State Street : Liquidity Coverage Ratio Public Disclosure
08/12/2022 | 10:25am EDT
U.S. Liquidity Coverage Ratio ("LCR") Disclosure
August 12 2022
Main Drivers of Quarterly Average LCR
State Street Corporation's ("SSC") LCR has remained reasonably stable and above regulatory requirements over the past two years, primarily as a result of our liquid balance sheet structure and stable funding sources. As set forth in table 1 below, SSC's LCR was stable at 106% in 2Q22 relative to 1Q22.State Street Bank and Trust Company's ("SSBT") LCR decreased to 122% in 2Q22 from 127% in 1Q22, largely driven by a decrease in client deposits and increase in liquidity consumption from loans and securities financing transactions.
State Street retains the majority of its liquidity resources at SSBT, as we have limited business activity at SSC. This differs from many other banking organizations which may have considerable business lines directly held at the corporate holding company level. SSBT's LCR is significantly higher than SSC's LCR, primarily due to application of the transferability restriction in the U.S. LCR Final Rule to the calculation of SSC's LCR. This restriction limits the amount of HQLA available for the calculation of SSC's LCR to the amount of net cash outflows of SSC's principal banking subsidiary, SSBT. This transferability restriction does not apply in the calculation of SSBT's LCR, and therefore SSBT's LCR reflects the full benefit of all of its HQLA holdings The LCR is expressed as a ratio: the deno minator (net cash outflows), increases as deposits rise, while the numerator (HQLA) is restricted for SSC by the cap on recognizing the HQLA held at SSBT, thereby resulting in a lower percentage.
Relative to pre-pandemic levels, SSC deposits remain elevated driven by increases in client custodial balances and accommodative global monetary policy in response to the COVID -19 pandemic. However, as global central banks have increased short-term interest rates, we have begun to see slight decreases in deposit balances in the first half of 2022, in line with our expectations. A significant portion of these elevated deposits is related to increased custodial balances, a portion of which is considered to be operational in nature and therefore a stable source of funding, drawing only a 25% outflow rate under the LCR Rule. We treat the remaining "excess" deposits as non-operational. These excess deposits increase on a one-to-one basis both the LCR numerator (High Quality Liquid Assets, or "HQLA"), due to our investment of these deposits in HQLA, and the LCR denominator (net cash outflows), due to a 100% outflow rate, in the calculation of the LCR; subject, in the case of SSC, to the transferability restriction mentioned above.
For additional information about State Street's HQLA, see State Street's 2021 Form 10-K.
The below table includes the SSBT and SSC LCR for the last 5 quarters:
Amount in $M , except where otherwise noted
Total Client Deposits
State Street Corporation LCR
State Street Corporation LCR Buffer
State Street Bank and Trust LCR
State Street Bank and Trust LCR Buffer
The LCR Buffer is calculated as the excess stock of Liquid Assets that the entity holds over and above the required Net Cash Outflows over the hypothetical 30 days stress period.
Deposit balances as reported to the Federal Reserve for the LCR calculation. Balances may differ from the re ported deposit balances in other published materials due to period-end adjustments made after the LCR filing date .
In order to articulate the impact that changes in client deposits can have on the SSC and SSBT LCR calculation, we have included a sensitivity analysis to provide a hypothetical pro forma impact analysis under specified deposit scenarios holding all other LCR drivers constant for 2Q22. The sensitivity analysis uses 2Q22 average client deposit levels as the baseline and then reflects the different pro forma impacts of hypothetical changes (increases or decreases) to average client deposits from the baseline.
*Operational Deposits represents line 10 in Table 3: 2Q22 SSC Quarterly Average LCR Quantitative Disclosure.
The analysis in the above table presents hypothetical pro forma effects for 2Q22, based upon actual data for 2Q22 (varying only client deposit levels, as noted). The analysis is for illustrative purposes only and does not represent a forecast or forward-looking statement. Figures in the table may not sum due to rounding.
All other drivers of the LCR such as derivative exposures, placements and nostro balances etc. are held constant at the 2Q22 quarterly average and relies on several assumptions, also held constant, regarding the operational value of deposits and the legal entities in which they reside.
