The Bank of New York Mellon Annual Report 2019

FY2019 Annual Report · The Bank of New York Mellon

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For more than 235 years, BNY Mellon has been a
trusted steward of our clients’ business and a respected
corporate citizen. With each decade comes a new era
of change and, as we enter 2020, I am excited for what
the future holds for our organization.

In my 30-plus years with the company, we have undergone an incredible

transformation. Not long ago, we were the largest retail bank in the greater

New York suburban area, a large credit card player and an active participant

in capital markets, leveraged loans and emerging markets.

Today, we are a globally significant, broad-based services company with

a low-risk balance sheet – a considerable evolution from the traditional

commercial bank we once were. This spirit of transformation and innovation

has been part of our DNA for more than two centuries and, now more than

ever, we must continue to drive an aggressive agenda. While our growth as

an organization has been noteworthy, we know there is more we need to do

to continuously deliver on our promise to our shareholders.

Annual Report 2019 I

We feel good about our business model and portfolio of client services, and

are confident in our ability to provide consistent returns to our shareholders.

We take pride in our strong risk management culture, and in our digital- and

technology-enabled capabilities – all of which have us well situated to provide

scalable and efficient solutions to investors worldwide.

As we move forward, we want to accelerate our evolution and

innovation as this will ensure we are well positioned for the future

and able to meet the ever-changing needs of our clients.

This is the legacy we’ve built and will carry forward.

Drive Exceptional Execution,
Accelerate Our Evolution

As an organization, we are determined to do more and do better, with a greater

sense of urgency to drive exceptional execution and accelerate our transformation.

We have a strong business model that generates significant cash and requires

relatively low amounts of capital to grow. As such, we believe we are in a strong

position in terms of what we do and are intently focused on how we do things to

enhance our performance. With that objective, we are investing time and capital

in the following:

Building a Technology-driven and Digital Culture

We’ve made large investments in our technology and digital

ecosystem. The aim is simple: drive resiliency and security,

enhance operational effectiveness and deliver more value for

our clients across a broader set of their needs.

We firmly believe that our digital mindset and open-platform approach

are competitive advantages for us in the sector.

II BNY Mellon

Enhancing Our Operating Model

Under the leadership of our Head of Operations, Lester Owens, our operations

function is automating our end-to-end processes, which improves quality, reduces

structural costs and increases productivity. With an enhanced discipline and

rigor around operational performance, we made structural changes to improve

oversight and accountability across our company. Employing a digital mindset,

we utilize automation, machine learning and artificial intelligence (AI) to further

operational efficiency and enhance the client experience. Extending beyond our

own in-house capabilities, we are collaborating with fintechs and other financial

institutions to accelerate our progress.

Our investments have allowed us to upgrade our data centers and infrastructure,

improving performance and creating a more resilient platform. We are now

upgrading many applications and using advanced technologies to take advantage

of this new environment. For example, we used AI to develop a solution to help

address the hundreds of thousands of inbound client inquiries we receive each

month. After a successful pilot, we are deploying that solution to facilitate

client inquiries in a seamless, more timely manner. The result is a better client

experience that costs less to deliver. We believe these technology investments

will be a source of competitive differentiation.

Deepening Relationships, Boosting Client Value

Simply put, our clients are at the center of everything we do. Our technological

advancements and operational improvements allow us to fundamentally change

the nature of our client service model. However, it doesn’t stop with technology

and operations. We are revamping our global client management and service

functions to strengthen how we interact with, service and anticipate the needs

of our clients.

In addition, our open-platform approach provides significant

opportunities for us to deliver new and unique client-centric

solutions by partnering with other financial institutions,

big tech and fintechs.

The result of this open, platform-agnostic partnership model is the greater

flexibility, quality, transparency and efficiency that our clients demand. It also

enables us to grow and bolster our product portfolio while enhancing what is

already industry-leading client service and retention.

Annual Report 2019 III

Expanding Our Relevance, Driving Growth

We remain focused on growth across key geographies, as well as business and

client segments, as we increase our influence and relevance across our industry.

GEOGRAPHIC EXPANSION

We must continue to deepen our presence in key international markets.

We have enduring long-term investments in Northern and Western Europe;

in the Middle East, where we’ve operated for more than 50 years; and in

Asia, where our investments in China, Korea and Japan remain steadfast.

Hani Kablawi, a leader with years of experience in our businesses, was

recently named Head of International and will be focused on growth within

these significant regions.

BUSINESSES

Asset Servicing – We continue to expand our capabilities internally and

through external partnerships, and over the past year we announced market-

leading (and industry-first) partnerships with important institutions across

the front-to-back value chain. We’re enhancing capabilities in alternatives and

exchange-traded funds (ETFs), which have strong growth prospects, and feel

we are well positioned to capture our share as we leverage enterprise-wide

relationships and help our clients diversify their asset classes. We are also

expanding our data and analytics solutions offering, which we believe will be a

real differentiator over time. We have more than $30 trillion in assets on our data

and analytics platform and clients are increasingly using this data to improve

their investment decision making and earnings outcomes. In 2019, we continued

to win new mandates across geographies and client segments, including both

asset managers and asset owners, segments in which we are a recognized

leader across the globe.

We take pride in our offering of tailored and comprehensive client

solutions, which helps them overcome a range of issues such as liquidity,

changing technologies and an increasingly volatile investment landscape.

To drive change, Roman Regelman was recently named head of Asset Servicing.

Roman brings a combination of digital and business skills that will

accelerate the development of our already leading capabilities.

IV BNY Mellon

Clearance and Collateral Management – This business is a significant area

of differentiation for us. We are focused on enabling market participants to

more efficiently mobilize their collateral and realize funding and operational

efficiencies. And our new collateral platform should significantly boost our

ability to attract new market participants, support new collateral types and

increase velocity across the platform.

Pershing – Our Pershing service offering provides the end-to-end solutions that

broker-dealers need to transform their business and that Registered Investment

Advisors (RIAs) need to help grow and serve their clients. We entered 2020 with

the strongest pipeline in many years and, at a time when industry consolidation

is limiting choice, we believe our transparency, flexibility and alignment with our

clients’ interests will prove attractive to the market.

Treasury Services – We are refocusing on, and investing in, higher-margin

and higher-growth businesses such as global payments, including real-time

payments, as well as liquidity and trade finance – enabling us to grow deposits

and maintain the scale needed to succeed.

Issuer Services – In Corporate Trust, we see good business momentum as

we gain market share in a number of key debt products and benefit from our

investments in structured products. Additionally, our Depositary Receipts

business continues to be well positioned in key markets where we will benefit

from market activity.

Investment Management – We are encouraged by our investment performance

in some of our larger strategies, particularly in equities and multi-asset

classes, the new areas of focus in our product pipeline, and believe that our

multi-boutique model positions us well for the future. We are introducing new

products across a number of areas where there is growing interest, including

fixed income; environmental, social and governance (ESG) investing; enhanced

beta; multi-asset solutions and ETFs. However, we recognize we have more work

to do, especially in areas of the franchise that are facing structural headwinds.

Annual Report 2019 V

Wealth Management – We have a great Wealth Management franchise with

a strong heritage and brand, but we must invest further to unlock its full

potential. We are expanding our sales force, strengthening our banking and

investment product set and delivering new digital tools to empower advisors

and benefit clients.

In addition, we are taking advantage of synergies across our businesses – again,

the what aspect of our business is well established; we must stress how we

work to bring performance to new levels. For example, our Wealth Management

business provides valuable banking services to Pershing’s clients, our Clearance

and Collateral Management systems provide funding tools to Pershing

institutional clients, and Asset Servicing leverages our cash management

products and foreign exchange, securities lending and other Markets capabilities.

These are just a few opportunities that we are capitalizing on to serve our clients,

grow revenue and build distinct competitive advantages.

Driving Financial Results

In 2019, reported earnings per share (EPS) increased by 12% to $4.51, though

this included nonrecurring items, notably an after-tax gain of about $600 million

on the sale of an equity investment.

This equity investment is a further example of our open partnership model at

work. Several years ago, we invested in and built a strategic partnership with a

large deposit allocation service provider. We benefited from the gain on sale but we

also maintain a servicing arrangement. We are making similar strategic investments

and will continue to seek new solutions-oriented investments and partnerships that,

we believe, will provide growth and strong returns in the future.

On an operating basis (excluding the gain on the equity investment and other notable

items), earnings at $4.02 per share1 were below our expectations. We are not satisfied

with aspects of our performance and are raising the bar on what is expected of us.

1For a reconciliation of this non-GAAP measure, see page XI.

VI BNY Mellon

Like other financial institutions, we faced a challenging interest rate environment,

which impacted net interest revenue. Going forward, we must do more to mitigate

similar headwinds by optimizing our client deposit strategy and generating more out

of our balance sheet. Additionally, outflows in asset management adversely impacted

results. We have taken some actions such as investing to consolidate activities in the

U.S. into one multi-asset company, reducing costs and developing new products –

however, we have more work to do.

We controlled overall expenses reasonably well, reducing them year over year while

maintaining our investments in technology. We will remain intensely focused on

increasing efficiency and managing our costs going forward.

Despite some challenges, our strong business model generated

more than $5 billion in capital. Of this, we returned $4.4 billion to

shareholders through share buybacks and dividends, for a payout

ratio of more than 100%, while maintaining a strong capital level.

Our Strong Performance
Benefits All Stakeholders

We run a sound and significant business that is focused on driving performance

through exceptional execution. That is a non-negotiable principle.

We are dedicated to good business that creates a strong balance

sheet and shareholder value while also benefiting our clients,

people and the communities we serve.

As we continue to strengthen our performance culture and grow and evolve our

business, we will benefit from the leadership of Jolen Anderson, who recently

joined us as Global Head of Human Resources and has experience developing

a high-performance culture linked to business success.

Annual Report 2019 VII

We are on an incredibly exciting journey as a company right now … one that will set

the course for BNY Mellon for years to come. I have never been more optimistic about

what BNY Mellon can achieve and the value we can deliver. The path forward is not

without its challenges, but we must forge ahead with the greatest sense of urgency

to ensure we continue to serve as the trusted steward to our clients and the global

financial system.

I am honored to be part of this company, and am extremely proud of the work our

nearly 50,000 employees around the world do to support our clients every day.

Thank you to them and to my Executive Committee partners for their commitment

to build a stronger company for all of our stakeholders.

Sincerely,

Thomas P. (Todd) Gibbons

VIII BNY Mellon

Financial Highlights

The Bank of New York Mellon Corporation (and its subsidiaries)

(dollar amounts in millions, except per common share amounts and unless otherwise noted)

FINANCIAL RESULTS

Net income applicable to shareholders of The Bank of New York Mellon Corporation

4,441

4,266

Preferred stock dividends

(169)

2019

2018

Net income applicable to common shareholders of
The Bank of New York Mellon Corporation

Earnings per common share – diluted

KEY DATA

Total revenue (a)

Total expense

Fee revenue as a percentage of total revenue

Non-U.S. revenue as a percentage of total revenue

Assets under custody and/or administration ("AUC/A") at year end (in trillions) (b)

Assets under management at year end (in billions) (c)

BALANCE SHEET AT DECEMBER 31

Total assets

Total deposits

4,272

4.51

4,097

4.04

16,462

$ 16,392

10,900

11,211

80%

35%

78%

37%

37.1

1,910

33.1

1,722

$ 381,508

$ 362,873

259,466

238,778

Total The Bank of New York Mellon Corporation common shareholders’ equity

37,941

37,096

CAPITAL RATIOS AT DECEMBER 31

Consolidated regulatory capital ratios:

Common Equity Tier 1 (“CET1”) ratio (d)

Tier 1 capital ratio (d)

Total capital ratio (d)

Tier 1 leverage ratio

Supplementary leverage ratio (“SLR”)

BNY Mellon common shareholders’ equity to total assets ratio

11.5%

10.7%

13.7

14.4

6.6

6.1

9.9

12.8

13.6

6.6

6.0

10.2

(a) Includes fee and other revenue, net interest revenue and income from consolidated investment management funds.
(b) Consists of AUC/A primarily from the Asset Servicing business and, to a lesser extent, the Clearance and Collateral Management, Issuer Services, Pershing and Wealth
Management businesses. Includes the AUC/A of CIBC Mellon Global Securities Services Company, a joint venture.
(c) Excludes securities lending cash management assets and assets managed in the Investment Services business.
(d) For our CET1, Tier 1 capital and Total capital ratios, our effective capital ratios under U.S. capital rules are the lower of the ratios as calculated under the Standardized and
Advanced Approaches, which for the periods noted above was the Advanced Approaches.

X BNY Mellon

Supplemental Information

Explanation of GAAP and Non-GAAP financial measures

We have included in this Letter to Shareholders certain non-GAAP measures which exclude the notable items

described below. We believe that these measures provide additional useful information to investors as they

align with our strategy, are consistent with how management views the business and are used to measure the

annual performance of our executive officers.

NET INCOME AND EPS RECONCILIATION
(dollars in millions, except per share amounts)

Results

Diluted
EPS

2019

Net income applicable to common shareholders of
The Bank of New York Mellon Corporation – GAAP

Exclude the impact of notable items: (a)

Total revenue

Total noninterest expense

Provision for income taxes

Net impact of notable items

Net income applicable to common shareholders of
The Bank of New York Mellon Corporation – Non-GAAP

$ 4,272

$ 4.51

720

113

140

467

0.49

$ 3,805

$ 4.02

(a) Includes adjustments for a gain on sale of an equity investment, severance, net securities losses and litigation expense recorded in 4Q19. Also includes a lease-related
impairment and a net reduction of reserves for tax-related exposure of certain investment management funds recorded in 3Q19.

Annual Report 2019 XI

THE BANK OF NEWF

YORK MELLON CORPORATION

2019 Annual Report
TT
Table of Contents

Financial Summary

Page
2

Financial Statements:

Page

Management’s Discussion and Analysis of Financial

Condition and Results of Operations:
Results of Operations:

General
Overview
Key 2019 events
Summary of financial highlights
Fee and other revenue
Net interest revenue
Noninterest expense
Income taxes
Review of businesses
International operations
Critical accounting estimates
Consolidated balance sheet review
Liquidity and dividends
Commitments and obligations
Off-balance sheet arrangements
Capital
Trading activities and risk management
T
Asset/liability management

Risk Management
Supervision and Regulation
Other Matters
Risk Factors
Recent Accounting Developments
Supplemental Information (unaudited):

P
Explanation of GAAP and Non-GAAP

financial

measures (unaudited)

Rate/volume analysis (unaudited)
Selected Quarterly Data (unaudited)

Forward-looking Statements
Acronyms
Glossary

Report of Management on Internal Control Over

Financial Reporting

Report of Independent Registered Public

Accounting Firm

4
4
4
5
6
8
11
11
12
18
21
25
36
40
41
41
45
48
50
57
74
75
100

101
103
104
105
107
108

109

110

Consolidated Income Statement
Consolidated Comprehensive Income Statement
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity

Notes to Consolidated Financial Statements:

Note 1 - Summary of significant accounting and

reporting policies

Note 2 - Accounting changes and new accounting

guidance

Note 3 - Acquisitions and dispositions
Note 4 - Securities
Note 5 - Loans and asset quality
Note 6 - Leasing
Note 7 - Goodwill and intangible assets
Note 8 - Other assets
Note 9 - Deposits
Note 10 - Contract revenue
Note 11 - Net interest revenue
Note 12 - Income taxes
Note 13 - Long-term debt
Note 14 - Variable interest entities and securitization
Note 15 - Shareholders’ equity
Note 16 - Other comprehensive income (loss)
Note 17 - Stock-based compensation
Note 18 - Employee benefit plans
Note 19 - Company financial information (Parent

Corporation)

Note 20 - Fair value measurement
Note 21 - Fair value option
Note 22 - Commitments and contingent liabilities
Note 23 - Derivative instruments
Note 24 - Lines of business
Note 25 - International operations
Note 26 - Supplemental information to the
Consolidated Statement of Cash Flows

Report of Independent Registered Public

Accounting Firm

Directors, Executive Committee and Other

Executive Officers

112
114
115
116
117

120

130
131
131
136
141
142
143
145
145
147
147
149
149
150
154
155
156

163
166
175
176
180
187
190

191

192

194

Performance Graph
Corporate Information

195
Inside back cover

The Bank of New York Mellon Corporation (and its subsidiaries)

Financial Summary

(dollars in millions, except per share amounts and unless otherwise noted)

2019

2018

2017

2016

2015

Selected income statement information:
Fee and other revenue
Income (loss) from consolidated investment management funds
Net interest revenue
Total revenue
Provision for credit losses
Noninterest expense

Income before income taxes

Provision for income taxes

Net income

Net (income) loss attributable to noncontrolling interests (a)

Net income applicable to shareholders of The Bank of New York Mellon

Corporation
Preferred stock dividends

Net income applicable to common shareholders of The Bank of New York Mellon

Corporation

Earnings per share applicable to common shareholders of The Bank of New York

Mellon Corporation:

Basic
Diluted

Average common shares and equivalents outstanding of The Bank of New York

Mellon Corporation (in thousands):

Basic
Diluted

Selected balance sheet information (at period-end):
Interest-earning assets
Total assets
Deposits
Long-term debt
Preferred stock
Total The Bank of New York Mellon Corporation common shareholders’ equity
At Dec. 31
Assets under custody and/or administration (“AUC/A”) (in trillions) (b)
Assets under management (“AUM”) (in billions) (c)
Market value of securities on loan (in billions) (d)
Selected ratios:
Return on common equity
Return on tangible common equity – Non-GAAP (e)
Return on average assets
Pre-tax operating margin
Fee revenue as a percentage of total revenue
Non-U.S. revenue as a percentage of total revenue
Net interest margin

$
$

13,218
56
3,188
16,462
(25)
10,900
5,587
1,120
4,467
(26)

4,441

(169)

12,794
(13)
3,611
16,392
(11)
11,211
5,192
938
4,254
12

4,266

(169)

12,165
70
3,308
15,543
(24)
10,957
4,610
496
4,114
(24)

4,090

(175)

12,073
26
3,138
15,237
(11)
10,523
4,725
1,177
3,548
(1)

3,547

(122)

12,082
86
3,026
15,194
160
10,799
4,235
1,013
3,222
(64)

3,158

(105)

4,272

4,097

3,915

3,425

3,053

4.53
4.51

$
$

4.06
4.04

$
$

3.74
3.72

$
$

3.16
3.15

$
$

2.73
2.71

939,623
943,109

1,002,922
1,007,141

1,034,281
1,040,290

1,066,286
1,072,013

1,104,719
1,112,511

$ 323,893
381,508
259,466
27,501
3,542
37,941

$ 308,749
362,873
238,778
29,163
3,542
37,096

$ 316,261
371,758
244,322
27,979
3,542
37,709

$ 280,332
333,469
221,490
24,463
3,542
35,269

$ 338,955
393,780
279,610
21,547
2,552
35,485

37.1
1,910
378

33.1
1,722
373

33.3
1,893
408

29.9
1,648
296

28.9
1,625
277

11.4%
23.2
1.23
34
80
35
1.10

10.8%
22.5
1.19
32
78
37
1.25

10.8%
23.9
1.14
30
78
36
1.14

9.6%
21.2
0.96
31
79
34
1.03

8.6%
19.7
0.82
28
79
36
0.96

(a) Primarily attributable to noncontrolling interests related to consolidated investment management funds.
(b) Consists of AUC/A primarily from the Asset Servicing business and, to a lesser extent, the Clearance and Collateral Management, Issuer Services,
Pershing and Wealth Management businesses. Includes the AUC/A of CIBC Mellon Global Securities Services Company (“CIBC Mellon”), a joint
venture with the Canadian Imperial Bank of Commerce, of $1.5 trillion at Dec. 31, 2019, $1.2 trillion at Dec. 31, 2018, $1.3 trillion at Dec. 31, 2017,
$1.2 trillion at Dec. 31, 2016 and $1.0 trillion at Dec. 31, 2015.

(c) Excludes securities lending cash management assets and assets managed in the Investment Services business.
(d) Represents the total amount of securities on loan in our agency securities lending program managed by the Investment Services business. Excludes

securities for which BNY Mellon acts as an agent on behalf of CIBC Mellon clients, which totaled $60 billion at Dec. 31, 2019, $58 billion at Dec. 31,
2018, $71 billion at Dec. 31, 2017, $63 billion at Dec. 31, 2016 and $55 billion at Dec. 31, 2015.

(e) Return on tangible common equity, a Non-GAAP measure, excludes goodwill and intangible assets, net of deferred tax liabilities. See “Supplemental
information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 101 for the reconciliation of the Non-GAAP measure.

2 BNY Mellon

The Bank of New York Mellon Corporation (and its subsidiaries)

Financial Summary (continued)

(dollars in millions, except per share amounts and unless otherwise noted)

2019

2018

2017

2016

$
$
$
$

Cash dividends per common share
Common dividend payout ratio
Common dividend yield
Closing stock price per common share
Market capitalization (in billions)
Book value per common share
Tangible book value per common share – Non-GAAP (a)
Full-time employees at year-end
Common shares outstanding at year-end (in thousands)
Average total equity to average total assets
Capital ratios (at year-end):
Regulatory capital ratios - fully phased-in basis: (b)

Advanced:

Common Equity Tier 1 (“CET1”) ratio
Tier 1 capital ratio
Total capital ratio

Standardized:
CET1 ratio
Tier 1 capital ratio
Total capital ratio
Tier 1 leverage ratio
Supplementary leverage ratio (“SLR”)

1.18

1.04

0.86

0.72

26%
2.3%

26%
2.2%

23%
1.6%

23%
1.5%

50.33
45.3
42.12
21.33
48,400
900,683

$
$
$
$

47.07
45.2
38.63
19.04
51,300
960,426

$
$
$
$

53.86
54.6
37.21
18.24
52,500
1,013,442

$
$
$
$

47.38
49.6
33.67
16.19
52,000
1,047,488

$
$
$
$

41.22
44.7
32.69
15.27
51,200
1,085,343

11.9%

12.1%

11.7%

10.7%

10.2%

11.5%
13.7
14.4

12.5
14.8
15.8
6.6
6.1

10.7%
12.8
13.6

11.7
14.1
15.1
6.6
6.0

10.3%
12.3
13.0

11.5
13.7
14.7
6.4
5.9

9.7%
11.8
12.1

11.3
13.6
14.2
N/A
5.6

9.5%
11.0
11.1

10.2
11.8
12.0
N/A
4.9

2015

0.68

25%
1.6%

BNY Mellon shareholders’ equity to total assets ratio
BNY Mellon common shareholders’ equity to total assets ratio

10.9%
9.9

11.2%
10.2

11.1%
10.1

11.6%
10.6

9.7%
9.0

(a) Tangible book value per common share – Non-GAAP excludes goodwill and intangible assets, net of deferred tax liabilities. See “Supplemental

information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 101 for the reconciliation of the Non-GAAP measure.

(b) For our CET1, Tier 1 and Total capital ratios, our effective capital ratios under U.S. capital rules are the lower of the ratios as calculated under the

Standardized and Advanced Approaches. Beginning Jan. 1, 2018, consolidated regulatory ratios were fully phased-in. The regulatory ratios for all prior
periods are presented on an estimated fully phased-in basis. For additional information on our regulatory capital ratios, see “Capital” beginning on
page 41.

BNY Mellon 3

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Results of Operations

General

In this Annual Report, references to “our,” “we,”
“us,” “BNY Mellon,” the “Company” and similar
terms refer to The Bank of New York Mellon
Corporation and its consolidated subsidiaries. The
term “Parent” refers to The Bank of New York YY
Mellon Corporation but not its subsidiaries.

s actual results of future operations may

BNY Mellon’
differ from those estimated or anticipated in certain
forward-looking statements contained herein for
reasons which are discussed below and under the
headings “Forward-looking Statements” and “Risk
Factors.”

Certain business terms and acronyms used in this
Annual Report are defined in the Glossary and
Acronyms sections.

The following should be read in conjunction with the
Consolidated Financial Statements included in this
report. Investors should also read the section titled
“Forward-looking Statements.”

This Annual Report generally discusses 2019 and
2018 items and comparisons between 2019 and 2018.
Discussions of 2017 items and comparisons between
2018 and 2017 that are not included in this Annual
Report can be found in our 2018 Annual Report,
which was filed as an exhibit to our Form 10-K for
the year ended Dec. 31, 2018.

Overview

Established in 1784 by Alexander Hamilton, we were
the first company listed on the New York Stock
, yy
Exchange (NYSE: BK). With a 235-year history
W
BNY Mellon is a global company that manages and
services assets for financial institutions, corporations
and individual investors in 35 countries.

BNY Mellon has two business segments, Investment
Services and Investment Management, which offer a
comprehensive set of capabilities and deep expertise
across the investment lifecycle, enabling the
Company to provide solutions to buy-side and sell-
side market participants, as well as leading
institutional and wealth management clients globally.

Y
4 BNY Mellon

The diagram below presents our two business
segments and lines of business, with the remaining
operations in the Other segment.

(cid:55)(cid:75)(cid:72)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:82)(cid:73)(cid:3)(cid:49)(cid:72)(cid:90)(cid:3)
(cid:60)(cid:82)(cid:85)(cid:78)(cid:3)(cid:48)(cid:72)(cid:79)(cid:79)(cid:82)(cid:81)(cid:3)
(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)

(cid:44)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:3)
(cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)

(cid:44)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)

(cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:3)
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)

(cid:58)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)

(cid:36)(cid:86)(cid:86)(cid:72)(cid:87)(cid:3)(cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:76)(cid:81)(cid:74)

(cid:51)(cid:72)(cid:85)(cid:86)(cid:75)(cid:76)(cid:81)(cid:74)

(cid:44)(cid:86)(cid:86)(cid:88)(cid:72)(cid:85)(cid:3)(cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)

(cid:55)(cid:85)(cid:72)(cid:68)(cid:86)(cid:88)(cid:85)(cid:92)(cid:3)
(cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)

(cid:38)(cid:79)(cid:72)(cid:68)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(cid:38)(cid:82)(cid:79)(cid:79)(cid:68)(cid:87)(cid:72)(cid:85)(cid:68)(cid:79)(cid:3)
(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)

Key 2019 events

TT
Todd Gibbons named interim Chief Executive Officer;
Joseph Echevarria named Non-Executive Chairman

In September 2019, Todd Gibbons was appointed
ff
interim Chief Executive Officer and a member of the
Board of Directors of the Company. During Todd’
s
career at BNY Mellon, he has held leadership roles
across risk, finance, client management and many of
Vice VV
our businesses. Most recently, yy Todd served as
Chairman and CEO of Clearing, Markets and Client
Management. Todd also served for nine years as
BNY Mellon’

TT
.
s Chief Financial Officer

Joseph Echevarria, a member of BNY Mellon’
of Directors since February 2015 and Lead
Independent Director, was appointed Non-Executive
Chairman of the Board.

s Board

Results of Operations (continued)

Sold interest in Promontory Interfinancial Network,
LLC

•

In November 2019, MCDI (Holdings) LLC, a wholly
owned subsidiary of BNY Mellon, along with the
other holders of Promontory Interfinancial Network,
LLC (“PIN”), sold their interests in PIN. BNY
Mellon recorded an after-tax gain of $622 million.

Summary of financial highlights

We reported net income applicable to common
shareholders of BNY Mellon of $4.3 billion, or $4.51
per diluted common share, in 2019, including a net
benefit of $467 million, or $0.49 per diluted common
share, primarily reflecting the gain on the sale of an
equity investment and a net reduction of reserves for
a tax-related exposure of certain investment
management funds, partially offset by severance, a
lease-related impairment, net securities losses and
litigation expense. In 2018, net income applicable to
common shareholders of BNY Mellon was $4.1
billion, or $4.04 per diluted common share, including
a net charge of $168 million, or $(0.17) per diluted
common share, related to severance, expenses
associated with consolidating real estate and litigation
expense, partially offset by adjustments to provisional
estimates for U.S. tax legislation.

Highlights of 2019 results

• AUC/A totaled $37.1 trillion at Dec. 31, 2019
compared with $33.1 trillion at Dec. 31, 2018.
The 12% increase primarily reflects higher
market values and client inflows. (See
“Investment Services business” beginning on
page 13.)

• AUM totaled $1.9 trillion at Dec. 31, 2019

compared with $1.7 trillion at Dec. 31, 2018.
The 11% increase primarily reflects higher
market values and the favorable impact of a
weaker U.S. dollar (principally versus the British
pound), partially offset by net outflows. (See
“Investment Management business” beginning on
page 15.)

•

Investment services fees totaled $7.9 billion in
2019, a slight increase compared with 2018,
primarily reflecting growth in clearance and
collateral management and the impact of higher
equity markets, partially offset by the unfavorable
impact of a stronger U.S. dollar and lower
securities lending revenue. (See “Investment
Services business” beginning on page 13.)

Investment management and performance fees
totaled $3.4 billion in 2019, compared with $3.6
billion in 2018, a decrease of 7%. The decrease
primarily reflects the impact of cumulative AUM
outflows, lower performance fees and the
unfavorable impact of a stronger U.S. dollar
(principally versus the British pound), partially
offset by higher market values. On a constant
currency basis (Non-GAAP), investment
management and performance fees decreased 6%
compared with 2018. (See “Investment
Management business” beginning on page 15.)

• Foreign exchange and other trading revenue
totaled $654 million in 2019, compared with
$732 million in 2018. Foreign exchange revenue
totaled $577 million in 2019, a decrease of 13%,
compared with $663 million in 2018, primarily
reflecting lower volatility, partially offset by
foreign currency hedging. (See “Fee and other
revenue” beginning on page 6.)

• Net interest revenue totaled $3.2 billion in 2019,
compared with $3.6 billion in 2018, a decrease of
12%. The decrease primarily reflects higher
deposit and funding costs, lower noninterest-
bearing deposits and loan balances and a lease-
related impairment, partially offset by higher
yields on interest-earning assets. Net interest
margin was 1.10% in 2019, compared with 1.25%
in 2018. (See “Net interest revenue” beginning
on page 8.)

• The provision for credit losses was a credit of $25
million in 2019 and a credit of $11 million in
2018. (See “Asset quality and allowance for
credit losses” beginning on page 33.)

• Noninterest expense totaled $10.9 billion in 2019
compared with $11.2 billion in 2018. The 3%
decrease primarily reflects the favorable impact
of a stronger U.S. dollar, lower litigation and staff
expenses, a reduction of previously established
reserves for a tax-related exposure of certain
investment management funds and expenses
associated with consolidating real estate recorded
in 2018, partially offset by continued investments
in technology. See “Noninterest expense”
beginning on page 11.)

• The provision for income taxes was $1.1 billion

(20.0% effective tax rate) in 2019. (See “Income
taxes” on page 11.)

• The net unrealized pre-tax gain on the securities
portfolio, including the impact of related hedges,
was $796 million at Dec. 31, 2019, compared

BNY Mellon 5

Results of Operations (continued)

with a net unrealized pre-tax loss of $907 million
at Dec. 31, 2018. The increase in net unrealized
pre-tax gain was primarily driven by lower
market interest rates. (See “Securities” beginning
on page 26.)

• Our CET1 ratio calculated under the Advanced
Approaches was 11.5% at Dec. 31, 2019 and
10.7% at Dec. 31, 2018. The increase primarily
reflects capital generated through earnings,
unrealized gains on securities available-for-sale,

Fee and other revenue

(dollars in millions, unless otherwise noted)
Investment services fees:
Asset servicing fees (a)
Clearing services fees (b)(c)
Issuer services fees
Treasury services fees

Total investment services fees (c)

Investment management and performance fees (c)
Foreign exchange and other trading revenue
Financing-related fees
Distribution and servicing
Investment and other income
Total fee revenue
Net securities (losses) gains

Total fee and other revenue

lower risk-weighted assets (“RWAs”) and the
impact of stock awards and option exercises,
partially offset by capital deployed through
common stock repurchases and dividend
payments. (See “Capital” beginning on page 41.)

• Our SLR was 6.1% at Dec. 31, 2019 and 6.0%, at
Dec. 31, 2018. (See “Capital” beginning on page
41.)

2019

2018

2017

4,563
1,648
1,130
559
7,900
3,389
654
196
129
968
13,236
(18)
$ 13,218

4,608
1,616
1,099
554
7,877
3,647
732
207
139
240
12,842
(48)
$ 12,794

4,383
1,598
977
557
7,515
3,539
668
216
160
64
12,162
3
$ 12,165

2019
vs.
2018

2018
vs.
2017

(1)%
2
3
1
—
(7)
(11)
(5)
(7)
N/M
3
N/M

3 %

5 %
1
12
(1)
5
3
10
(4)
(13)
N/M
6
N/M

5 %

Fee revenue as a percentage of total revenue

80%

78%

AUC/A at period end (in trillions) (d)
AUM at period end (in billions) (e)
(a) Asset servicing fees include the fees from the Clearance and Collateral Management business and also include securities lending

33.3
1,893

33.1
1,722

12 %
11 %

37.1
1,910

$
$

(1)%
(9)%

revenue of $179 million in 2019, $220 million in 2018 and $195 million in 2017.

(b) Clearing services fees are almost entirely earned by our Pershing business.
(c) In 2019, we reclassified certain platform-related fees to clearing services fees from investment management and performance fees. Prior

periods have been reclassified.

(d) Consists of AUC/A primarily from the Asset Servicing business and, to a lesser extent, the Clearance and Collateral Management, Issuer
Services, Pershing and Wealth Management businesses. Includes the AUC/A of CIBC Mellon of $1.5 trillion at Dec. 31, 2019, $1.2
trillion at Dec. 31, 2018 and $1.3 trillion at Dec. 31, 2017.

(e) Excludes securities lending cash management assets and assets managed in the Investment Services business.

Fee and other revenue increased 3% compared with
2018. The increase primarily reflects higher
investment and other income driven by the gain on
the sale of an equity investment, clearing services
fees and issuer services fees, partially offset by lower
investment management and performance fees,
foreign exchange and other trading revenue and asset
servicing fees.

Investment services fees

Investment services fees increased slightly compared
with 2018 reflecting the following:

• Asset servicing fees decreased 1%, primarily

reflecting lower client activity, the unfavorable
impact of a stronger U.S. dollar and lower
security lending revenue, partially offset by
growth in clearance volumes and collateral

6 BNY Mellon

Results of Operations (continued)

management and the impact of higher equity
markets.

Foreign exchange and other trading revenue
decreased 11% compared with 2018.

• Clearing services fees increased 2%, primarily
driven by growth in client assets and accounts.

•

Issuer services fees increased 3%, primarily
reflecting higher volumes in Corporate Trust,
partially offset by lower Depositary Receipts
revenue.

• Treasury services fees increased 1%, primarily

reflecting higher payment fees.

See the “Investment Services business” in “Review of
businesses” for additional details.

Investment management and performance fees

Investment management and performance fees
decreased 7% compared with 2018, primarily
reflecting the impact of cumulative AUM outflows,
lower performance fees and the unfavorable impact
of a stronger U.S. dollar (principally versus the
British pound), partially offset by higher market
values. On a constant currency basis (Non-GAAP),
investment management and performance fees
decreased 6% compared to 2018. Performance fees
were $83 million in 2019 and $144 million in 2018.

