Ally Bank 2014 Annual Report Download - page 77

Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K
65
In October 2014, the Basel Committee issued the final standard for the NSFR. The Basel Committee has targeted a 2018 effectiveness
date for the NSFR. The U.S. regulatory agencies have not yet proposed their NSFR implementation requirements. We will continue to
monitor the potential impacts of the Modified LCR and anticipated NSFR, and expect to meet the final requirements of each.
In October 2014, U.S. regulatory agencies adopted risk retention rules that require sponsors of asset-backed securitizations, such as Ally,
to retain not less than five percent of the credit risk of the assets collateralizing asset-backed securitizations. Ally Bank has complied with the
FDIC’s Safe Harbor Rule requiring it to retain five percent risk retention in retail automotive loan and lease securitizations. Ally intends to
comply with the new risk retention rules for automotive asset-backed securitizations, which become effective on December 24, 2016.
Funding Strategy
Liquidity and ongoing profitability are largely dependent on the timely and cost-effective access to retail deposits and funding in
different segments of the capital markets. Our funding strategy largely focuses on the development of diversified funding sources across a
broad investor base to meet liquidity needs throughout different market cycles, including periods of financial distress. These funding sources
include capital market based unsecured debt, unsecured retail term notes, public and private asset-backed securitizations, committed credit
facilities, brokered deposits, and retail deposits. We also supplement these sources with a modest amount of short-term borrowings, including
Demand Notes, and repurchase arrangements. The diversity of our funding sources enhances funding flexibility, limits dependence on any one
source, and results in a more cost-effective funding strategy over the long term. We evaluate funding markets on an ongoing basis to achieve
an appropriate balance of unsecured and secured funding sources and maturity profiles. In addition, we further distinguish our funding
strategy between Ally Bank funding and parent company (nonbank) funding.
We diversify Ally Bank's overall funding in order to reduce reliance on any one source of funding and to achieve a well-balanced
funding portfolio across a spectrum of risk, duration, and cost of funds characteristics. We have been focused on optimizing our funding
sources, in particular at Ally Bank by growing retail deposits, expanding public and private securitization programs, maintaining a prudent
maturity profile of our brokered deposit portfolio, utilizing repurchase agreements, and continuing to access funds from the Federal Home
Loan Banks.
Since 2009, a significant portion of asset originations in the United States have been directed to Ally Bank in order to reduce parent
company exposures and funding requirements, and to utilize our growing consumer deposit-taking capabilities. This has allowed us to use
bank funding for a wider array of our automotive finance assets and to provide a sustainable long-term funding channel for the business,
while also improving the cost of funds for the enterprise.
Ally Bank
Ally Bank gathers retail deposits directly from customers through direct banking via the internet, telephone, mobile, and mail channels.
These retail deposits provide our Automotive Finance, Mortgage, and Corporate Finance operations with a stable and low-cost funding
source. At December 31, 2014, Ally Bank had $57.9 billion of total external deposits, including $48.0 billion of retail deposits.
At December 31, 2014, Ally Bank maintained cash liquidity of $2.3 billion and unencumbered highly liquid U.S. federal government and
U.S. agency securities of $5.8 billion. In addition, at December 31, 2014, Ally Bank had unused capacity in committed secured funding
facilities of $250 million. Our ability to access unused capacity depends on having eligible assets to collateralize the incremental funding and,
in some instances, the execution of interest rate hedges. To optimize cash between entities, the parent company lends cash to Ally Bank on
occasion under an intercompany loan agreement. Amounts outstanding on this loan are repayable to the parent company upon demand,
subject to a five day notice period. Ally Bank had total available liquidity of $7.8 billion at December 31, 2014, excluding the intercompany
loan of $625 million.
Optimizing bank funding continues to be a key part of our long-term liquidity strategy. We have made significant progress in migrating
asset originations to Ally Bank and growing our retail deposit base since becoming a BHC in December 2008. Effective May 1, 2014, assets
of $1.5 billion from our Corporate Finance operations were contributed to Ally Bank, allowing this business to have a more competitive
source of funding. Retail deposit growth is a key driver of further reductions to funding costs and capital markets reliance. We believe
deposits provide a stable, low-cost source of funds that are less sensitive to interest rate changes, market volatility, or changes in credit ratings
when compared to other funding sources. We have continued to expand our deposit gathering efforts through both direct and indirect
marketing channels. Current retail product offerings consist of a variety of products including CDs, savings accounts, money market accounts,
IRA deposit products, as well as an interest checking product. In addition, we utilize brokered deposits, which are obtained through third-
party intermediaries. During 2014, the deposit base at Ally Bank grew $5.0 billion, ending the year at $57.9 billion from $52.9 billion at
December 31, 2013. The growth in deposits has been primarily attributable to our retail deposit portfolio, particularly within our savings and
money market accounts. Strong retention rates continue to materially contribute to our growth in retail deposits. Refer to Note 14 to the
Consolidated Financial Statements for a summary of deposit funding by type.