Bank of America 2015 Annual Report Download - page 61

Bank of America 2015 59
Our GELS were $504 billion and $439 billion at December 31,
2015 and 2014, and were maintained as presented in Table 18.
Table 18 Global Excess Liquidity Sources
December 31
Average for
Three Months
Ended
December 31
2015
(Dollars in billions) 2015 2014
Parent company $ 96 $ 98 $ 96
Bank subsidiaries 361 306 369
Other regulated entities 47 35 45
Total Global Excess Liquidity Sources $ 504 $ 439 $ 510
As shown in Table 18, parent company GELS totaled $96 billion
and $98 billion at December 31, 2015 and 2014. The decrease
in parent company liquidity was primarily due to derivative cash
collateral outflows, common stock buy-backs and dividends,
partially offset by net subsidiary inflows. Typically, parent company
excess liquidity is in the form of cash deposited with BANA.
GELS available to our bank subsidiaries totaled $361 billion
and $306 billion at December 31, 2015 and 2014. The increase
in bank subsidiaries’ liquidity was primarily due to deposit inflows,
partially offset by loan growth. GELS at bank subsidiaries exclude
the cash deposited by the parent company. Our bank subsidiaries
can also generate incremental liquidity by pledging a range of other
unencumbered loans and securities to certain Federal Home Loan
Banks (FHLBs) and the Federal Reserve Discount Window. The
cash we could have obtained by borrowing against this pool of
specifically-identified eligible assets was $252 billion and $214
billion at December 31, 2015 and 2014. We have established
operational procedures to enable us to borrow against these
assets, including regularly monitoring our total pool of eligible
loans and securities collateral. Eligibility is defined in guidelines
from the FHLBs and the Federal Reserve and is subject to change
at their discretion. Due to regulatory restrictions, liquidity
generated by the bank subsidiaries can generally be used only to
fund obligations within the bank subsidiaries and can only be
transferred to the parent company or nonbank subsidiaries with
prior regulatory approval.
GELS available to our other regulated entities, comprised
primarily of broker-dealer subsidiaries, totaled $47 billion and $35
billion at December 31, 2015 and 2014. The increase in liquidity
in other regulated entities is largely driven by parent company
liquidity contributions to the Corporation’s primary U.S. broker-
dealer. Our other regulated entities also held other unencumbered
investment-grade securities and equities that we believe could be
used to generate additional liquidity. Liquidity held in an other
regulated entity is primarily available to meet the obligations of
that entity and transfers to the parent company or to any other
subsidiary may be subject to prior regulatory approval due to
regulatory restrictions and minimum requirements.
Table 19 presents the composition of GELS at December 31,
2015 and 2014.
Table 19 Global Excess Liquidity Sources Composition
December 31
(Dollars in billions) 2015 2014
Cash on deposit $ 119 $ 97
U.S. Treasury securities 38 74
U.S. agency securities and mortgage-backed securities 327 252
Non-U.S. government and supranational securities 20 16
Total Global Excess Liquidity Sources $ 504 $ 439
Time-to-required Funding and Stress Modeling
We use a variety of metrics to determine the appropriate amounts
of excess liquidity to maintain at the parent company, our bank
subsidiaries and other regulated entities. One metric we use to
evaluate the appropriate level of excess liquidity at the parent
company is “time-to-required funding.” This debt coverage
measure indicates the number of months that the parent company
can continue to meet its unsecured contractual obligations as they
come due using only the parent company’s liquidity sources without
issuing any new debt or accessing any additional liquidity sources.
We define unsecured contractual obligations for purposes of this
metric as maturities of senior or subordinated debt issued or
guaranteed by Bank of America Corporation. These include certain
unsecured debt instruments, primarily structured liabilities, which
we may be required to settle for cash prior to maturity. Our time-
to-required funding was 39 months at December 31, 2015. For
purposes of calculating time-to-required funding, at December 31,
2015, we have included in the amount of unsecured contractual
obligations $8.5 billion related to the BNY Mellon Settlement. The
final conditions of the settlement have been satisfied and,
accordingly, the Corporation made the settlement payment in
February 2016. For more information on the BNY Mellon
Settlement, see Note 7 – Representations and Warranties
Obligations and Corporate Guarantees to the Consolidated
Financial Statements.
We also utilize liquidity stress analysis to assist us in
determining the appropriate amounts of excess liquidity to
maintain at the parent company, our bank subsidiaries and other
regulated entities. The liquidity stress testing process is an integral
part of analyzing our potential contractual and contingent cash
outflows beyond the outflows considered in the time-to-required
funding analysis. We evaluate the liquidity requirements under a
range of scenarios with varying levels of severity and time horizons.
The scenarios we consider and utilize incorporate market-wide and
Corporation-specific events, including potential credit rating
downgrades for the parent company and our subsidiaries, and are
based on historical experience, regulatory guidance, and both
expected and unexpected future events.