AUM was $1.9 trillion at Dec. 31, 2019, an increase
of 11% compared with Dec. 31, 2018, primarily
reflecting higher market values and the favorable
impact of a weaker U.S. dollar (principally versus the
British pound), partially offset by net outflows.

See the “Investment Management business” in
“Review of businesses” for additional details
regarding the drivers of investment management and
performance fees, AUM and AUM flows.

Foreign exchange and other trading revenue

Foreign exchange and other trading revenue
2019
(in millions)
Foreign exchange
Other trading revenue

577 $
77

2018

663 $
69

2017
638
30

Total foreign exchange and other

trading revenue

654 $

732 $

668

Foreign exchange revenue is primarily driven by the
volume of client transactions and the spread realized
on these transactions, both of which are impacted by
market volatility, and the impact of foreign currency
hedging activities. In 2019, foreign exchange
revenue totaled $577 million, a decrease of 13%
compared with 2018, primarily reflecting lower
volatility, partially offset by foreign currency
hedging. Foreign exchange revenue is primarily
reported in the Investment Services business and, to a
lesser extent, the Investment Management business
and the Other segment.

Other trading revenue totaled $77 million in 2019
compared with $69 million in 2018. The increase
primarily reflects fixed income and derivative
trading, partially offset by the impact of Investment
Management hedging activities. Other trading
revenue is reported in all three business segments.

Financing-related fees

Financing-related fees, which are primarily reported
in the Investment Services business, include capital
market fees, loan commitment fees and credit-related
fees. Financing-related fees totaled $196 million in
2019 compared with $207 million in 2018, primarily
reflecting lower fees on standby letters of credit and
commitments.

Distribution and servicing fees

Distribution and servicing fees earned from mutual
funds are primarily based on average assets in the
funds and the sales of funds that we manage or
administer and are primarily reported in the
Investment Management business. These fees, which
include 12b-1 fees, fluctuate with the overall level of
net sales, the relative mix of sales between share
classes, the funds’ market values and money market
fee waivers.

Distribution and servicing fees were $129 million in
2019 compared with $139 million in 2018. The
decrease primarily reflects the impact of lower fees
from mutual funds driven by AUM outflows.

BNY Mellon 7

Results of Operations (continued)

Investment and other income

The following table provides the components of
investment and other income.

Investment and other income
(in millions)
Asset-related gains (losses)
Corporate/bank-owned life insurance
Expense reimbursements from joint

venture

2019

2018

819 $
138

70 $
145

2017
(1)
153

Seed capital gains (a)
Lease-related gains
Other (loss)

32
56
(240)
64
(a) Excludes seed capital gains related to consolidated investment
management funds, which are reflected in operations of
consolidated investment management funds.

Total investment and other income

3
1
(50)
240 $

79
14
—
(82)
968 $

Investment and other income includes gains or losses
from asset-related activity, corporate and bank-owned
life insurance contracts, expense reimbursements

Net interest revenue

(dollars in millions)
Net interest revenue
Add: Tax equivalent adjustment

Net interest revenue on a fully taxable equivalent (“FTE”)

basis – Non-GAAP (a)

from our CIBC Mellon joint venture, seed capital,
lease-related activity and other (loss) income. Asset-
related gains (losses) include real estate, loan and
other asset dispositions. Expense reimbursements
from our CIBC Mellon joint venture relate to
expenses incurred by BNY Mellon on behalf of the
CIBC Mellon joint venture. Other (loss) income
primarily includes foreign currency remeasurement
gain (loss), other investments, including renewable
energy, and various miscellaneous revenues.
Investments in renewable energy generate losses in
other income that are more than offset by benefits and
credits recorded to the provision for income taxes.

Investment and other income was $968 million in
2019 compared with $240 million in 2018. The
increase primarily reflects the gain on the sale of an
equity investment. Investment and other income was
$64 million in 2017 reflecting the impact of U.S. tax
legislation on our renewable energy investments.

2019

3,188
13

3,201

2018
3,611
20

3,631

2019
vs.
2018
(12)%
N/M

2018
vs.
2017
9%
N/M

2017
3,308
47

3,355

(12)%

Average interest-earning assets

$ 290,489

$ 289,916

$ 290,522 —%

—%

Net interest margin
Net interest margin (FTE) – Non-GAAP (a)
(a) Net interest revenue (FTE) – Non-GAAP and net interest margin (FTE) – Non-GAAP include the tax equivalent adjustments on tax-
exempt income which allows for comparisons of amounts arising from both taxable and tax-exempt sources and is consistent with
industry practice. The adjustment to an FTE basis has no impact on net income.

1.14% (15) bps
1.15% (15) bps

1.10%
1.10%

1.25%
1.25%

11 bps
10 bps

bps - basis points

Net interest revenue decreased 12% and the net
interest margin decreased 15 basis points compared
with 2018, primarily reflecting higher deposit and
funding costs, lower noninterest-bearing deposit
balances and a $70 million lease-related impairment
recorded in 2019. This was partially offset by the
impact of higher interest-earning asset yields and
higher interest-bearing deposit balances.

Average interest-earning assets of $290 billion were
slightly higher than 2018. The slight increase
primarily reflects higher federal funds sold and
securities purchased under resale agreements, driven
by higher average deposits, which was mostly

8 BNY Mellon

offset by lower interest-bearing deposits with the
Federal Reserve and other central banks and loans.

Average non-U.S. dollar deposits comprised
approximately 30% of our average total deposits in
2019 and 2018. Approximately 45% of the average
non-U.S. dollar deposits in 2019 and 2018 were euro-
denominated.

Net interest revenue in future quarters will depend on
the level and mix of client deposits, deposit rates, as
well as the level and shape of the yield curve, which
may result in lower yields on interest-earning assets.

Results of Operations (continued)

Average balances and interest rates

(dollars in millions)

Assets
Interest-earning assets:

Interest-bearing deposits with the Federal Reserve and other central banks
Interest-bearing deposits with banks (primarily foreign banks)
Federal funds sold and securities purchased under resale agreements (a)
Margin loans
Non-margin loans:
Domestic offices
Foreign offices

Total non-margin loans (c)

Securities:

U.S. government obligations
U.S. government agency obligations
State and political subdivisions (d)
Other securities:

Domestic offices (d)
Foreign offices

Total other securities (d)

Trading securities (primarily domestic) (d)

Total securities (d)
Total interest-earning assets (d)

Noninterest-earning assets

Total assets

Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:

Domestic offices
Foreign offices

Total interest-bearing deposits

Federal funds purchased and securities sold under repurchase agreements (a)
Trading liabilities
Other borrowed funds:
Domestic offices
Foreign offices

Total other borrowed funds

Commercial paper
Payables to customers and broker-dealers
Long-term debt

Total interest-bearing liabilities

Total noninterest-bearing deposits
Other noninterest-bearing liabilities

Total liabilities

Temporary equity
Redeemable noncontrolling interests
Permanent equity
Total The Bank of New York Mellon Corporation shareholders’ equity
Noncontrolling interests

Total permanent equity

Total liabilities, temporary equity and permanent equity

Net interest revenue (FTE) – Non-GAAP
Net interest margin (FTE) – Non-GAAP
Less: Tax equivalent adjustment (d)
Net interest revenue – GAAP
Net interest margin – GAAP

Percentage of assets attributable to foreign offices (e)
Percentage of liabilities attributable to foreign offices (e)
(a)

Average
balance

2019

Interest

Average
rate

2018

Interest

Average
balance

Average
rate

0.78%
1.48
4.00
3.54

3.44
2.85
3.27

2.03
2.37
2.69

4.17
0.90
1.85
2.74
2.21
2.23%

0.91%
0.36
0.57
4.88
2.21

2.57
0.73
2.26
1.97
1.17
3.03
1.27%

$ 61,739
14,666
36,705
11,370

$ 448
265
2,154
454

1,005
330
1,335

431
1,671
46

353
248
601
156
2,905
$ 7,561

$ 958
636
1,594
1,437
35

59
—
59
55
238
942
$ 4,360

29,165
10,788
39,953

20,040
66,519
1,569

10,504
21,616
32,120
5,808
126,056
$ 290,489
55,466
$ 345,955

$ 78,698
93,191
171,889
12,463
1,479

1,655
240
1,895
2,485
15,595
28,110
$ 233,916
51,529
19,244
304,689

41,047
153
41,200
$ 345,955

0.73%
1.81
5.87
3.99

3.45
3.06
3.34

2.15
2.51
2.89

(b)

3.36
1.15
1.87
2.69
2.30
2.60% (b)

1.22%
0.68
0.93
11.53
2.33

3.54
0.20
3.11
2.22
1.53
3.35
1.86%

$ 68,408
14,740
27,883
14,397

531
219
1,116
510

1,020
336
1,356

486
1,518
69

341
179
520
127
2,720
$ 6,452

537
340
877
758
29

55
3
58
51
191
857
$ 2,821

29,642
11,771
41,413

23,908
63,902
2,565

8,186
19,848
28,034
4,666
123,075
$ 289,916
53,858
$ 343,774

$ 59,226
95,475
154,701
15,546
1,310

2,122
423
2,545
2,607
16,353
28,257
$ 221,319
63,814
16,952
302,085

187

41,360
142
41,502
$ 343,774

$ 3,201

13
$ 3,188

1.10% (b)

$ 3,631

20
$ 3,611

1.25%

31%
34

Includes the average impact of offsetting under enforceable netting agreements of approximately $56 billion in 2019 and $25 billion in 2018. On a Non-
GAAP basis, excluding the impact of offsetting, the yield on federal funds sold and securities purchased under resale agreements would have been 2.33%
for 2019 and 2.10% for 2018, and the rate on federal funds purchased and securities sold under repurchase agreements would have been 2.11% for 2019
and 1.86% for 2018. We believe providing the rates excluding the impact of netting is useful to investors as it is more reflective of the actual rates earned
and paid.
Includes the impact of the lease-related impairment of $70 million in 2019. On a Non-GAAP basis, excluding the lease-related impairment, the yield on
non-margin loans in domestic offices would have been 3.69%, the yield on total non-margin loans would have been 3.52%, the yield on total interest-
earning assets would have been 2.63%, the net interest margin would have been 1.12% and the net interest margin (FTE) – Non-GAAP would have been
1.13% for 2019. We believe providing the rates excluding the lease-related impairment is useful to investors as it is more reflective of the actual rates
earned.
Interest income includes fees of $4 million in 2019 and $7 million in 2018. Nonaccrual loans are included in average loans; the associated income,
which was recognized on a cash basis, is included in interest income.

(b)

(c)

(d) Average rates were calculated on an FTE basis, at tax rates of approximately 21% for both 2019 and 2018.
(e)

Includes the Cayman Islands branch office.

BNY Mellon 9

Results of Operations (continued)

Average balances and interest rates (continued)

(dollars in millions)

Assets
Interest-earning assets:

Total non-margin loans (b)

Securities:

U.S. government obligations
U.S. government agency obligations
State and political subdivisions (c)
Other securities:

Domestic offices (c)
Foreign offices

Total other securities (c)

Trading securities (primarily domestic) (c)

Total securities (c)
Total interest-earning assets (c)

Noninterest-earning assets

Total assets

Liabilities
Interest-bearing liabilities:
Interest-bearing deposits:

Domestic offices
Foreign offices

Total interest-bearing deposits

Federal funds purchased and securities sold under repurchase agreements (a)
Trading liabilities
Other borrowed funds:
Domestic offices
Foreign offices

Total other borrowed funds

Commercial paper
Payables to customers and broker-dealers
Long-term debt

Total interest-bearing liabilities

Total noninterest-bearing deposits
Other noninterest-bearing liabilities

Total liabilities

Temporary equity
Redeemable noncontrolling interests
Permanent equity
Total The Bank of New York Mellon Corporation shareholders’ equity
Noncontrolling interests

Total permanent equity

Total liabilities, temporary equity and permanent equity

Net interest revenue (FTE) – Non-GAAP
Net interest margin (FTE) – Non-GAAP
Less: Tax equivalent adjustment (c)
Net interest revenue – GAAP
Net interest margin – GAAP

Percentage of assets attributable to foreign offices (d)
Percentage of liabilities attributable to foreign offices (d)
(a)

2017

Interest

319
120
423
343

819
258
1,077

425
1,195
100

215
150
365
62
2,147
$ 4,429

107
55
162
225
7

21
5
26
29
64
561
$ 1,074

Average
rate

0.45%
0.80
1.55
2.36

2.68
2.00
2.48

1.66
1.98
3.09

2.35
0.77
1.27
2.54
1.79
1.52%

0.23%
0.06
0.11
1.14
0.57

1.86
0.67
1.36
1.08
0.34
2.05
0.50%

Average
balance

$ 70,213
14,879
27,192
14,500

30,524
12,915
43,439

25,674
60,268
3,226

9,141
19,541
28,682
2,449
120,299
$ 290,522
53,326
$ 343,848

$ 46,908
96,215
143,123
19,653
1,243

1,113
803
1,916
2,630
18,984
27,424
$ 214,973
71,664
16,932
303,569

180

39,687
412
40,099
$ 343,848

$ 3,355

47
$ 3,308

1.15%

1.14%

30%
35

Includes the average impact of offsetting under enforceable netting agreements of approximately $6 billion in 2017. On a Non-GAAP basis, excluding the
impact of offsetting, the yield on federal funds sold and securities purchased under resale agreements would have been 1.29%, and the rate on federal
funds purchased and securities sold under repurchase agreements would have been 0.89% for 2017. We believe providing the rates excluding the impact
of netting is useful to investors as it is more reflective of the actual rates earned and paid.
Interest income includes fees of $9 million in 2017. Nonaccrual loans are included in average loans; the associated income, which was recognized on a
cash basis, is included in interest income.

(b)

Includes the Cayman Islands branch office.

10 BNY Mellon

Results of Operations (continued)

Noninterest expense

(dollars in millions)
Staff
Professional, legal and other purchased services
Software and equipment
Net occupancy
Sub-custodian and clearing
Distribution and servicing
Business development
Bank assessment charges
Amortization of intangible assets
Other

Total noninterest expense

2019
6,063 $
1,345
1,222
564
450
374
213
125
117
427
10,900 $

2018
6,145 $
1,334
1,062
630
450
406
228
170
180
606
11,211 $

2017
6,033
1,276
985
570
414
419
229
220
209
602
10,957

2019
vs.
2018
(1)%
1
15
(10)
—
(8)
(7)
(26)
(35)
(30)
(3)%

2018
vs.
2017
2 %
5
8
11
9
(3)
—
(23)
(14)
1
2 %

Full-time employees at year-end

48,400

51,300

52,500

(6)%

(2)%

Income taxes

BNY Mellon recorded an income tax provision of
$1.1 billion (20.0% effective tax rate) in 2019. The
income tax provision was $938 million (18.1%
effective tax rate) in 2018, including the positive
impact of adjusting provisional estimates related to
U.S. tax legislation. The income tax provision was
$496 million (10.8% effective tax rate) in 2017,
including the estimated tax benefit related to U.S. tax
legislation. For additional information, see Note 12
of the Notes to Consolidated Financial Statements.

Total noninterest expense decreased 3% compared
with 2018. The decrease primarily reflects the
favorable impact of a stronger U.S. dollar, lower
litigation and staff expenses, a reduction of
previously established reserves for a tax-related
exposure of certain investment management funds
that we manage and expenses associated with
consolidating real estate recorded in 2018. The
decrease was partially offset by continued
investments in technology. The investments in
technology are included in staff, professional, legal
and other purchased services, and software and
equipment expenses.

Our investments in technology infrastructure and
platforms are expected to continue. As a result, we
expect to incur higher technology-related expenses in
2020 than in 2019 which is expected to be mostly
offset by decreases in other expenses as we continue
to manage overall expenses. In addition, we also
expect an increase in pension expense as a result of a
lower expected rate of return on plan assets.

BNY Mellon 11

Results of Operations (continued)

Review of businesses

We have an internal information system that produces
performance data along product and service lines for
our two principal businesses, Investment Services and
Investment Management, and the Other segment.

Business accounting principles

Our business data has been determined on an internal
management basis of accounting, rather than the
generally accepted accounting principles used for
consolidated financial reporting. These measurement
principles are designed so that reported results of the
businesses will track their economic performance.

For information on the accounting principles of our
businesses, the primary products and services in each
line of business, the primary types of revenue by
business and how our businesses are presented and
analyzed, see Note 24 of the Notes to Consolidated
Financial Statements.

Business results are subject to reclassification when
organizational changes are made. There were no
significant organizational changes in 2019. The
results are also subject to refinements in revenue and
expense allocation methodologies, which are
typically reflected on a prospective basis.

The results of our businesses may be influenced by
client and other activities that vary by quarter. In the
first quarter, staff expense typically increases
reflecting the vesting of long-term stock awards for
retirement-eligible employees. In the third quarter,
volume-related fees may decline due to reduced client
activity. In the third quarter, staff expense typically

increases reflecting the annual employee merit
increase. In the fourth quarter, we typically incur
higher business development and marketing
expenses. In our Investment Management business,
performance fees are typically higher in the fourth
and first quarters, as those quarters represent the end
of the measurement period for many of the
performance fee-eligible relationships.

The results of our businesses may also be impacted
by the translation of financial results denominated in
foreign currencies to the U.S. dollar. We are
primarily impacted by activities denominated in the
British pound and the euro. On a consolidated basis
and in our Investment Services business, we typically
have more foreign currency-denominated expenses
than revenues. However, our Investment
Management business typically has more foreign
currency-denominated revenues than expenses.
Overall, currency fluctuations impact the year-over-
year growth rate in the Investment Management
business more than the Investment Services business.
However, currency fluctuations, in isolation, are not
expected to significantly impact net income on a
consolidated basis.

Fee revenue in Investment Management, and to a
lesser extent in Investment Services, is impacted by
the value of market indices. At Dec. 31, 2019, we
estimate that a 5% change in global equity markets,
spread evenly throughout the year, would impact fee
revenue by less than 1% and diluted earnings per
common share by $0.03 to $0.05.

See Note 24 of the Notes to Consolidated Financial
Statements for the consolidating schedules which
show the contribution of our businesses to our overall
profitability.

12 BNY Mellon

Results of Operations (continued)

Investment Services business

(dollars in millions, unless otherwise noted)
Revenue:

Investment services fees:
Asset servicing fees (a)
Clearing services fees (b)(c)
Issuer services fees
Treasury services fees
Total investment services fees (c)

Foreign exchange and other trading revenue
Other (c)(d)

Total fee and other revenue

Net interest revenue

Total revenue

Provision for credit losses
Noninterest expense (excluding amortization of intangible assets)
Amortization of intangible assets

Total noninterest expense

Income before income taxes

Pre-tax operating margin

Securities lending revenue

Total revenue by line of business:
Asset Servicing
Pershing
Issuer Services
Treasury Services
Clearance and Collateral Management
Total revenue by line of business

Metrics:
Average loans
Average deposits

AUC/A at period end (in trillions) (e)
Market value of securities on loan at period end (in billions) (f)

Pershing:
Average active clearing accounts (U.S. platform) (in thousands)
Average long-term mutual fund assets (U.S. platform)
Average investor margin loans (U.S. platform)

2019

2018

2017

4,479
1,649
1,130
558
7,816
621
457
8,894
3,093
11,987
(16)
7,969
80
8,049
3,954

4,520
1,615
1,099
553
7,787
665
474
8,926
3,372
12,298
1
7,929
129
8,058
4,239

4,286
1,594
975
555
7,410
620
497
8,527
3,058
11,585
(7)
7,598
149
7,747
3,845

33%

34%

33%

2019
vs.
2018

2018
vs.
2017

(1)%
2
3
1
—
(7)
(4)
—
(8)
(3)
N/M
1
(38)
—
(7)%

5%
1
13
—
5
7
(5)
5
10
6
N/M
4
(13)
4
10%

163

198

168

(18)%

18%

5,600
2,256
1,723
1,275
1,133
$ 11,987

5,932
2,255
1,743
1,302
1,066
$ 12,298

5,603
2,180
1,588
1,251
963
$ 11,585

$ 33,115
$ 204,979

$ 36,931
$ 203,279

$ 40,142
$ 200,235

$
$

37.1
378

$
$

33.1
373

$
$

33.3
408

6,262
$ 540,247
9,541
$

6,097
$ 511,004
$ 10,829

6,137
$ 487,845
9,810
$

(6)%
—
(1)
(2)
6
(3)%

(10)%
1%

12%
1%

3%
6%
(12)%

6%
3
10
4
11

(8)%
2%

(1)%
(9)%

(1)%
5%
10%

Clearance and Collateral Management:
Average tri-party collateral management balances (in billions)
(a) Asset servicing fees include the fees from the Clearance and Collateral Management business.
(b) Clearing services fees are almost entirely earned by our Pershing business.
(c) In 2019, we reclassified certain platform-related fees to clearing services fees from investment management and performance fees. Prior

2,502

3,446

2,918

18%

17%

periods have been reclassified.

(d) Other revenue includes investment management and performance fees, financing-related fees, distribution and servicing revenue,

securities gains and losses and investment and other income.

(e) Consists of AUC/A primarily from the Asset Servicing business and, to a lesser extent, the Clearance and Collateral Management, Issuer
Services and Pershing businesses. Includes the AUC/A of CIBC Mellon of $1.5 trillion at Dec. 31, 2019, $1.2 trillion at Dec. 31, 2018
and $1.3 trillion at Dec. 31, 2017.

(f) Represents the total amount of securities on loan in our agency securities lending program managed by the Investment Services business.
Excludes securities for which BNY Mellon acts as agent on behalf of CIBC Mellon clients, which totaled $60 billion at Dec. 31, 2019,
$58 billion at Dec. 31, 2018 and $71 billion at Dec. 31, 2017.

BNY Mellon 13

Results of Operations (continued)

Business description

BNY Mellon Investment Services provides business
services and technology solutions to entities including
financial institutions, corporations, foundations and
endowments, public funds and government agencies.
Our lines of business include: Asset Servicing,
Pershing, Issuer Services, Treasury Services and
Clearance and Collateral Management. For
information on the drivers of the Investment Services
fee revenue, see Note 10 of the Notes to Consolidated
Financial Statements

We are one of the leading global investment services
providers with $37.1 trillion of AUC/A at Dec. 31,
2019.

The Asset Servicing business provides a
comprehensive suite of solutions. As one of the
largest global custody and fund accounting providers
and a trusted partner, we offer services for the
safekeeping of assets in capital markets globally as
well as alternative investment and structured product
strategies. We provide custody and foreign exchange
services, support exchange-traded funds and unit
investment trusts and provide our clients outsourcing
capabilities. We deliver securities lending and
financing solutions on both an agency and principal
basis. Our agency securities lending program is one
of the largest lenders of U.S. and non-U.S. securities,
servicing a lendable asset pool of approximately $4.2
trillion in 34 separate markets. Our market-leading
liquidity services portal enables cash investments for
institutional clients and includes fund research and
analytics.

Pershing provides execution, clearing, custody,
business and technology solutions, delivering
dependable operational support to broker-dealers,
wealth managers and registered investment advisors
(RIAs) globally.

The Issuer Services business includes Corporate
Trust and Depositary Receipts. Our Corporate
Trust business delivers a full range of issuer and
related investor services, including trustee, paying
agency, fiduciary, escrow and other financial
services. We are a leading provider to the debt
capital markets, providing customized and market-
driven solutions to investors, bondholders and
lenders. Our Depositary Receipts business drives
global investing by providing servicing and value-
added solutions that enable, facilitate and enhance

14 BNY Mellon

cross-border trading, clearing, settlement and
ownership. We are one of the largest providers of
depositary receipts services in the world, partnering
with leading companies from more than 50
countries.

Our Treasury Services business provides global
payments, liquidity management and trade finance
services for financial institutions, corporations and
the public sector.

Our Clearance and Collateral Management
business clears and settles equity and fixed-income
transactions globally and serves as custodian for
tri-party repo collateral worldwide. We are the
primary provider of U.S. government securities
clearance and a provider of non-U.S. government
securities clearance. Our collateral services
include collateral management, administration and
segregation. We offer innovative solutions and
industry expertise which help financial institutions
and institutional investors with their liquidity,
financing, risk and balance sheet challenges. We
are a leading provider of tri-party collateral
management services with an average of $3.4
trillion serviced globally including approximately
$2.5 trillion of the U.S. tri-party repo market.

Review of financial results

AUC/A of $37.1 trillion increased 12% compared
with Dec. 31, 2018, primarily reflecting higher
market values and client inflows. AUC/A consisted
of 35% equity securities and 65% fixed-income
securities at Dec. 31, 2019 and 33% equity securities
and 67% fixed-income securities at Dec. 31, 2018.

Total revenue of $12.0 billion decreased 3%
compared with 2018. The drivers of total revenue by
line of business are indicated below.

Asset Servicing revenue of $5.6 billion decreased 6%
compared with 2018. The decrease primarily reflects
lower net interest revenue, foreign exchange revenue,
client activity and securities lending revenue and the
unfavorable impact of a stronger U.S. dollar, partially
offset by the impact of higher equity markets.

Pershing revenue of $2.3 billion increased slightly
compared with 2018. The increase primarily reflects
growth in client assets and accounts, client activity
and the impact of higher equity markets, partially

Results of Operations (continued)

offset by previously disclosed lost business and lower
net interest revenue.

collateral management volumes, partially offset by
lower net interest revenue.

Issuer Services revenue of $1.7 billion decreased 1%
compared with 2018. The decrease primarily reflects
lower net interest revenue in Corporate Trust and
lower Depositary Receipts revenue, partially offset by
higher volumes in Corporate Trust.

Treasury Services revenue of $1.3 billion decreased
2% compared with 2018. The decrease primarily
reflects lower net interest revenue, partially offset by
higher payment fees.

Clearance and Collateral Management revenue of
$1.1 billion increased 6% compared with 2018. The
increase primarily reflects growth in clearance and

Market and regulatory trends are driving investable
assets toward lower fee asset management products at
reduced margins for our clients. These dynamics are
also negatively impacting our investment services
fees. However, at the same time, these trends are
providing additional outsourcing opportunities as
clients and other market participants seek to comply
with new regulations and reduce their operating costs.

Noninterest expense of $8.0 billion decreased slightly
compared with 2018. The decrease primarily reflects
lower litigation and staff expenses and the favorable
impact of a stronger U.S. dollar, which were mostly
offset by higher investments in technology.

Investment Management business

(dollars in millions)
Revenue:

Investment management fees (a)
Performance fees

Investment management and performance fees (b)

Distribution and servicing
Other (a)

Total fee and other revenue (a)

Net interest revenue
Total revenue
Provision for credit losses
Noninterest expense (excluding amortization of intangible assets)
Amortization of intangible assets

Total noninterest expense

Income before income taxes

Pre-tax operating margin
Adjusted pre-tax operating margin – Non-GAAP (c)

Total revenue by line of business:

Asset Management
Wealth Management

Total revenue by line of business

Average balances:
Average loans
Average deposits

2019
vs.
2018

(6)%
(42)
(7)
(6)
N/M
(8)
(16)
(9)
N/M
(6)
(27)
(6)
(15)%

2019

2018

2017

3,428
94
3,522
207
(61)
3,668
329
3,997
2
2,794
60
2,854
1,141

29%
32%

3,290
83
3,373
178
(85)
3,466
255
3,721
(1)
2,606
37
2,643
1,079

29%
32%

2,548
1,173
3,721

3,488
144
3,632
190
(41)
3,781
303
4,084
3
2,767
51
2,818
1,263

31%
34%

2,836
1,248
4,084

2,775
1,222
3,997

(10)%
(6)
(9)%

$ 16,372
$ 14,923

$ 16,774
$ 14,291

$ 16,565
$ 13,615

(2)%
4 %

2018
vs.
2017

53
3
(8)
N/M
3
(8)
2
N/M
(1)
(15)
(1)
11%

2%
2
2%

1%
5%

(a) Total fee and other revenue includes the impact of the consolidated investment management funds, net of noncontrolling interests.

Additionally, other revenue includes asset servicing fees, treasury services fees, foreign exchange and other trading revenue and
investment and other income.

(b) On a constant currency basis, investment management and performance fees decreased 6% (Non-GAAP) compared with 2018. See

“Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 101 for the reconciliation of
this Non-GAAP measure.

(c) Net of distribution and servicing expense. See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures”

beginning on page 101 for the reconciliation of this Non-GAAP measure.

BNY Mellon 15

Results of Operations (continued)

AUM trends
(dollars in billions)
AUM at period end, by

product type: (a)

Equity
Fixed income
Index
Liability-driven
investments

Multi-asset and alternative

investments

Cash

Total AUM by product

type

2019

2018

2017

154
224
339

728

192
273

135
200
301

659

167

260

161
206
350

667

214

295

$ 1,910

$ 1,722

$ 1,893

Changes in AUM: (a)
Beginning balance of AUM $ 1,722
Net inflows (outflows):
Long-term strategies:

$ 1,893

$ 1,648

Equity
Fixed income
Liability-driven
investments
Multi-asset and

alternative investments
Total long-term active
strategies (outflows)
inflows

Index

Total long-term

strategies (outflows)
inflows

Short-term strategies:

Cash

Total net (outflows)

inflows

Net market impact
Net currency impact
Divestiture/other

Ending balance of

AUM

(16)
6

(1)

(12)
(32)

(44)

(36)
191
33
—

(13)
4

(6)

(34)

(4)

(35)

(39)

(48)
(53)
(31)

(b)

(14)
6

(17)

106
76
—

$ 1,910

$ 1,722

$ 1,893

Wealth Management

client assets (c)

266

239

262

(a) Excludes securities lending cash management assets and
assets managed in the Investment Services business.
(b) Primarily reflects a change in methodology beginning in

2018 to exclude AUM related to equity method investments
as well as the divestiture of CenterSquare Investment
Management.

business.

Business description

Our Investment Management business consists of two
lines of business, Asset Management and Wealth
Management. With AUM of $1.9 trillion, our
Investment Management business is the seventh-
largest global asset manager and includes our
investment firms and Wealth Management business.

16 BNY Mellon

Our investment firms deliver a highly diversified
portfolio of investment strategies independently, and
through our global distribution network, to
institutional and retail clients globally. The
investment firms offer a broad range of actively
managed equity, fixed income, alternative and
liability-driven investments, along with passive
products and cash management.

Our Asset Management model provides specialized
expertise from eight respected investment firms
offering solutions across every major asset class, with
backing from the proven stewardship and global
presence of BNY Mellon. Each investment firm has
its own individual culture, investment philosophy and
proprietary investment process. This approach brings
our clients clear, independent thinking from highly
experienced investment professionals.

In addition to the investment firms, Asset
Management has multiple global distribution entities
which are responsible for distributing investment
products developed and managed by the investment
firms, as well as responsibility for management and
distribution of our U.S. mutual funds and certain
offshore money market funds.

BNY Mellon Wealth Management provides
investment management, custody, wealth and estate
planning and private banking services. BNY Mellon
Wealth Management has $266 billion in client assets
as of Dec. 31, 2019, and an extensive network of
offices in the U.S. and internationally.

The results of the Investment Management business
are driven by a blend of daily, monthly and quarterly
averages of AUM by product type. The overall level
of AUM for a given period is determined by:

•
•

•

the beginning level of AUM;
the net flows of new assets during the period
resulting from new business wins and existing
client enrichments, reduced by the loss of clients
and withdrawals; and
the impact of market price appreciation or
depreciation, foreign exchange rates and
investment firm acquisitions or divestitures.

The mix of AUM is a result of the historical growth
rates of equity and fixed income markets and the
cumulative net flows of our investment firms as a
result of client asset allocation decisions. Actively
managed equity, multi-asset and alternative assets

Results of Operations (continued)

typically generate higher percentage fees than fixed-
income and liability-driven investments and cash.
Also, actively managed assets typically generate
higher management fees than indexed or passively
managed assets of the same type. Market and
regulatory trends have resulted in increased demand
for lower fee asset management products and for
performance-based fees.

Investment management fees are dependent on the
overall level and mix of AUM and the management
fees expressed in basis points (one-hundredth of one
percent) charged for managing those assets.
Management fees are typically subject to fee
schedules based on the overall level of assets
managed for a single client or by individual asset
class and style. This is most common for institutional
clients where we typically manage substantial assets
for individual accounts.

Performance fees are generally calculated as a
percentage of a portfolio’s performance in excess of a
benchmark index or a peer group’s performance.

A key driver of organic growth in investment
management and performance fees is the amount of
net new AUM flows. Overall market conditions are
also key drivers, with a significant long-term
economic driver being growth of global financial
assets.

Net interest revenue is determined by loan and
deposit volumes and the interest rate spread between
customer rates and internal funds transfer rates on
loans and deposits. Expenses in the Investment
Management business are mainly driven by staff and
distribution and servicing expenses.

Review of financial results

AUM increased 11% compared with Dec. 31, 2018
primarily reflecting higher market values and the
favorable impact of a weaker U.S. dollar (principally
versus the British pound), partially offset by net
outflows.

Net long-term strategy outflows were $44 billion in
2019, primarily resulting from outflows of index and
equity funds. Short-term strategy inflows were $8
billion in 2019.

Total revenue of $3.7 billion decreased 9% compared
with 2018.

Asset Management revenue of $2.5 billion decreased
10% compared with 2018. The decrease primarily
reflects cumulative AUM outflows, the impact of
divestitures, the unfavorable impact of a stronger U.S.
dollar (principally versus the British pound), lower
performance fees and the impact of hedging
activities, partially offset by higher market values.

Wealth Management revenue of $1.2 billion
decreased 6% compared with 2018. The decrease
reflects lower net interest revenue and fees.

Revenue generated in the Investment Management
business included 40% from non-U.S. sources in
2019, compared with 42% in 2018.

Noninterest expense of $2.6 billion decreased 6%
compared with 2018. The decrease primarily reflects
the net reduction of the reserves for tax-related
exposure of certain investment management funds,
the favorable impact of a stronger U.S. dollar, lower
staff expense and lower distribution and servicing
expenses.

BNY Mellon 17

Results of Operations (continued)

Other segment

(in millions)
Fee revenue
Net securities (losses) gains

Total fee and other revenue

Net interest (expense)

Total revenue (loss)
Provision for credit losses
Noninterest expense

Income (loss) before income taxes

Average loans and leases

2019
904 $
(16)
888
(160)
728
(8)
208
528 $

2018
133 $
(48)
85
(64)
21
(15)
334
(298) $

2017
4
3
7
(79)
(72)
(19)
347
(400)

1,836 $

2,105 $

1,232

Description of segment

The Other segment primarily includes:

Total fee revenue increased $771 million compared
with 2018, primarily reflecting the gain on the sale of
an equity investment.

•
•

•
•
•
•

the leasing portfolio;
corporate treasury activities, including our
securities portfolio;
derivatives and other trading activity;
corporate and bank-owned life insurance;
renewable energy investments; and
business exits.

Revenue primarily reflects:

•

net interest revenue and lease-related gains
(losses) from leasing operations;
net interest revenue from corporate treasury
activity;
fee and other revenue from corporate and bank-
owned life insurance and business exits; and
gains (losses) associated with investment
securities and other assets, including renewable
energy.

