassed into different categories depending on the size of a haircut (e.g., 10% and below, and more than 10%, etc.)