Morgan Stanley 2015 Annual Report Download - page 86

The Company funds its balance sheet on a global basis through diverse sources. These sources may include the Company’s
equity capital, long-term debt, securities sold under agreements to repurchase (“repurchase agreements”), securities lending,
deposits, commercial paper, letters of credit and lines of credit. The Company has active financing programs for both
standard and structured products targeting global investors and currencies.
Secured Financing.
A substantial portion of the Company’s total assets consists of liquid marketable securities and arises principally from the
Institutional Securities business segment’s sales and trading activities. The liquid nature of these assets provides the
Company with flexibility in funding these assets with secured financing. The Company’s goal is to achieve an optimal mix of
durable secured and unsecured financing. Secured financing investors principally focus on the quality of the eligible
collateral posted. Accordingly, the Company actively manages its secured financing book based on the quality of the assets
being funded.
The Company utilizes shorter-term secured financing only for highly liquid assets and has established longer tenor limits for
less liquid asset classes, for which funding may be at risk in the event of a market disruption. The Company defines highly
liquid assets as government-issued or government-guaranteed securities with a high degree of fundability and less liquid
assets as those that do not meet these criteria. At December 31, 2015 and December 31, 2014, the weighted average maturity
of the Company’s secured financing of less liquid assets was greater than 120 days. To further minimize the refinancing risk
of secured financing for less liquid assets, the Company has established concentration limits to diversify its investor base and
reduce the amount of monthly maturities for secured financing of less liquid assets. Furthermore, the Company obtains term
secured funding liabilities in excess of less liquid inventory, or “spare capacity,” as an additional risk mitigant to replace
maturing trades in the event that secured financing markets, or its ability to access them, become limited. As a component of
the Liquidity Risk Management Framework, the Company holds a portion of its Global Liquidity Reserve against the
potential disruption to its secured financing capabilities.
The Company also maintains a pool of liquid and easily fundable securities, which provide a valuable future source of
liquidity. With the implementation of U.S. Basel III liquidity standards, the Company has also incorporated high-quality
liquid asset classifications that are consistent with the U.S. LCR definitions into its encumbrance reporting, which further
substantiates the demonstrated liquidity characteristics of the unencumbered asset pool and its ability to readily identify new
funding sources for such assets.
Unsecured Financing.
The Company views long-term debt and deposits as stable sources of funding. Unencumbered securities and non-security
assets are financed with a combination of long-term and short-term debt and deposits. The Company’s unsecured financings
include structured borrowings, whose payments and redemption values are based on the performance of certain underlying
assets, including equity, credit, foreign exchange, interest rates and commodities. When appropriate, the Company may use
derivative products to conduct asset and liability management and to make adjustments to its interest rate and structured
borrowings risk profile (see Note 4 to the consolidated financial statements in Item 8).
Deposits.
Available funding sources to the Company’s bank subsidiaries include time deposits, money market deposit accounts,
demand deposit accounts, repurchase agreements, federal funds purchased, commercial paper and Federal Home Loan Bank
advances. The vast majority of deposits in the Company’s U.S. Bank Subsidiaries are sourced from its retail brokerage
accounts and are considered to have stable, low-cost funding characteristics. The transfer of deposits previously held by Citi
to the Company’s depository institutions relating to the Company’s customer accounts was completed on June 30, 2015.
During 2015, $8.7 billion of deposits were transferred by Citi to the Company’s depository institutions.
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