Expenses include:

•

direct expenses supporting leasing, investing, and
funding activities; and
expenses not directly attributable to Investment
Services and Investment Management operations.

Review of financial results

Income before taxes was $528 million in 2019
compared with a loss before taxes of $298 million in
2018.

18 BNY Mellon

Net securities losses of $16 million were primarily
related to corporate treasury activity.

Net interest expense increased $96 million compared
with 2018, primarily reflecting a lease-related
impairment and corporate treasury activity.

Noninterest expense decreased $126 million
compared with 2018, primarily reflecting the
expenses associated with relocating our corporate
headquarters in 2018 and lower staff expense.

International operations

Our primary international activities consist of asset
servicing and global payment services in our
Investment Services business and asset management
in our Investment Management business.

Our clients include central banks and sovereigns,
financial institutions, asset managers, insurance
companies, corporations, local authorities and high-
net-worth individuals and family offices. Through
our global network of offices, we have developed a
deep understanding of local requirements and cultural
needs, and we pride ourselves on providing dedicated
service through our multilingual sales, marketing and
client service teams.

At Dec. 31, 2019, we had approximately 9,100
employees in Europe, the Middle East and Africa
(“EMEA”), approximately 13,300 employees in the
Asia-Pacific region (“APAC”) and approximately 700
employees in other global locations, primarily Brazil.

Results of Operations (continued)

We are the seventh-largest global asset manager. At
both Dec. 31, 2019 and Dec. 31, 2018, our
international operations managed 55% of BNY
Mellon’s AUM.

In Europe, we maintain capabilities to service
Undertakings for Collective Investment in
Transferable Securities Directives (“UCITS”) and
alternative investment funds. We offer a full range of
tailored solutions for investment companies, financial
institutions and institutional investors across Europe.

We are a provider of non-U.S. government securities,
fixed income and equities clearance, settling
securities transactions directly in European markets,
and using a high-quality and established network of
local agents in non-European markets.

We have extensive experience providing trade and
cash services to financial institutions and central
banks outside of the U.S. In addition, we offer a
broad range of servicing and fiduciary products to
financial institutions, corporations and central banks.
In emerging markets, we lead with global payments
and issuer services, introducing other products as the
markets mature. For more established markets, our
focus is on global investment services.

We are also a full-service global provider of foreign
exchange services, actively trading in over 100 of the
world’s currencies. We serve clients from trading
desks located in Europe, Asia and North America.

Our financial results, as well as our levels of AUC/A
and AUM, are impacted by translation from foreign
currencies to the U.S. dollar. We are primarily
impacted by activities denominated in the British
pound and the euro. If the U.S. dollar depreciates
against these currencies, the translation impact is a
higher level of fee revenue, net interest revenue,
noninterest expense and AUC/A and AUM.
Conversely, if the U.S. dollar appreciates, the
translated levels of fee revenue, net interest revenue,
noninterest expense and AUC/A and AUM will be
lower.

Foreign exchange rates
vs. U.S. dollar
Spot rate (at Dec. 31):
British pound
Euro

Yearly average rate:

British pound
Euro

2019

2018

2017

$ 1.3199 $ 1.2801 $ 1.3532
1.2009
1.1455

1.1231

$ 1.2770 $ 1.3349 $ 1.2885
1.1390
1.1808

1.1195

International clients accounted for 35% of revenues
in 2019, compared with 37% in 2018. Net income
from international operations was $1.9 billion in
2019, compared with $2.2 billion in 2018.

In 2019, revenues from EMEA were $3.8 billion,
compared with $4.3 billion in 2018. The 10%
decrease primarily reflects lower revenue in the
Investment Services business, driven by lower
foreign exchange revenue, the unfavorable impact of
a stronger U.S. dollar, lower net interest revenue and
lower depositary receipts fees. The decrease also
reflects lower revenue in the Investment Management
business, driven by lower performance fees, the
unfavorable impact of a stronger U.S. dollar
(principally versus the British pound), cumulative
AUM outflows and the impact of hedging activities,
partially offset by the impact of higher market values.
Our Investment Services and Investment
Management businesses generated 70% and 30% of
EMEA revenues, respectively. Net income from
EMEA was $1.1 billion in 2019, compared with $1.3
billion in 2018.

Revenues from APAC were $1.2 billion in 2019,
compared with $1.1 billion in 2018. The 5% increase
primarily reflects higher revenue in the Investment
Services business. Our Investment Services and
Investment Management businesses generated 82%
and 18% of APAC revenues, respectively. Net
income from APAC was $423 million in 2019,
compared with $448 million in 2018.

For additional information regarding our international
operations, including certain key subjective
assumptions used in determining the results, see Note
25 of the Notes to Consolidated Financial Statements.

BNY Mellon 19

Results of Operations (continued)

Country risk exposure

The following table presents BNY Mellon’s top 10
exposures by country (excluding the U.S.) as of Dec.
31, 2019, as well as certain countries with higher-risk
profiles, and is presented on an internal risk
management basis. We monitor our exposure to these
and other countries as part of our internal country risk
management process.

The country risk exposure below reflects the
Company’s risk to an immediate default of the
counterparty or obligor based on the country of
residence of the entity which incurs the liability. If
there is credit risk mitigation, the country of
residence of the entity providing the risk mitigation is
the country of risk. The country of risk for
investment securities is generally based on the
domicile of the issuer of the security.

Country risk exposure at Dec. 31, 2019
(in billions)
Top 10 country exposure:
Japan
Germany
United Kingdom (“UK”)
Belgium
Canada
China
Netherlands
France
Ireland
Italy

Total Top 10 country exposure

Select country exposure:
Brazil

Total select country exposure

Interest-bearing deposits

Central banks

Banks

Lending (a)

Investment
securities (b)

Other (c)

Total
exposure

$
$

20.9 $
15.3
10.0
5.9
—
—
0.2
—
0.3
0.1
52.7 $

0.6
0.4
0.4
0.2
2.0
2.1
0.3
0.2
0.1
0.6
6.9

— $
— $

0.1
0.8
1.8
0.1
0.2
1.4
0.2
—
0.2
0.1
4.9

1.6
1.6

$
$

0.4
3.7
4.7
0.1
2.4
—
1.8
1.8
0.3
1.2
16.4

0.1
0.1

$
$

0.2
0.3
2.1
—
0.9
0.4
0.1
0.2
1.2
—
5.4

0.1
0.1

$
$

22.2
20.5
19.0
6.3
5.5
3.9
2.6
2.2
2.1
2.0
86.3 (d)

1.8
1.8

(a) Lending includes loans, acceptances, issued letters of credit, net of participations, and lending-related commitments.
(b) Investment securities include both the available-for-sale and held-to-maturity portfolios.
(c) Other exposures include over-the-counter (“OTC”) derivative and securities financing transactions, net of collateral.
(d) The top 10 country exposures comprise approximately 80% of our total non-U.S. exposure.

Based on our internal country risk management
process at Dec. 31, 2019, we have significant
exposure to the UK, which withdrew from the
European Union (“EU”) on Jan. 31, 2020. For
additional information, see “Other Matters - UK’s
Withdrawal from the EU (“Brexit”)” and “Risk
Factors - The UK’s withdrawal from the EU may
have negative effects on global economic conditions,
global financial markets, and our business and results
of operations.”

Events in recent years have resulted in increased
focus on Italy and Brazil. The country risk exposure
to Italy primarily consists of investment grade
sovereign debt. The country risk exposure to Brazil
is primarily short-term trade finance loans extended
to large financial institutions. We also have
operations in Brazil providing investment services
and investment management services.

20 BNY Mellon

Cross-border outstandings

Cross-border outstandings are based on the Federal
Financial Institutions Examination Council’s
(“FFIEC”) regulatory guidelines for reporting cross-
border risk and provide information on the
distribution, by country and sector, of claims on
foreign residents held by U.S. banks. Under the
FFIEC guidelines, cross-border outstandings are
reported based on the domicile of the counterparty,
issuer of collateral or guarantor. Cross-border
outstandings in the table below include claims of U.S.
domiciled offices on foreign counterparties as well as
claims of foreign offices on counterparties located
outside those foreign jurisdictions. The guidelines to
determine the cross-border outstandings in the table
below are different from how we determine and
manage our country risk exposure. For example,
unfunded loan commitments as well as central bank
deposits made by our foreign bank subsidiaries in
their local jurisdiction are not considered cross-border
outstandings. As a result, the cross-border

Results of Operations (continued)

outstandings in the table below are not comparable to
the country risk exposure in the previous section.

or pricing resulting from fluctuations in currency
exchange rates or other factors.

Foreign assets are subject to the general risks
attendant on the conduct of business in each foreign
country, including economic uncertainties and each
foreign government’s regulations. In addition, our
foreign assets may be affected by changes in demand

The table below shows our cross-border outstandings
at Dec. 31 of each of the last three years where cross-
border exposure exceeds 1.00% of total assets
(denoted with “*”) or exceeds 0.75% but is less than
or equal to 1.00% of total assets (denoted with “**”).

Cross-border outstandings

(in millions)
2019:

Germany*
Canada**
China**

2018:

Canada*
Germany**
China**

2017:

Germany**
Canada**
France**

Banks and
other financial
institutions (a)

2,547
2,667
3,376

1,888
1,655
3,030

1,530
2,256
295

Public
sector

1,571
121
—

381
736
—

1,344
1
2,519

Commercial,
industrial
and other

Total
cross-border
outstandings (b)

1,187
819
72

2,263
1,079
5

600
1,170
130

5,305
3,607
3,448

4,532
3,470
3,035

3,474
3,427
2,944

(a) Primarily short-term interest-bearing deposits with banks. Also includes global trade finance loans.
(b) Excludes assets of consolidated investment management funds.

Emerging markets exposure

We determine our emerging markets exposures using
the MSCI Emerging Markets Index. Our emerging
markets exposures totaled $13 billion at Dec. 31,
2019 and $11 billion at Dec. 31, 2018. The increase
primarily reflects increased exposure to banks in
South Korea, Malaysia, Qatar and Brazil.

Critical accounting estimates

Our significant accounting policies are described in
Note 1 of the Notes to Consolidated Financial
Statements. Certain of these policies include critical
accounting estimates which require management to
make subjective or complex judgments about the
effect of matters that are inherently uncertain and
may change in subsequent periods. Our critical
accounting estimates are those related to the
allowance for loan losses and allowance for lending-
related commitments, fair value of financial
instruments and derivatives, goodwill and other
intangibles and litigation and regulatory
contingencies. Management has discussed the
development and selection of the critical accounting
estimates with the Company’s Audit Committee.

Allowance for loan losses and allowance for
lending-related commitments

We utilize a quantitative methodology and qualitative
framework for determining the allowance for loan
losses and the allowance for lending-related
commitments. Within this qualitative framework,
management applies judgment when assessing
internal risk factors and environmental factors to
compute an additional allowance for each component
of the loan portfolio.

The components of the allowance for loan losses and
the allowance for lending-related commitments are
inclusive of the qualitative allowance framework and
consist of the following three elements:
•

an allowance for impaired credits of $1 million or
greater;
an allowance for higher risk-rated credits and
pass-rated credits; and
an allowance for residential mortgage loans.

•

BNY Mellon 21

Results of Operations (continued)

Our lending is primarily to institutional customers.
As a result, our loans are generally larger than $1
million. Therefore, the first element, impaired
credits, is based on individual analysis of all impaired
loans of $1 million or greater. The allowance is
measured by the difference between the recorded
value of impaired loans and their impaired value.
Impaired value is either the present value of the
expected future cash flows from the borrower, the
market value of the loan, or the fair value of the
collateral, if the loan is collateral dependent.

The second element, higher risk-rated credits and
pass-rated credits, is based on our incurred loss
model. Individual credit analyses are performed on
such loans before being assigned a credit rating. All
borrowers are collectively evaluated based on their
credit rating. The loss inherent in each loan
incorporates the borrower’s credit rating, facility
rating and maturity. The loss given default, derived
from the facility rating, incorporates a recovery
expectation and an estimate of the use of the facility
at default (usage given default). The borrower’s
probability of default is derived from the associated
credit rating. Borrower ratings are reviewed at least
annually and are periodically mapped to third-party
databases, including rating agency and default and
recovery databases, for ongoing consistency and
validity. Higher risk-rated credits are reviewed
quarterly.

The third element, the allowance for residential
mortgage loans, is determined by segregating
mortgage pools into delinquency periods, ranging
from current through foreclosure. Each of these
delinquency periods is assigned a probability of
default. A specific loss given default is assigned for
each mortgage pool. We assign all residential
mortgage pools, except home equity lines of credit, a
probability of default and loss given default based on
default and loss data derived from internal historical
data related to our residential mortgage portfolio.
The resulting incurred loss factor (the probability of
default multiplied by the loss given default) is applied
against the loan balance to determine the allowance
held for each pool. This approach is applied to the
other residential mortgage portfolio (a relatively
small sub-segment of our mortgage loans). The
allowance for wealth management loans and
mortgages originated by our Wealth Management
business (the majority of mortgage loans held) is
assessed using the second element described above.
For home equity lines of credit, probability of default

22 BNY Mellon

and loss given default are based on external data from
third-party databases due to the small size of the
portfolio and insufficient internal data.

The qualitative framework is used to determine an
additional allowance for each portfolio based on the
factors below:

Internal risk factors:

• Ratio of nonperforming loans to total non-margin

loans;

• Ratio of criticized assets to total loans and

lending-related commitments;

• Borrower concentration; and
• Significant concentrations in high-risk industries

and countries.

Environmental risk factors:

• U.S. non-investment grade default rate;
• Unemployment rate; and
• Change in real gross domestic product.

The objective of the qualitative framework is to
capture incurred losses that may not have been fully
captured in the quantitative reserve, which is based
primarily on historical data. Management determines
the qualitative allowance each period based on
judgment informed by consideration of internal and
external risk factors and other considerations that
may be deemed relevant during the period. Once
determined in the aggregate, our qualitative
allowance is then allocated to each of our loan classes
based on the respective classes’ quantitative
allowance balances with the allocations adjusted,
when necessary, for class specific risk factors.

For each risk factor, we calculate the minimum and
maximum values, and percentiles in-between, to
evaluate the distribution of our historical experience.
The distribution of historical experience is compared
to the risk factor’s current quarter observed
experience to assess the current risk inherent in the
portfolio and overall direction/trend of a risk factor
relative to our historical experience.

Results of Operations (continued)

the quantitative allowance, supports management’s
judgment for the overall required qualitative
allowance. A smaller qualitative allowance may be
required when our quantitative allowance has
reflected incurred losses associated with the
aggregate risk level. A greater qualitative allowance
may be required if our quantitative allowance does
not yet reflect the incurred losses associated with the
aggregate risk level.

To the extent actual results differ from forecasts or
management’s judgment, the allowance for credit
losses may be greater or less than future charge-offs.

The credit rating assigned to each credit is a
significant variable in determining the allowance. If
each credit were rated one grade better, the allowance
would have decreased by $55 million, while if each
credit were rated one grade worse, the allowance
would have increased by $91 million. Similarly, if
the loss given default were one rating worse, the
allowance would have increased by $52 million,
while if the loss given default were one rating better,
the allowance would have decreased by $55 million.
For impaired credits, if the net carrying value of the
loans was 10% higher or lower, the allowance would
have decreased or increased by less than $1 million,
respectively.

Our accounting for credit losses related to financial
assets measured at amortized cost, including loans
and lending-related commitments will change
beginning in the first quarter 2020 as a result of the
adoption of Accounting Standards Update (“ASU”)
2016-13, Financial Instruments - Credit Losses:
Measurement of Credit Losses on Financial
Instruments. For additional information, see Recent
Accounting Developments.

Fair value of financial instruments and
derivatives

The guidance included in Accounting Standards
Codification (“ASC”) 820, Fair Value Measurement,
defines fair value, establishes a framework for
measuring fair value, and expands disclosures about
assets and liabilities measured at fair value. The
standard also established a three-level hierarchy for
fair value measurements based upon the transparency
of inputs to the valuation of an asset or liability as of
the measurement date.

Fair value - Securities

Level 1 - Securities: Securities where valuations are
based on recent quoted prices for identical securities
in actively traded markets.

Level 2 - Securities: For securities where quotes from
recent transactions are not available for identical
securities, we determine fair value primarily based on
pricing sources with reasonable levels of price
transparency. The pricing sources employ financial
models or obtain comparisons to similar instruments
to arrive at “consensus” prices.

Specifically, the pricing sources obtain recent
transactions for similar types of securities (e.g.,
vintage or position in the securitization structure) and
ascertain variables such as discount rate and speed of
prepayment for the type of transaction and apply such
variables to similar types of bonds. We view these as
observable transactions in the current market place
and classify such securities as Level 2.

In addition, we have significant investments in more
actively traded agency residential mortgage-backed
securities (“RMBS”) and other types of securities
such as sovereign debt. The pricing sources derive
the prices for these securities largely from quotes they
obtain from major inter-dealer brokers. The pricing
sources receive their daily-observed trade price and
other information feeds from the inter-dealer brokers.

We obtain prices for our Level 1 and Level 2
securities from multiple pricing sources. We have
designed controls to develop an understanding of the
pricing sources’ securities pricing methodology and
have implemented specific internal controls over the
valuation of securities.

As appropriate, we review the quality control
procedures and pricing methodologies used by the
pricing sources, including the process for obtaining
prices provided by the pricing sources, their valuation
methodology and controls for each class of security.

Prices received from pricing sources are subject to
validation checks that help determine the
completeness and accuracy of the prices. These
validation checks are reviewed by management and,
based on the results, may be subject to additional
review and investigation. We also review securities
with no price changes (stale prices) and securities
with zero values.

BNY Mellon 23

Results of Operations (continued)

We have a surveillance process in place to monitor
the reasonableness of prices provided by the pricing
sources. We utilize a hierarchy that compares
security prices obtained from multiple pricing sources
against established thresholds. Discrepancies that fall
outside of these thresholds are challenged with the
pricing services and adjusted if necessary.

If further research is required, we review and validate
these prices with the pricing sources. We also
validate prices from pricing sources by comparing
prices received to actual observed prices from actions
such as purchases and sales, when possible.

At Dec. 31, 2019, approximately 99% of our
securities were valued by pricing sources with
reasonable levels of price transparency. The
remaining securities were generally valued using
observable inputs.

Level 3 - Securities: Where we use our own cash
flow models, which includes a significant input into
the model that is deemed unobservable, to estimate
the value of securities, we classify them as Level 3.
At both Dec. 31, 2019 and Dec. 31, 2018, we have no
securities included in Level 3 of the fair value
hierarchy.

For details of our securities by level of the valuation
hierarchy, see Note 20 of the Notes to Consolidated
Financial Statements.

Fair value - Derivative financial instruments

Level 1 - Derivative financial instruments: Includes
derivative financial instruments that are actively
traded on exchanges, principally listed equity options.

Level 2 - Derivative financial instruments: Includes
OTC derivative financial instruments. Derivatives
classified as Level 2 are valued utilizing discounted
cash flow analysis and financial models for which the
valuation inputs are observable or can be
corroborated, directly or indirectly, for substantially
the full term of the instrument. Valuation inputs
include interest rate yield curves, foreign exchange
rates, equity prices, credit curves, option volatilities
and other factors.

Where appropriate, valuation adjustments are made to
account for various factors such as creditworthiness
of the counterparty, creditworthiness of the Company
and model and liquidity risks.

24 BNY Mellon

Level 3 - Derivative financial instruments: Level 3
derivatives include derivatives for which valuations
are based on inputs that are unobservable and
significant to the overall fair value measurement, and
may include certain long-dated or highly structured
contracts. At both Dec. 31, 2019 and Dec. 31, 2018,
we have no derivatives included in Level 3 of the fair
value hierarchy.

For details of our derivative financial instruments by
level of the valuation hierarchy, see Note 20 of the
Notes to Consolidated Financial Statements.

Fair value option

ASC 825, Financial Instruments, provides the option
to elect fair value as an alternative measurement basis
for selected financial assets and financial liabilities
which are not subject to fair value under other
accounting standards. The changes in fair value are
recognized in income. See Note 21 of the Notes to
Consolidated Financial Statements for additional
disclosure regarding the fair value option.

Fair value - Judgments

In times of illiquid markets and financial stress,
actual prices and valuations may significantly diverge
from results predicted by models. In addition, other
factors can affect our estimate of fair value, including
market dislocations and unexpected correlations. The
use of different methodologies or different
assumptions to value certain financial instruments
could result in a different estimate of fair value. See
Note 1 of the Notes to Consolidated Financial
Statements.

Goodwill and other intangibles

We initially record all assets and liabilities acquired
in purchase acquisitions, including goodwill,
indefinite-lived intangibles and other intangibles, in
accordance with ASC 805, Business Combinations.
Goodwill, indefinite-lived intangibles and other
intangibles are subsequently accounted for in
accordance with ASC 350, Intangibles - Goodwill
and Other. The initial measurement of goodwill and
intangibles requires judgment concerning estimates of
the fair value of the acquired assets and liabilities.
Goodwill ($17.4 billion at Dec. 31, 2019) and
indefinite-lived intangible assets ($2.6 billion at Dec.
31, 2019) are not amortized but are subject to tests for
impairment annually or more often if events or

Results of Operations (continued)

circumstances indicate it is more likely than not they
may be impaired. Other intangible assets are
amortized over their estimated useful lives and are
subject to impairment if events or circumstances
indicate a possible inability to realize the carrying
value.

segment, exceeded its carrying value by
approximately 18%. For the Asset Management
reporting unit, in the future, small changes in the
assumptions, such as changes in the level of AUM
and operating margin, could produce a non-cash
goodwill impairment.

BNY Mellon’s three business segments include seven
reporting units for which annual goodwill impairment
testing is performed in accordance with ASC 350,
Intangibles - Goodwill and Other. The Investment
Management segment is comprised of two reporting
units; the Investment Services segment is comprised
of four reporting units and one reporting unit is
included in the Other segment.

The goodwill impairment test compares the estimated
fair value of the reporting unit with its carrying
amount, including goodwill. If the estimated fair
value of the reporting unit exceeds its carrying
amount, goodwill of the reporting unit is considered
not impaired. However, if the carrying amount of the
reporting unit were to exceed its estimated fair value,
an impairment loss would be recorded. A substantial
goodwill impairment charge would not have a
significant impact on our financial condition or our
regulatory capital ratios, but could have an adverse
impact on our results of operations. In addition, due
to regulatory restrictions, the Company’s subsidiary
banks could be restricted from distributing available
cash to the Parent, resulting in the Parent needing to
issue additional long-term debt.

In the second quarter of 2019, we performed our
annual goodwill test on all seven reporting units using
an income approach to estimate the fair values of
each reporting unit. Estimated cash flows used in the
income approach were based on management’s
projections as of March 31, 2019. We applied a 10%
discount rate to these cash flows and incorporated a
6.0% market equity risk premium. Estimated cash
flows extend many years into the future, and, by their
nature, are difficult to estimate over such an extended
time frame.

As a result of the annual goodwill impairment test of
the seven reporting units, no goodwill impairment
was recognized. The fair values of six of the
Company’s reporting units were substantially in
excess of the respective reporting units’ carrying
value. The Asset Management reporting unit, with
$7.2 billion of allocated goodwill, and one of the two
reporting units in the Investment Management

Key judgments in accounting for intangibles include
useful life and classification between goodwill and
indefinite-lived intangibles or other intangibles
requiring amortization.

Indefinite-lived intangible assets are evaluated for
impairment at least annually by comparing their fair
values, estimated using discounted cash flow
analyses, to their carrying values. Other amortizing
intangible assets ($522 million at Dec. 31, 2019) are
evaluated for impairment if events and circumstances
indicate a possible impairment. Such evaluation of
other intangible assets would be initially based on
undiscounted cash flow projections.

See Notes 1 and 7 of the Notes to Consolidated
Financial Statements for additional information
regarding goodwill, intangible assets and the annual
and interim impairment testing.

Litigation and regulatory contingencies

Significant estimates and judgments are required in
establishing an accrued liability for litigation and
regulatory contingencies. For additional information
on our policy, see “Legal proceedings” in Note 22 of
the Notes to Consolidated Financial Statements.

Consolidated balance sheet review

One of our key risk management objectives is to
maintain a balance sheet that remains strong
throughout market cycles to meet the expectations of
our major stakeholders, including our shareholders,
clients, creditors and regulators.

We also seek to undertake overall liquidity risk,
including intraday liquidity risk, that stays within our
risk appetite. The objective of our balance sheet
management strategy is to maintain a balance sheet
that is characterized by strong liquidity and asset
quality, ready access to external funding sources at
competitive rates and a strong capital structure that
supports our risk-taking activities and is adequate to
absorb potential losses. In managing the balance
sheet, appropriate consideration is given to balancing

BNY Mellon 25

Results of Operations (continued)

the competing needs of maintaining sufficient levels
of liquidity and complying with applicable
regulations and supervisory expectations while
optimizing profitability.

At Dec. 31, 2019, total assets were $382 billion,
compared with $363 billion at Dec. 31, 2018. The
increase in total assets was primarily driven by higher
interest-bearing deposits with the Federal Reserve
and other central banks and trading assets, partially
offset by lower federal funds sold and securities
purchased under resale agreements. Deposits totaled
$259 billion at Dec. 31, 2019, compared with $239
billion at Dec. 31, 2018. The increase reflects higher
interest-bearing deposits in both U.S. and non-U.S.
offices, partially offset by lower noninterest-bearing
deposits principally in U.S. offices. Total interest-
bearing deposits as a percentage of total interest-
earning assets were 62% at Dec. 31, 2019 and 54% at
Dec. 31, 2018.

At Dec. 31, 2019, available funds totaled $145 billion
which include cash and due from banks, interest-
bearing deposits with the Federal Reserve and other
central banks, interest-bearing deposits with banks
and federal funds sold and securities purchased under
resale agreements. This compares with available
funds of $135 billion at Dec. 31, 2018. Total
available funds as a percentage of total assets were
38% at Dec. 31, 2019 and 37% at Dec. 31, 2018. For
additional information on our liquid funds and
available funds, see “Liquidity and dividends.”

Securities were $123 billion, or 32% of total assets, at
Dec. 31, 2019, compared with $120 billion, or 33%
of total assets, at Dec. 31, 2018. The increase
primarily reflects additional investments in agency
RMBS, sovereign debt/sovereign guaranteed, an
increase in the net unrealized pre-tax gain, and
additional investments in foreign government
agencies, partially offset by net maturities and sales
of U.S. Treasury securities. For additional

information on our securities portfolio, see
“Securities” and Note 4 of the Notes to Consolidated
Financial Statements.

Loans were $55 billion, or 14% of total assets, at
Dec. 31, 2019, compared with $57 billion, or 16% of
total assets, at Dec. 31, 2018. The decrease was
primarily driven by lower overdrafts, partially offset
by higher loans to financial institutions and
commercial real estate loans. For additional
information on our loan portfolio, see “Loans” and
Note 5 of the Notes to Consolidated Financial
Statements.

Long-term debt totaled $28 billion at Dec. 31, 2019
and $29 billion at Dec. 31, 2018. The decrease
reflects maturities and a redemption, partially offset
by issuances and an increase in the fair value of
hedged long-term debt. For additional information on
long-term debt, see “Liquidity and dividends” and
Note 13 of the Notes to Consolidated Financial
Statements.

The Bank of New York Mellon Corporation total
shareholders’ equity increased to $41.5 billion at Dec.
31, 2019 from $40.6 billion at Dec. 31, 2018. For
additional information on our capital, see “Capital”
and Note 15 of the Notes to Consolidated Financial
Statements.

Securities

In the discussion of our securities portfolio, we have
included certain credit ratings information because
the information can indicate the degree of credit risk
to which we are exposed. Significant changes in
ratings classifications for our securities portfolio
could indicate increased credit risk for us and could
be accompanied by a reduction in the fair value of our
securities portfolio.

26 BNY Mellon

Results of Operations (continued)

The following table shows the distribution of our total securities portfolio.

Securities portfolio

(dollars in millions)

Agency RMBS
U.S. Treasury
Sovereign debt/sovereign

guaranteed (c)

Agency commercial
mortgage-backed
securities (“MBS”)

Foreign covered bonds (d)
Collateralized loan

obligations (“CLOs”)

Supranational
U.S. government agencies
Foreign government

agencies (e)

Non-agency commercial

MBS

Other asset-backed
securities (“ABS”)
Non-agency RMBS (f)
State and political

subdivisions
Corporate bonds
Other

Total securities

Dec. 31,
2018

Fair
value

$ 50,214
24,792

2019
change in
unrealized
gain (loss)

1,154 $
193

Dec. 31, 2019

Amortized
cost

Fair
value
54,379 $ 54,646
18,865
18,797

11,577

13,304

13,404

140

10,557

10,613

15
36

(34)

4,268

4,276

4,078

3,724
2,913

4,063

3,734
2,933

2,638

2,641

2,134

2,165

2,141

1,118

2,143

1,316

1,034

1,061

10,947

2,959

3,364

3,006
3,157

1,161

1,470

1,773

1,427

2,264

1,054
77
$ 119,242 (g) $

Fair value
as a % of
amortized
cost (a)

Ratings (b)

Unrealized
gain (loss)

AAA/
AA-

A+/
A-

BBB+/
BBB-

BB+
and
lower

Not
rated

100 % $
100

101

100

100
101

100

101

100

118

103

267
68

100

(15)

10
20

198

100 % — % — % — % — %
—
100 —

—

100 —

99 —

100 —
100 —

100 —

—

—
—

—

—
—

—

—
—

—

41
(5)

832
1
1,703 $ 121,918 $ 122,714 (g)

853
1

103
100
101% $

21
—
796 (g)(h)

17
68
— —
95% 2%

—
—
— 100

15
—
2% 1% —%

(a) Amortized cost reflects historical impairments.
(b) Represents ratings by Standard & Poor’s (“S&P”) or the equivalent.
(c) Primarily consists of exposure to UK, France, Germany, Spain, Italy and the Netherlands.
(d) Primarily consists of exposure to Canada, UK, Australia and Germany.
(e) Primarily consists of exposure to Germany, the Netherlands and Finland.
(f)
(g)

Includes RMBS that were included in the former Grantor Trust of $832 million at Dec. 31, 2018 and $640 million at Dec. 31, 2019.
Includes net unrealized gains on derivatives hedging securities available-for-sale of $131 million at Dec. 31, 2018 and net unrealized losses of $641
million at Dec. 31, 2019.
Includes unrealized gains of $474 million at Dec. 31, 2019 related to available-for-sale securities, net of hedges.

(h)

The fair value of our securities portfolio, including
related hedges, was $122.7 billion at Dec. 31, 2019,
compared with $119.2 billion at Dec. 31, 2018. The
increase primarily reflects additional investments in
agency RMBS, sovereign debt/sovereign guaranteed,
an increase in the net unrealized pre-tax gain, and
additional investments in foreign government
agencies, partially offset by net maturities and sales
of U.S. Treasury securities.

At Dec. 31, 2019, the securities portfolio had a net
unrealized gain, including the impact of related
hedges, of $796 million, compared with a net
unrealized loss of $907 million at Dec. 31, 2018. The
increase in the net unrealized pre-tax gain was
primarily driven by lower market interest rates.

The unrealized gain (after-tax) on our available-for-
sale securities portfolio, net of hedges, included in
accumulated other comprehensive income (“OCI”)
was $361 million at Dec. 31, 2019, compared with an
unrealized loss (after-tax) of $167 million at Dec. 31,
2018. The increase in the unrealized gain, net of tax,
was primarily driven by lower market interest rates.

At Dec. 31, 2019, 95% of the securities in our
portfolio were rated AAA/AA-, unchanged when
compared with Dec. 31, 2018.

See Note 4 of the Notes to Consolidated Financial
Statements for the pre-tax net securities losses by
security type. See Note 20 of the Notes to
Consolidated Financial Statements for details of
securities by level in the fair value hierarchy.

BNY Mellon 27

Results of Operations (continued)

The following table presents the amortizable purchase premium (net of discount) related to the securities portfolio
and accretable discount related to the 2009 restructuring of the securities portfolio.

Net premium amortization and discount accretion of securities (a)
(dollars in millions)
Amortizable purchase premium (net of discount) relating to securities:

Balance at period end
Estimated average life remaining at period end (in years)
Amortization

Accretable discount related to the prior restructuring of the securities portfolio:

Balance at period end
Estimated average life remaining at period end (in years)
Accretion

2019

2018

2017

1,319 $
4.3
364 $

1,429 $
5.0
437 $

1,987
5.0
547

163 $
6.3
54 $

207 $
6.3
86 $

274
6.3
100

(a) Amortization of purchase premium decreases net interest revenue while accretion of discount increases net interest revenue. Both were

recorded on a level yield basis.

Securities

The following table presents the total securities
portfolio at fair value. The fair values do not include
the impact of related hedges.

2019
54,646 $
19,274

Dec. 31,
2018
50,215 $
24,729

13,433
10,761
4,276
4,063
3,736
2,971
2,643
2,178
2,143
1,316

11,609

10,860
2,959
3,364
3,011
3,144
1,161
1,464
1,773
1,427

2017
49,746
25,005

14,180

10,079
2,615
2,909
2,107
2,549
630
1,366
1,043
1,853

1,061
853
—
1

1,255
963
782
$ 123,355 $ 119,111 $ 120,055

1,054
—
77

Securities at fair value
(in millions)
Agency RMBS
U.S. Treasury
Sovereign debt/sovereign

guaranteed

Agency commercial MBS
Foreign covered bonds
CLOs
Supranational
U.S. government agencies
Foreign government agencies
Non-agency commercial MBS
Other ABS
Non-agency RMBS (a)
State and political

subdivisions
Corporate bonds
Money market funds
Other

Total securities

(a) Includes other RMBS.

Equity investments

We have several equity investments recorded in other
assets. These include equity method investments,
including renewable energy, and investments in
qualified affordable housing projects, Federal
Reserve Bank stock, seed capital, private equity and
other investments. The following table presents the
carrying values at Dec. 31, 2019 and Dec. 31, 2018.

28 BNY Mellon

Equity investments
(in millions)
Renewable energy investments
Equity in a joint venture and other

investments:
CIBC Mellon
Siguler Guff
Other equity investments

Total equity in a joint venture and other

investments

Qualified affordable housing project

investments

Federal Reserve Bank stock
Seed capital
Federal Home Loan Bank stock
Private equity investments (a)
Total equity investments

Dec. 31,

2019

2018
$ 1,144 $ 1,264

626
233
243

548
244
272

$ 1,102 $ 1,064

1,024
466
184
22
89

999
484
224
111
74
$ 4,031 $ 4,220

(a) Represents investments in small business investment

companies (“SBICs”), which are compliant with the Volcker
Rule.

We invest in renewable energy projects to receive an
expected after-tax return, which consists of allocated
renewable energy tax credits, tax deductions and cash
distributions based on the operations of the project.
The pre-tax losses on these investments are recorded
in investment and other income on the consolidated
income statement. The corresponding tax benefits
and credits are recorded to the provision for income
taxes on the consolidated income statement.

