Bank of America 2015 Annual Report Download - page 60

58 Bank of America 2015
Broker-dealer Regulatory Capital and Securities
Regulation
The Corporation’s principal U.S. broker-dealer subsidiaries are
Merrill Lynch, Pierce, Fenner & Smith (MLPF&S) and Merrill Lynch
Professional Clearing Corp (MLPCC). MLPCC is a fully-guaranteed
subsidiary of MLPF&S and provides clearing and settlement
services. Both entities are subject to the net capital requirements
of SEC Rule 15c3-1. Both entities are also registered as futures
commission merchants and are subject to the Commodity Futures
Trading Commission Regulation 1.17.
MLPF&S has elected to compute the minimum capital
requirement in accordance with the Alternative Net Capital
Requirement as permitted by SEC Rule 15c3-1. At December 31,
2015, MLPF&S’s regulatory net capital as defined by Rule 15c3-1
was $11.4 billion and exceeded the minimum requirement of $1.5
billion by $9.9 billion. MLPCC’s net capital of $3.3 billion exceeded
the minimum requirement of $473 million by $2.8 billion.
In accordance with the Alternative Net Capital Requirements,
MLPF&S is required to maintain tentative net capital in excess of
$1.0 billion, net capital in excess of $500 million and notify the
SEC in the event its tentative net capital is less than $5.0 billion.
At December 31, 2015, MLPF&S had tentative net capital and net
capital in excess of the minimum and notification requirements.
Merrill Lynch International (MLI), a U.K. investment firm, is
regulated by the Prudential Regulation Authority and the Financial
Conduct Authority, and is subject to certain regulatory capital
requirements. At December 31, 2015, MLI’s capital resources
were $34.4 billion which exceeded the minimum requirement of
$16.6 billion.
Common Stock Dividends
For a summary of our declared quarterly cash dividends on
common stock during 2015 and through February 24, 2016, see
Note 13 – Shareholders’ Equity to the Consolidated Financial
Statements.
Liquidity Risk
Funding and Liquidity Risk Management
Liquidity risk is the potential inability to meet expected or
unexpected cash flow and collateral needs while continuing to
support our business and customer needs under a range of
economic conditions. Our primary liquidity risk management
objective is to meet all contractual and contingent financial
obligations at all times, including during periods of stress. To
achieve that objective, we analyze and monitor our liquidity risk
under expected and stressed conditions, maintain excess liquidity
and access to diverse funding sources, including our stable deposit
base, and seek to align liquidity-related incentives and risks.
We define excess liquidity as readily available assets, limited
to cash and high-quality, liquid, unencumbered securities that we
can use to meet our contractual and contingent financial
obligations as those obligations arise. We manage our liquidity
position through line of business and ALM activities, as well as
through our legal entity funding strategy, on both a forward and
current (including intraday) basis under both expected and
stressed conditions. We believe that a centralized approach to
funding and liquidity risk management within Corporate Treasury
enhances our ability to monitor liquidity requirements, maximizes
access to funding sources, minimizes borrowing costs and
facilitates timely responses to liquidity events.
The Board approves the Corporation’s liquidity policy and the
ERC approves the contingency funding plan, including establishing
liquidity risk tolerance levels. The MRC monitors our liquidity
position and reviews the impact of strategic decisions on our
liquidity. The MRC is responsible for overseeing liquidity risks and
maintaining exposures within the established tolerance levels.
MRC reviews and monitors our liquidity position, cash flow
forecasts, stress testing scenarios and results, and implements
our liquidity limits and guidelines. For additional information, see
Managing Risk on page 47. Under this governance framework, we
have developed certain funding and liquidity risk management
practices which include: maintaining excess liquidity at the parent
company and selected subsidiaries, including our bank
subsidiaries and other regulated entities; determining what
amounts of excess liquidity are appropriate for these entities
based on analysis of debt maturities and other potential cash
outflows, including those that we may experience during stressed
market conditions; diversifying funding sources, considering our
asset profile and legal entity structure; and performing contingency
planning.
Global Excess Liquidity Sources and Other
Unencumbered Assets
We maintain excess liquidity available to Bank of America
Corporation, including the parent company and selected
subsidiaries, in the form of cash and high-quality, liquid,
unencumbered securities. Our liquidity buffer, or Global Excess
Liquidity Sources (GELS), is comprised of assets that are readily
available to the parent company and selected subsidiaries,
including bank and broker-dealer subsidiaries, even during
stressed market conditions. Our cash is primarily on deposit with
the Federal Reserve and, to a lesser extent, central banks outside
of the U.S. We limit the composition of high-quality, liquid,
unencumbered securities to U.S. government securities, U.S.
agency securities, U.S. agency MBS and a select group of non-
U.S. government and supranational securities. We believe we can
quickly obtain cash for these securities, even in stressed
conditions, through repurchase agreements or outright sales. We
hold our GELS in legal entities that allow us to meet the liquidity
requirements of our global businesses, and we consider the impact
of potential regulatory, tax, legal and other restrictions that could
limit the transferability of funds among entities. Our GELS are
substantially the same in composition to what qualifies as High
Quality Liquid Assets (HQLA) under the final U.S. LCR rules. For
more information on the final rules, see Liquidity Risk – Basel 3
Liquidity Standards on page 60.