TD Bank 2014 Annual Report Download - page 97

TD BANK GROUP ANNUAL REPORT 2014 MANAGEMENT’S DISCUSSION AND ANALYSIS 95
Excluding Wholesale Banking mortgage aggregation business,
the Bank’s total 2014 mortgage-backed securities issuance was
$3.8 billion (2013 – $6.3 billion), and other real-estate secured issu-
ance using asset-backed securities was $1 billion (2013 – $1 billion).
The Bank also issued $17.4 billion of unsecured medium-term notes
(2013 – $13.4 billion) and $8.6 billion of covered bonds, in various
currencies and markets during the year ended October 31, 2014
(2013 – nil). This includes unsecured medium-term notes and covered
bonds settling subsequent to year end. Refer to Note 37 of the Bank’s
2014 Consolidated Financial Statements for further details.
REGULATORY DEVELOPMENTS CONCERNING LIQUIDITY
AND FUNDING
In May 2014, OSFI released the final LAR guideline which establishes
two minimum standards based on the Basel III framework with
national supervisory discretion applied to certain treatments: the LCR
effective January 1, 2015, and the Net Stable Funding Ratio (NSFR)
effective January 1, 2018. These requirements are supplemented by
additional supervisory monitoring metrics including the liquidity and
intraday liquidity monitoring tools as considered in the Basel III frame-
work and the OSFI-designed Net Cumulative Cash Flow (NCCF). Banks
are required to submit monthly LCR and NCCF starting with the
January 2015 positions and are required to comply with the 100%
LCR limit from the first reporting. TD is well prepared to meet the
regulatory reporting and LCR compliance requirements and is finalizing
strategies to align its liquidity risk management framework with the
new regulatory standards.
In July 2014, OSFI released the final guideline on “Public Disclosure
Requirements for Domestic Systematically Important Banks on Liquidity
Coverage Ratio”. D-SIBs are required to implement the Basel LCR
Disclosure Standards beginning with the second quarter of 2015
reporting period.
In October 2014, Basel Committee on Banking Supervision released
the final standard for “Basel III: the net stable funding ratio.” The NSFR
requires that the ratio of available stable funding over required stable
funding be greater than 100%. The NSFR is designed to reduce struc-
tural funding risk by requiring banks to have sufficient stable sources
of funding and lower reliance on funding maturing in 1 year to
support their businesses. The NSFR is expected to become a minimum
standard by January 1, 2018.
On August 1, 2014, the Department of Finance released a public
consultation paper (the “Bail-in Consultation”) regarding a proposed
Taxpayer Protection and Bank Recapitalization regime (commonly
referred to as “bail-in”) which outlines their intent to implement a
comprehensive risk management framework for Canada’s D-SIBs,
which includes TD. The regime is aimed at reducing the likelihood of
failure of systemically important banks and providing authorities with
the means to restore a bank to viability in the unlikely event that a
bank should fail, without disrupting the financial system or economy
and without using taxpayer funds. When the regime is in place, it will
allow for the expedient conversion of certain bank liabilities into regu-
latory capital when OSFI has determined that a bank has become or is
about to become non-viable. It is proposed in the Bail-in Consultation
that the conversion power only apply to long-term senior debt that
is issued, originated, or renegotiated after an implementation date
determined by the Government of Canada (GoC). The GoC has also
proposed that in order to have sufficient loss absorbing capacity that
D-SIBs be subject to a higher loss absorbency requirement of between
17 to 23% of RWA, which can be met through the sum of regulatory
capital (for example, common equity and NVCC instruments) and
long-term senior debt. The Bail-in Consultation period ended in
September 2014, and no implementation timeline has been provided.
MATURITY ANALYSIS OF ASSETS, LIABILITIES AND
OFF-BALANCE SHEET COMMITMENTS
The following table summarizes on-balance and off-balance sheet
categories by remaining contractual maturity. Off-balance sheet
commitments include contractual obligations to make future payments
on operating and capital lease commitments, certain purchase obliga-
tions and other liabilities. The values of credit instruments reported
below represent the maximum amount of additional credit that the
Bank could be obligated to extend should contracts be fully utilized.
Since a significant portion of guarantees and commitments are
expected to expire without being drawn upon, the total of the contrac-
tual amounts is not representative of future liquidity requirements.
These contractual obligations have an impact on the Bank’s short-term
and long-term liquidity and capital resource needs.
The maturity analysis presented does not depict the Bank’s
asset/liability matching or exposure to interest rate and liquidity risk.
The Bank ensures that assets are appropriately funded to protect
against borrowing cost volatility and potential reductions to funding
market availability (that is, the Bank does not fund illiquid long-term
assets with short-term maturity borrowings). The Bank utilizes stable
P&C non-specific maturity deposits (chequing and savings accounts)
and P&C term deposits as the primary source of long-term funding for
the Bank’s non-trading assets. The Bank also funds the stable balance
of revolving lines of credit with long-term funding sources. The Bank
conducts long-term funding activities based on the projected net
growth for non-trading assets after considering such items as new
business volumes, renewals of both term loans and term deposits,
and how customers exercise options to prepay loans and pre-redeem
deposits. The Bank targets to match funding maturities as closely as
possible to the expected maturity profile of its balance sheet. The Bank
also raises shorter-term unsecured wholesale deposits to fund trading
assets based on its internal estimates of liquidity of these assets under
stressed market conditions.