For additional information on the fair value of certain
seed capital investments and our private equity
investments, see Note 8 of the Notes to Consolidated
Financial Statements.

2,264

2,973

Renewable energy investments

Results of Operations (continued)

Loans

Total exposure – consolidated

(in billions)
Non-margin loans:

Financial institutions
Commercial

Subtotal institutional

Wealth management loans and mortgages
Commercial real estate
Lease financings
Other residential mortgages
Overdrafts
Other

Subtotal non-margin loans

Margin loans
Total

Dec. 31, 2019
Unfunded
commitments

Loans

Total
exposure

Dec. 31, 2018
Unfunded
commitments

Loans

Total
exposure

12.5 $
1.8
14.3
16.2
5.6
1.1
0.5
2.7
1.2
41.6
13.4
55.0 $

34.4 $
12.6
47.0
0.8
3.6
—
—
—
—
51.4
0.1
51.5 $

46.9
14.4
61.3
17.0
9.2
1.1
0.5
2.7
1.2
93.0
13.5
106.5

11.6 $
2.1
13.7
16.0
4.8
1.3
0.6
5.5
1.2
43.1
13.5
56.6 $

34.0 $
15.2
49.2
0.8
3.5
—
—
—
—
53.5
0.1
53.6 $

45.6
17.3
62.9
16.8
8.3
1.3
0.6
5.5
1.2
96.6
13.6
110.2

At Dec. 31, 2019, total exposures of $106.5 billion
decreased 3% compared with Dec. 31, 2018,
primarily reflecting lower exposure in the commercial
portfolio and lower overdrafts, partially offset by
increased exposure in the financial institutions and
commercial real estate portfolios.

Our financial institutions and commercial portfolios
comprise our largest concentrated risk. These
portfolios comprised 58% of our total exposure at
Dec. 31, 2019 and 57% at Dec. 31, 2018.
Additionally, most of our overdrafts relate to financial
institutions.

Financial institutions

The financial institutions portfolio is shown below.

Financial institutions
portfolio exposure

(dollars in billions)
Securities industry
Banks
Asset managers
Insurance
Government
Other

Total

Loans

Unfunded
commitments

% due
<1 yr.

Loans

Dec. 31, 2018
Unfunded
commitments

Dec. 31, 2019
Total
exposure
26.3
8.5
7.7
2.7
0.4
1.3
46.9

23.4 $
1.1
6.4
2.7
0.3
0.5
34.4 $

% Inv.
grade
100%
77
98
100
100
85
95%

99% $
95
82
13
54
54
89% $ 11.6 $

3.1 $
6.3
1.3
0.1
0.1
0.7

Total
exposure
25.6
7.9
7.4
2.6
0.6
1.5
45.6

22.5 $
1.6
6.1
2.5
0.5
0.8
34.0 $

2.9 $
7.4
1.3
—
0.1
0.8
12.5 $

The financial institutions portfolio exposure was
$46.9 billion at Dec. 31, 2019, an increase of 3%
from Dec. 31, 2018, primarily reflecting increased
exposure in the securities industry and banks
portfolios.

Financial institution exposures are high-quality, with
95% of the exposures meeting the investment grade
equivalent criteria of our internal credit rating
classification at Dec. 31, 2019. Each customer is
assigned an internal credit rating, which is mapped to
an equivalent external rating agency grade based
upon a number of dimensions, which are continually

evaluated and may change over time. For ratings of
non-U.S. counterparties, our internal credit rating is
generally capped at a rating equivalent to the
sovereign rating of the country where the
counterparty resides, regardless of the internal credit
rating assigned to the counterparty or the underlying
collateral.

In addition, 80% of the financial institutions exposure
is secured. For example, securities industry clients
and asset managers often borrow against marketable
securities held in custody.

BNY Mellon 29

Results of Operations (continued)

The exposure to financial institutions is generally
short-term with 89% of the exposures expiring within
one year. At Dec. 31, 2019, 18% of the exposure to
financial institutions expires within 90 days,
compared with 20% at Dec. 31, 2018.

At Dec. 31, 2019, the secured intraday credit
provided to dealers in connection with their tri-party
repo activity totaled $20.6 billion and was included in
the securities industry portfolio. Dealers secure the
outstanding intraday credit with high-quality liquid
collateral having a market value in excess of the
amount of the outstanding credit. Secured intraday
credit facilities represent nearly half of the exposure
in the financial institutions portfolio and are reviewed
and reapproved annually.

Commercial

The commercial portfolio is presented below.

Our bank exposure primarily relates to our global
trade finance. These exposures are short-term in
nature, with 95% due in less than one year. The
investment grade percentage of our bank exposure
was 77% at Dec. 31, 2019 and Dec. 31, 2018. Our
non-investment grade exposures are primarily in
Brazil. These loans are primarily trade finance loans.

The asset manager portfolio exposure was high-
quality, with 98% of the exposures meeting our
investment grade equivalent ratings criteria as of Dec.
31, 2019. These exposures are generally short-term
liquidity facilities, with the majority to regulated
mutual funds.

Commercial portfolio exposure

(dollars in billions)
Manufacturing
Services and other
Energy and utilities
Media and telecom

Total

Loans

Unfunded
commitments

0.9 $
0.6
0.3
—
1.8 $

Dec. 31, 2019
Total
exposure
5.1
4.3
4.0
1.0
14.4

4.2 $
3.7
3.7
1.0
12.6 $

% Inv.
grade
95%
97
98
92
96%

% due
<1 yr.

Loans

Dec. 31, 2018
Unfunded
commitments

10% $
19
5
—
11% $

0.8 $
0.7
0.5
0.1
2.1 $

Total
exposure
5.9
5.5
4.6
1.3
17.3

5.1 $
4.8
4.1
1.2
15.2 $

The commercial portfolio exposure was $14.4 billion
at Dec. 31, 2019, a decrease of 17% from Dec. 31,
2018, reflecting lower exposure in all the portfolios.

Utilities-related exposure represents approximately
75% of the energy and utilities portfolio at Dec. 31,
2019. The exposure in the energy and utilities
portfolio, which includes exposure to refining,
exploration and production companies and integrated
companies, was 98% investment grade at Dec. 31,
2019, and 88% at Dec. 31, 2018. In 2019, we sold
our exposure related to a California utility company
that had filed for bankruptcy.

Our credit strategy is to focus on investment grade
clients that are active users of our non-credit services.
The following table summarizes the percentage of the
financial institutions and commercial portfolio
exposures that are investment grade.

30 BNY Mellon

Percentage of the portfolios
that are investment grade

Financial institutions
Commercial

2019

95%
96%

Dec. 31,
2018

95%
95%

2017

93%
95%

Wealth management loans and mortgages

Our wealth management exposure was $17.0 billion
at Dec. 31, 2019, compared with $16.8 billion at Dec.
31, 2018. Wealth management loans and mortgages
primarily consist of loans to high-net-worth
individuals, which are secured by marketable
securities and/or residential property. Wealth
management mortgages are primarily interest-only,
adjustable-rate mortgages with a weighted-average
loan-to-value ratio of 62% at origination. Less than
1% of the mortgages were past due at Dec. 31, 2019.

At Dec. 31, 2019, the wealth management mortgage
portfolio consisted of the following geographic
concentrations: California - 23%; New York - 17%;
Massachusetts - 10%; Florida - 8%; and other - 42%.

Results of Operations (continued)

Commercial real estate

Our commercial real estate exposure totaled $9.2
billion at Dec. 31, 2019, compared with $8.3 billion
at Dec. 31, 2018. Our income-producing commercial
real estate facilities are focused on experienced
owners and are structured with moderate leverage
based on existing cash flows. Our commercial real
estate lending activities also include construction and
renovation facilities. Our client base consists of
experienced developers and long-term holders of real
estate assets. Loans are approved on the basis of
existing or projected cash flows and supported by
appraisals and knowledge of local market conditions.
Development loans are structured with moderate
leverage, and in many instances, involve some level
of recourse to the developer.

At Dec. 31, 2019, 65% of our commercial real estate
portfolio was secured. The secured portfolio is
diverse by project type, with 44% secured by
residential buildings, 40% secured by office
buildings, 8% secured by retail properties and 8%
secured by other categories. Approximately 95% of
the unsecured portfolio consists of real estate
investment trusts (“REITs”) and real estate operating
companies, which are both predominantly investment
grade.

At Dec. 31, 2019, our commercial real estate
portfolio consisted of the following concentrations:
New York metro - 45%; REITs and real estate
operating companies - 33%; and other - 22%.

Lease financings

The lease financings portfolio exposure totaled $1.1
billion at Dec. 31, 2019 and $1.3 billion at Dec. 31,
2018. At Dec. 31, 2019, approximately 98% of
leasing exposure was investment grade, or investment
grade equivalent.

At Dec. 31, 2019, the lease financings portfolio
consisted of exposures backed by well-diversified
assets, primarily large-ticket transportation
equipment. The largest component is rail, consisting
of both passenger and freight train cars. Assets are

both domestic and foreign-based, with primary
concentrations in the United States and Germany.
Approximately 57% of the portfolio is additionally
secured by highly rated securities and/or secured by
letters of credit from investment grade issuers.
Counterparty rating equivalents at Dec. 31, 2019
were as follows:

•
•
•

60% of the counterparties were A or better;
38% were BBB; and
2% were non-investment grade.

Other residential mortgages

The other residential mortgages portfolio primarily
consists of 1-4 family residential mortgage loans and
totaled $494 million at Dec. 31, 2019 and $594
million at Dec. 31, 2018. Included in this portfolio at
Dec. 31, 2019 were $91 million of mortgage loans
purchased in 2005, 2006 and the first quarter of 2007,
of which 10% of the serviced loan balance was at
least 60 days delinquent.

Overdrafts

Overdrafts primarily relate to custody and securities
clearance clients and are generally repaid within two
business days.

Other loans

Other loans primarily include loans to consumers that
are fully collateralized with equities, mutual funds
and fixed-income securities.

Margin loans

Margin loan exposure of $13.5 billion at Dec. 31,
2019 and $13.6 billion at Dec. 31, 2018 was
collateralized with marketable securities. Borrowers
are required to maintain a daily collateral margin in
excess of 100% of the value of the loan. Margin
loans included $3.6 billion at Dec. 31, 2019 and $2.6
billion at Dec. 31, 2018 related to a term loan
program that offers fully collateralized loans to
broker-dealers.

BNY Mellon 31

Results of Operations (continued)

Loans by category

The following table shows loans outstanding at year-end over the last five years.

Loans by category
(in millions)
Domestic:

Commercial
Commercial real estate
Financial institutions
Lease financings
Wealth management loans and mortgages
Other residential mortgages
Overdrafts
Other
Margin loans

Total domestic

Foreign:

2019

2018

2017

2016

2015

Dec. 31,

1,442 $
5,575
4,852
537
16,050
494
524
1,167
11,907
42,548

1,949 $
4,787
5,091
706
15,843
594
1,550
1,181
13,343
45,044

2,744 $
4,900
5,568
772
16,420
708
963
1,131
15,689
48,895

2,286 $
4,639
6,342
989
15,555
854
1,055
1,202
17,503
50,425

2,115
3,899
6,640
1,007
13,247
1,055
911
1,137
19,340
49,351

Commercial
Commercial real estate
Financial institutions
Lease financings
Wealth management loans and mortgages
Other (primarily overdrafts)
Margin loans

227
46
9,259
850
100
3,637
233
14,352
63,703
(a) Net of unearned income of $313 million at Dec. 31, 2019, $358 million at Dec. 31, 2018, $394 million at Dec. 31, 2017, $527 million at

183
—
6,492
551
122
4,031
141
11,520
56,564 $

167
—
7,483
527
108
4,264
96
12,645
61,540 $

331
15
8,347
736
99
4,418
87
14,033
64,458 $

347
7
7,626
576
140
2,230
1,479
12,405
54,953 $

Total foreign
Total loans (a)

Dec. 31, 2016 and $674 million at Dec. 31, 2015, primarily on domestic and foreign lease financings.

Foreign loans

Maturity of loan portfolio

We have credit relationships in foreign markets,
particularly in areas associated with our securities
servicing and trade finance activities. Excluding
lease financings, these activities resulted in
outstanding foreign loans of $11.8 billion at Dec. 31,
2019 and $11.0 billion at Dec. 31, 2018. The increase
primarily resulted from higher margin and financial
institutions loans.

The following table shows the maturity structure of
our loan portfolio at Dec. 31, 2019.

Maturity of loan portfolio at Dec. 31, 2019 (a)

(in millions)
Domestic:
Commercial
Commercial
real estate

Within
1 year

Between
1 and 5

years

After
5 years

Total

329 $ 1,113

$ —

$ 1,442

701

2,937

1,937

5,575

Financial

institutions

810
—
—
19
4,879
756

4,042
524
1,167
11,888
18,651
10,933

Overdrafts
Other
Margin loans
Subtotal

4,852
524
1,167
11,907
25,467
11,689
$ 29,584 $ 5,635 (b) $ 1,937 (b) $37,156
(a) Excludes loans collateralized by residential properties, lease
financings and wealth management loans and mortgages.
(b) Variable rate loans due after one year totaled $7.1 billion

—
—
—
—
1,937
—

Foreign

Total

and fixed rate loans totaled $279 million.

32 BNY Mellon

Results of Operations (continued)

Asset quality and allowance for credit losses

Our credit strategy is to focus on investment grade
clients who are active users of our non-credit
services. Our primary exposure to the credit risk of a

customer consists of funded loans, unfunded
contractual commitments to lend, standby letters of
credit (“SBLC”) and overdrafts associated with our
custody and securities clearance businesses.

The following table details changes in our allowance for credit losses.

Allowance for credit losses activity
(dollars in millions)
Non-margin loans
Margin loans
Total loans
Average loans outstanding

Balance, Jan. 1
Domestic
Foreign

Total allowance at Jan. 1

Charge-offs:

Commercial
Financial institutions
Wealth management loans and mortgages
Other residential mortgages

Total charge-offs

Recoveries:

Financial institutions
Other residential mortgages
Foreign

Total recoveries
Net (charge-offs) recoveries

Provision for credit losses
Balance, Dec. 31,
Domestic
Foreign

Total allowance, Dec. 31,

Allowance for loan losses
Allowance for lending-related commitments
Net charge-offs (recoveries) to average loans outstanding
Net charge-offs (recoveries) to total allowance for credit losses
Allowance for loan losses as a percentage of total loans
Allowance for loan losses as a percentage of non-margin loans
Total allowance for credit losses as a percentage of total loans
Total allowance for credit losses as a percentage of non-margin loans

The allowance for credit losses decreased $36 million
compared with Dec. 31, 2018, primarily reflecting
lower credit exposure, an improved credit
environment and the sale of the remaining exposure
related to a California utility company that had filed
for bankruptcy.

2019

2018

2017

2016

$ 41,567
13,386
$ 54,953
51,323

$ 43,080
13,484
$ 56,564
55,810

$ 45,755
15,785
$ 61,540
57,939

$ 46,868
17,590
$ 64,458
61,681

2015
$ 43,708
19,573
$ 63,281
60,672

220
32
252

(12)
—
(1)
(1)
(14)

—
3
—
3
(11)
(25)

226
35
261

—
—
—
(1)
(1)

—
2
1
3
2
(11)

245
36
281

—
—
—
(1)
(1)

—
5
—
5
4
(24)

240
35
275

—
—
—
(2)
(2)

13
5
1
19
17
(11)

236
44
280

—
(170)
—
(2)
(172)

1
6
—
7
(165)
160

$
$

192
24
216
122
94
0.02%
5.09
0.22
0.29
0.39
0.52

220
32
252
146
106
— %

$
$

(0.79)
0.26
0.34
0.45
0.58

$
$

226
35
261
159
102
(0.01)%
(1.53)
0.26
0.35
0.42
0.57

$
$

245
36
281
169
112
(0.03)%
(6.05)
0.26
0.36
0.44
0.60

240
35
275
157
118
0.27%

60.00
0.25
0.36
0.43
0.63

We had $13.4 billion of secured margin loans on our
balance sheet at Dec. 31, 2019, compared with $13.5
billion at Dec. 31, 2018 and $15.8 billion at Dec. 31,
2017. We have rarely suffered a loss on these types
of loans and do not allocate any of our allowance for
credit losses to them. As a result, we believe that the
ratio of total allowance for credit losses as a
percentage of non-margin loans is a more appropriate
metric to measure the adequacy of the reserve.

BNY Mellon 33

Results of Operations (continued)

The allowance for loan losses and allowance for
lending-related commitments represent
management’s estimate of losses inherent in our
credit portfolio. This evaluation process is subject to
numerous estimates and judgments. To the extent
actual results differ from forecasts or management’s
judgment, the allowance for credit losses may be
greater or less than future charge-offs.

Based on an evaluation of the allowance for credit
losses as discussed in “Critical accounting estimates”
and Note 1 of the Notes to Consolidated Financial
Statements, we have allocated our allowance for
credit losses as presented below.

Nonperforming assets

The table below presents our nonperforming assets.

Nonperforming assets
(dollars in millions)
Nonperforming loans:

Other residential mortgages
Wealth management loans and mortgages
Commercial real estate
Lease financings
Financial institutions

Total nonperforming loans

Other assets owned

Total nonperforming assets

Nonperforming assets ratio
Nonperforming assets ratio, excluding margin loans
Allowance for loan losses/nonperforming loans
Allowance for loan losses/nonperforming assets
Total allowance for credit losses/nonperforming loans
Total allowance for credit losses/nonperforming assets

Nonperforming assets increased $10 million
compared with Dec. 31, 2018, primarily reflecting the
2019 refinement of the application of our
nonperforming assets policy for first lien residential
mortgage loans greater than 90 days delinquent.

Allocation of allowance

Commercial real estate
Commercial
Foreign
Financial institutions
Wealth management (a)
Other residential

mortgages

Lease financings

2018

2016

Dec. 31,
2019
2015
2017
35% 30% 29% 26% 22%
28
30
11
13
9
9
9
8

32
13
9
8

30
13
11
7

29
13
9
8

6
2

Total
Includes the allowance for wealth management mortgages.

(a)

3
100% 100% 100% 100% 100%

The allocation of the allowance for credit losses is
inherently judgmental, and the entire allowance for
credit losses is available to absorb credit losses
regardless of the nature of the losses.

2019

2018

2017

2016

2015

Dec. 31,

62
24
—
—
—
86
3
89
0.16%
0.21
141.9
137.1
251.2
242.7

67
9
—
—
—
76
3
79
0.14%
0.18
192.1
184.8
331.6
319.0

78
7
1
—
—
86
4
90
0.15%
0.20
184.9
176.7
303.5
290.0

91
8
—
4
—
103
4
107
0.17%
0.23
164.1
157.9
272.8
262.6

102
11
2
—
171
286
6
292
0.46%
0.67
54.9
53.8
96.2
94.2

The following table presents loans that are past due
90 days or more and still accruing interest.

(in millions)
Domestic:

Consumer
Commercial
Total domestic
Foreign

2019

2018

2017

2016

2015

$ — $
—
—
—

12 $
—
12
—
12 $

5 $

—
5
—

5 $

7 $
—
7
—
7 $

5
—
5
—
5

Total past due loans $ — $

34 BNY Mellon

Results of Operations (continued)

See Note 5 of the Notes to Consolidated Financial
Statements for additional information on our past due
loans. See “Nonperforming assets” in Note 1 of the
Notes to Consolidated Financial Statements for our
policy for placing loans on nonaccrual status.

Deposits

We receive client deposits through a variety of
Investment Services and Investment Management
businesses and we rely on those deposits as a low-
cost and stable source of funding.

Total deposits were $259.5 billion at Dec. 31, 2019,
an increase of 9%, compared with $238.8 billion at
Dec. 31, 2018. The increase reflects higher interest-
bearing deposits in both U.S. and non-U.S. offices,
partially offset by lower noninterest-bearing deposits
principally in U.S. offices.

Noninterest-bearing deposits were $57.6 billion at
Dec. 31, 2019 compared with $70.8 billion at Dec.
31, 2018. Interest-bearing deposits were $201.9
billion at Dec. 31, 2019 compared with $168.0 billion
at Dec. 31, 2018.

The aggregate amount of deposits by foreign
customers in domestic offices was $47.5 billion and
$36.4 billion at Dec. 31, 2019 and Dec. 31, 2018,
respectively.

Deposits in foreign offices totaled $105.1 billion at
Dec. 31, 2019 and $99.2 billion at Dec. 31, 2018.
The majority of these deposits were in amounts in
excess of $100,000 and were primarily overnight
foreign deposits.

The following table shows the maturity breakdown of
domestic time deposits of $100,000 or more at Dec.
31, 2019.

Certificates
of deposit

Other time
deposits

(in millions)
3 months or less
Between 3 and 6 months
Between 6 and 12 months
Over 12 months
Total

358 $
217
45
2
622 $

Total
43,970 $ 44,328
217
45
2
43,970 $ 44,592

—
—
—

Short-term borrowings

We fund ourselves primarily through deposits and, to
a lesser extent, other short-term borrowings and long-
term debt. Short-term borrowings consist of federal
funds purchased and securities sold under repurchase
agreements, payables to customers and broker-
dealers, commercial paper and other borrowed funds.
Certain short-term borrowings, for example,
securities sold under repurchase agreements, require
the delivery of securities as collateral.

Information related to federal funds purchased and
securities sold under repurchase agreements is
presented below.

Federal funds purchased and securities sold under

repurchase agreements

2019

2018

2017

(dollars in millions)
Maximum month-end

$ 16,967
balance during the year
Average daily balance (a) $ 12,463
Weighted-average rate
during the year (a)
Ending balance (b)
Weighted-average rate at

$ 11,401

11.53%

Dec. 31 (b)

$ 21,600
$ 15,546

$ 21,850
$ 19,653

4.88%

1.14%

$ 14,243

$ 15,163

9.47% 12.99%

2.33%

(a) Includes the average impact of offsetting under enforceable
netting agreements of $55,595 million in 2019, $25,203
million in 2018 and $5,657 million in 2017. On a Non-
GAAP basis, excluding the impact of offsetting, the
weighted-average rates would have been 2.11% for 2019,
1.86% for 2018 and 0.89% for 2017. We believe providing
the rates excluding the impact of netting is useful to
investors as it is more reflective of the actual rates paid.
(b) Includes the impact of offsetting under enforceable netting

agreements of $93,794 million at Dec. 31, 2019, $76,040
million at Dec. 31, 2018 and $25,848 million at Dec. 31,
2017.

Fluctuations of federal funds purchased and securities
sold under repurchase agreements reflect changes in
overnight borrowing opportunities. The fluctuations
in the weighted-average rates compared with Dec. 31,
2018 and Dec. 31, 2017 primarily reflect repurchase
agreement activity with the Fixed Income Clearing
Corporation (“FICC”), where we record interest
expense gross, but the ending and average balances
reflect the impact of offsetting under enforceable
netting agreements. This activity primarily relates to
government securities collateralized resale and
repurchase agreements executed with clients that are
novated to and settle with the FICC.

BNY Mellon 35

Results of Operations (continued)

Information related to payables to customers and
broker-dealers is presented below.

Information related to other borrowed funds is
presented below.

2019

Payables to customers and broker-dealers
(dollars in millions)
Maximum month-end
$ 20,343
balance during the year
Average daily balance (a) $ 18,778
Weighted-average rate
during the year (a)
Ending balance at Dec. 31 $ 18,758
Weighted-average rate at
Dec. 31

1.01%

1.53%

2018

2017

$ 20,905
$ 19,450

$ 21,621
$ 21,142

1.17%

0.34%

$ 19,731

$ 20,184

1.62%

0.56%

(a) The weighted-average rate is calculated based on, and is
applied to, the average interest-bearing payables to
customers and broker-dealers, which were $15,595 million
in 2019, $16,353 million in 2018 and $18,984 million in
2017.

Payables to customers and broker-dealers represent
funds awaiting re-investment and short sale proceeds
payable on demand. Payables to customers and
broker-dealers are driven by customer trading activity
and market volatility.

Information related to commercial paper is presented
below.

Commercial paper
(dollars in millions)
Maximum month-end

balance during the year

Average daily balance
Weighted-average rate

2019

2018

2017

$ 8,894
$ 2,485

$
$

4,470
2,607

$
$

4,714
2,630

during the year
Ending balance at Dec. 31 $ 3,959
Weighted-average rate at

2.22%

1.60%

Dec. 31

1.97%

1.08%

1,939

3,075

2.34%

1.27%

The Bank of New York Mellon issues commercial
paper that matures within 397 days from date of issue
and is not redeemable prior to maturity or subject to
voluntary prepayment. The fluctuations in the
commercial paper balances primarily reflect funding
of investments in short-term assets.

36 BNY Mellon

Other borrowed funds
(dollars in millions)
Maximum month-end
balance during the year
Average daily balance
Weighted-average rate
during the year
Ending balance at Dec. 31 $
Weighted-average rate at
Dec. 31

2019

2018

2017

$ 3,969
$ 1,895

$
$

3,269
2,545

$
$

3,955
1,916

2.26%
3,227

1.36%

3,028

3.11%
599

2.65%

2.64%

1.48%

Other borrowed funds primarily include borrowings
from the Federal Home Loan Bank, overdrafts of sub-
custodian account balances in our Investment
Services businesses, finance lease liabilities and
borrowings under lines of credit by our Pershing
subsidiaries. Overdrafts typically relate to timing
differences for settlements. The decrease in other
borrowed funds, compared with prior periods,
primarily reflects a decrease in borrowings from the
Federal Home Loan Bank and overdrafts of sub-
custodian account balances in our Investment
Services businesses.

Liquidity and dividends

BNY Mellon defines liquidity as the ability of the
Parent and its subsidiaries to access funding or
convert assets to cash quickly and efficiently, or to
roll over or issue new debt, especially during periods
of market stress, at a reasonable cost, and in order to
meet its short-term (up to one year) obligations.
Funding liquidity risk is the risk that BNY Mellon
cannot meet its cash and collateral obligations at a
reasonable cost for both expected and unexpected
cash flow and collateral needs without adversely
affecting daily operations or our financial condition.
Funding liquidity risk can arise from funding
mismatches, market constraints from the inability to
convert assets into cash, the inability to hold or raise
cash, low overnight deposits, deposit run-off or
contingent liquidity events.

Changes in economic conditions or exposure to
credit, market, operational, legal and reputational
risks also can affect BNY Mellon’s liquidity risk
profile and are considered in our liquidity risk
framework.

Results of Operations (continued)

The Parent’s policy is to have access to sufficient
unencumbered cash and cash equivalents at each
quarter-end to cover maturities and other forecasted
debt redemptions, net interest payments and net tax
payments for the following 18-month period, and to
provide sufficient collateral to satisfy transactions
subject to Section 23A of the Federal Reserve Act.
As of Dec. 31, 2019, the Parent was in compliance
with this policy.

For additional information on our liquidity policy, see
“Risk Management - Liquidity Risk.”

We monitor and control liquidity exposures and
funding needs within and across significant legal
entities, branches, currencies and business lines,
taking into account, among other factors, any
applicable restrictions on the transfer of liquidity
among entities.

BNY Mellon also manages potential intraday
liquidity risks. We monitor and manage intraday
liquidity against existing and expected intraday liquid
resources (such as cash balances, remaining intraday
credit capacity, intraday contingency funding and
available collateral) to enable BNY Mellon to meet its
intraday obligations under normal and reasonably
severe stressed conditions.

We define available funds for internal liquidity
management purposes as cash and due from banks,
interest-bearing deposits with the Federal Reserve
and other central banks, interest-bearing deposits with
banks and federal funds sold and securities purchased
under resale agreements. The following table
presents our total available funds at period end and on
an average basis.

Available funds
(dollars in millions)
Cash and due from banks
Interest-bearing deposits with the Federal Reserve and other central banks
Interest-bearing deposits with banks
Federal funds sold and securities purchased under resale agreements

Total available funds
Total available funds as a percentage of total assets

Dec. 31,
2019

Dec. 31,
2018

Average

2019

2018

2017

4,830
95,042
14,811
30,182
$ 144,865

5,864
67,988
14,148
46,795
$ 134,795

5,084
61,739
14,666
36,705
$ 118,194

5,014
68,408
14,740
27,883
$ 116,045

5,039
70,213
14,879
27,192
$ 117,323

38%

37%

34%

Total available funds were $144.9 billion at Dec. 31,
2019, compared with $134.8 billion at Dec. 31, 2018.
The increase was primarily due to higher interest-
bearing deposits with the Federal Reserve and other
central banks, partially offset by lower federal funds
sold and securities purchased under resale
agreements.

Average non-core sources of funds, such as federal
funds purchased and securities sold under repurchase
agreements, trading liabilities, commercial paper and
other borrowed funds, were $18.3 billion for 2019
and $22.0 billion for 2018. The decrease primarily
reflects a decrease in federal funds purchased and
securities sold under repurchase agreements.

Average foreign deposits, primarily from our
European-based Investment Services businesses,
were $93.2 billion for 2019, compared with $95.5
billion for 2018. The decrease primarily reflects
reduced client activity. Average interest-bearing
domestic deposits were $78.7 billion for 2019 and
$59.2 billion for 2018. The increase primarily
reflects an increase in demand and time deposits.

Average payables to customers and broker-dealers
were $15.6 billion for 2019 and $16.4 billion for
2018. Payables to customers and broker-dealers are
driven by customer trading activity and market
volatility.

Average long-term debt was $28.1 billion for 2019
and $28.3 billion for 2018. The slight decrease
primarily reflects maturities and a redemption of
long-term debt, offset by issuances.

Average noninterest-bearing deposits decreased to
$51.5 billion for 2019 from $63.8 billion for 2018,
primarily reflecting client activity.

A significant reduction in our Investment Services
business would reduce our access to deposits. See
“Asset/liability management” for additional factors
that could impact our deposit balances.

Sources of liquidity

The Parent’s three major sources of liquidity are
access to the debt and equity markets, dividends from

BNY Mellon 37

Results of Operations (continued)

its subsidiaries, and cash on hand and cash otherwise
made available in business-as-usual circumstances to

the Parent through a committed credit facility with
our intermediate holding company (“IHC”).

Our ability to access the capital markets on favorable terms, or at all, is partially dependent on our credit ratings,
which are as follows:

Credit ratings at Dec. 31, 2019

Parent:
Long-term senior debt
Subordinated debt
Preferred stock
Outlook - Parent

The Bank of New York Mellon:
Long-term senior debt
Subordinated debt
Long-term deposits
Short-term deposits
Commercial paper

BNY Mellon, N.A.:
Long-term senior debt
Long-term deposits
Short-term deposits

Outlook - Banks
(a) Represents senior debt issuer default rating.
NR - Not rated.

Long-term debt totaled $27.5 billion at Dec. 31, 2019
and $29.2 billion at Dec. 31, 2018. The decrease
reflects maturities and a redemption totaling $5.3
billion, partially offset by issuances of $3.0 billion
and an increase in the fair value of hedged long-term
debt. The Parent has $4.0 billion of long-term debt
that will mature in 2020.

The following table presents the long-term debt
issued in 2019.

Debt issuances
(in millions)
Senior notes:

3-month LIBOR + 28bps senior notes due in 2021
1.95% senior notes due 2022
2.10% senior notes due 2024
Total debt issuances

2019

$ 1,250
1,000
750
$ 3,000

In January 2020, the Parent issued $750 million of
fixed rate senior notes maturing in 2023 at an annual
rate of 1.85% and $250 million of fixed rate senior
notes maturing in 2024 at an annual rate of 2.1%.

38 BNY Mellon

Moody’s

A1
A2
Baa1
Stable

Aa2
NR
Aa1
P1
P1

Aa2 (a)
Aa1
P1

Stable

S&P

A
A-
BBB
Stable

AA-
A
AA-
A-1+
A-1+

AA-
AA-
A-1+

Stable

Fitch

AA-
A+
BBB
Stable

AA
NR
AA+
F1+
F1+

AA (a)

AA+
F1+

Stable

DBRS

AA
AA (low)
A
Stable

AA (high)
NR
AA (high)
R-1 (high)
R-1 (high)

AA (high)
AA (high)
R-1 (high)

Stable

In February 2020, the Parent redeemed $1.25 billion
of the outstanding 2.150% senior notes due 2020 at
par plus accrued and unpaid interest.

The Bank of New York Mellon may issue notes and
certificates of deposit (“CDs”). At Dec. 31, 2019 and
Dec. 31, 2018, $1.1 billion and $2.8 billion,
respectively, of CDs were outstanding. At Dec. 31,
2019 and Dec. 31, 2018, $1.3 billion and $1.0 billion,
respectively, of notes were outstanding.

The Bank of New York Mellon also issues
commercial paper that matures within 397 days from
date of issue and is not redeemable prior to maturity
or subject to voluntary prepayment. The average
commercial paper outstanding was $2.5 billion for
2019 and $2.6 billion for 2018. Commercial paper
outstanding was $4.0 billion at Dec. 31, 2019 and
$1.9 billion at Dec. 31, 2018.

Subsequent to Dec. 31, 2019, our U.S. bank
subsidiaries could declare dividends to the Parent of
approximately $1.1 billion, without the need for a
regulatory waiver. In addition, at Dec. 31, 2019, non-
bank subsidiaries of the Parent had liquid assets of
approximately $1.8 billion. Restrictions on our

Results of Operations (continued)

ability to obtain funds from our subsidiaries are
discussed in more detail in “Supervision and
Regulation - Capital Planning and Stress Testing -
Payment of Dividends, Stock Repurchases and Other
Capital Distributions” and in Note 19 of the Notes to
Consolidated Financial Statements.

Pershing LLC has uncommitted lines of credit in
place for liquidity purposes which are guaranteed by
the Parent. Pershing LLC has three separate
uncommitted lines of credit amounting to $750
million in aggregate. There were no borrowings
under these lines in 2019. Pershing Limited, an
indirect UK-based subsidiary of BNY Mellon, has
three separate uncommitted lines of credit amounting
to $350 million in aggregate. Average borrowings
under these lines were $2 million, in aggregate, in
2019.

BNY Mellon Capital Markets, LLC also has an
uncommitted line of credit in place for $100 million
for liquidity purposes. There were no borrowings
under this line in 2019.

The double leverage ratio is the ratio of our equity
investment in subsidiaries divided by our
consolidated Parent company equity, which includes
our noncumulative perpetual preferred stock. In
short, the double leverage ratio measures the extent to
which equity in subsidiaries is financed by Parent
company debt. As the double leverage ratio
increases, this can reflect greater demands on a
company’s cash flows in order to service interest
payments and debt maturities. BNY Mellon’s double
leverage ratio is managed in a range considering the
high level of unencumbered available liquid assets
held in its principal subsidiaries (such as central bank
deposit placements and government securities), the
Company’s cash generating fee-based business
model, with fee revenue representing 80% of total
revenue in 2019, and the dividend capacity of our
banking subsidiaries. Our double leverage ratio was
116.9% at Dec. 31, 2019 and 117.7% at Dec. 31,
2018, and within the range targeted by management.

Uses of funds

The Parent’s major uses of funds are repurchases of
common stock, payment of dividends, principal and
interest payments on its borrowings, acquisitions and
additional investments in its subsidiaries.

