Bank of America 2013 Annual Report Download - page 73

Bank of America 2013 71
Contingency Planning
We maintain contingency funding plans that outline our potential
responses to liquidity stress events at various levels of severity.
These policies and plans are based on stress scenarios and
include potential funding strategies and communication and
notification procedures that we would implement in the event we
experienced stressed liquidity conditions. We periodically review
and test the contingency funding plans to validate efficacy and
assess readiness.
Our U.S. bank subsidiaries can access contingency funding
through the Federal Reserve Discount Window. Certain non-U.S.
subsidiaries have access to central bank facilities in the
jurisdictions in which they operate. While we do not rely on these
sources in our liquidity modeling, we maintain the policies,
procedures and governance processes that would enable us to
access these sources if necessary.
Credit Ratings
Our borrowing costs and ability to raise funds are impacted by our
credit ratings. In addition, credit ratings may be important to
customers or counterparties when we compete in certain markets
and when we seek to engage in certain transactions, including
OTC derivatives. Thus, it is our objective to maintain high-quality
credit ratings, and management maintains an active dialogue with
the rating agencies.
Credit ratings and outlooks are opinions expressed by rating
agencies on our creditworthiness and that of our obligations or
securities, including long-term debt, short-term borrowings,
preferred stock and other securities, including asset
securitizations. Our credit ratings are subject to ongoing review by
the rating agencies and they consider a number of factors,
including our own financial strength, performance, prospects and
operations as well as factors not under our control. The rating
agencies could make adjustments to our ratings at any time and
they provide no assurances that they will maintain our ratings at
current levels.
Other factors that influence our credit ratings include changes
to the rating agencies’ methodologies for our industry or certain
security types, the rating agencies’ assessment of the general
operating environment for financial services companies, our
mortgage exposures (including litigation), our relative positions in
the markets in which we compete, reputation, liquidity position,
diversity of funding sources, funding costs, the level and volatility
of earnings, corporate governance and risk management policies,
capital position, capital management practices, and current or
future regulatory and legislative initiatives.
All three agencies have indicated that, as a systemically
important financial institution, the senior credit ratings of the
Corporation and Bank of America, N.A. (or in the case of Moody’s
Investor Service, Inc. (Moody’s), only the ratings of Bank of America,
N.A.) currently reflect the expectation that, if necessary, we would
receive significant support from the U.S. government, and that
they will continue to assess such support in the context of
sovereign financial strength and regulatory and legislative
developments.
On December 20, 2013, Standard & Poor’s Ratings Services
(S&P) affirmed the ratings of Bank of America Corporation. S&P
continues to evaluate the possible removal of uplift for
extraordinary government support in its holding company ratings
for the U.S. banks that it views as having high systemic importance.
Due to this ongoing evaluation and Corporation-specific factors,
S&P maintained its negative outlook on the Corporation’s ratings.
On November 14, 2013, Moody’s concluded its review of the
ratings for Bank of America and certain other systemically
important U.S. BHCs, affirming our current ratings and noting that
those ratings no longer incorporate any uplift for government
support. Concurrently, Moody’s upgraded Bank of America, N.A.’s
senior debt and stand-alone ratings by one notch, citing a number
of positive developments at Bank of America. Moody’s also moved
its outlook for all our ratings to stable. On May 16, 2013, Fitch
Ratings (Fitch) announced the results of its periodic review of its
ratings for 12 large, complex securities trading and universal
banks, including Bank of America. As part of this action, Fitch
affirmed the Corporation’s senior credit ratings and upgraded the
rating of our stand-alone creditworthiness, as well as the ratings
for our subordinated debt, trust preferred and preferred stock,
each by one notch.
Table 23 presents the Corporation’s current long-term/short-
term senior debt ratings and outlooks expressed by the rating
agencies.
Table 23 Senior Debt Ratings
Moody’s Investor Service Standard & Poor’s Fitch Ratings
Long-term Short-term Outlook Long-term Short-term Outlook Long-term Short-term Outlook
Bank of America Corporation Baa2 P-2 Stable A- A-2 Negative A F1 Stable
Bank of America, N.A. A2 P-1 Stable A A-1 Negative A F1 Stable
Merrill Lynch, Pierce, Fenner & Smith NR NR NR A A-1 Negative A F1 Stable
Merrill Lynch International NR NR NR A A-1 Negative A F1 Stable
NR = not rated
A reduction in certain of our credit ratings or the ratings of
certain asset-backed securitizations may have a material adverse
effect on our liquidity, potential loss of access to credit markets,
the related cost of funds, our businesses and on certain trading
revenues, particularly in those businesses where counterparty
creditworthiness is critical. In addition, under the terms of certain
OTC derivative contracts and other trading agreements, in the
event of downgrades of our or our rated subsidiaries’ credit ratings,
the counterparties to those agreements may require us to provide
additional collateral, or to terminate these contracts or
agreements, which could cause us to sustain losses and/or
adversely impact our liquidity. If the short-term credit ratings of
our parent company, bank or broker/dealer subsidiaries were
downgraded by one or more levels, the potential loss of access to
short-term funding sources such as repo financing and the effect
on our incremental cost of funds could be material.