Bank of Montreal 2013 Annual Report Download - page 82

a European Note Issuance Program, Canadian and U.S. Medium-Term
Note Programs, Canadian and U.S. mortgage securitizations, Canadian
credit card securitizations, covered bonds and Canadian and U.S. senior
(unsecured) deposits.
BMO’s wholesale funding plan ensures sufficient funding capacity is
available to execute business strategies. The funding plan incorporates
Wholesale Funding Maturities (1) ($ millions)
As at October 31, 2013
Unsecured (original term under 2 years)
Unsecured (original term 2 years or greater)
Total Unsecured (2)
Less
than
1 month
12,093 24,435 8,998 8,725 54,251
215 845 1,816 749 3,625
12,308 25,280 10,814 9,474 57,876
394 – – 54,645
9,304 22,416 5,694 41,039
9,698 22,416 5,694 95,684
Secured (original term 2 years or greater)
Mortgage securitizations
Covered bonds
Credit card securitizations
FHLB* advances
Total Secured
Total
712 1,409 945 318 3,384
– – – 2,086 2,086
500 – – – 500
– – – – –
1,212 1,409 945 2,404 5,970
13,520 26,689 11,759 11,878 63,846
2,445 7,552 4,754 18,135
2,085 3,649 – 7,820
– 3,763 – 4,263
– 2,477 – 2,477
4,530 17,441 4,754 32,695
14,228 39,857 10,448 128,379
expected maturities and stress testing results, asset and liability growth
projected from our businesses through our forecasting and planning
process, and assesses funding needs against available potential sources.
The funding plan is regularly updated throughout the year to incorporate
actual results and updated forecast information.
Subtotal
Less
1to 3 3to 6 6to 12 than 1to 2to Over
months months months 1 year 2 years 5 years 5 years Total
MD&A
* Federal Home Loan Banks.
(1) Wholesale funding excludes repo transactions and bankers acceptances, which are disclosed in the contractual maturity table in Note 30 of the financial statements, and capital transactions, which are
disclosed in Notes 17, 18 and 20 of the financial statements.
(2) Unsecured funding refers to funding through issuance of marketable, negotiable securities. Structured notes, which are predominantly retail in nature, are not included.
(3) Total wholesale funding consists of Canadian-dollar-denominated funds of $51.9 billion and $76.4 billion of funds denominated in U.S. dollars and other foreign currencies as at October 31, 2013.
Liquidity Risk Management
A key component of the liquidity risk framework is the measurement of
liquidity and liquidity risk under stress. BMO uses the Net Liquidity Posi-
tion (NLP) as a key measure of liquidity risk. The NLP represents the
amount by which liquid assets exceed potential funding needs under a
severe combined enterprise-specific and systemic stress scenario. Poten-
tial funding needs may arise from obligations to repay retail, commercial
and wholesale deposits that are withdrawn or not renewed, fund
drawdowns on available credit and liquidity lines, purchase collateral for
pledging due to ratings downgrades or as a result of market volatility, as
well as fund asset growth and strategic investments. Potential funding
needs are quantified by applying factors to various business activities
based on management’s view of the relative liquidity risk of each activ-
ity. These factors vary depending on depositor classification (e.g., retail,
small business, non-financial corporate and wholesale counterparties)
and deposit type (e.g., insured, uninsured, operational and non-
operational deposits) and by commitment type (e.g., uncommitted and
committed credit or liquidity facilities by counterparty type). These
funding needs are assessed under severely stressed systemic and
enterprise-specific scenarios and a combination thereof. BMO targets to
maintain a net liquidity position sufficient to withstand each scenario.
Stress testing results are compared against BMO’s stated risk tolerance,
considered in management decisions on limit or guideline setting and
internal liquidity transfer pricing, and help to shape the design of
management plans and contingency plans. The liquidity and funding risk
framework is also linked with enterprise-wide stress testing, including
the Internal Capital Adequacy Assessment Process.
Liquid Assets
Liquid assets include unencumbered, high-quality assets that are market-
able, can be pledged as security for borrowings, and can be converted to
cash in a time frame that meets our liquidity and funding requirements.
Liquid assets are primarily held in our trading businesses, and in
supplemental liquidity pools that are maintained for contingent liquidity
risk management purposes. The amount of liquidity recognized for
different asset classes under our management framework is subject to
reductions reflecting management’s view of the liquidity value of those
assets in a stress scenario. Liquid assets in the trading business include
cash on deposit with central banks and short-term deposits with other
financial institutions, highly-rated debt and equity securities and short-
term reverse repurchase agreements. With the exception of certain
equities, a large majority of trading assets qualify as liquid assets under
Basel III. These equity holdings are largely hedged and can be liquidated
in a crisis or if otherwise desired. Supplemental liquidity pool assets are
predominantly comprised of cash on deposit with central banks and
securities and short-term reverse repurchase agreements of highly rated
Canadian federal and provincial and U.S. federal government and agency
debt. Substantially all supplemental liquidity pool assets meet the defi-
nition of liquid assets under Basel III. Trading liquid assets are held in
the parent bank, BMO Harris Bank and BMO’s broker/dealer operations
in Canada and internationally. Approximately 75% of the supplemental
liquidity pool is held at the parent bank level in Canadian- and U.S.-
dollar-denominated assets, with the residual supplemental liquidity pool
contained in BMO Harris Bank in U.S.-dollar-denominated assets that
may be subject to regulatory up-streaming restrictions. The size of the
supplemental liquidity pool is calibrated to meet the potential funding
needs outside of our trading businesses in each of the parent bank and
BMO Harris Bank and achieve BMO’s target NLP in each entity. To meet
local regulatory requirements, certain of our legal entities maintain their
own minimum liquidity positions that meet overall regulatory require-
ments. There may be legal and regulatory restrictions on our ability to
use liquid assets in one legal entity to support liquidity requirements in
another legal entity.
In the ordinary course of day-to-day activities, BMO may encumber
a portion of cash and securities holdings as collateral to support trading
activities and participation in clearing and payment systems in Canada
and abroad. In addition, BMO may receive liquid assets as collateral and
may re-pledge these assets in exchange for cash or as collateral for
trading activities. Net unencumbered liquid assets, defined as
on-balance sheet assets such as BMO-owned cash and securities and
Material in blue-tinted font above is an integral part of the 2013 annual consolidated financial statements (see page 77).
BMO Financial Group 196th Annual Report 2013 93