In 2019, we paid $1.3 billion in dividends on our
common and preferred stock. Our common stock
dividend payout ratio was 26% for 2019.

In 2019, we repurchased 69.3 million common shares
at an average price of $48.01 per common share for a
total cost of $3.3 billion.

Liquidity coverage ratio (“LCR”)

U.S. regulators have established an LCR that requires
certain banking organizations, including BNY
Mellon, to maintain a minimum amount of
unencumbered high-quality liquid assets (“HQLA”)
sufficient to withstand the net cash outflow under a
hypothetical standardized acute liquidity stress
scenario for a 30-day time horizon.

The following table presents BNY Mellon’s
consolidated HQLA at Dec. 31, 2019, and the average
HQLA and average LCR for the fourth quarter of
2019.

Consolidated HQLA and LCR
(dollars in billions)
Securities (a)
Cash (b)

Total consolidated HQLA (c)

Dec. 31,
2019
106
87
193

Total consolidated HQLA – average (c)
Average LCR

168
120%
(a) Primarily includes securities of U.S. government-sponsored
enterprises, sovereign securities, U.S. Treasury, U.S. agency
and investment-grade corporate debt.

(b) Primarily includes cash on deposit with central banks.
(c) Consolidated HQLA presented before adjustments. After
haircuts and the impact of trapped liquidity, consolidated
HQLA totaled $149 billion at Dec. 31, 2019 and averaged
$125 billion for the fourth quarter of 2019.

BNY Mellon and each of our affected domestic bank
subsidiaries were compliant with the U.S. LCR
requirements of at least 100% throughout 2019.

Statement of cash flows

The following summarizes the activity reflected on
the consolidated statement of cash flows. While this
information may be helpful to highlight certain macro
trends and business strategies, the cash flow analysis
may not be as relevant when analyzing changes in our
net earnings and net assets. We believe that in
addition to the traditional cash flow analysis, the
discussion related to liquidity and dividends and

BNY Mellon 39

Results of Operations (continued)

asset/liability management herein may provide more
useful context in evaluating our liquidity position and
related activity.

Net cash provided by operating activities was $96
million in 2019, compared with $6.0 billion in 2018.
In 2019 and 2018, cash flows provided by operations
were principally the result of earnings, partially offset
by changes in trading assets and liabilities. In 2018,
cash flows provided by operations were also the
result of changes in accruals and other balances.

Net cash used for investing activities was $10.5
billion in 2019, compared with net cash provided by
investing activities of $3.3 billion in 2018. In 2019
and 2018, net cash used for and provided by investing
activities, respectively, primarily reflects changes in
interest-bearing deposits with the Federal Reserve
and other central banks and changes in federal funds
sold and securities purchased under resale
agreements.

Net cash provided by financing activities was $9.5
billion in 2019, compared with net cash used for
financing activities of $8.1 billion in 2018. In 2019,
net cash provided by financing activities primarily

reflects changes in deposits, partially offset by
repayments of long-term debt, common stock
repurchases and changes in federal funds purchased
and securities sold under repurchase agreements. In
2018, net cash used for financing activities primarily
reflects repayments of long-term debt, common stock
repurchases and changes in deposits, partially offset
by proceeds from the issuance of long-term debt.

Commitments and obligations

We have contractual obligations to make fixed and
determinable payments to third parties as indicated in
the table below. The table excludes certain
obligations such as trade payables and trading
liabilities, where the obligation is short-term or
subject to valuation based on market factors. In
addition to the amounts shown in the table below, at
Dec. 31, 2019, $173 million of unrecognized tax
benefits have been recorded as liabilities in
accordance with ASC 740, Income Taxes. Related to
these unrecognized tax benefits, we have also
recorded a liability for potential interest of $31
million. At this point, it is not possible to determine
when these amounts will be settled or resolved.

Contractual obligations at Dec. 31, 2019

Payments due by period

(in millions)
Deposits without a stated maturity
Term deposits
Federal funds purchased and securities sold under repurchase agreements
Payables to customers and broker-dealers
Other borrowed funds (a)
Operating leases
Long-term debt (b)
Unfunded pension and post-retirement benefits
Investment commitments (c)

Total

Less than
1 year

$ 154,130 $ 154,130 $

48,281
11,401
18,758
599
2,066
30,667
244
422

48,278
11,401
18,758
599
284
4,702
28
152

Total contractual obligations

$ 266,568 $ 238,332 $

1-3 years

3-5 years

— $
2
—
—
—
423
9,268
55
243
9,991 $

— $
—
—
—
—
302
8,721
50
7
9,080 $

Over
5 years
—
1
—
—
—
1,057
7,976
111
20
9,165

(a) Includes finance leases.
(b) Includes interest.
(c) Includes Community Reinvestment Act commitments.

40 BNY Mellon

Results of Operations (continued)

We have entered into fixed and determinable commitments as indicated in the table below:

Other commitments at Dec. 31, 2019

(in millions)
Securities lending indemnifications (a)
Lending commitments
Standby letters of credit
Purchase obligations (b)
Commercial letters of credit
Private equity commitments (c)
Total commitments

Over
5 years
—
288
3
15
—
—
306
(a) Excludes the indemnification for securities for which BNY Mellon acts as an agent on behalf of CIBC Mellon clients, which totaled $57

10,772
95
210
—
28
11,105 $

7,017
628
666
—
4
8,315 $

31,042
1,572
971
74
23

49,119
2,298
1,862
74
55

$ 461,786 $ 442,060 $

$ 408,378 $ 408,378 $

1-3 years

— $

Total

Amount of commitment expiration per period
Less than
1 year

3-5 years

billion at Dec. 31, 2019.

(b) Purchase obligations are defined as agreements to purchase goods or services that are enforceable and legally binding and specify all

significant terms.

See “Liquidity and dividends” and Note 22 of the
Notes to Consolidated Financial Statements for a
further discussion of the source of funds for our
commitments and obligations.

Off-balance sheet arrangements

Off-balance sheet arrangements discussed in this
section are limited to certain guarantees, retained or

Capital

contingent interests and obligations arising out of
unconsolidated variable interest entities (“VIEs”).
Guarantees include SBLCs issued as part of our
corporate banking business and securities lending
indemnifications issued as part of our Investment
Services business. See Note 22 of the Notes to
Consolidated Financial Statements for a further
discussion of our off-balance sheet arrangements.

Capital data
(dollars in millions, except per share amounts; common shares in thousands)
At period end:
BNY Mellon shareholders’ equity to total assets ratio
BNY Mellon common shareholders’ equity to total assets ratio
Total BNY Mellon shareholders’ equity
Total BNY Mellon common shareholders’ equity (a)
BNY Mellon tangible common shareholders’ equity – Non-GAAP (a)
Book value per common share (a)
Tangible book value per common share – Non-GAAP (a)
Closing stock price per common share
Market capitalization
Common shares outstanding

2019

2018

10.9%
9.9%

11.2%
10.2%

$ 41,483
$ 37,941
$ 19,216
42.12
$
21.33
$
$
50.33
$ 45,331
900,683

$
$
$
$
$
$
$

40,638
37,096
18,290
38.63
19.04
47.07
45,207
960,426

Full-year:
Average common equity to average assets
Cash dividends per common share
26%
Common dividend payout ratio
Common dividend yield
2.2%
(a) See “Supplemental information – Explanation of GAAP and Non-GAAP financial measures” beginning on page 101 for a reconciliation

10.8%
1.18

11.0%
1.04

26%
2.3%

of GAAP to Non-GAAP.

The Bank of New York Mellon Corporation total
shareholders’ equity increased to $41.5 billion at Dec.
31, 2019 from $40.6 billion at Dec. 31, 2018. The
increase primarily reflects earnings, unrealized gains

on securities available-for-sale and the impact of
stock awards and option exercises, partially offset by
common stock repurchases and dividend payments.

BNY Mellon 41

Results of Operations (continued)

We repurchased 69.3 million common shares at an
average price of $48.01 per common share for a total
of $3.3 billion in 2019. We expect to continue to
repurchase shares in the first half of 2020 under the
2019 capital plan.

The unrealized gain (after-tax) on our available-for-
sale securities portfolio, net of hedges, included in
accumulated OCI was $361 million at Dec. 31, 2019,
compared with an unrealized loss (after-tax) of $167
million at Dec. 31, 2018. The increase in the
unrealized gain, net of tax, was primarily driven by
lower market interest rates.

Capital adequacy

Regulators establish certain levels of capital for bank
holding companies (“BHCs”) and banks, including
BNY Mellon and our bank subsidiaries, in accordance
with established quantitative measurements. For the
Parent to maintain its status as a financial holding
company (“FHC”), our U.S. bank subsidiaries and
BNY Mellon must, among other things, qualify as
“well capitalized.” As of Dec. 31, 2019 and Dec. 31,

2018, BNY Mellon and our U.S. bank subsidiaries
were “well capitalized.”

Failure to satisfy regulatory standards, including
“well capitalized” status or capital adequacy rules
more generally, could result in limitations on our
activities and adversely affect our financial condition.
See the discussion of these matters in “Supervision
and Regulation - Regulated Entities of BNY Mellon
and Ancillary Regulatory Requirements” and “Risk
Factors - Operational Risk - Failure to satisfy
regulatory standards, including “well capitalized” and
“well managed” status or capital adequacy and
liquidity rules more generally, could result in
limitations on our activities and adversely affect our
business and financial condition.”

The U.S. banking agencies’ capital rules are based on
the framework adopted by the Basel Committee on
Banking Supervision (“BCBS”), as amended from
time to time. For additional information on these
capital requirements, see “Supervision and
Regulation.”

The table below presents our consolidated and largest bank subsidiary regulatory capital ratios.

Consolidated and largest bank subsidiary regulatory capital ratios

Well
capitalized

Dec. 31, 2019
Minimum
required

(a)

Capital
ratios

Consolidated regulatory capital ratios: (b)

Advanced Approaches:

CET1 ratio
Tier 1 capital ratio
Total capital ratio
Standardized Approach:

CET1 ratio
Tier 1 capital ratio
Total capital ratio
Tier 1 leverage ratio
SLR (d)

The Bank of New York Mellon regulatory capital ratios: (b)

Advanced Approaches:

N/A (c)
6%
10%

N/A (c)
6%
10%
N/A (c)
N/A (c)

Dec. 31,
2018
Capital
ratios

10.7%
12.8
13.6

11.7%
14.1
15.1
6.6
6.0

8.5%
10
12

8.5%
10
12
4
5

11.5%
13.7
14.4

12.5%
14.8
15.8
6.6
6.1

15.1%
15.1
15.2
6.9
6.4

CET1 ratio
Tier 1 capital ratio
Total capital ratio
Tier 1 leverage ratio
SLR (d)

8.5
10.5
4
3
(a) Minimum requirements for Dec. 31, 2019 include minimum thresholds plus currently applicable buffers.
(b) For our CET1, Tier 1 capital and Total capital ratios, our effective capital ratios under U.S. capital rules are the lower of the ratios as

6.5%
8
10
5
6

14.0%
14.3
14.7
7.6
6.8

calculated under the Standardized and Advanced Approaches. The Tier 1 leverage ratio is based on Tier 1 capital and quarterly average
total assets. The U.S. global systemically important banks (“G-SIB”) surcharge of 1.5% is subject to change. The countercyclical
capital buffer is currently set to 0%.

(c) The Federal Reserve’s regulations do not establish well capitalized thresholds for these measures for BHCs.
(d) The SLR is based on Tier 1 capital and total leverage exposure, which includes certain off-balance sheet exposures.

42 BNY Mellon

Results of Operations (continued)

Our CET1 ratio determined under the Advanced
Approaches was 11.5% at Dec. 31, 2019 and 10.7%
at Dec. 31, 2018. The increase compared with Dec.
31, 2018 primarily reflects capital generated through
earnings, unrealized gains on securities available-for-
sale, lower RWAs and the impact of stock awards and
option exercises, partially offset by capital deployed
through common stock repurchases and dividend
payments. RWAs decreased compared with Dec. 31,
2018, as an increase in credit risk RWAs was more
than offset by a decrease in operational risk RWAs
primarily due to the external loss data used in our
model.

Our operational loss risk model is informed by
external losses, including fines and penalties levied
against institutions in the financial services industry,
particularly those that relate to businesses in which
we operate, and as a result external losses have
impacted and could in the future impact the amount
of capital that we are required to hold.

Our capital ratios are necessarily subject to, among
other things, anticipated compliance with all
necessary enhancements to model calibration,
approval by regulators of certain models used as part
of RWA calculations, other refinements, further
implementation guidance from regulators, market
practices and standards and any changes BNY Mellon
may make to its businesses. As a consequence of
these factors, our capital ratios may materially
change, and may be volatile over time and from
period to period.

The following table presents our capital components
and RWAs.

Capital components and risk-
weighted assets
(in millions)
CET1:

Common shareholders’ equity
Adjustments for:

Goodwill and intangible assets (a)
Net pension fund assets
Equity method investments
Deferred tax assets
Other

Total CET1
Other Tier 1 capital:

Preferred stock
Other

Total Tier 1 capital

Tier 2 capital:

Subordinated debt
Allowance for credit losses
Other

Total Tier 2 capital – Standardized

Approach

Excess of expected credit losses
Less: Allowance for credit losses

Total Tier 2 capital – Advanced

Approaches

Total capital:

Standardized Approach
Advanced Approaches

Risk-weighted assets:

Standardized Approach
Advanced Approaches:

Credit Risk
Market Risk
Operational Risk

Total Advanced Approaches

Dec. 31,

2019

2018

$ 37,941 $ 37,096

(18,725)
(272)
(311)
(46)
(47)
18,540

(18,806)
(320)
(361)
(42)
—
17,567

3,542
(86)

3,542
(65)
$ 21,996 $ 21,044

1,248 $
216
(11)

1,453
—
216

1,250
252
(10)

1,492
65
252

1,237 $

1,305

$ 23,449 $ 22,536
$ 23,233 $ 22,349

$ 148,695 $ 149,618

$ 95,490 $ 92,917
3,454
68,300
$ 160,898 $ 164,671

4,020
61,388

Average assets for Tier 1 leverage

ratio
Total leverage exposure for SLR
(a) Reduced by deferred tax liabilities associated with intangible

$ 334,869 $ 319,007
$ 362,452 $ 347,943

assets and tax deductible goodwill.

BNY Mellon 43

Results of Operations (continued)

The table below presents the factors that impacted
CET1 capital.

CET1 generation
(in millions)
CET1 – Beginning of year
Net income applicable to common shareholders of
The Bank of New York Mellon Corporation
Goodwill and intangible assets, net of related
deferred tax liabilities

Gross CET1 generated

Capital deployed:

Common stock repurchases
Common stock dividend payments

Total capital deployed
Other comprehensive income:
Foreign currency translation
Unrealized gain on assets available-for-sale
Defined benefit plans
Unrealized gain on cash flow hedges
Other

Total other comprehensive income

Additional paid-in capital (a)
Other additions (deductions):

Embedded goodwill
Net pension fund assets
Deferred tax assets
Other

Total other additions
Net CET1 generated
CET1 – End of year

2019
17,567

4,272

81
4,353

(3,327)
(1,120)
(4,447)

148
526
(54)
3
(90)
533
397

50
48
(4)
43
137
973
18,540

(a) Primarily related to stock awards, the exercise of stock
options and stock issued for employee benefit plans.

The following table shows the impact on the
consolidated capital ratios at Dec. 31, 2019 of a $100
million increase or decrease in common equity, or a
$1 billion increase or decrease in RWAs, quarterly
average assets or total leverage exposure.

Sensitivity of consolidated capital ratios at Dec. 31, 2019
Increase or decrease of

$100 million
in common
equity

$1 billion in RWA,
quarterly average
assets or total
leverage exposure

(in basis points)
CET1:

Standardized Approach
Advanced Approaches

7 bps
6

8 bps
7

Tier 1 capital:

Standardized Approach
Advanced Approaches

Total capital:

Standardized Approach
Advanced Approaches

Tier 1 leverage

SLR

7
6

44 BNY Mellon

10
9

11
9

Capital ratios vary depending on the size of the
balance sheet at period end and the levels and types
of investments in assets. The balance sheet size
fluctuates from period to period based on levels of
customer and market activity. In general, when
servicing clients are more actively trading securities,
deposit balances and the balance sheet as a whole are
higher. In addition, when markets experience
significant volatility or stress, our balance sheet size
may increase considerably as client deposit levels
increase.

Total Loss-Absorbing Capacity (“TLAC”)

The final TLAC rule establishing external TLAC,
external long-term debt (“LTD”) and related
requirements for U.S. G-SIBs, including BNY
Mellon, at the top-tier holding company level
became effective on Jan. 1, 2019. The following
summarizes the minimum requirements for BNY
Mellon’s external TLAC and external LTD ratios,
plus currently applicable buffers.

Eligible external
TLAC ratios

Eligible external
LTD ratios

As a % of RWAs (a)
Regulatory minimum of
18% plus a buffer (b)
equal to the sum of
2.5%, the method 1 G-
SIB surcharge (currently
1%), and the
countercyclical capital
buffer, if any
Regulatory minimum of
6% plus the greater of
the method 1 or method
2 G-SIB surcharge
(currently 1.5%)

As a % of total
leverage
exposure
Regulatory
minimum of
7.5% plus a
buffer (c) equal
to 2%

4.5%

(a) RWA is the greater of Standardized and Advanced

Approaches.

(b) Buffer to be met using only CET1.
(c) Buffer to be met using only Tier 1 capital.

External TLAC consists of the Parent’s Tier 1 capital
and eligible unsecured LTD issued by it that has a
remaining term to maturity of at least one year and
satisfies certain other conditions. Eligible LTD
consists of the unpaid principal balance of eligible
unsecured debt securities, subject to haircuts for
amounts due to be paid within two years, that satisfy
certain other conditions. Debt issued prior to Dec.
31, 2016 has been permanently grandfathered to the
extent these instruments otherwise would be
ineligible only due to containing impermissible
acceleration rights or being governed by foreign law.

Results of Operations (continued)

The following table presents our external TLAC and
external LTD ratios.

TLAC and LTD ratios

Eligible external TLAC:

As a percentage of RWA
As a percentage of total
leverage exposure

Eligible external LTD:

As a percentage of RWA
As a percentage of total
leverage exposure

Dec. 31, 2019
Minimum
ratios
with buffers

Minimum
required

Ratios

18.0%

21.5%

27.2%

7.5%

9.5%

12.1%

7.5%

4.5%

N/A

12.2%

5.4%

Issuer purchases of equity securities

If BNY Mellon maintains risk-based ratio or leverage
TLAC measures above the minimum required level,
but with a risk-based ratio or leverage below the
minimum level with buffers, we will face constraints
on dividends, equity repurchases and discretionary
executive compensation based on the amount of the
shortfall and eligible retained income (that is, four
quarters trailing net income, net of distributions and
tax effects not reflected in net income).

Share repurchases – fourth quarter of 2019

Maximum approximate dollar
value of shares that may yet
be purchased under the
publicly announced plans or
programs at Dec. 31, 2019
2,191
$
1,925
1,918
1,918 (b)
(a) Includes 21 thousand shares repurchased at a purchase price of $1 million from employees, primarily in connection with the employees’

(dollars in millions, except per share
amounts; common shares in thousands)
October 2019
November 2019
December 2019

Total shares
repurchased as
part of a publicly
announced plan
or program
16,548
5,500
129
22,177

Average price
per share
46.41
48.39
50.15
46.92

Total shares
repurchased
16,548
5,500
129
22,177

Fourth quarter of 2019 (a)

payment of taxes upon the vesting of restricted stock. The average price per share of open market purchases was $46.92.

(b) Represents the maximum value of the shares authorized to be repurchased through the second quarter of 2020, including employee

benefit plan repurchases.

In June 2019, in connection with the Federal
Reserve’s non-objection to our 2019 capital plan,
BNY Mellon announced a share repurchase plan
providing for the repurchase of up to $3.94 billion of
common stock starting in the third quarter of 2019
and continuing through the second quarter of 2020.
This new share repurchase plan replaces all
previously authorized share repurchase plans.

Share repurchases may be executed through open
market repurchases, in privately negotiated
transactions or by other means, including through
repurchase plans designed to comply with Rule
10b5-1 and other derivative, accelerated share
repurchase and other structured transactions. The
timing and exact amount of any common stock
repurchases will depend on various factors, including
market conditions and the common stock trading
price; the Company’s capital position, liquidity and
financial performance; alternative uses of capital; and
legal and regulatory considerations.

Trading activities and risk management

Our trading activities are focused on acting as a
market-maker for our customers, facilitating customer
trades and risk mitigating hedging in compliance with
the Volcker Rule. The risk from market-making
activities for customers is managed by our traders and
limited in total exposure through a system of position
limits, value-at-risk (“VaR”) methodology and other
market sensitivity measures. VaR is the potential loss
in value due to adverse market movements over a
defined time horizon with a specified confidence
level. The calculation of our VaR used by
management and presented below assumes a one-day
holding period, utilizes a 99% confidence level and
incorporates non-linear product characteristics. VaR
facilitates comparisons across portfolios of different
risk characteristics. VaR also captures the
diversification of aggregated risk at the firm-wide
level.

BNY Mellon 45

by U.S. Treasury securities interest rate levels. These
instruments include, but are not limited to, U.S.
Treasury securities, swaps, swaptions, forward rate
agreements, exchange-traded futures and options, and
other interest rate derivative products.

The foreign exchange component of VaR represents
instruments whose values predominantly vary with
the level or volatility of currency exchange rates or
interest rates. These instruments include, but are not
limited to, currency balances, spot and forward
transactions, currency options and other currency
derivative products.

The equity component of VaR consists of instruments
that represent an ownership interest in the form of
domestic and foreign common stock or other equity-
linked instruments. These instruments include, but
are not limited to, common stock, exchange-traded
funds, preferred stock, listed equity options (puts and
calls), OTC equity options, equity total return swaps,
equity index futures and other equity derivative
products.

The credit component of VaR represents instruments
whose values are predominantly driven by credit
spread levels, i.e., idiosyncratic default risk. These
instruments include, but are not limited to, securities
with exposures from corporate and municipal credit
spreads.

The diversification component of VaR is the risk
reduction benefit that occurs when combining
portfolios and offsetting positions, and from the
correlated behavior of risk factor movements.

During 2019, interest rate risk generated 47% of
average gross VaR, foreign exchange risk generated
34% of average gross VaR, equity risk generated 9%
of average gross VaR and credit risk generated 10%
of average gross VaR. During 2019, our daily trading
loss did not exceed our calculated VaR amount of the
overall portfolio.

Results of Operations (continued)

VaR represents a key risk management measure and it
is important to note the inherent limitations to VaR,
which include:

• VaR does not estimate potential losses over longer

time horizons where moves may be extreme;
• VaR does not take account of potential variability

of market liquidity; and

• Previous moves in market risk factors may not

produce accurate predictions of all future market
moves.

See Note 23 of the Notes to Consolidated Financial
Statements for additional information on the VaR
methodology.

The following tables indicate the calculated VaR
amounts for the trading portfolio for the designated
periods using the historical simulation VaR model.

VaR (a)
(in millions)
Interest rate
Foreign exchange
Equity
Credit
Diversification
Overall portfolio

2019
Average Minimum Maximum
$

4.3 $
3.1
0.8
0.9
(3.3)
5.8

3.2 $
1.5
0.3
0.4
N/M
3.9

7.3 $
6.4
1.2
2.0
N/M
9.5

Dec. 31,
2019
4.8
2.7
1.0
1.3
(4.0)
5.8

2018
Average Minimum Maximum
$

VaR (a)
(in millions)
Interest rate
Foreign exchange
Equity
Credit
Diversification
Overall portfolio
(a) VaR exposure does not include the impact of the Company’s
consolidated investment management funds and seed capital
investments.

5.5 $
8.3
1.2
2.6
N/M
10.4

3.0 $
2.9
—
0.6
N/M
3.6

4.1 $
4.3
0.7
0.9
(4.2)
5.8

Dec. 31,
2018
4.3
4.1
0.8
0.6
(3.2)
6.6

N/M - Because the minimum and maximum may occur on different
days for different risk components, it is not meaningful to
compute a minimum and maximum portfolio diversification
effect.

The interest rate component of VaR represents
instruments whose values are predominantly driven

46 BNY Mellon

Results of Operations (continued)

The following table of total daily trading revenue or loss illustrates the number of trading days in which our trading
revenue or loss fell within particular ranges during the past five quarters.

Distribution of trading revenue (loss) (a)

(dollars in millions)
Revenue range:

Less than $(2.5)
$(2.5) – $0
$0 – $2.5
$2.5 – $5.0
More than $5.0

Dec. 31,
2019

Sept. 30,
2019

Quarter ended
June 30,
2019

March 31,
2019

Dec. 31,
2018

3
5
23
24
7

Number of days
2
7
26
22
7

—
4
30
23
7

1
5
22
23
10

1
7
17
24
13

(a) Trading revenue (loss) includes realized and unrealized gains and losses primarily related to spot and forward foreign exchange

transactions, derivatives and securities trades for our customers and excludes any associated commissions, underwriting fees and net
interest revenue.

Trading assets include debt and equity instruments
and derivative assets, primarily interest rate and
foreign exchange contracts, not designated as hedging
instruments. Trading assets were $13.6 billion at
Dec. 31, 2019 and $7.0 billion at Dec. 31, 2018.

Trading liabilities include debt and equity instruments
and derivative liabilities, primarily interest rate and
foreign exchange contracts, not designated as hedging
instruments. Trading liabilities were $4.8 billion at
Dec. 31, 2019 and $3.5 billion at Dec. 31, 2018.

Under our fair value methodology for derivative
contracts, an initial “risk-neutral” valuation is
performed on each position assuming time-
discounting based on a AA credit curve. In addition,
we consider credit risk in arriving at the fair value of
our derivatives.

We reflect external credit ratings as well as
observable credit default swap spreads for both
ourselves and our counterparties when measuring the
fair value of our derivative positions. Accordingly,
the valuation of our derivative positions is sensitive to
the current changes in our own credit spreads, as well
as those of our counterparties.

At Dec. 31, 2019, our OTC derivative assets,
including those in hedging relationships, of $3.2
billion included a credit valuation adjustment
(“CVA”) deduction of $24 million. Our OTC

derivative liabilities, including those in hedging
relationships, of $3.8 billion included a debit
valuation adjustment (“DVA”) of $1 million related to
our own credit spread. Net of hedges, the CVA
decreased by $4 million and the DVA was unchanged
in 2019. The net impact of these adjustments
increased foreign exchange and other trading revenue
by $4 million in 2019. During 2019, no realized loss
was charged off against CVA reserves.

At Dec. 31, 2018, our OTC derivative assets,
including those in hedging relationships, of $2.8
billion included a CVA deduction of $22 million. Our
OTC derivative liabilities, including those in hedging
relationships, of $2.4 billion included a DVA of $1
million related to our own credit spread. Net of
hedges, the CVA decreased by $4 million and the
DVA increased by less than $1 million in 2018. The
net impact of these adjustments increased foreign
exchange and other trading revenue by $5 million in
2018. During 2018, no realized loss was charged off
against CVA reserves.

The table below summarizes the distribution of credit
ratings for our foreign exchange and interest rate
derivative counterparties over the past five quarters,
which indicates the level of counterparty credit
associated with these trading activities. Significant
changes in counterparty credit ratings could alter the
level of credit risk faced by BNY Mellon.

BNY Mellon 47

Results of Operations (continued)

Foreign exchange and other trading counterparty risk rating
profile (a)

Dec. 31,
2019

Sept. 30,
2019

Quarter ended
June 30,
2019

March 31,
2019

Dec. 31,
2018

Rating:
AAA to AA-
A+ to A-
BBB+ to BBB-
BB+ and lower (b)

Total

(a) Represents credit rating agency equivalent of internal credit ratings.
(b) Non-investment grade.

54%
24
17
5
100%

55%
24
16
5
100%

54%
26
17
3
100%

49%
28
20
3
100%

50%
28
18
4
100%

Asset/liability management

Our diversified business activities include processing
securities, accepting deposits, investing in securities,
lending, raising money as needed to fund assets and
other transactions. The market risks from these
activities include interest rate risk and foreign
exchange risk. Our primary market risk is exposure
to movements in U.S. dollar interest rates and certain
foreign currency interest rates. We actively manage
interest rate sensitivity and use earnings simulation
and discounted cash flow models to identify interest
rate exposures.

An earnings simulation model is the primary tool
used to assess changes in pre-tax net interest revenue.
The model incorporates management’s assumptions
regarding interest rates, market spreads, changes in
the prepayment behavior of loans and securities and
the impact of derivative financial instruments used
for interest rate risk management purposes. These
assumptions have been developed through a
combination of historical analysis and future expected
pricing behavior and are inherently uncertain. Actual
results may differ materially from projected results
due to timing, magnitude and frequency of interest
rate changes, and changes in market conditions and
management’s strategies, among other factors.

In the table below, we use the earnings simulation
model to run various interest rate ramp scenarios
from a baseline scenario. The interest rate ramp
scenarios examine the impact of large interest rate
movements. In each scenario, all currencies’ interest
rates are shifted higher or lower. The baseline
scenario is based on our quarter-end balance sheet
and the spot yield curve. The 100 basis point ramp
scenario assumes rates change 25 basis points above
or below the yield curve in each of the next four
quarters and the 200 basis point ramp scenario
assumes a 50 basis point per quarter change. Interest
rate sensitivity is quantified by calculating the change

48 BNY Mellon

in pre-tax net interest revenue between the scenarios
over a 12-month measurement period. The net
interest revenue sensitivity methodology assumes
static deposit levels and also assumes that no
management actions will be taken to mitigate the
effects of interest rate changes.

The following table shows net interest revenue
sensitivity for BNY Mellon.

Estimated changes in net
interest revenue
(in millions)
Up 200 bps parallel rate
ramp vs. baseline (a)
Up 100 bps parallel rate
ramp vs. baseline (a)

Down 100 bps parallel rate

ramp vs. baseline (a)

Long-term up 50 bps, short-

term unchanged (b)
Long-term down 50 bps,

short-term unchanged (b)

Dec. 31,
2019

Sept. 30,
2019

Dec. 31,
2018

195 $

187 $

411

198

(40)

(45)

(163)

110

115

(105)

(119)

(98)

(a) In the parallel rate ramp, both short-term and long-term

rates move in four equal quarterly increments.
(b) Long-term is equal to or greater than one year.

To illustrate the net interest revenue sensitivity to
deposit runoff, we note that a $5 billion instantaneous
reduction of U.S. dollar denominated noninterest-
bearing deposits would reduce the net interest
revenue sensitivity results in the ramp up 100 basis
point and 200 basis point scenarios in the table above
by approximately $110 million and approximately
$140 million, respectively. The impact would be
smaller if the runoff was assumed to be a mixture of
interest-bearing and noninterest-bearing deposits.

For a discussion of factors impacting the growth or
contraction of deposits, see “Risk Factors - Our
business, financial condition and results of operations
could be adversely affected if we do not effectively
manage our liquidity.”

Results of Operations (continued)

We also project future cash flows from our assets and
liabilities over a long-term horizon and then discount
these cash flows using instantaneous parallel shocks
to prevailing interest rates. This measure reflects the
structural balance sheet interest rate sensitivity by
discounting all future cash flows. The aggregation of
these discounted cash flows is the economic value of
equity (“EVE”). The following table shows how the
EVE would change in response to changes in interest
rates.

Estimated changes in EVE

Rate change:

Up 200 bps vs. baseline
Up 100 bps vs. baseline

Dec. 31,
2019

(4.6)%
(1.7)%

The asymmetrical accounting treatment of the impact
of a change in interest rates on our balance sheet may
create a situation in which an increase in interest rates
can adversely affect reported equity and regulatory
capital, even though economically there may be no
impact on our economic capital position. For
example, an increase in rates will result in a decline
in the value of our available-for-sale securities
portfolio. In this example, there is no corresponding
change on our fixed liabilities, even though
economically these liabilities are more valuable as
rates rise.

These results do not reflect strategies that
management could employ to limit the impact as
interest rate expectations change.

To manage foreign exchange risk, we fund foreign
currency-denominated assets with liability
instruments denominated in the same currency. We
utilize various foreign exchange contracts if a liability
denominated in the same currency is not available or
desired, and to minimize the earnings impact of
translation gains or losses created by investments in
foreign markets. We use forward foreign exchange
contracts to protect the value of our net investment in
foreign operations. At Dec. 31, 2019, net investments
in foreign operations totaled $14 billion and were
spread across 16 foreign currencies.

BNY Mellon 49

Risk Management

Overview

BNY Mellon plays a vital role in the global financial
markets, and effective risk management is critical to
our success. Risk management begins with a strong
risk culture, and we reinforce our culture through
policies and the Code of Conduct, which are
grounded in four principles:

• Leading by Example: BNY Mellon’s senior
management and leaders set the tone and
expectations regarding risk culture, maintaining
consistent executive sponsorship and senior
governance for risk, conduct and ethics issues.
They hold themselves and others to the highest
ethical standards and create a culture of
transparency and accountability where learning
from mistakes is valued.

• Demonstrating Integrity: We promptly identify
and appropriately address potential client
conflicts and ensure our business practices
support market integrity. Further, BNY Mellon
fosters open and honest relationships with
supervisors and stakeholders.

• Ensuring Risk Ownership: We clearly articulate
risk management responsibilities of the first and
second line, and articulate our risk culture in the
BNY Mellon risk appetite statement. We
consistently evaluate risk issues when
considering business decisions.

• Embedding Ethical Behavior: BNY Mellon

integrates risk, conduct and ethics expectations
throughout the employee lifecycle, reinforced
through training and communications. We
continually encourage the reporting and
escalation of risk, conduct and ethics issues.

BNY Mellon’s business model requires taking on
intelligent risk in a responsible and measured manner;
balancing risk relative to reward to achieve our
strategic objectives and business plans. BNY
Mellon’s Risk Identification process is the foundation
for understanding and managing risk across our five
primary risk categories: Operational Risk, Market
Risk, Credit Risk, Liquidity Risk and Strategic Risk.
Each quarter, the firm’s risks are aggregated,
reviewed and evaluated to determine the set of risks
most material to BNY Mellon. Outputs from the Risk
Identification process inform elements of our risk
framework such as Risk Appetite, Enterprise-wide
Stress Testing and Capital Plans.

50 BNY Mellon

BNY Mellon’s Risk Appetite expresses the aggregate
level of risk we are willing to assume to meet our
objectives in a manner that balances risk and reward
while considering our risk capacity and maintaining a
balance sheet that remains resilient throughout market
cycles. This guides BNY Mellon’s risk-taking
activities and informs key decision-making processes,
including the manner by which we pursue our
business strategy and the method by which we
manage risk. The Risk Appetite Statement and
associated key risk metrics to monitor appetite are
updated and approved by the Risk Committee of the
Board at least annually.