LCR Buffer is the excess stock of Liquid Assets that the entity holds over and above the required Net Cash Outflows over the hypothetical 30 days stress period.
Eligible HQLA Composition: For 2Q22, SSC's average HQLA was $141.7 billion, of which $97.9 billion was eligible to be included in SSC's LCR. $43.8 billion of HQLA held at subsidiaries was ineligible for inclusion in SSC's LCR calculation due to the transferability restriction under the LCR Final Rule, relative to $49.4 billion of HQLA that was ineligible in 1Q22. SSC's HQLA excludes the amount of HQLA at SSBT that is in excess of its standalone 100% minimum LCR requirement and that is not transferable to non-bank affiliates.
Outflow Drivers: Deposits are the most significant driver of SSC's net cash outflows. The deposit outflow rates prescribed in the LCR Final Rule are based on deposit types and requirements for the recognition of operational deposits which may vary from period to period based on client investment and related activities. These variances can be significant and have a corresponding effect on SSC's LCR from period to period. SSC uses a quantitative modeling approach to identify which deposits meet the operational requirements and characteristics as prescribed in the LCR Final Rule. During 2Q22, calculated weighted average outflows of $125.4 billion were primarily driven by deposit outflows of approximately $89.2 billion, outflows related to derivative exposures and other collateral requirements totaling $15.5 billion, and outflows of undrawn committed credit and liquidity facilities of approximately $16.1 billion.
Inflow Drivers: SSC's calculated weighted average inflows of $32.9 billion for 2Q22 were primarily driven by the overnight contractual unwind of securities borrowing and lending transactions as cash and securities were returned to SSC. Placements and nostro balances held at unaffiliated banks and loans maturing within 30 days make up the remaining calculated inflows.
Quantitative Disclosure of SSC 2Q22 Quarterly Average LCR
The data presented in the quantitative disclosure below are averages of daily observations over 2Q22 and are consistent with the LCR Final Rule. In 2Q22, SSC had an average LCR of 106%, with average HQLA of $141.7 billion, of which $97.9 billion was eligible to be included in SSC's LCR numerator, and weighted average total net cash outflows of $92.7 billion (including maturity mismatch add-on of $232 million).
Table 3: 2Q22 SSC Quarterly Average LCR Quantitative Disclosure
LCR Public Disclosure
01/04/2022 to 30/06/2022
In millions of U.S. Dollars
HIGH-QUALITY LIQUID ASSETS
Total eligible high-quality liquid assets (HQLA), of which
Eligible level 1 liquid assets
Eligible level 2A liquid assets
Eligible level 2B liquid assets
CASH OUTFLOW AMOUNTS
Deposit outflow from retail customers and
counterparties, of which:
Stable retail deposit outflow
Other retail funding
Brokered deposit outflow
Unsecured wholesale funding outflow, of which:
Operational deposit outflow
Non-operational funding outflow
Unsecured debt outflow
Secured wholesale funding and asset exchange outflow
Additional outflow requirements, of which:
Outflow related to derivative exposures and other
Outflow related to credit and liquidity facilities
including unconsolidated structured transactions and
Other contractual funding obligation outflow
Other contingent funding obligations outflow
TOTAL CASH OUTFLOW
CASH INFLOW AMOUNTS
Secured lending and asset exchange cash inflow
Retail cash inflow
Unsecured wholesale cash inflow
Other cash inflows, of which:
Net derivative cash inflow
Securities cash inflow
Broker-dealer segregated account inflow
Other cash inflow
TOTAL CASH INFLOW
TOTAL NET CASH OUTFLOW AMOUNT
EXCLUDING THE MATURITY MISMATCH ADD-ON
MATURITY MISMATCH ADD-ON
TOTAL UNADJUSTED NET CASH OUTFLOW
OUTFLOW ADJUSTMENT PERCENTAGE
TOTAL ADJUSTED NET CASH OUTFLOW
LIQUIDITY COVERAGE RATIO (%)
1 The amounts reported in this column may not equal the calculation of those amounts using component amounts reported in rows 1-28 due to technical factors such as the application of the level 2 liquid asset caps and the total inflow cap.
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State Street Corporation published this content on 12 August 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 12 August 2022 14:24:01 UTC.