Ally Bank 2012 Annual Report Download - page 77

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Liquidity Management, Funding, and Regulatory Capital
Overview
The purpose of liquidity management is to ensure our ability to meet changes in 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 liquidity include both retail and brokered deposits and secured and unsecured market-based funding across various
maturity, interest rate, currency, and investor profiles. Further 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).
We define 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 uncertain cash flow obligations caused by
unanticipated events. The ability of financial institutions to manage liquidity needs and contingent funding exposures has proven essential to
their solvency.
The Asset-Liability Committee (ALCO) is chaired by the Corporate Treasurer and is responsible for monitoring Ally's liquidity position,
funding strategies and plans, contingency funding plans, and counterparty credit exposure arising from financial transactions. Corporate
Treasury is responsible for managing the liquidity positions of Ally within prudent operating guidelines and targets approved by ALCO and
the Risk and Compliance Committee of the Ally Financial Board of Directors. We manage liquidity risk at the business segment, legal entity,
and consolidated levels. Each business segment, along with Ally Bank, prepares periodic forecasts depicting anticipated funding needs and
sources of funds with oversight and monitoring by Corporate Treasury. Corporate Treasury manages liquidity under baseline economic
projections as well as more severe economic stressed environments. Corporate Treasury, in turn, plans, and executes our funding strategies.
Ally uses multiple measures to frame the level of liquidity risk, manage the liquidity position, or identify related trends as early warning
indicators. 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 several 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 structured 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. We maintain available liquidity at various entities and consider regulatory restrictions and tax implications that may
limit our ability to transfer funds across entities. At December 31, 2012, we maintained $15.6 billion of total available parent company
liquidity and $13.2 billion of total available liquidity at Ally Bank. Parent company liquidity is defined as our consolidated operations less
Ally Bank and the subsidiaries of Ally Insurance's holding company. To optimize cash and secured facility capacity between entities, the
parent company lends cash to Ally Bank on occasion under an intercompany loan agreement. At December 31, 2012, $1.6 billion was
outstanding under the intercompany loan agreement. Amounts outstanding are repayable to the parent company upon demand, subject to five
days notice. As a result, this amount is included in the parent company available liquidity and excluded from the available liquidity at Ally
Bank.
In December 2010, the Basel Committee on Banking Supervision issued “Basel III: International framework for liquidity risk
measurement, standards and monitoring”, which includes 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. It aims to encourage better assessment of liquidity risk across all on- and off-balance sheet items. In January 2013, the Group of
Governors and Heads of Supervision (GHOS), the oversight body of the Basel Committee on Banking Supervision unanimously endorsed
amendments to the Liquidity Coverage Ratio announced in December 2010. A summary of changes include: a phased-in implementation with
minimum ratio of 60% in 2015, growing by 10% per year to reach 100% by 2019; an expanded definition of high quality liquid assets; and
adjustments to net cash outflows. The GHOS indicated that the NSFR will be a priority for the Basel Committee over the next two years and
the scheduled implementation date remains unchanged at January 2018. We continue to monitor the potential impacts of these developments
and expect to be able to meet the final requirements.
Funding Strategy
Liquidity and ongoing profitability are largely dependent on our timely and cost-effective access to retail deposits and funding in
different segments of the capital markets. We continue to be focused on maintaining and enhancing our liquidity. Our funding strategy largely
focuses on the development of diversified funding sources across a global investor base to meet all our liquidity needs throughout different
market cycles, including periods of financial distress. These funding sources include unsecured debt capital markets, unsecured retail term
notes, public and private asset-backed securitizations, committed and uncommitted credit facilities, brokered certificates of deposits, and retail
deposits. We also supplement these sources with a modest amount of short-term borrowings, including Demand Notes, unsecured bank loans,
and repurchase arrangements. The diversity of our funding sources enhances funding flexibility, limits dependence on any one source, and
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K