Morgan Stanley 2014 Annual Report Download - page 104

The ability to monetize assets during a liquidity crisis is critical. The Company believes that the assets held in its
Global Liquidity Reserve can be monetized within five business days in a stressed environment given the highly
liquid and diversified nature of the reserves. The currency profile of the Company’s Global Liquidity Reserve is
consistent with the Company’s CFP and Liquidity Stress Tests. In addition to its Global Liquidity Reserve, the
Company has other cash and cash equivalents and other unencumbered assets that are available for monetization
that are not included in the balances in the table above.
Global Liquidity Reserve Held by Bank and Non-Bank Legal Entities.
The table below summarizes period-end and average balances of the Company’s Global Liquidity Reserve held
by bank and non-bank legal entities:
Average Balance(1)
At December 31,
2014
At December 31,
2013 2014 2013
(dollars in billions)
Bank legal entities:
Domestic ................................... $ 83 $ 85 $ 82 $ 70
Foreign ..................................... 5 4 5 5
Total Bank legal entities ................... 88 89 87 75
Non-Bank legal entities:
Domestic(2) ................................. 70 80 76 83
Foreign ..................................... 35 33 32 34
Total Non-Bank legal entities ............... 105 113 108 117
Total ............................... $193 $202 $195 $192
(1) The Company calculates the average Global Liquidity Reserve based upon daily amounts.
(2) The Parent held $55 billion and $58 billion at December 31, 2014 and December 31, 2013, respectively, which averaged $57 billion and
$63 billion during 2014 and 2013, respectively.
Basel Liquidity Framework.
The Basel Committee has developed two standards intended for use in liquidity risk supervision: the Liquidity
Coverage Ratio (“LCR”) and the Net Stable Funding Ratio (“NSFR”).
Liquidity Coverage Ratio. The LCR was developed to ensure banking organizations have sufficient high-
quality liquid assets to cover net cash outflows arising from significant stress over 30 calendar days. This
standard’s objective is to promote the short-term resilience of the liquidity risk profile of banking organizations.
In September 2014, the U.S. bank regulators issued a final rule to implement the LCR in the U.S. (“U.S. LCR”).
The U.S. LCR applies to the Company and the Company’s U.S. Subsidiary Banks. The U.S. LCR is more stringent
in certain respects than the Basel Committee’s version of the LCR as it includes a generally narrower definition of
debt and equity securities that qualify as high-quality liquid assets, different methodologies and assumptions for
calculating net cash outflows during the 30-day stress period, a maturity mismatch add-on, and a phase-in period
that ends on December 31, 2016. In addition, under the U.S. LCR, a banking organization must submit a liquidity
compliance plan to its primary federal banking agency if it fails to maintain the minimum U.S. LCR requirement for
three consecutive business days. As of January 1, 2015 the Company and the Company’s U.S. Subsidiary Banks are
required to maintain a minimum U.S. LCR of 80%. This minimum requirement will increase to 90% beginning on
January 1, 2016 and will be fully phased in at 100% beginning on January 1, 2017. The Company and the
Company’s U.S. Subsidiary Banks must calculate their respective U.S. LCR on a monthly basis during the period
between January 1, 2015 and June 30, 2015 and on each business day starting on July 1, 2015. The Company is
compliant with the minimum required U.S. LCR based on current estimates and interpretation and continues to
evaluate its potential impact on the Company’s liquidity and funding requirements.
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