BNY Mellon conducts Enterprise-wide Stress Testing
at least annually as part of its Internal Capital
Adequacy Assessment Process in accordance with the
Comprehensive Capital Analysis and Review
(“CCAR”), and as required by the enhanced
prudential standards issued pursuant to the Dodd-
Frank Act. Enterprise-wide Stress Testing performs
analyses across the Company’s lines of business,
products, geographic areas, and risk types
incorporating the results from the different underlying
models and projections given alternative stress test
scenarios. It is an important component of assessing
the adequacy of capital as well as identifying any
high risk touch points in business activities.
Furthermore, by integrating Enterprise-wide Stress
Testing into the Company’s capital planning process,
the results provide a forward-looking evaluation of
the ability to complete planned capital actions in a
more-adverse-than-anticipated economic
environment. Additional details on Capital Planning
and Stress Testing are included in “Supervision and
Regulation.”

Organizational Model

BNY Mellon’s Three Lines of Defense model is a
critical component of our risk management
framework to clarify roles and responsibilities across
the organization.

BNY Mellon’s first line includes senior management
and business and corporate staff, excluding
management and employees in Risk Management,
Compliance and Internal Audit. Senior management
in the first line is responsible for maintaining and
implementing an effective risk management
framework and ensuring BNY Mellon appropriately
manages risk consistent with its strategy and risk
tolerance, including establishing clear responsibilities

Risk Management (continued)

and accountability for the identification,
measurement, management and control of risk.

Risk & Compliance is the independent second line
function. They are responsible for the framework,
policies and tools for managing risk and compliance
and provide review and challenge to the first line’s
management of risk. The organizational model
facilitates the management of risk and compliance
across three views – businesses, regions and
enterprise-wide disciplines applying consistent
standards across the firm – with ultimate
accountability to BNY Mellon’s Chief Risk Officer.
The Chief Risk Officer has reporting lines to both the
BNY Mellon Chief Executive Officer and the Risk
Committee of the Board of Directors.

Internal Audit is BNY Mellon’s third line of defense
and serves as an independent, objective assurance
function that reports directly to the Audit Committee
of the Company’s Board of Directors. It assists the
Company in accomplishing its objectives by bringing

a systematic, disciplined, risk-based approach to
evaluate and improve the effectiveness of the
Company’s risk management, control and governance
processes. The scope of Internal Audit’s work
includes the review and evaluation of the adequacy,
effectiveness and sustainability of risk management
procedures, internal control systems, information
systems and governance processes.

Governance

BNY Mellon’s management is responsible for
execution of the Company’s risk management and
compliance framework and the governance structure
that supports it, with oversight provided by BNY
Mellon’s Board of Directors and two key Board
committees: the Risk Committee and the Audit
Committee.

A summary of the governance structure is provided
below.

The Risk Committee is comprised entirely of
independent directors and meets on a regular basis to
review and assess the control processes with respect
to the Company’s inherent risks. It also reviews and
assesses the risk management activities of the
Company and the Company’s risk policies and
activities. The roles and responsibilities of the Risk
Committee are described in more detail in its charter,
a copy of which is available on our website,
www.bnymellon.com.

The Audit Committee is also comprised entirely of
independent directors. The Audit Committee meets
on a regular basis to perform an oversight review of
the integrity of the financial statements and financial
reporting process, compliance with legal and

regulatory requirements, our independent registered
public accountant’s qualifications and independence,
and the performance of our independent registered
public accountant and internal audit function. The
Audit Committee also reviews management’s
assessment of the adequacy of internal controls. The
functions of the Audit Committee are described in
more detail in its charter, a copy of which is available
on our website, www.bnymellon.com.

The Senior Risk and Control Committee (“SRCC”) is
the most senior risk governance group at the
Company and is responsible for reviewing on an
ongoing basis the top risks of the Company. The
SRCC provides oversight for all Risk Management,
Compliance & Ethics activities and processes,

BNY Mellon 51

Risk Management (continued)

including the Risk Framework. The committee is
chaired by the Chief Risk Officer and its members
include the Chief Executive Officer, Chief Financial
Officer and General Counsel.

The SRCC has 10 sub-committees:

• Asia Pacific Senior Risk & Control Committee
and Europe, Middle East, Africa Senior Risk &
Control Committee: The most senior risk
governance groups for the regions with oversight
responsibility for risk and control matters.

• Operational Risk Committee: Oversees the

operational risk framework and policies, reviews
and monitors program outputs and metrics,
monitors resolution of significant operational risk
matters, including changes to the risk and control
environment, and escalates concerns to the
SRCC.

• Enterprise Model Risk Committee:

Communicates an aggregate view of model risk
to SRCC and the Board. Establishes policy and
serves as an escalation point for key decisions on
models.

• Credit Portfolio Management Committees: Six

Portfolio Management Committees, governed by
the same charter and rules, manage, monitor and
review one of Credit Risk’s primary portfolio
segments, including underwriting criteria,
portfolio limits and composition, concentration,
credit strategy, quality and exposure.

• Asset Liability Committee: The Asset Liability

Committee (“ALCO”) is the senior management
committee responsible for balance sheet
oversight, including capital, liquidity and interest
rate risk management.

• Balance Sheet Risk Committee (“BSRC”):
Provides governance over independent risk
oversight of liquidity risks associated with assets
and liabilities, liquidity risk limits calibration,
and the adequacy of related control procedures.

• Resolvability Steering Committee: Oversees

recovery and resolution planning, including but
not limited to the project governance and
oversight framework for all recovery and
resolution planning requirements in relevant
jurisdictions where BNY Mellon operates.

• Technology & Information Risk Committee:

• Strategic Risk Committee: Considers for approval

Oversees the risks and associated policies related
to enterprise technology initiatives to help
maintain and protect the confidentiality, integrity,
and availability of BNY Mellon’s information
and technology assets from internal and external
threats.

proposals for major strategic initiatives
significantly impacting the risk profile of the
company, including but not limited to
acquisitions, material changes to existing
products, material new products, significant
business process changes and complex
transactions.

52 BNY Mellon

Risk Management (continued)

Risk Types Overview

The understanding, identification, measurement and
mitigation of risk are essential elements for the
successful management of BNY Mellon. Our
primary risk categories are:

Type of risk Description
Operational The risk of loss resulting from inadequate
or failed internal processes, human factors
and systems, breaches of technology and
information systems or from external
events.
The risk of loss due to adverse changes in
the financial markets. Our market risks
are primarily interest rate, foreign
exchange and equity risk. Market risk
particularly impacts our exposures that are
fair valued such as the securities portfolio,
trading book and equity investments.

Market

Credit

Liquidity

Strategic

The risk of loss if any of our borrowers or
other counterparties were to default on
their obligations to us. Credit risk is
resident in the majority of our assets, but
primarily concentrated in the loan and
securities books, as well as off-balance
sheet exposures such as lending
commitments, letters of credit and
securities lending indemnifications.
The risk that BNY Mellon cannot meet its
cash and collateral obligations at a
reasonable cost for both expected and
unexpected cash flows, without adversely
affecting daily operations or financial
conditions. Liquidity risk can arise from
cash flow mismatches, market constraints
from the inability to convert assets to cash,
the inability to raise cash in the markets,
deposit run-off or contingent liquidity
events.
The risk arising from adverse business
decisions, poor implementation of
business decisions or lack of
responsiveness to changes in the financial
industry and operating environment.
Strategic and/or business risks may also
arise from the acceptance of new
businesses, the introduction or
modification of products, strategic finance
and risk management decisions, business
process changes, complex transactions,
acquisitions/ divestitures/ joint ventures
and major capital expenditures/
investments.

Operational Risk

In providing a comprehensive array of products and
services, we may be exposed to operational risk.
Operational risk may result from, but is not limited
to, errors related to transaction processing, breaches

of internal control systems and compliance
requirements, fraud by employees or persons outside
BNY Mellon or business interruption due to system
failures or other events. Operational risk may also
include breaches of our technology and information
systems resulting from unauthorized access to
confidential information or from internal or external
threats, such as cyberattacks. Operational risk also
includes potential legal or regulatory actions that
could arise as a result of noncompliance with
applicable laws and/or regulatory requirements. In
the case of an operational event, we could suffer
financial losses as well as reputational damage.
To address these risks, we maintain comprehensive
policies and procedures and an internal control
framework designed to provide a sound operational
environment. These controls have been designed to
manage operational risk at appropriate levels given
our financial strength, the business environment and
markets in which we operate, and the nature of our
businesses, and considering factors such as
competition and regulation.

The organizational framework for operational risk is
based upon a strong risk culture that incorporates
both governance and risk management activities
comprising:

• Accountability of Businesses - Business

managers are responsible for maintaining an
effective system of internal controls
commensurate with their risk profiles and in
accordance with BNY Mellon policies and
procedures.

• Corporate Operational Risk Management is the

independent second line function responsible for
developing risk management policies and tools
for assessing, measuring, monitoring and
managing operational risk for BNY Mellon. The
primary objectives of Corporate Operational Risk
Management are to promote effective risk
management, identify emerging risks and drive
continuous improvement in controls and to
optimize capital.

• Technology risk is a subset of operational risk.

Technology Risk Management is the independent
operational risk management function that drives
the development of global technology policies,
controls and methods for assessing, measuring
and monitoring information and technology risk
for BNY Mellon. Technology Risk Management
partners with the businesses to drive better

BNY Mellon 53

Risk Management (continued)

understanding and a more accurate assessment of
operational risks that can occur from technology
operations.

• Operational resiliency is a top priority for the

Company. The core of our enterprise resiliency
strategy is built on the Enterprise Resiliency
Office, with second line oversight from
Resiliency Risk Management. Elements of the
resiliency strategy include our Business Services
Framework, IT Asset Management, Application
transformation (Greenfield) and Mainframe
modernization, as well as Disaster Recovery
Testing and Business Continuity capabilities. We
are also focused on the resiliency capabilities of
our most important service providers. These
capabilities are intended to enable the Company
to deliver services to our clients, to prevent,
respond to and recover from business disruptions
and threats, and embed governance and
management in order to prioritize delivery of
critical assets and mitigate financial, operational,
business, cyber and technological risks.

We have also established procedures that are designed
to ensure compliance with generally accepted
conduct, ethics and business practices which are
defined in our corporate policies. These include
training programs, such as for our “Code of Conduct”
and “Know Your Customer” programs, and
compliance training programs, such as those
regarding information protection and suspicious
activity reporting.

Market Risk

Our business activity tends to minimize outright our
direct exposure to market risk, with such risk
primarily limited to market volatility from trading
activity in support of clients. More significant direct
market risk is assumed in the form of interest rate and
credit spread risk within the investment portfolio both
as a means for forward asset/liability management
and net interest revenue generation.

The Company has indirect market risk exposure
associated with the change in the value of financial
collateral underlying securities financing and
derivatives positions. The Collateral Margin Review
Committee reviews and approves the standards for
collateral received or paid in respect of collateralized
derivative agreements and securities financing
transactions.

54 BNY Mellon

Oversight of market risk is performed by the SRCC
and BSRC and through executive review meetings.
Detailed reviews of stress tests results are conducted
during the Markets Weekly Risk Review. Senior
managers from Risk Management, Finance and Sales
and Trading attend the review. Oversight of the
Corporate Treasury function is provided by the
Treasury Risk Committee, biweekly Portfolio
Management Group risk meetings, Business Risk
Committee and portfolio reviews.

The Business Risk Committee for the Markets
business reviews key risk and control issues and
related initiatives facing all Markets lines of business.
Also addressed during the Business Risk Committee
meetings are trading VaR and trading stressed VaR
exposures against limits.

Finally, the Risk Quantification Review Group
reviews back-testing results for the Company’s VaR
model.

Credit Risk

We extend direct credit in order to foster client
relationships and as a method by which to generate
interest income from the deposits that result from
business activity. We extend and incur intraday credit
exposure in order to facilitate our various processing
activities.

To balance the value of our activities with the credit
risk incurred in pursuing them, we set and monitor
internal credit limits for activities that entail credit
risk, most often on the size of the exposure and the
quality of the counterparty. For credit exposures
driven by changing market rates and prices, exposure
measures include an add-on for such potential
changes.

We manage credit risk at both the individual exposure
level as well as the portfolio level. Credit risk at the
individual exposure level is managed through our
credit approval system and involves four approval
levels up to and including the Chief Risk Officer of
the Company. The requisite approvals are based upon
the size and relative risk of the aggregate exposure
under consideration. The Credit Risk Group is
responsible for approving the size, terms and maturity
of all credit exposures, as well as the ongoing
monitoring of the creditworthiness of the
counterparty. In addition, it is responsible for

Risk Management (continued)

assigning and maintaining the internal risk ratings on
each exposure.

The calculation of a fundamental credit measure is
based on a projection of a statistically probable credit
loss, used to help determine the appropriate loan loss
reserve and to measure customer profitability. Credit
loss considers three basic components: the estimated
size of the exposure whenever default might occur,
the probability of default before maturity and the
severity of the loss we would incur, commonly called
“loss given default.” For institutional lending, where
most of our credit risk is created, unfunded
commitments are assigned a usage given default
percentage. Borrowers/counterparties are assigned
ratings by Credit Portfolio Managers on an 18-grade
scale, which translate to a scaled probability of
default. Additionally, transactions are assigned loss
given default ratings (on a 5-grade scale) that reflect
the transactions’ structures, including the effects of
guarantees, collateral and relative seniority of
position.

The Enterprise Capital Adequacy Group is
responsible for the calculation methodologies and the
estimates of the inputs used in those methodologies
for the determination of expected loss. These
methodologies and input estimates are regularly
evaluated to ensure their appropriateness and
accuracy. As new techniques and data become
available, the Enterprise Capital Adequacy Group
attempts to incorporate, where appropriate, those
techniques or data.

BNY Mellon seeks to limit both on- and off-balance
sheet credit risk through prudent underwriting and the
use of capital only where risk-adjusted returns
warrant. We seek to manage risk and improve our
portfolio diversification through syndications, asset
sales, credit enhancements and active collateralization
and netting agreements. In addition, we have a
separate Credit Risk Review Group, which is part of
Internal Audit, made up of experienced loan review
officers who perform timely reviews of the loan files
and credit ratings assigned to the loans.

Liquidity Risk

Access to global capital markets and financial market
utilities are fundamental to both our operating model
and overall strategy. Without such access, it would be
difficult, if not impossible, to process payments as
well as settle and clear transactions on behalf of

clients. Deterioration in our liquidity position,
whether actual or perceived, can impact our market
access by affecting participants’ willingness to
transact with us. Changes to our liquidity can be
caused by various factors, such as funding
mismatches, market constraints limiting the ability to
liquidate assets, inability to issue debt, run-off of core
deposits and contingent liquidity events, such as
additional collateral posting. Changes in economic
conditions or exposure to credit, market, operational,
legal and reputational risks can also affect our
liquidity. Our liquidity risk management practices are
designed to maintain a strong liquidity profile, by
actively managing both the quality of the investment
portfolio and intraday liquidity positions, and by
having sufficient deposits and other funding to meet
timely payment and settlement obligations under both
normal and stressed conditions.

ALCO is responsible for appropriately executing
Board-approved strategies, policies and procedures
for managing liquidity. Senior management is
responsible for regularly reporting the liquidity
position of the Company to the Board of Directors.
The Board of Directors approves liquidity risk
tolerances and is responsible for oversight of liquidity
risk management of the Company. The BSRC
provides governance over independent Risk oversight
of liquidity risks associated with assets and liabilities,
liquidity risk limits calibration and the adequacy of
related control procedures. The Treasury Risk
Committee, which is chaired by independent risk
management, is responsible for reviewing liquidity
stress tests and various liquidity metrics, including
contractual cash flow gaps for liquidity, liquidity
stress metrics and ratios, LCR, net stable funding
ratio (“NSFR”) and client deposit concentration. The
Treasury Risk Committee validates and approves
stress test methodologies and assumptions, and an
independent Liquidity Risk function provides
ongoing review and oversight of liquidity risk
management.

BNY Mellon seeks to maintain an adequate liquidity
cushion in both normal and stressed environments
and seeks to diversify funding sources by line of
business, customer and market segment with the
objective that changes in funding requirements at the
Parent and at our bank and broker-dealer subsidiaries
can be accommodated routinely without material
adverse impact on our financial condition.
Additionally, we seek to maintain liquidity ratios
within approved limits and liquidity risk tolerance,

BNY Mellon 55

Risk Management (continued)

maintain a liquid asset buffer that can be liquidated,
financed and/or pledged as necessary, and control the
levels and sources of wholesale funds.

Potential uses of liquidity include withdrawals of
customer deposits and client drawdowns on unfunded
credit or liquidity facilities. We actively monitor
unfunded lending-related commitments, thereby
reducing unanticipated funding requirements.

When monitoring liquidity, we evaluate multiple
metrics in order to have sufficient liquidity for
expected and unexpected events. Metrics include
cash flow mismatches, asset maturities, debt spreads,
peer ratios, liquid assets, unencumbered collateral,
funding sources and balance sheet liquidity ratios.
We monitor the LCR, as well as various internal
liquidity limits as part of our standard analysis to
monitor depositor and market funding concentration,
liability maturity profile and potential liquidity draws
due to off-balance sheet exposure.

We also perform liquidity stress tests (“LSTs”) to
evaluate whether the Company and certain domestic
bank subsidiaries maintain sufficient liquidity
resources under multiple stress scenarios. LSTs are
based on scenarios that measure liquidity risks under
unlikely but plausible conditions. We perform these
tests under various time horizons ranging from one
day to one year in a base case, as well as
supplemental tests to determine whether the
Company and certain domestic subsidiaries’ liquidity
is sufficient for severe market events and firm-
specific events. The Parent’s LST framework
includes the Resolution Liquidity Adequacy and
Positioning (“RLAP”) test. The RLAP test is
designed to ensure that the liquidity needs of certain
key subsidiaries in a stress environment can be met

by available resources held directly within the entity
itself or at the Parent or IHC, as applicable. Our
results indicate that we have sufficient RLAP
liquidity.

Strategic Risk

Our strategy includes, but is not limited to, improving
organic growth across our businesses, driving quality
solutions and operating efficiencies, and expanding
technology-enabled solutions. Successful realization
of our strategy requires that we provide expertise and
insight through market-leading solutions that drive
economies of scale, attract, develop and retain highly
talented people capable of executing our strategy,
while protecting our sound and stable financial
profile. We must understand and meet market and
client expectations with suitable products and
offerings that are financially viable and scalable and
that integrate into our business model. Failure to do
so could impact both our growth strategy and our
ability to service our existing clients, resulting in
potential financial loss or litigation.

Changes in the markets in which we and our clients
operate can evolve quickly. The introduction of new
or disruptive technologies, geopolitical events and
slowing economies are examples of events that can
produce market uncertainty. Failure to either
anticipate or participate in transformational change
within a given market or appropriately and promptly
react to market conditions or client preferences could
result in poor strategic positioning and potential
negative financial impact. While it is essential that
we continue to innovate and respond to changing
markets and client demand, we must do so in a
manner that does not affect our financial position or
jeopardize our fundamental business strategy.

56 BNY Mellon

Supervision and Regulation

Evolving Regulatory Environment

BNY Mellon engages in banking, investment
advisory and other financial activities in the U.S. and
34 other countries, and is subject to extensive
regulation in the jurisdictions in which it operates.
Global supervisory authorities generally are charged
with ensuring the safety and soundness of financial
institutions, protecting the interests of customers,
including depositors in banking entities and investors
in mutual funds and other pooled vehicles,
safeguarding the integrity of securities and other
financial markets and promoting systemic resiliency
and financial stability in the relevant country. They
are not, however, generally charged with protecting
the interests of our shareholders or non-depositor
creditors. This discussion outlines the material
elements of selected laws and regulations applicable
to us. The impact of certain other laws and
regulations, such as tax law, is discussed elsewhere in
the Annual Report. Changes in these standards, or in
their application, cannot be predicted, but may have a
material effect on our businesses and results of
operations.

The financial services industry has been the subject of
enhanced regulatory oversight in the past decade
globally, and this trend may continue in the future.
Our businesses have been subject to a significant
number of global reform measures.

Political developments have resulted and may
continue to result in legislative and regulatory
changes to key aspects of the Dodd-Frank Act and its
implementing regulations. For example, the
Economic Growth, Regulatory Relief, and Consumer
Protection Act (the “Reform Act”) became law in
2018.

Enhanced Prudential Standards

The Federal Reserve has adopted rules (“SIFI Rules”)
to implement liquidity requirements, stress testing of
capital and overall risk management requirements
affecting U.S. systemically important financial
institutions (“SIFIs”). BNY Mellon must comply
with enhanced liquidity and overall risk management
standards, which include maintenance of a buffer of
highly liquid assets based on projected funding needs
for 30 days. The liquidity buffer is in addition to the
U.S. banking agencies’ rules regarding the LCR,
discussed below, and is described by the Federal

Reserve as being “complementary” to those liquidity
standards.

Single Counterparty Credit Limits

On June 14, 2018, the Federal Reserve approved a
final rule imposing single-counterparty credit limits
(“SCCLs”) on, among other organizations, domestic
BHCs, including BNY Mellon, that are G-SIBs. The
SCCLs apply to the credit exposure of a covered firm
and all of its subsidiaries to a single counterparty and
all of its affiliates and connected entities. The final
rule introduces new definitions of “subsidiary” and
“affiliate” under a financial consolidation standard
that is consistent with accounting standards. The
final rule became applicable to BNY Mellon on Jan.
1, 2020.

The final rule establishes two primary credit exposure
limits: (i) a covered domestic BHC may not have
aggregate net credit exposure to any unaffiliated
counterparty in excess of 25% of its Tier 1 capital;
and (ii) a U.S. G-SIB is further prohibited from
having aggregate net credit exposure in excess of
15% of its Tier 1 capital to any “major
counterparty” (defined as a G-SIB or a nonbank
SIFI).

As of Jan. 1, 2020, BNY Mellon was and continues to
be in compliance with the two primary exposure
limits based on the daily monitoring process we have
established. The final rule provides a cure period of
90 days (or, with prior notice from the Federal
Reserve Board, a longer or shorter period) for
breaches of the SCCL rule. During the cure period, a
company may not engage in additional credit
transactions with the particular counterparty unless
the company has obtained a temporary credit
exposure limit increase from the Federal Reserve.

Capital Planning and Stress Testing

Payment of Dividends, Stock Repurchases and Other
Capital Distributions

The Parent is a legal entity separate and distinct from
its banks and other subsidiaries. Therefore, the
Parent primarily relies on dividends, interest,
distributions and other payments from its
subsidiaries, including extensions of credit from the
IHC, to meet its obligations, including its obligations
with respect to its securities, and to provide funds for
share repurchases and payment of common and

BNY Mellon 57

Supervision and Regulation (continued)

preferred dividends to its stockholders, to the extent
declared by the Board of Directors. Various federal
and state laws and regulations limit the amount of
dividends that may be paid to the Parent by our bank
subsidiaries without regulatory consent. If, in the
opinion of the applicable federal regulatory agency, a
depository institution under its jurisdiction is engaged
in or is about to engage in an unsafe or unsound
practice (which, depending on the financial condition
of the bank, could include the payment of dividends),
the regulator may require, after notice and hearing,
that the bank cease and desist from such practice.
The Office of the Comptroller of the Currency
(“OCC”), the Federal Reserve and the Federal
Deposit Insurance Corporation (“FDIC”) have
indicated that the payment of dividends would
constitute an unsafe and unsound practice if the
payment would reduce a depository institution’s
capital to an inadequate level. Moreover, under the
Federal Deposit Insurance Act, as amended (the “FDI
Act”), an insured depository institution (“IDI”) may
not pay any dividends if the institution is
undercapitalized or if the payment of the dividend
would cause the institution to become
undercapitalized. In addition, the federal bank
regulatory agencies have issued policy statements
which provide that FDIC-insured depository
institutions and their holding companies should
generally pay dividends only out of their current
operating earnings.

In general, the amount of dividends that may be paid
by our U.S. banking subsidiaries, including to the
Parent, is limited to the lesser of the amounts
calculated under a “recent earnings” test and an
“undivided profits” test. Under the recent earnings
test, a dividend may not be paid if the total of all
dividends declared and paid by the entity in any
calendar year exceeds the current year’s net income
combined with the retained net income of the two
preceding years, unless the entity obtains prior
regulatory approval. Under the undivided profits test,
a dividend may not be paid in excess of the entity’s
“undivided profits” (generally, accumulated net
profits that have not been paid out as dividends or
transferred to surplus). The ability of our bank
subsidiaries to pay dividends to the Parent may also
be affected by the capital adequacy standards
applicable to those subsidiaries, which include
minimum requirements and buffers.

58 BNY Mellon

There are also limitations specific to the IHC’s ability
to make distributions or extend credit to the Parent.
The IHC is not permitted to pay dividends to the
Parent if certain key capital, liquidity and operational
risk indicators are breached. Additionally, if our
projected financial resources deteriorate so severely
that resolution of the Parent becomes imminent, the
committed lines of credit provided by the IHC to the
Parent will automatically terminate, with all
outstanding amounts becoming due.

BNY Mellon’s capital distributions are subject to
Federal Reserve oversight. The major component of
that oversight is the Federal Reserve’s CCAR,
implementing its capital plan rule. That rule requires
BNY Mellon to submit annually a capital plan to the
Federal Reserve. We are also required to collect and
report certain related data on a quarterly basis to
allow the Federal Reserve to monitor progress against
the annual capital plan. Generally, BNY Mellon and
other affected BHCs may pay dividends, repurchase
stock and make other capital distributions only in
accordance with a capital plan that has been reviewed
by the Federal Reserve and as to which the Federal
Reserve has not objected. The Federal Reserve may
object to our capital plan for quantitative reasons,
including if the plan does not show that the covered
BHC will meet, for each quarter throughout the nine-
quarter planning horizon covered by the capital plan,
all minimum regulatory capital ratios under
applicable capital rules as in effect for that quarter on
a pro forma basis under the base case and stressed
scenarios (including a severely adverse scenario
provided by the Federal Reserve). The capital plan
rule also stipulates that we may not make a capital
distribution unless after giving effect to the
distribution it will meet all minimum regulatory
capital ratios.

The purpose of CCAR is to ensure that these BHCs
have robust, forward-looking capital planning
processes that account for their unique risks and that
permit continued operations during times of
economic and financial stress. The 2019 CCAR
instructions, consistent with prior Federal Reserve
guidance, provide that capital plans contemplating
dividend payout ratios exceeding 30% of projected
after-tax net income will receive particularly close
scrutiny. BNY Mellon’s common stock dividend
payout ratio was 26% for 2019. See “Capital” for
information about our 2019 capital plan.

Supervision and Regulation (continued)

Regulatory Stress-Testing Requirements

In addition to the CCAR stress testing requirements,
Federal Reserve regulations also include
complementary Dodd-Frank Act Stress Tests
(“DFAST”). The CCAR and DFAST requirements
substantially overlap, and the Federal Reserve
implements them at the BHC level on a coordinated
basis. Under these DFAST regulations, as revised in
2019 pursuant to the Reform Act, we are required to
undergo an annual regulatory stress test conducted by
the Federal Reserve and to conduct an annual
company-run stress test. In addition, The Bank of
New York Mellon is required to conduct an annual
company-run stress test (although the bank is
permitted to combine certain reporting and disclosure
of its stress test results with the results of BNY
Mellon). The Reform Act eliminated the Dodd-Frank
company-run stress test requirements for banks with
less than $250 billion in assets, including BNY
Mellon, N.A. Results from our annual company-run
stress test are reported to the appropriate regulators
and published. The Federal Reserve published the
results of its most recent annual 2019 DFAST stress-
test on June 21, 2019. We published the results of our
most recent annual company-run stress test on June
21, 2019, and the results of our final company-run
mid-year stress test on Oct. 9, 2019, the requirement
for which was eliminated in 2019 pursuant to the
Reform Act.

Capital Requirements – Generally

As a BHC, we are subject to U.S. capital rules,
administered by the Federal Reserve. Our bank
subsidiaries are subject to similar capital
requirements administered by the Federal Reserve in
the case of The Bank of New York Mellon and by the
OCC in the case of our national bank subsidiaries,
BNY Mellon, N.A. and The Bank of New York
Mellon Trust Company, National Association. These
requirements are intended to ensure that banking
organizations have adequate capital given the risk
levels of their assets and off-balance sheet exposures.

Notwithstanding the detailed U.S. capital rules, the
federal banking agencies retain significant discretion
to set higher capital requirements for categories of
BHCs or banks or for an individual BHC or bank as
situations warrant.

U.S. Capital Rules – Minimum Risk-Based Capital
Ratios and Capital Buffers

Consistent with the terms of the Basel III framework
and the Dodd-Frank Act, the U.S. capital rules require
Advanced Approaches banking organizations, such as
BNY Mellon, to satisfy minimum risk-based capital
ratios using both the U.S. capital rules’ standardized
approach risk-weightings framework (the
“Standardized Approach”) and the advanced
approaches risk-weighting framework (the
“Advanced Approaches”). See “Capital” for details
on these requirements. In addition, these minimum
ratios are supplemented by a capital conservation
buffer of 2.5%, which was gradually phased in from
Jan. 1, 2016 until Jan. 1, 2019. The capital
conservation buffer can only be satisfied with CET1
capital.

When systemic vulnerabilities are meaningfully
above normal, the capital conservation buffer may be
expanded up to an additional 2.5% through the
imposition of a countercyclical capital buffer. For
internationally active banks such as BNY Mellon, the
countercyclical capital buffer required threshold is a
weighted average of the countercyclical capital
buffers deployed in each of the jurisdictions in which
the bank has private sector credit exposures. The
Federal Reserve, in consultation with the OCC and
FDIC, has affirmed the current countercyclical capital
buffer level for U.S. exposures of 0% and noted that
any future modifications to the buffer would
generally be subject to a 12-month phase-in period.
Any countercyclical capital buffer required threshold
arising from exposures outside the United States will
also generally be subject to a 12-month phase-in
period.

For G-SIBs, like BNY Mellon, the U.S. capital
rules’ buffers are also supplemented by a G-SIB
risk-based capital surcharge, which is the higher of
the surcharges calculated under two methods
(referred to as “method 1” and “method 2”). The
first method is based on the BCBS framework and
considers a G-SIB’s size, interconnectedness,
cross-jurisdictional activity, substitutability and
complexity. The second method uses similar
inputs, but is calibrated to result in significantly
higher surcharges and replaces substitutability
with a measure of reliance on short-term
wholesale funding. Consistent with the phase-in
of the capital conservation buffer, the G-SIB
capital surcharge was gradually phased-in from

BNY Mellon 59

Supervision and Regulation (continued)

Jan. 1, 2016 until it became fully effective on Jan.
1, 2019. The G-SIB surcharge applicable to BNY
Mellon for 2019 was 1.5%.

U.S. Capital Rules – Deductions from and
Adjustments to Capital Elements

The U.S. capital rules provide for a number of
deductions from and adjustments to CET1 capital.
These include, for example, providing that unrealized
gains and losses on all available-for-sale debt
securities may not be filtered out for regulatory
capital purposes, and the requirement that mortgage
servicing rights, deferred tax assets dependent upon
future taxable income and significant investments in
non-consolidated financial entities be deducted from
CET1 to the extent that any one such category
exceeds 10% of CET1 or all such categories in the
aggregate exceed 15% of CET1.

U.S. Capital Rules – Advanced Approaches Risk-
Based Capital Rules

Under the U.S. capital rules’ Advanced Approaches
framework, credit risk risk-weightings are generally
based on risk-sensitive approaches that largely rely on
the use of internal credit models and parameters,
whereas under the Standardized Approach credit risk
risk-weightings are generally based on supervisory
risk-weightings which vary primarily by counterparty
type and asset class. BNY Mellon is required to
comply with Advanced Approaches reporting and
public disclosures. For purposes of determining
whether we meet minimum risk-based capital
requirements under the U.S. capital rules, our CET1
ratio, Tier 1 capital ratio, and total capital ratio is the
lower of each ratio as calculated under the
Standardized Approach and under the Advanced
Approaches framework.

U.S. Capital Rules – Generally Applicable Risk-
Based Capital Rules: Standardized Approach

The agencies’ generally applicable risk-based capital
rules (i.e., the Standardized Approach) calculate risk-
weighted assets in the denominator of capital ratios
using a broad array of risk weighting categories that
are intended to be risk sensitive. The risk-weights for
the Standardized Approach generally range from 0%
to 1,250%. Higher risk-weights under the
Standardized Approach apply to a variety of
exposures, including certain securitization exposures,

60 BNY Mellon

equity exposures, claims on securities firms and
exposures to counterparties on OTC derivatives.

Securities finance transactions, including transactions
in which we serve as agent and provide securities
replacement indemnification to a securities lender, are
treated as repo-style transactions under the U.S.
capital rules. The rules do not permit a banking
organization to use a simple VaR approach to
calculate exposure amounts for repo-style
transactions or to use internal models to calculate the
exposure amount for the counterparty credit exposure
for repo-style transactions under the Standardized
Approach (although these methodologies are allowed
in the Advanced Approaches). Under the
Standardized Approach, a banking organization may
use a collateral haircut approach to recognize the
credit risk mitigation benefits of financial collateral
that secures a repo-style transaction, including an
agented securities lending transaction, among other
transactions. To apply the collateral haircut approach,
a banking organization must determine the exposure
amount and the relevant risk weight for the
counterparty and collateral posted.

Federal Reserve Proposed Changes to CCAR and its
Capital Rules

On April 10, 2018, the Federal Reserve issued a
proposed rule that would integrate its regulatory
capital, capital planning, and stress test rules, as well
as the CCAR process. The proposal would introduce
a stress capital buffer (“SCB”) that would be part of
the firm’s quarterly capital requirements. The
proposal would replace the current static 2.5% capital
conservation buffer with an SCB requirement for
Standardized Approach capital ratios that would,
among other things, be tied to the projected decrease
in a firm’s common equity Tier 1 capital ratio in the
Federal Reserve’s supervisory severely adverse
scenario. The proposed rule would introduce a new
requirement that firms reduce their planned capital
distributions if those distributions would not be
consistent with the applicable buffer constraints based
on the firms’ own baseline scenario projections. In
addition, the proposed rule would introduce a stress
leverage buffer (“SLB”) that is analogous to the SCB
and applies to firms’ Tier 1 leverage ratios.

Leverage Ratios

The U.S. capital rules require a minimum 4%
leverage ratio for all banking organizations, as well as

Supervision and Regulation (continued)

a 3% Basel III-based SLR for Advanced Approaches
banking organizations, including BNY Mellon.
Unlike the Tier 1 leverage ratio, the SLR includes
certain off-balance sheet exposures in the
denominator, including the potential future credit
exposure of derivative contracts and 10% of the
notional amount of unconditionally cancelable
commitments.

Pursuant to the Reform Act, on Nov.19, 2019, the
U.S. banking agencies finalized a rule to exclude
certain central bank deposits from the total leverage
exposure, the SLR denominator, and related TLAC
and LTD measures of custody banks, including BNY
Mellon and The Bank of New York Mellon. Under
the final rule, qualifying central banks include a
Federal Reserve Bank, the European Central Bank or
a central bank of a member country of the
Organisation for Economic Co-operation and
Development (“OECD”), provided that an exposure
to the OECD member country receives a zero percent
risk weighting and the sovereign debt of such country
is not, and has not been, in default in the past five
years. The central bank deposit exclusion from the
SLR denominator would equal the average daily
balance over the applicable quarter of all deposits
placed with a qualifying central bank up to an amount
equal to the on-balance sheet deposit liabilities that
are linked to fiduciary or custodial and safekeeping
accounts. The rule is effective April 1, 2020. See
“Federal Reserve and OCC Proposed Amendments to
the Enhanced Supplementary Leverage Ratio
Requirements for U.S. G-SIBs” below for a
discussion of additional proposed amendments to
applicable SLR requirements.

