Ally Bank 2014 Annual Report Download - page 76

Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
64
Liquidity Management, Funding, and Regulatory Capital
Overview
The purpose of liquidity management is to ensure Ally's ability to meet loan and lease demand, debt maturities, deposit withdrawals, and
other cash commitments under both normal operating conditions as well as periods of economic or financial stress. Our primary objective is
to maintain cost-effective, stable and diverse sources of funding capable of sustaining the organization throughout all market cycles. Sources
of funding include both retail and brokered deposits and secured and unsecured market-based funding across various maturity, interest rate,
and investor profiles. Additional liquidity is available through a pool of unencumbered highly liquid securities, borrowing facilities,
repurchase agreements, as well as funding programs supported by the Federal Reserve and the Federal Home Loan Bank of
Pittsburgh (FHLB).
Ally defines liquidity risk as the risk that an institution's financial condition or overall safety and soundness is adversely affected by an
inability, or perceived inability, to meet its financial obligations, and to withstand unforeseen liquidity stress events. Liquidity risk can arise
from a variety of institution specific or market-related events that could have a negative impact on cash flows available to the organization.
Effective management of liquidity risk helps ensure an organization's preparedness to meet cash flow obligations caused by unanticipated
events. Managing liquidity needs and contingent funding exposures has proven essential to the solvency of financial institutions.
The Asset-Liability Committee (ALCO) is chaired by the Corporate Treasurer and is responsible for overseeing Ally's liquidity, funding
strategies and plans, contingency funding plans, and counterparty credit exposure arising from financial transactions. Corporate Treasury is
responsible for managing Ally's liquidity positions within prudent operating guidelines and targets approved by ALCO and the Risk and
Compliance Committee of the Ally Financial Board of Directors. Liquidity risk is managed for the parent company, Ally Bank, and the
consolidated organization. The parent company and Ally Bank prepare periodic forecasts depicting anticipated funding needs and sources of
funds with oversight and monitoring by the Liquidity Risk group within Corporate Treasury. Corporate Treasury executes our funding
strategies and manages liquidity under baseline economic projections as well as more severely stressed macroeconomic environments.
Multiple measures are used to frame the level of liquidity risk, manage the liquidity position, or identify related trends. These measures
include coverage ratios that measure the sufficiency of the liquidity portfolio and stability ratios that measure longer-term structural liquidity.
In addition, we have established internal management routines designed to review all aspects of liquidity and funding plans, evaluate the
adequacy of liquidity buffers, review stress testing results, and assist senior management in the execution of its funding strategy and risk
management accountabilities.
We maintain available liquidity in the form of cash, unencumbered highly liquid securities, and available credit facility capacity that,
taken together, allows us to operate and to meet our contractual and contingent obligations in the event of market-wide disruptions and
enterprise-specific events. The available liquidity is held at various entities and considers regulatory restrictions and tax implications that may
limit our ability to transfer funds across entities. At December 31, 2014, we maintained $8.8 billion of total available parent company
liquidity and $7.8 billion of total available liquidity at Ally Bank. Parent company liquidity is defined as our consolidated operations less Ally
Bank and the regulated subsidiaries of Ally Insurance's holding company. To optimize cash between entities, the parent company lends cash to
Ally Bank on occasion under an intercompany loan agreement. At December 31, 2014, $625 million was outstanding under the intercompany
loan agreement. Amounts outstanding are repayable to the parent company upon demand, subject to a five day notice period. As a result, this
amount is included in the parent company available liquidity and excluded from the available liquidity at Ally Bank.
Regulatory Developments
In December 2010, the Basel Committee on Banking Supervision (Basel Committee) issued "Basel III: International framework for
liquidity risk measurement, standards and monitoring," which included two minimum liquidity risk standards. The first standard is the
Liquidity Coverage Ratio (LCR). The LCR measures the ratio of unencumbered, high-quality liquid assets to liquidity needs for a 30
calendar-day time horizon under a severe liquidity stress scenario specified by supervisors. The second standard is the Net Stable Funding
Ratio (NSFR). The NSFR is structured to ensure that long term assets are funded with at least a minimum amount of stable liabilities in
relation to their liquidity risk profiles.
In September 2014, the Office of the Comptroller of the Currency, the Board of Governors of the Federal Reserve (FRB), and the Federal
Deposit Insurance Corporation (FDIC) approved a final rule titled "Liquidity Coverage Ratio: Liquidity Risk Measurement Standards." The
LCR is the U.S. implementation of the LCR standard established by the Basel Committee. The LCR generally measures liquidity by the ratio
of a bank’s unencumbered high-quality assets to its total net cash outflows over a 30 calendar-day time horizon under a standardized liquidity
stress scenario specified by supervisors. The LCR applies to banking organizations with total consolidated assets of $250 billion or more or
total consolidated on-balance sheet foreign exposures of $10 billion or more, and their subsidiary depository institutions with $10 billion or
more of total consolidated assets.
A simpler, less stringent U.S. LCR requirement (Modified LCR) applies to depository institution holding companies with $50 billion or
more in total consolidated assets that are not covered by the LCR. The Modified LCR requires depository institution holding companies to
calculate their Modified LCR on a monthly basis beginning January 1, 2016, subject to a transition period (phased-in implementation with a
minimum ratio of 90% in 2016 and 100% in 2017 and beyond). Because Ally’s total assets are less than $250 billion but greater than $50
billion, and because it has immaterial foreign exposure, Ally is expected to be subject to the requirements of the Modified LCR.