The U.S. G-SIBs (including BNY Mellon) are subject
to an enhanced SLR, which requires us to maintain an
SLR of greater than 5% (composed of the current
minimum requirement of 3% plus a greater than 2%
buffer) and requires bank subsidiaries of those BHCs
to maintain at least a 6% SLR in order to qualify as
“well capitalized” under the prompt corrective action
regulations discussed below. At Dec. 31, 2019, our
SLR was 6.1% and the SLR for our primary banking
subsidiary, The Bank of New York Mellon, was 6.4%.

Federal Reserve and OCC Proposed Amendments to
the Enhanced Supplementary Leverage Ratio
Requirements for U.S. G-SIBs

On April 11, 2018, the Federal Reserve and the OCC
issued a joint notice of proposed rule-making that

would recalibrate the enhanced SLR standards that
apply to U.S. G-SIBs and certain of their IDI
subsidiaries. The proposed rule would replace the 2%
SLR buffer that currently applies to all U.S. G-SIBs
with a buffer equal to 50% of the firm’s risk-based G-
SIB surcharge.

For IDI subsidiaries of U.S. G-SIBs regulated by the
Federal Reserve or the OCC, the proposal would
replace the current 6% SLR threshold requirement for
those institutions to be considered “well capitalized”
under the agencies’ prompt corrective action
framework with an SLR of at least 3% plus 50% of
the G-SIB surcharge applicable to their top-tier
holding companies. The proposed rule would also
make corresponding changes to the TLAC SLR
buffer and long-term debt requirements for U.S. G-
SIBs, as well as technical changes to the Federal
Reserve’s TLAC rule. The Federal Reserve and OCC
have not yet issued a final rule.

BCBS Revisions to Components of Basel III

In December 2017, the BCBS released revisions to
Basel III intended to reduce variability of RWA and
improve the comparability of banks’ risk-based
capital ratios. Among other measures, the final
revisions: (i) establish a revised Standardized
Approach for credit risk that enhances the
Standardized Approach’s granularity and risk
sensitivity; (ii) adjust the internal ratings-based
approaches for credit risk by removing the use of the
advanced internal ratings-based approach for certain
asset classes and establishing input floors for the
calculation of RWA; (iii) replace the advanced
measurement approach for operational risk with a
revised Standardized Approach for operational risk
based on measures of a bank’s income and historical
losses; (iv) revise the leverage ratio exposure
measure, establish a “leverage ratio buffer” for G-
SIBs, set at 50% of a G-SIB’s risk-based capital
surcharge, and allow national discretion to exclude
central bank placements in limited circumstances (see
“Leverage Ratios” above); and (v) introduce a new
72.5% output floor based on the Standardized
Approach. The revised standards are effective Jan. 1,
2022, with the output floor phasing in from 2022 to
2027.

In January 2019, the BCBS released revised
minimum capital requirements for market risk. The
revised standards also come into effect Jan. 1, 2022.
While the U.S. regulators have implemented or issued

BNY Mellon 61

Supervision and Regulation (continued)

proposals to implement certain aspects of these
revised Basel standards, there is continuing
uncertainty regarding the extent to which the U.S.
regulators will implement them.

Standardized Approach for Measuring Counterparty
Credit Risk Exposures

On Nov. 19, 2019, the Federal Reserve, FDIC and
OCC jointly issued a final rule, which amends the
U.S. capital rules to implement a new approach for
calculating the exposure amount for derivative
contracts, which is called the Standardized Approach
for Counterparty Credit Risk (“SA-CCR”). The final
rule also incorporates SA-CCR into the determination
of exposure amount of derivatives for total leverage
exposure under the SLR and the cleared transaction
framework under the U.S. capital rules. The
mandatory compliance date of the SA-CCR rule for
the Advanced Approaches Banks is Jan. 1, 2022. The
final rule allows any banking organization to elect to
adopt SA-CCR starting April 1, 2020, provided they
receive approval from the Federal Reserve. BNY
Mellon is evaluating what effect this final rule will
have on our risk-weighted assets and capital ratios.

Total Loss-Absorbing Capacity

The Federal Reserve imposes external TLAC and
related requirements for U.S. G-SIBs, including BNY
Mellon, at the top-tier holding company level that
became effective on Jan. 1, 2019.

U.S. G-SIBs are required to maintain a minimum
eligible external TLAC equal to the greater of (i) 18%
of RWAs plus a buffer (to be met using only CET1)
equal to the sum of 2.5% of RWAs, the G-SIB
surcharge calculated under method 1 and any
applicable countercyclical buffer; and (ii) 7.5% of
their total leverage exposure (the denominator of the
SLR) plus a buffer (to be met using only Tier 1
Capital) equal to 2%.

U.S. G-SIBs are also required to maintain minimum
external eligible LTD equal to the greater of (i) 6% of
RWAs plus the G-SIB surcharge (calculated using the
greater of method 1 and method 2), and (ii) 4.5% of
total leverage exposure. In order to be deemed
eligible LTD, debt instruments must, among other
requirements, be unsecured, not be structured notes,
be governed by U.S. law, and have a maturity of at
least one year from the date of issuance. In addition,
LTD issued on or after Dec. 31, 2016 must (i) not

62 BNY Mellon

have acceleration rights, other than in the event of
non-payment or the bankruptcy or insolvency of the
issuer and (ii) be governed by U.S. law. However,
debt issued by a U.S. G-SIB prior to Dec. 31, 2016 is
permanently grandfathered to the extent these
securities would be ineligible only due to containing
impermissible acceleration rights or being governed
by foreign law.

Further, the top-tier holding companies of U.S. G-
SIBs are not permitted to issue certain guarantees of
subsidiary liabilities, incur liabilities guaranteed by
subsidiaries, issue short-term debt to third parties, or
enter into derivatives and certain other financial
contracts with external counterparties. Certain
liabilities are capped at 5% of the value of the U.S.
G-SIB’s eligible external TLAC instruments. The
Federal Reserve considered requiring internal TLAC
at domestic subsidiaries of U.S. G-SIBs, but has not
proposed rules regarding these instruments.

Foreign jurisdictions may impose internal TLAC
requirements on the foreign subsidiaries of U.S. G-
SIBs. The European Union’s Capital Requirements
Regulation 2 (“CRR2”) will require EU material
subsidiaries of non-EU G-SIBs (including BNY
Mellon) to maintain a minimum level of internal loss
absorbing capacity, broadly in line with the Financial
Stability Board (“FSB”) TLAC term sheet,
promulgated in November 2015. The Bank of New
York Mellon SA/NV (“BNY Mellon SA/NV”) is
considered an EU material subsidiary for purposes of
this regulation.

Prompt Corrective Action

The FDI Act, as amended by the Federal Deposit
Insurance Corporation Improvement Act of 1991
(“FDICIA”), requires the federal banking agencies to
take “prompt corrective action” in respect of
depository institutions that do not meet specified
capital requirements. FDICIA establishes five capital
categories for FDIC-insured banks: “well
capitalized,” “adequately capitalized,”
“undercapitalized,” “significantly undercapitalized,”
and “critically undercapitalized.” The FDI Act
imposes progressively more restrictive constraints on
operations, management and capital distributions the
less capital the institution holds. While these
regulations apply only to banks, such as The Bank of
New York Mellon and BNY Mellon, N.A., the
Federal Reserve is authorized to take appropriate
action against the parent bank holding company, such

Supervision and Regulation (continued)

as the Parent, based on the under-capitalized status of
any banking subsidiary. In certain circumstances, the
Parent would be required to guarantee the
performance of the capital restoration plan if one of
our banking subsidiaries were undercapitalized.

The federal banking agencies’ prompt corrective
action framework (“PCA rules”) contain “well
capitalized” thresholds for IDIs. Under these rules,
an IDI is deemed to be “well capitalized” if it has
capital ratios as detailed in the “Capital” disclosure.

The PCA rules require an Advanced Approaches
banking organization to maintain an SLR of at least
3% to qualify for the “adequately capitalized” status.
In addition, the U.S. federal banking agencies’
revisions to the enhanced SLR establish a SLR “well
capitalized” threshold of 6% for certain IDIs of U.S.
G-SIBs, including The Bank of New York Mellon and
BNY Mellon N.A. For a discussion of proposed
amendments to the SLR as part of the PCA rules, see
“Federal Reserve and OCC Proposed Amendments to
the Enhanced Supplementary Leverage Ratio
Requirements for U.S. G-SIBs” above.

Liquidity Standards – Basel III and U.S. Rules and
Proposals

BNY Mellon is subject to the U.S. LCR Rule, which
is designed to ensure that BNY Mellon and certain
domestic bank subsidiaries maintain an adequate
level of unencumbered HQLA equal to their
expected net cash outflow for a 30-day time horizon
under an acute liquidity stress scenario. As of Dec.
31, 2019, the Parent and its domestic bank
subsidiaries were in compliance with applicable
LCR requirements.

The BCBS issued the final NSFR document in
October 2014, which contemplates an additional
liquidity measure, referred to as NSFR, which is
designed to promote more medium- and long-term
funding of the assets and activities of banking
entities over a one-year time horizon. In May 2016,
the Federal Reserve, FDIC and OCC proposed an
NSFR rule that would implement a quantitative
long-term liquidity requirement applicable to large
and internationally active banking organizations,
including BNY Mellon. The proposed NSFR rule
would implement a test similar to the Basel III
framework’s test for medium- and long-term funding
of the assets and activities of banking entities over a
one-year time horizon. Under the proposed rule,

BNY Mellon’s NSFR would be expressed as a ratio
of its available stable funding to its required stable
funding amount, and BNY Mellon would be
required to maintain an NSFR of 1.0. BNY Mellon
continues to evaluate the potential effects of this
proposal on its operations. A final NSFR rule has
not been issued.

Separately, as noted above, the SIFI Rules address
liquidity requirements for BHCs with $100 billion or
more in total assets, including BNY Mellon. These
enhanced liquidity requirements include an
independent review of liquidity risk management;
establishment of cash flow projections; a contingency
funding plan, and liquidity risk limits; liquidity stress
testing under multiple stress scenarios and time
horizons tailored to the specific products and profile
of the company; and maintenance of a liquidity buffer
of unencumbered highly liquid assets sufficient to
meet projected net cash outflows over 30 days under
a range of stress scenarios.

Volcker Rule

The provisions of the Dodd-Frank Act commonly
referred to as the “Volcker Rule” prohibit “banking
entities,” including BNY Mellon, from engaging in
proprietary trading and limit our sponsorship of, and
investments in, private equity and hedge funds
(“covered funds”), including our ability to own or
provide seed capital to covered funds. In addition,
the Volcker Rule restricts us from engaging in certain
transactions with covered funds (including, without
limitation, certain U.S. funds for which BNY Mellon
acts as both sponsor/manager and custodian). These
restrictions are subject to certain exceptions.

The restrictions concerning proprietary trading do not
contain a broad exemption for asset-liability
management functions, but contain more limited
exceptions for, among other things, bona fide
liquidity risk management and risk-mitigating
hedging activities, as well as certain classes of
exempted instruments, including government
securities. Ownership interests in covered funds is
generally limited to 3% of the total number or value
of the outstanding ownership interests of any
individual fund at any time more than one year after
the date of its establishment. The aggregate value of
all such ownership interests in covered funds is
limited to 3% of the banking organization’s Tier 1
capital, and such interests are subject to a deduction
from its Tier 1 capital. The 2019 amendments to the

BNY Mellon 63

Supervision and Regulation (continued)

Volcker Rule (discussed below) remove the
requirements that ownership interests in third-party
covered funds held under the underwriting and
market-making exemptions be subject to the
aggregate limit and capital deduction, but preserve
these requirements for ownership interests in covered
funds sponsored or organized by BNY Mellon.

The Volcker Rule regulations also require us to
develop and maintain a compliance program.

In 2019, the Federal Reserve, OCC, FDIC, the
Commodity Futures Trading Commission (“CFTC”)
and the Securities and Exchange Commission
(“SEC”) approved a final rule to modify the current
regulations implementing the Volcker Rule. The most
impactful aspects of the revisions with respect to
BNY Mellon concern the compliance requirements
applicable to institutions with moderate exposure to
trading assets and trading liabilities, which are
institutions with less than $20 billion and more than
$1 billion of trading assets and trading liabilities.
Specifically, among other revisions, such “moderate
trading” banks will not be required to file an annual
CEO attestation and will not be required to file
quantitative metrics. Furthermore, the
comprehensive six-pillar compliance program
associated with the Volcker Rule will no longer apply
to “moderate trading” banks; rather, such banks are
permitted to tailor their compliance programs to the
size and nature of their activities. BNY Mellon
expects to be treated as a “moderate trading” bank
under the revised Volcker Rule. The final revisions
are also likely to result in fewer financial instruments
and other transactions being subject to the
prohibitions on proprietary trading. The mandatory
compliance date of the final rule is Jan. 1, 2021, but
institutions may elect to comply as early as Jan. 1,
2020.

On Jan. 30, 2020, the Federal Reserve, OCC, FDIC,
CFTC and SEC proposed revisions to the covered
funds provisions of the Volcker Rule’s implementing
regulations. We are currently reviewing the proposal.

Derivatives

Title VII of the Dodd-Frank Act imposes a
comprehensive regulatory structure on the OTC
derivatives markets in which BNY Mellon operates,
including requirements relating to the business
conduct of dealers, trade reporting, margin and
recordkeeping. Title VII also requires persons acting

64 BNY Mellon

as swap dealers, including The Bank of New York
Mellon, to register with the CFTC and become
subject to the CFTC’s supervisory, examination and
enforcement powers.

In addition, because BNY Mellon is subject to
supervision by the Federal Reserve, we must comply
with the U.S. prudential margin rules with respect to
its OTC swap transactions. The variation margin
requirements of these rules have been in effect, and
the initial margin requirements became applicable in
September 2019. Furthermore, various BNY Mellon
subsidiaries are also subject to OTC derivatives
regulation by local authorities in Europe and Asia.

SEC Rules on Mutual Funds

The SEC has adopted regulations that impose
requirements on mutual funds, exchange-traded funds
and other registered investment companies. These
rules require mutual funds (other than money market
funds) to provide portfolio-wide and position-level
holdings data to the SEC on a monthly basis. This
data includes the pricing of portfolio securities,
information regarding repurchase and securities
lending activities, and the terms of derivatives
contracts. Information contained in reports for the
last month of each fund’s fiscal quarter are made
available to the public within 60 days of the end of
the relevant quarter.

The rules also impose liquidity risk management
requirements that are intended to reduce the risk that
funds will not be able to meet shareholder
redemptions and to minimize the impact of
redemptions on remaining shareholders. In keeping
with the SEC’s requirements, we have established a
liquidity risk management program whereby each
impacted fund classifies the investments in its
portfolio into one of four liquidity categories;
maintains a highly liquid investment minimum; and
limits illiquid investments to 15% of net assets.

On Nov. 25, 2019, the SEC re-proposed Rule 18f-4
under the Investment Company Act of 1940
(the “‘40 Act”), which was first proposed in 2015 and
which would permit most registered investment
companies to enter into derivatives transactions and
certain other transactions notwithstanding the
‘40 Act’s restrictions, provided that the funds comply
with certain conditions. The conditions include the
implementation of a derivatives risk management
program and compliance with an outer leverage risk

Supervision and Regulation (continued)

limit. The proposal would also permit a fund to enter
into certain financing transactions and unfunded
commitments subject to specific conditions. The
SEC also proposed sales practices rules with respect
to trades in shares of certain leveraged investment
vehicles. BNY Mellon is evaluating the potential
impact of these proposals on our activities.

Recovery and Resolution Planning

As required by the Dodd-Frank Act, large financial
institutions such as BNY Mellon are required to
submit periodically to the Federal Reserve and the
FDIC a plan – referred to as the 165(d) resolution
plan – for its rapid and orderly resolution in the event
of material financial distress or failure. In addition,
certain large IDIs, such as The Bank of New York
Mellon are required to submit periodically to the
FDIC a separate plan for resolution in the event of the
institution’s failure. The public portions of these
resolution plans are available on the Federal
Reserve’s and FDIC’s websites. BNY Mellon also
maintains a comprehensive recovery plan, which
describes actions it could take to avoid failure if faced
with financial stress.

In October 2019, the Federal Reserve and FDIC
issued a final rule modifying certain requirements for
the 165(d) resolution plan. The final rule requires
U.S. G-SIBs, such as BNY Mellon, to file alternating
full and, more limited, targeted resolution plans every
two years. BNY Mellon’s next targeted resolution
plan is due on July 1, 2021, followed by a full
resolution plan submission due on July 1, 2023. The
final rule does not materially modify the components
or informational requirements of full resolution plans.

If the Federal Reserve and FDIC jointly determine
that our 165(d) resolution plan is not credible and we
fail to address the deficiencies in a timely manner, the
FDIC and the Federal Reserve may jointly impose
more stringent capital, leverage or liquidity
requirements or restrictions on our growth, activities
or operations. If we continue to fail to adequately
remedy any deficiencies, we could be required to
divest assets or operations that the regulators
determine necessary to facilitate our orderly
resolution.

The resolution strategy set out in our 165(d)
resolution plan is a single point of entry strategy,
whereby certain key operating subsidiaries would be
provided with sufficient capital and liquidity to

operate in the event of material financial stress or
failure and only our parent holding company would
file for bankruptcy. In connection with our single
point of entry resolution strategy, we have established
the IHC to facilitate the provision of capital and
liquidity resources to certain key subsidiaries in the
event of material financial distress or failure. In
addition, we have a binding support agreement in
place that requires the IHC to provide that support.
The support agreement required the Parent to transfer
its intercompany loans and most of its cash to the
IHC, and requires the Parent to continue to transfer
cash and other liquid financial assets to the IHC on an
ongoing basis.

BNY Mellon and the other U.S. G-SIBs are subject to
heightened supervisory expectations for recovery and
resolution preparedness under Federal Reserve rules
and guidance. The Federal Reserve incorporates
reviews of our capabilities in respect of recovery and
resolution preparedness as part of its ongoing
supervision of BNY Mellon.

The European Union Bank Recovery and Resolution
Directive (“BRRD”) provides the legal framework for
recovery and resolution planning, including a set of
harmonized powers to resolve or implement recovery
of in-scope institutions, such as subsidiaries of non-
European Economic Area (“EEA”) banks
incorporated in the EEA. The BRRD gives relevant
EEA regulators various powers, including (i) powers
to intervene pre-resolution to require an institution to
take remedial steps to avoid the need for resolution;
(ii) resolution tools and powers to facilitate the
resolution of failing entities, such as the power to
“bail-in” the debt of an institution (including certain
deposit obligations); (iii) the power to require a firm
to change its structure to remove impediments to
resolvability; and (iv) powers to require in-scope
institutions to prepare recovery plans. Under the
BRRD, resolution authorities (rather than the
institutions themselves) are responsible for drawing
up resolution plans based on information provided by
relevant institutions.

In addition, under the BRRD in-scope institutions are
required to maintain a minimum requirement for own
funds, defined as regulatory capital, and eligible
liabilities (“MREL”) that can be written down or
bailed-in to absorb losses. MREL will be set on a
case-by-case basis for each institution subject to the
BRRD. MREL is the EU equivalent of TLAC, and is
generally aligned with the FSB’s TLAC proposals. In

BNY Mellon 65

Supervision and Regulation (continued)

contrast to TLAC, MREL will apply to all EU-
domiciled credit institutions and certain other firms
subject to the BRRD (not only G-SIBs). Certain
BRRD-related requirements have recently been
amended under the EU Banking Reform Package,
referred to below.

Rules on Resolution Stays for Qualified Financial
Contracts

In 2017, the Federal Reserve, OCC and FDIC
adopted rules requiring U.S. G-SIBs (and their
subsidiaries and controlled entities) and the U.S.
operations of foreign G-SIBs to amend their covered
qualified financial contracts (“QFCs”), thereby
facilitating the application of U.S. special resolution
regimes as necessary.

The final rule allows these G-SIBs to comply with the
rule by amending covered QFCs (with the consent of
relevant counterparties) using the International Swaps
and Derivatives Association (“ISDA”) 2018 U.S.
Resolution Stay Protocol (the “Protocol”), ISDA
2015 Universal Stay Protocol or by executing
appropriate bilateral amendments to the covered
QFCs. BNY Mellon entities which have been
confirmed to engage in covered QFC activities have
adhered to the Protocol and, where necessary, have
executed bilateral amendments to cover QFCs.

Cybersecurity Regulation

The New York State Department of Financial
Services (“NYSDFS”) requires financial institutions
regulated by NYSDFS, including BNY Mellon, to
establish a cybersecurity program, adopt a written
cybersecurity policy, designate a chief information
security officer, and have policies and procedures in
place to ensure the security of information systems
and non-public information accessible to, or held by,
third parties. The NYSDFS rule also includes a
variety of other requirements to protect the
confidentiality, integrity and availability of
information systems, as well as the annual delivery of
a certificate of compliance.

Insolvency of an Insured Depository Institution or a
Bank Holding Company; Orderly Liquidation
Authority

If the FDIC is appointed as conservator or receiver
for an IDI such as The Bank of New York Mellon or

66 BNY Mellon

BNY Mellon, N.A., upon its insolvency or in certain
other circumstances, the FDIC has the power to:

• Transfer any of the depository institution’s assets
and liabilities to a new obligor, including a newly
formed “bridge” bank without the approval of the
depository institution’s creditors;

• Enforce the terms of the depository institution’s

contracts pursuant to their terms without regard to
any provisions triggered by the appointment of
the FDIC in that capacity; or

• Repudiate or disaffirm any contract or lease to
which the depository institution is a party, the
performance of which is determined by the FDIC
to be burdensome and the disaffirmance or
repudiation of which is determined by the FDIC
to promote the orderly administration of the
depository institution.

In addition, under federal law, the claims of holders
of domestic deposit liabilities and certain claims for
administrative expenses against an IDI would be
afforded a priority over other general unsecured
claims against such an institution, including claims of
debt holders of the institution, in the “liquidation or
other resolution” of such an institution by any
receiver. As a result, whether or not the FDIC ever
sought to repudiate any debt obligations of The Bank
of New York Mellon or BNY Mellon, N.A., the debt
holders would be treated differently from, and could
receive, if anything, substantially less than, the
depositors of the bank.

The Dodd-Frank Act created a new resolution regime
(known as the “orderly liquidation authority”) for
systemically important financial companies,
including BHCs and their affiliates. Under the
orderly liquidation authority, the FDIC may be
appointed as receiver for the systemically important
institution, and its failed nonbank subsidiaries, for
purposes of liquidating the entity if, among other
conditions, it is determined that the institution is in
default or in danger of default and the failure poses a
risk to the stability of the U.S. financial system.

If the FDIC is appointed as receiver under the orderly
liquidation authority, then the powers of the receiver,
and the rights and obligations of creditors and other
parties who have dealt with the institution, would be
determined under the Dodd-Frank Act’s orderly
liquidation authority provisions, and not under the
insolvency law that would otherwise apply. The

Supervision and Regulation (continued)

powers of the receiver under the orderly liquidation
authority were based on the powers of the FDIC as
receiver for depository institutions under the FDI Act.
However, the provisions governing the rights of
creditors under the orderly liquidation authority were
modified in certain respects to reduce disparities with
the treatment of creditors’ claims under the U.S.
Bankruptcy Code as compared to the treatment of
those claims under the new authority. Nonetheless,
substantial differences in the rights of creditors exist
between these two regimes, including the right of the
FDIC to disregard the strict priority of creditor claims
in some circumstances, the use of an administrative
claims procedure to determine creditors’ claims (as
opposed to the judicial procedure utilized in
bankruptcy proceedings), and the right of the FDIC to
transfer assets or liabilities of the institution to a third
party or a “bridge” entity.

Depositor Preference

Under U.S. federal law, claims of a receiver of an IDI
for administrative expenses and claims of holders of
U.S. deposit liabilities (including foreign deposits that
are payable in the U.S. as well as in a foreign branch
of the depository institution) are afforded priority
over claims of other unsecured creditors of the
institution, including depositors in non-U.S. branches.
As a result, such depositors could receive, if
anything, substantially less than the depositors in U.S.
offices of the depository institution.

Transactions with Affiliates

Transactions between BNY Mellon’s banking
subsidiaries, on the one hand, and the Parent and its
nonbank subsidiaries and affiliates, on the other, are
subject to certain restrictions, limitations and
requirements, which include limits on the types and
amounts of transactions (including extensions of
credit and asset purchases by our banking
subsidiaries) that may take place and generally
require those transactions to be on arm’s-length
terms. In general, extensions of credit by a BNY
Mellon banking subsidiary to any nonbank affiliate,
including the Parent, must be secured by designated
amounts of specified collateral and are limited in the
aggregate to 10% of the relevant bank’s capital and
surplus for transactions with a single affiliate and to
20% of the relevant bank’s capital and surplus for
transactions with all affiliates. There are also
limitations on affiliate credit exposures arising from

derivative transactions and securities lending and
borrowing transactions.

Deposit Insurance

Our U.S. banking subsidiaries, including The Bank of
New York Mellon and BNY Mellon, N.A., accept
deposits, and those deposits have the benefit of FDIC
insurance up to the applicable limit. The current limit
for FDIC insurance for deposit accounts is $250,000
per depositor at each insured bank. Under the FDI
Act, insurance of deposits may be terminated by the
FDIC upon a finding that the IDI has engaged in
unsafe and unsound practices, is in an unsafe or
unsound condition to continue operations or has
violated any applicable law, regulation, rule, order or
condition imposed by a bank’s federal regulatory
agency.

The FDIC’s Deposit Insurance Fund (the “DIF”) is
funded by assessments on IDIs. The FDIC assesses
DIF premiums based on a bank’s average
consolidated total assets, less the average tangible
equity of the IDI during the assessment period. For
larger institutions, such as The Bank of New York
Mellon and BNY Mellon, N.A., assessments are
determined based on CAMELS ratings and forward-
looking financial measures to calculate the
assessment rate, which is subject to adjustments by
the FDIC, and the assessment base.

Under the FDIC’s regulations, a custody bank,
including The Bank of New York Mellon and BNY
Mellon, N.A., may deduct from its assessment base
100% of cash and balances due from depository
institutions, securities, federal funds sold, and
securities purchased under agreement to resell with a
Standardized Approach risk-weight of 0% and may
deduct 50% of such asset types with a Standardized
Approach risk-weight of greater than 0% and up to
and including 20%. This assessment base deduction
may not exceed the average value of deposits that are
classified as transaction accounts and are identified
by the bank as being directly linked to a fiduciary or
custodial and safekeeping account.

The Dodd-Frank Act requires the DIF reserve ratio to
reach a minimum of 1.35% by Sept. 30, 2020, and
authorizes the FDIC to implement special
assessments on IDIs to reach the required ratio. On
Sept. 30, 2018, the FDIC announced that the DIF
reserve ratio had reached 1.36%.

BNY Mellon 67

Supervision and Regulation (continued)

Source of Strength and Liability of Commonly
Controlled Depository Institutions

BHCs are required by law to act as a source of
strength to their bank subsidiaries. Such support may
be required by the Federal Reserve at times when we
might otherwise determine not to provide it. In
addition, any loans by BNY Mellon to its bank
subsidiaries would be subordinate in right of payment
to depositors and to certain other indebtedness of its
banks. In the event of a BHC’s bankruptcy, any
commitment by the BHC to a federal bank regulator
to maintain the capital of a subsidiary bank will be
assumed by the bankruptcy trustee and entitled to a
priority of payment. In addition, in certain
circumstances, BNY Mellon’s IDI subsidiaries could
be held liable for losses incurred by another BNY
Mellon IDI subsidiary. In the event of impairment of
the capital stock of one of BNY Mellon’s national
bank subsidiaries or The Bank of New York Mellon,
BNY Mellon, as the banks’ stockholder, could be
required to pay such deficiency.

Incentive Compensation Arrangements Proposal

Section 956 of the Dodd-Frank Act requires federal
regulators to prescribe regulations or guidelines
regarding incentive-based compensation practices at
certain financial institutions, including BNY Mellon.
In April 2016, a joint proposed rule was released,
replacing a previous 2011 proposal, which each of six
agencies must separately approve. The timeframe for
final implementation is currently unknown.

Anti-Money Laundering and the USA PATRIOT Act

A major focus of governmental policy on financial
institutions has been aimed at combating money
laundering and terrorist financing. The USA
PATRIOT Act of 2001 contains numerous anti-money
laundering requirements for financial institutions that
are applicable to BNY Mellon’s bank, broker-dealer
and investment adviser subsidiaries and mutual funds
and private investment companies advised or
sponsored by our subsidiaries. Those regulations
impose obligations on financial institutions to
maintain a broad anti-money laundering program that
includes internal controls, independent testing,
compliance management personnel, training, and
customer due diligence processes, as well as
appropriate policies, procedures and controls to
detect, prevent and report money laundering, terrorist
financing and other suspicious activity, and to verify

68 BNY Mellon

the identity of their customers. Certain of those
regulations impose specific due diligence
requirements on financial institutions that maintain
correspondent or private banking relationships with
non-U.S. financial institutions or persons.

Financial Crimes Enforcement Network (“FinCEN”)

FinCEN has issued rules under the Bank Secrecy Act
that apply to covered financial institutions, including
The Bank of New York Mellon and BNY Mellon,
N.A., setting forth five pillars of an effective anti-
money laundering (“AML”) program: development
of internal policies, procedures and related controls;
designation of a compliance officer; a thorough and
ongoing training program; independent review for
compliance; and customer due diligence (“CDD”).
CDD requires a covered financial institution to
implement and maintain risk-based procedures for
conducting CDD that include the identification and
verification of any beneficial owner(s) of each legal
entity customer at the time a new account is opened
on or after May 11, 2018.

New York State Department of Financial Services
Anti-Money Laundering and Anti-Terrorism
Regulations

The NYSDFS has also issued regulations requiring
regulated institutions, including The Bank of New
York Mellon, to maintain a transaction monitoring
program to monitor transactions for potential Bank
Secrecy Act (“BSA”) and AML violations and
suspicious activity reporting, and a watch list filtering
program to interdict transactions prohibited by
applicable sanctions programs.

The regulations require a regulated institution to
maintain programs to monitor and filter transactions
for potential BSA and AML violations and prevent
transactions with sanctioned entities. The regulations
also require institutions to submit annually a Board
resolution or senior officer compliance finding
confirming steps taken to ascertain compliance with
the regulation.

Privacy and Data Protection

The privacy provisions of the Gramm-Leach-Bliley
Act generally prohibit financial institutions, including
BNY Mellon, from disclosing nonpublic personal
financial information of consumer customers to third
parties for certain purposes (primarily marketing)

Supervision and Regulation (continued)

unless customers have the opportunity to “opt out” of
the disclosure. The Fair Credit Reporting Act
restricts information sharing among affiliates for
marketing purposes.

In the EU, privacy law is primarily regulated by the
General Data Protection Regulation (“GDPR”),
which has been directly binding and applicable for
each EU member state since May 25, 2018. The
GDPR contains enhanced compliance obligations and
increased penalties for non-compliance compared to
prior EU data protection legislation.

Acquisitions/Transactions

Federal and state laws impose notice and approval
requirements for mergers and acquisitions involving
depository institutions or BHCs. The Bank Holding
Company Act of 1956, as amended by the Gramm-
Leach-Bliley Act and by the Dodd-Frank Act (the
“BHC Act”) requires the prior approval of the Federal
Reserve for the direct or indirect acquisition by a
BHC of more than 5% of any class of the voting
shares or all or substantially all of the assets of a
commercial bank, savings and loan association or
BHC. In reviewing bank acquisition and merger
applications, the bank regulatory authorities will
consider, among other things, the competitive effect
of the transaction, financial and managerial resources,
including the capital position of the combined
organization, convenience and needs of the
community factors, including the applicant’s record
under the Community Reinvestment Act of 1977 (the
“CRA”), the effectiveness of the subject
organizations in combating money laundering
activities and the risk to the stability of the U.S.
banking or financial system. In addition, prior
Federal Reserve approval would be required for BNY
Mellon to acquire direct or indirect ownership or
control of any voting shares of a company with assets
of $10 billion or more that is engaged in activities
that are “financial in nature.”

New Rating System for the Supervision of Large
Financial Institutions

On Nov. 2, 2018, the Federal Reserve issued a final
rule (the “LFI Rule”) that establishes a new rating
system for the supervision of large financial
institutions (“LFIs”), including BNY Mellon. The
LFI rating system applies to, among other entities, all
BHCs with total consolidated assets of $100 billion or

more. The LFI Rule became effective on Feb. 1,
2019.

The LFI rating system includes a new four-level
rating scale and three component ratings. The four
levels are: Broadly Meets Expectations;
Conditionally Meets Expectations; Deficient-1; and
Deficient-2. The component ratings are assigned for:
Capital Planning and Positions; Liquidity Risk
Management and Positions; and Governance and
Controls. A firm must be rated “Broadly Meets
Expectations” or “Conditionally Meets Expectations”
for each of its component ratings to be considered
“well managed” in accordance with various statutes
and regulations that permit additional activities,
prescribe expedited procedures or provide other
benefits for “well managed” firms.

The Federal Reserve assigned initial ratings under the
new rating system to BHCs that are subject to the
Large Institution Supervision Coordinating
Committee framework, including BNY Mellon, in
2019.

Regulated Entities of BNY Mellon and Ancillary
Regulatory Requirements

BNY Mellon is registered as an FHC under the BHC
Act. We are subject to supervision by the Federal
Reserve. In general, the BHC Act limits an FHC’s
business activities to banking, managing or
controlling banks, performing certain servicing
activities for subsidiaries, engaging in activities
incidental to banking, and engaging in any activity, or
acquiring and retaining the shares of any company
engaged in any activity, that is either financial in
nature or complementary to a financial activity and
does not pose a substantial risk to the safety and
soundness of depository institutions or the financial
system generally.

A BHC’s ability to maintain FHC status is dependent
on: (i) its U.S. depository institution subsidiaries
qualifying on an ongoing basis as “well capitalized”
and “well managed” under the prompt corrective
action regulations of the appropriate regulatory
agency (discussed above under “Prompt Corrective
Action”); (ii) the BHC itself qualifying on an ongoing
basis as “well capitalized” and “well managed” under
applicable Federal Reserve regulations; and (iii) its
U.S. depository institution subsidiaries continuing to
maintain at least a “satisfactory” rating under the
CRA.

BNY Mellon 69

Supervision and Regulation (continued)

An FHC that does not continue to meet all the
requirements for FHC status will, depending on
which requirements it fails to meet, lose the ability to
undertake new activities, or make acquisitions, that
are not generally permissible for BHCs without FHC
status. As of Dec. 31, 2019, BNY Mellon and our
U.S. bank subsidiaries were “well capitalized” based
on the ratios and rules applicable to them.

The Bank of New York Mellon, BNY Mellon’s
largest banking subsidiary, is a New York state-
chartered bank, and a member of the Federal Reserve
System and is subject to regulation, supervision and
examination by the Federal Reserve, the FDIC and
the NYSDFS. BNY Mellon’s national bank
subsidiaries, BNY Mellon, N.A. and The Bank of
New York Mellon Trust Company, National
Association, are chartered as national banking
associations subject to primary regulation,
supervision and examination by the OCC.

We operate a number of broker-dealers that engage in
securities underwriting and other broker-dealer
activities in the United States. These companies are
SEC-registered broker-dealers and members of
Financial Industry Regulatory Authority, Inc.
(“FINRA”), a securities industry self-regulatory
organization. BNY Mellon’s nonbank subsidiaries
engaged in securities-related activities are regulated
by supervisory agencies in the countries in which
they conduct business.

Certain of BNY Mellon’s public finance and advisory
activities are regulated by the Municipal Securities
Rulemaking Board and are required under the SEC’s
Municipal Advisors Rule to register with the SEC if
they provide advice to municipal entities or certain
other persons on the issuance of municipal securities,
or about certain investment strategies or municipal
derivatives.

Certain of BNY Mellon’s subsidiaries are registered
with the CFTC as commodity pool operators,
introducing brokers and/or commodity trading
advisors and, as such, are subject to CFTC regulation.
The Bank of New York Mellon is provisionally
registered as a Swap Dealer (as defined in the Dodd-
Frank Act) with the CFTC, and is a member of the
National Futures Association (“NFA”) in that same
capacity. As a Swap Dealer, The Bank of New York
Mellon is subject to regulation, supervision and
examination by the CFTC and NFA.

70 BNY Mellon

Certain of our subsidiaries are registered investment
advisors under the Investment Advisers Act of 1940
(“Advisers Act”), as amended, and as such are
supervised by the SEC. They are also subject to
various U.S. federal and state laws and regulations
and to the laws and regulations of any countries in
which they conduct business. Our subsidiaries advise
both public investment companies which are
registered with the SEC under the ‘40 Act, including
the BNY Mellon Family of Funds, and private
investment companies which are not registered under
the ‘40 Act.

Certain of our investment management, trust and
custody operations provide services to employee
benefit plans that are subject to the Employee
Retirement Income Security Act of 1974, as amended
(“ERISA”), administered by the U.S. Department of
Labor (“DOL”). ERISA imposes certain statutory
duties, liabilities, disclosure obligations and
restrictions on fiduciaries, as applicable, related to the
services being performed and fees being paid.

SEC Regulation Best Interest

On June 5, 2019, the SEC adopted a package of
rulemakings and interpretations designed to enhance
the quality and transparency of retail investors’
relationships with investment advisers and broker-
dealers while preserving access to a variety of
investment services and products. Specifically, these
actions include Regulation Best Interest, the Form
CRS Relationship Summary, and two separate
interpretations under the Advisers Act. Regulation
Best Interest will require a broker-dealer to act in the
“best interest” of a retail customer when making a
recommendation of any securities transaction or
investment strategy to any such customer. Regulation
Best Interest, which has a compliance date of June
30, 2020, is designed to make it clear that a broker-
dealer may not put its financial interests ahead of the
interests of a retail customer in making
recommendations. The Form CRS Relationship
Summary, which also has a compliance date of June
30, 2020, will require registered investment advisers
and broker-dealers to provide retail investors with
information about the nature of their relationship with
their investment professional, and would supplement
other more detailed disclosures. In addition, the SEC
finalized its interpretation of the fiduciary duty
applicable to investment advisers under the Advisers
Act. Finally, the SEC issued an interpretation of the
“solely incidental” prong of the broker-dealer

Supervision and Regulation (continued)

exclusion under the Advisers Act, which is intended
to more clearly delineate when a broker-dealer’s
performance of advisory activities causes it to
become an investment adviser within the meaning of
the Advisers Act. BNY Mellon continues to evaluate
the impact that these developments may have on
BNY Mellon.

Exchange-Traded Funds Rule

On Sept. 26, 2019, the SEC announced that it had
adopted Rule 6c-11 (the “ETF Rule”) under the ‘40
Act, which permits exchange-traded funds (“ETFs”)
that satisfy certain conditions to organize and operate
without first obtaining an exemptive order from the
SEC and requires an ETF to make certain disclosures,
including historical data on an ETF’s premiums,
discounts and bid-ask spread information, as well as
the ETF’s daily portfolio holdings. The ETF Rule
became effective on Dec. 23, 2019. One year after
that date, all existing exemptive orders for ETFs that
would be permitted to operate in reliance on the ETF
Rule will be rescinded. The ETF Rule also requires
ETFs using custom baskets to put written policies and
procedures in place establishing that the custom
baskets are in the best interests of the ETF and its
shareholders. BNY Mellon is planning to launch
ETFs in 2020 under the ETF Rule.

Operations and Regulations Outside the United
States

In Europe, branches of The Bank of New York
Mellon are subject to regulation in the countries in
which they are established, in addition to being
subject to oversight by the U.S. regulators referred to
above. BNY Mellon SA/NV is a public limited
liability company incorporated under the laws of
Belgium, holds a banking license issued by the
National Bank of Belgium (“NBB”) and is authorized
to carry out all banking and savings activities as a
credit institution. The European Central Bank
(“ECB”) has responsibility for the direct supervision
of significant banks and banking groups in the euro
area, including BNY Mellon SA/NV. The ECB’s
supervision is carried out in conjunction with the
relevant national prudential regulator (NBB in BNY
Mellon SA/NV’s case), as part of the single
supervisory mechanism (“SSM”). BNY Mellon SA/
NV conducts its activities in Belgium as well as
through its branch offices in the UK, Ireland, Italy,
Luxembourg, the Netherlands, France and Germany.

Certain of our financial services operations in the UK
are subject to regulation and supervision by the
Financial Conduct Authority (“FCA”) and the
Prudential Regulation Authority (“PRA”). The PRA
is responsible for the authorization and prudential
regulation of firms that carry on PRA-regulated
activities, including banks. PRA-authorized firms are
also subject to regulation by the FCA for conduct
purposes. In contrast, FCA-authorized firms (such as
investment management firms) have the FCA as their
sole regulator for both prudential and conduct
purposes. As a result, FCA-authorized firms must
comply with FCA prudential and conduct rules and
the FCA’s Principles for Businesses, while dual-
regulated firms must comply with the FCA conduct
rules and FCA Principles, as well as the applicable
PRA prudential rules and the PRA’s Principles for
Businesses.

The PRA regulates The Bank of New York Mellon
(International) Limited, our UK-incorporated bank, as
well as the London branch of The Bank of New York
Mellon. Certain of BNY Mellon’s UK-incorporated
subsidiaries are authorized to conduct investment
business in the UK. Their investment management
advisory activities and their sale and marketing of
retail investment products are regulated by the FCA.
Certain UK investment funds, including investment
funds of BNY Mellon, are registered with the FCA
and are offered for sale to retail investors in the UK.

Since the financial crisis, the European Union and its
Member States have engaged in a significant
overhaul of bank regulation and supervision. To
increase the resilience of banks and to reduce the
impact of potential bank failures, new rules on capital
requirements for banks and bank recovery and
resolution have been adopted.

Aspects of the European Union’s Banking Union
have entered into force in most EU jurisdictions. The
key components of the Banking Union include the
single resolution mechanism (“SRM”) and the SSM.
The SRM approach endorses the bail-in rules
established in the BRRD and is described in more
detail above in the section addressing Recovery and
Resolution.

The primary prudential framework in the EU is
provided by the Capital Requirements Directive IV
(“CRD4”) and the Capital Requirements Regulation
(“CRR”), both of which implement many elements of
the Basel III framework. CRD4/CRR are being

BNY Mellon 71

Supervision and Regulation (continued)

updated by the Capital Requirements Directive V
(“CRD5”) and the Capital Requirements Regulation
II (“CRR2”) respectively, as described below under
“EU Banking Reform Package.”

Our Investment Management and Investment
Services businesses are subject to significant
regulation in numerous jurisdictions around the world
relating to, among other things, the safeguarding,
administration and management of client assets and
client funds.

Various new, revised and/or proposed European
Union directives and regulations have or will have a
significant impact on our provision of many of our
products and services, including the Markets in
Financial Instruments Directive II and Markets in
Financial Instruments Regulation (collectively,
“MiFID II”), the Alternative Investment Fund
Managers Directive (“AIFMD”), the Directive on
Undertakings for Collective Investment in
Transferable Securities (“UCITS V”), the Central
Securities Depositories Regulation, the regulation on
OTC derivatives, central counterparties and trade
repositories (commonly known as “EMIR”), the
Securities Financing Transactions Regulation, the
Payment Services Directive II and the Benchmarks
Regulation. These European Union directives and
regulations may impact our operations and risk
profile but may also provide new opportunities for the
provision of BNY Mellon products and services.
Some of these European Union directives and
regulations are still subject to finalization by the
legislative authorities and/or substantial secondary
legislation. This creates uncertainty as to business
impact.

The types of activities in which the foreign branches
of our banking subsidiaries and our international
subsidiaries may engage are subject to various
restrictions imposed by the Federal Reserve. Those
foreign branches and international subsidiaries are
also subject to the laws and regulatory authorities of
the countries in which they operate and, in the case of
banking subsidiaries, may be subject to regulatory
capital requirements in the jurisdictions in which they
operate.

EU Banking Reform Package

CRD5, CRR2, the Bank Resolution and Recovery
Directive 2 (“BRRD2”) and Single Resolution
Mechanism 2 (“SRMR2”) (collectively, “The EU

72 BNY Mellon

Banking Reform Package”) entered into force on
June 27, 2019 and are being implemented in various
phases between 2019 and 2024. This legislative
package amends CRD4, CRR, the BRRD and the
Single Resolution Mechanism Regulation.

Among other things, CRD5 includes a requirement
for certain non-EU banking groups to have up to two
“EU intermediate parent undertakings” (“EU IPUs”).
All EU credit institutions and certain EU investment
firms in such non-EU banking groups would need to
fall within a corporate structure headed by one of the
EU IPUs. BNY Mellon is assessing the impact of this
requirement in conjunction with the Investment Firms
Directive (“IFD”)/Investment Firms Regulation
(“IFR”) legislation referred to below.

CRR2 includes provisions relating to the leverage
ratio, NSFR, MREL (including closer alignment to
the final FSB TLAC standard), a revised Basel
market risk framework, counterparty credit risk,
exposures to central counterparties, exposures to
collective investment undertakings, large exposures
and reporting/disclosure requirements. Many of the
elements of CRR2 will apply from June 27, 2021.

BRRD2 includes new rules on MREL to bring these
in line with the FSB’s TLAC standard. BRRD2 also
amends BRRD moratorium tools, and introduces an
EU-wide requirement for contractual recognition of
resolution stay powers. Currently only some Member
States have contractual recognition of resolution stay
powers. SRMR2 includes revisions to the MREL
framework that mirror the amendments in BRRD2.

The extent to which the UK implements the EU
Banking Reform Package depends on its policy
stance after the end of the transition period under the
EU withdrawal agreement. The UK government has
expressed an intention to implement the remaining
elements of the Basel III framework in the UK, in
line with previous G20 commitments.

Investment Firms Directive and Investment Firms
Regulation

IFD/IFR, previously referred to as the “new
prudential regime for investment firms,” is a more
tailored, proportionate prudential regime for
investment firms. IFD/IFR entered into force on Dec.
25, 2019 and will generally apply from June 26, 2021
(immediately before CRR2 generally applies).

Supervision and Regulation (continued)

Under IFD/IFR, most EU investment firms will move
from the current CRD4/CRR regime to the IFD/IFR
regime on June 26, 2021. Accordingly, such firms
will not need to implement CRD5/CRR2. We expect
that most (if not all) of BNY Mellon’s EU investment
firms will be classified as “Class 2 investment firms,”
which means that they will become subject to the
IFD/IFR regime.

The extent to which the UK implements IFD/IFR
depends on its policy stance after the end of the
transition period under the EU withdrawal agreement.
The UK may implement many elements of IFD/IFR,
as the UK supported the development of a more
proportionate prudential regime for investment firms,
and in order to maintain broad alignment with the EU
in this area.

European Deposit Insurance Scheme

The European Commission has proposed a European
Deposit Insurance Scheme (“EDIS”) for euro area
Member States. Under the EDIS proposal, existing
national euro area deposit guarantee schemes would
transition over a number of years to a mutualized or
EU-reinsurance-based deposit guarantee scheme
applicable in the euro area. It is unclear when the
EDIS proposal will be implemented.

European Financial Markets and Market
Infrastructure

The EU continues to develop proposals and
regulations in relation to financial markets and
market infrastructures. MiFID II took effect on Jan.
3, 2018. It affects EU Member States and those
financial institutions conducting business in the EEA
and has required significant change to comply with
relevant regulatory requirements, including extensive
transaction reporting and market transparency
obligations and a heightened focus on how financial

institutions conduct business with and disclose
information to their clients.

Capital Markets Union

A key policy objective of the 2014-19 European
Commission was to develop a Capital Markets Union
(“CMU”) in the EU. While some initiatives were
substantially advanced, including a new Prospectus
Regulation and a new Securitization Regulation,
which became fully effective in 2019, there has been
little overall progress towards achieving the objective
of creating a true pan-EU CMU.

Investment Services and Investment Management in
the European Union

The AIFMD has a direct effect on our alternative fund
manager clients and our depository business and
other products offered across Europe as well as upon
our Investment Management business. AIFMD
imposes heightened obligations upon depositories,
which have operational effects.

Our businesses servicing regulated funds in Europe
and our investment management businesses in Europe
are also affected by the revised directive governing
UCITS V.

On July 12, 2018, the European Commission adopted
regulations for depositary safekeeping duties under
AIFMD and UCITS V. The Commission recognized
the use of omnibus account structures when
accounting for assets in a chain of custody, but
determined that depositaries and trustees must
maintain their own books and records and will no
longer be allowed to rely on a custodian’s records.
BNY Mellon has initiated a project to implement any
changes necessary to comply with these regulations
by the Commission’s deadline of April 1, 2020.

BNY Mellon 73

Replacement of Interbank Offered Rates (“IBORs”),
including LIBOR

Globally, financial market participants have begun to
transition away from LIBOR and other IBORs to
alternative reference rates in anticipation of the
expected discontinuance of LIBOR and other IBORs
by the end of 2021. This transition will impact assets
and liabilities on our balance sheet that reference
IBORs, investments that we manage linked to IBORs
in our Investment Management business and the
operational servicing of products that reference
IBORs in our Investment Services business.

We are working to facilitate an orderly transition
from IBORs to alternative reference rates for us and
our clients. Accordingly, we have created a global
transition program with senior management oversight
that focuses on, among other things, evaluating and
monitoring the impacts of the discontinuance of
reference IBORs and the transition to replacement
benchmarks on our business operations and financial
condition; identifying and evaluating the scope of
impacted financial instruments and contracts and the
attendant risks; and implementing technology
systems, models and analytics to support the
transition. In addition, we continue to actively
engage with our regulators and clients and participate
in central bank and sector working groups.

There remain, however, a number of unknown factors
regarding the transition from the IBORs and/or
interest rate benchmark reforms that could impact our
business. For a further discussion of the various
risks, see “Risk Factors - Transitions away from and
the anticipated replacement of LIBOR and other
IBORs could adversely impact our business and
results of operations.”

Other Matters

UK’s Withdrawal from the EU (“Brexit”)

The UK withdrew from the EU on Jan. 31, 2020. The
UK and EU have agreed on terms for the UK’s
withdrawal from the EU, including a transition period
until Dec. 31, 2020. During the transition period, the
UK will continue to have access to the EU’s single
market by virtue of “EU passporting rights” and will
abide by EU rules and regulations until the end of the
transition period. During this time, UK financial
services firms will have full EU “passporting” rights
to provide services in a number of EU jurisdictions.
At the end of the transition period, UK financial
services firms will lose the benefit of transacting
within the EU by virtue of the “passporting” rights
unless an alternative agreement is made during the
transition period.

BNY Mellon’s plan for Brexit has always assumed
that UK financial services firms will no longer benefit
from “passporting” rights at the point of withdrawal
and it currently assumes that an alternative agreement
will not be made during the transition period.

BNY Mellon maintains a presence in the UK through
the London branch of The Bank of New York Mellon,
The Bank of New York Mellon (International)
Limited, a credit institution incorporated and
authorized in the UK, and a number of its investment
management subsidiaries. We maintain a presence in
the EU through BNY Mellon SA/NV, which is
headquartered in Belgium and has a branch network
in a number of other EU countries, and through
certain of our investment management subsidiaries.
BNY Mellon SA/NV has a general banking license
for the provision of banking and investment services.
We have undertaken adjustments to the operations of
BNY Mellon SA/NV so that it may provide a wider
range of services to clients domiciled in the EU. For
a discussion of the risks regarding Brexit, see “Risk
Factors - The UK’s withdrawal from the EU may
have negative effects on global economic conditions,
global financial markets, and our business and results
of operations.”

74 BNY Mellon

Risk Factors

Making or continuing an investment in securities
issued by us involves certain risks that you should
carefully consider. The following discussion sets
forth the most significant risk factors that could affect
our business, financial condition or results of
operations. Some of these risks are interrelated and
the occurrence of one may exacerbate the effect of
others. However, factors other than those discussed
below or in other of our reports filed with or
furnished to the SEC also could adversely affect our
business, financial condition or results of operations.
We cannot assure you that the risk factors described
below or elsewhere in our reports address all potential
risks that we may face. These risk factors also serve
to describe factors which may cause our results to
differ materially from those described in forward-
looking statements included herein or in other
documents or statements that make reference to this
Annual Report. See “Forward-looking Statements.”

Operational Risk

A communications or technology disruption or
failure within our infrastructure or the
infrastructure of third parties that results in a loss
of information, delays our ability to access
information or impacts our ability to provide
services to our clients may materially adversely
affect our business, financial condition and results
of operations.

We use communications and information systems to
conduct our business. Our businesses are highly
dependent on our ability to process large volumes of
data that require global capabilities and scale from
our technology platforms. If our technology or
communications fail, or those of industry utilities or
our service providers fail, we could experience, and
have in the past experienced, production and system
outages or failures or other significant operational
delays. Any such outage, failure or delay could
adversely affect our ability to effect transactions or
service our clients, which could expose us to liability
for damages, result in the loss of business, damage
our reputation, subject us to regulatory scrutiny or
sanctions or expose us to litigation, any of which
could have a material adverse effect on our business,
financial condition and results of operations. Security
or technology disruptions, failures or delays that
impact our communications or information systems
could also adversely affect our ability to manage our
exposure to risk or expand our business.

Upgrading our computer systems, software and
networks subjects us to the risk of disruptions,
failures or delays due to the complexity and
interconnectedness of our systems, software and
networks. The failure to upgrade or maintain these
computer systems, software and networks could
result in greater susceptibility to attacks, unauthorized
access and misuse, and could also prevent us from
achieving our business continuity and resiliency
objectives. There can be no assurance that any such
disruptions, failures or delays will not occur or, if
they do occur, that they will be adequately addressed.

Third parties with which we do business or that
facilitate our business activities, including exchanges,
clearing houses, financial intermediaries or vendors
that provide services or security solutions for our
operations, could also be sources of technology risk
to us, including from breakdowns, capacity
constraints, failures or delays of their own systems or
other services that impair our ability to process
transactions and communicate with customers and
counterparties. In addition, we are exposed to the
risk that a technology disruption or other information
security event at a vendor common to our third-party
service providers could impede their ability to
provide products or services to us. We may not be
able to effectively monitor or mitigate operational
risks relating to the use of common vendors by third-
party service providers, which could result in
potential liability to clients and customers, regulatory
fines, penalties or other sanctions, increased
operational costs or harm to our reputation.

As our business areas evolve, whether due to the
introduction of technology, new service offering
requirements for our clients, or changes in regulation
relative to these service offerings, unforeseen risks
materially impacting our business operations could
arise. The technology used can become increasingly
complex and rely on the continued effectiveness of
the programming code and integrity of the inputted
data. Rapid technological changes and competitive
pressures require us to make significant and ongoing
investments in technology not only to develop
competitive new products and services or adopt new
technologies, but to sustain our current businesses.
Our financial performance depends in part on our
ability to develop and market these new products and
services in a timely manner at a competitive price and
adopt or develop new technologies that differentiate
our products or provide cost efficiencies. The failure
to conduct adequate review and consideration of

BNY Mellon 75

Risk Factors (continued)

critical business changes prior to and during
introduction and deployment of key technological
systems or the failure to adequately align operational
capabilities with evolving client commitments and
expectations, subjects us to the risk of an adverse
impact on our ability to service and retain customers
and on our operations. The costs we incur in
enhancing our technology could be substantial and
may not ultimately improve our competitiveness or
profitability.

We continue to evaluate and strengthen our business
continuity and operational resiliency capabilities and
have increased our investments in technology to
steadily enhance those capabilities, including our
ability to resume and sustain our operations. There
can be no guarantee, however, that a technology
outage will not occur or that our business continuity
and operational resiliency capabilities will enable us
to maintain our operations and appropriately respond
to events. For a discussion of operational risk, see
“Risk Management - Operational Risk.”

As a result of financial entities, central agents,
clearing agents and houses, exchanges and
technology systems across the globe becoming more
interdependent and complex, a technology failure that
significantly degrades, deletes or compromises the
systems or data of one or more financial entities or
suppliers could have a material impact on
counterparties or other market participants, including
us. A disruptive event or, failure or delay experienced
by one institution could disrupt the functioning of the
overall financial system.

A cybersecurity incident, or a failure to protect our
computer systems, networks and information and
our clients’ information against cybersecurity
threats, could result in the theft, loss, unauthorized
access to, disclosure, use or alteration of
information, system or network failures, or loss of
access to information. Any such incident or failure
could adversely impact our ability to conduct our
businesses, damage our reputation and cause losses.

material adverse impact or disruption as a result of a
cybersecurity incident.

Cybersecurity incidents may occur through
intentional or unintentional acts by individuals or
groups having authorized or unauthorized access to
our systems or our clients’ or counterparties’
information, which may include confidential
information. These individuals or groups include
employees, vendors and customers, as well as others
with malicious intent. Malicious actors may also
attempt to place individuals within BNY Mellon or
fraudulently induce employees, vendors, customers or
other users of our systems to disclose sensitive
information in order to gain access to our data or that
of our clients. A cybersecurity incident that results in
the theft, loss, unauthorized access to, disclosure, use
or alteration of information, system or network
failures, or loss of access to information, may require
us to reconstruct lost data (which may not be
possible), reimburse clients for data and credit
monitoring services, result in loss of customer
business, or damage to our computers or systems and
those of our customers and counterparties. These
impacts could be costly and time-consuming and
materially negatively impact our business operations,
financial condition and reputation.

While we seek to mitigate these risks to ensure the
integrity of our systems and information and
continuously evolve our cybersecurity capabilities, it
is possible that we may not anticipate or implement
effective preventive measures against all
cybersecurity threats, or detect all such threats,
especially because the techniques used change
frequently or are not recognized until after they are
launched. Moreover, attacks can originate from a
wide variety of sources, including malicious actors
who are involved with organized crime or who may
be linked to terrorist organizations or hostile foreign
governments, or from cross-contamination of
legitimate parties (including vendors, clients,
financial market utilities, and other financial
institutions).

We have been, and we expect to continue to be, the
target of attempted cyber-attacks, computer viruses or
other malicious software, denial of service efforts,
phishing attacks and other information security
threats, including unauthorized access attempts.
These cybersecurity risks are expected to continue to
increase and intensify. Although we deploy a broad
range of sophisticated defenses, we could suffer a

The failure to maintain an adequate technology
infrastructure and applications with effective
cybersecurity controls relative to the type, size and
complexity of operations, markets and products
traded, access to trading venues and our market
interconnectedness could impact operations and
impede our productivity and growth, which could
cause our earnings to decline or could impact our

76 BNY Mellon

Risk Factors (continued)

ability to comply with regulatory obligations leading
to regulatory fines and sanctions. We may be
required to expend significant additional resources to
modify, investigate or remediate vulnerabilities or
other exposures arising from cybersecurity threats. A
successful cyberattack could occur and persist for an
extended period of time before being detected. In
addition, because any investigation of a cybersecurity
incident would be inherently unpredictable, the extent
of a particular cybersecurity incident and the path of
investigating the incident may not be immediately
clear. It may take a significant amount of time before
such an investigation can be completed and reliable
information about the incident is known. While such
an investigation is ongoing, we may not necessarily
know the extent of the harm or how best to remediate
it, certain errors or actions could be repeated or
compounded before they are discovered and
remediated, and communication to the public,
regulators, clients and other stakeholders may be
inaccurate, any or all of which could further increase
the costs and consequences of a cybersecurity
incident.

Our business may be materially adversely affected
by operational risk.

We are required to accurately process large numbers
of transactions each day on a timely basis. The
transactions we process or execute are operationally
complex and can involve numerous parties,
jurisdictions, regulations and systems, and as such,
are subject to execution and processing errors and
failures. As our businesses evolve to even more
complex and voluminous transactions, at ever
increasing speeds, we must also evolve our processes,
controls, workforce and technology to accurately and
timely execute those transactions, which may result in
an increased risk of error or significant operational
delay. When errors or delays do occur, they may be
difficult to detect and fix in a timely manner.

As a result, operational errors or significant
operational delays could materially negatively impact
our ability to conduct our business or service our
clients, which could adversely affect our results of
operations due to potentially higher expenses and
lower revenues, could lower our capital ratios, create
liability for us or our clients or negatively impact our
reputation. An operational error impacting a large
number of transactions could have unfavorable ripple
effects in the financial markets.

Affiliates or third parties with which we do business
or that facilitate our business activities could also be
sources of execution and processing errors, failures or
significant operational delays. In certain jurisdictions
we may be deemed to be statutorily or criminally
liable for operational errors, fraud, breakdowns or
delays by these affiliates or third parties.
Additionally, as a result of regulations, including the
Alternative Investment Fund Managers Directive and
the Undertakings for Collective Investment in
Transferable Securities V, where, in the European
Economic Area we act as depositary, the Company
could be exposed to restitution risk for, among other
things, errors or fraud perpetrated by a sub-custodian
resulting in a loss or delay in return of client’s
securities. Where we are not acting as a European
Economic Area depositary, but where we provide
custody services to a European Economic Area
depositary, we may accept similar liabilities to that
depositary as a matter of contract.

We rely on a variety of measures to protect our
intellectual property and proprietary information,
including copyrights, trademarks, patents and
controls on access and distribution. These measures
may not prevent misappropriation or infringement of
our intellectual property or proprietary information
and a resulting loss of competitive advantage.
Furthermore, if a third party were to assert a claim of
infringement or misappropriation of its proprietary
rights, obtained through patents or otherwise, against
us, we could be required to spend significant amounts
to defend such claims, develop alternative methods of
operations, pay substantial money damages, obtain a
license from the third party or possibly stop providing
one or more products or services.

We are also subject to laws and regulations relating to
the privacy of the information of clients, employees
and others, and any failure to comply with these laws
and regulations could expose us to liability and/or
reputational damage.

Our risk management framework may not be
effective in mitigating risk and reducing the
potential for losses.

Our risk management framework seeks to mitigate
risk and loss to us. We have established
comprehensive policies and procedures and an
internal control framework designed to provide a
sound operational environment for the types of risk to
which we are subject, including operational risk,

BNY Mellon 77

Risk Factors (continued)

credit risk, market risk, liquidity risk and strategic
risk. We have also established frameworks to
mitigate risk and loss to us as a result of the actions of
affiliates or third parties with which we do business
or that facilitate our business activities. However, as
with any risk management framework, there are
inherent limitations to our current and future risk
management strategies, including risks that we have
not appropriately anticipated or identified.

Our regulators remain focused on ensuring that
financial institutions build and maintain robust risk
management policies. If our regulators perceive the
quality of our risk models and framework to be
insufficient, it may negatively impact our regulators’
evaluations of our capital plans and stress tests.
Accurate and timely enterprise-wide risk information
is necessary to enhance management’s decision-
making in times of crisis. If our risk management
framework proves ineffective or if our enterprise-
wide management information is incomplete or
inaccurate, we could suffer unexpected losses, which
could materially adversely affect our results of
operations or financial condition.

In certain instances, we rely on models to measure,
monitor and predict risks. However, these models are
inherently limited because they involve techniques,
including the use of historical data, trends,
assumptions and judgments that cannot anticipate
every economic and financial outcome in the markets
in which we operate, nor can they anticipate the
specifics and timing of such outcomes, especially
during severe market downturns or stress events.
These models may not appropriately capture all
relevant risks or accurately predict future events or
exposures. The risk of the unsuccessful development
or implementation of our models, systems or
processes cannot be completely eliminated. The
models that we use to assess and control our market
risk exposures also reflect assumptions about the
degree of correlation among prices of various asset
classes or other market indicators. The 2008 financial
crisis and resulting regulatory reform highlighted
both the importance and some of the limitations of
managing unanticipated risks. In times of market
stress or other unforeseen circumstances, previously
uncorrelated indicators may become correlated, or
previously correlated indicators may move in
different directions. These types of market
movements have at times limited the effectiveness of
our hedging strategies and have caused us to incur
significant losses, and they may do so in the future.

78 BNY Mellon

In addition, our businesses and the markets in which
we operate are continuously evolving. We may fail to
fully understand the implications of changes in our
businesses or the financial markets or fail to
adequately or timely enhance our risk framework to
address those changes. If our risk framework is
ineffective because it fails to keep pace with changes
in the financial markets, regulatory requirements, our
businesses, our counterparties, clients or service
providers or for other reasons, we could incur losses,
suffer reputational damage or find ourselves out of
compliance with applicable regulatory or contractual
mandates or expectations.

An important aspect of our risk management
framework is creating a risk culture that is sustainable
and appropriate to our role as a major financial
institution in which all employees fully understand
that there is risk in every aspect of our business and
the importance of managing risk as it relates to their
job functions. If we fail to create the appropriate
environment that sensitizes all of our employees to
managing risk, our business could be adversely
impacted. For more information on how we monitor
and manage our risk management framework, see
“Risk Management - Overview.”

We are subject to extensive government rulemaking,
policies, regulation and supervision. These rules
and regulations have, and in the future may, compel
us to change how we manage our businesses, which
could have a material adverse effect on our
business, financial condition and results of
operations.

As a large, internationally active financial services
company, we operate in a highly regulated
environment, and are subject to a comprehensive
statutory and regulatory regime affecting all aspects
of our business and operations, including oversight by
governmental agencies both inside and outside the
U.S. Regulations and related regulatory guidance and
supervisory oversight impact how we analyze certain
business opportunities, our regulatory capital and
liquidity requirements, the revenue profile of certain
of our core activities, the products and services we
provide, how we monitor and manage operational risk
and how we promote a sound governance and control
environment. Any changes to the regulatory
frameworks and environment in which we operate
and the significant management attention and
resources necessary to address those changes could
materially adversely affect our business, financial

Risk Factors (continued)

condition and results of operations and have other
negative consequences.

The evolving regulatory environment and uncertainty
about the timing and scope of future regulations may
contribute to decisions we may make to suspend,
reduce or withdraw from existing businesses,
activities or initiatives, which may result in potential
lost revenue or significant restructuring or related
costs or exposures.

The monetary, tax and other policies of various
governments, agencies and regulatory authorities both
in the U.S. and globally have a significant impact on
interest rates, currencies, commodity pricing
(including oil), the imposition of tariffs or other
limitations on international trade and travel, and
overall financial market performance, which can
impact our business and results of operations.
Changes in these policies are beyond our control and
can be difficult to predict and we cannot determine
the ultimate effect that any such changes would have
upon our business, financial condition or results of
operations.

Basel III and the Dodd-Frank Act have had a
significant impact on the regulatory structure of the
global financial markets and have imposed significant
operational, compliance and risk management costs,
both as an initial matter, as we have had to develop
and integrate appropriate systems and procedures,
and on a recurring basis, as we monitor, support and
refine those systems and procedures. While U.S.
regulators have finalized regulations implementing
various provisions of the Dodd-Frank Act and Basel
III, additional regulations or modifications to existing
regulations are expected to continue to occur. In
addition, there is uncertainty about the timing and
scope of any changes to Basel III and the Dodd-Frank
Act and other regulations, as well as the cost of
complying with any new regulatory regimes. The full
impact of these standards on us, our business
strategies and financial performance will remain
uncertain as long as regulatory reforms continue to be
adopted and market practices develop in response to
such reforms, and any such regulatory changes could
materially adversely impact us.

The regulatory and supervisory focus of U.S. banking
agencies is primarily intended to protect the safety
and soundness of the banking system and federally
insured deposits, and not to protect investors in our
securities. Regulatory and supervisory standards and

expectations across jurisdictions may be divergent
and otherwise may not conform and/or may be
applied in a manner that is not harmonized within a
jurisdiction (in relation to national versus non-
national financial services providers) and/or across
jurisdictions. Additionally, banking regulators have
wide supervisory discretion in the ongoing
examination and enforcement of applicable banking
statutes, regulations, and guidelines, and may restrict
our ability to engage in certain activities or
acquisitions, or may require us to maintain more
capital or highly liquid assets.

The U.S. capital rules subject us and our U.S.
banking subsidiaries to more stringent capital
requirements, which could restrict growth, activities
or operations, trigger divestiture of assets or
operations or limit our ability to return capital to
shareholders. Failure to meet current or future capital
requirements, either at the end of each fiscal quarter
or under hypothetical stressed conditions during the
annual CCAR exercise, could materially adversely
affect our financial condition. Additional impacts
relating to compliance with these rules could include,
but are not limited to, potential dilution of existing
shareholders and competitive disadvantage compared
to financial institutions not under the same regulatory
framework. In addition, the SLR subjects us to a
more stringent leverage requirement, which could
restrict growth, activities, operations or could result
in certain restrictions on capital distributions and
discretionary bonus payments.

The LCR requires us to maintain significant holdings
of high quality and potentially lower-yielding liquid
assets. In calculating the LCR, we must also
determine which deposits should be considered to be
stable deposits. Stable deposits must meet a series of
requirements and typically receive favorable outflow
treatment under the LCR. BNY Mellon uses
qualitative and quantitative analysis to identify core
stable deposits. It is possible that our LCR could fall
below 100% as a consequence of the inherent
uncertainties associated with this analysis (including
as a result of regulatory changes or additional
guidance from our regulators). In addition to facing
potential regulatory consequences (which could be
significant), we may be required to remedy this
shortfall by liquidating assets in our investment
portfolio or raising additional debt, each of which
could materially negatively impact our net interest
revenue.

BNY Mellon 79

Risk Factors (continued)

If and when the final rule regarding the NSFR is
ultimately implemented in the U.S., those
requirements could also require BNY Mellon to
further increase its holdings of high quality, and
potentially lower-yielding, liquid assets, and to
reevaluate the composition of its liabilities structure
to include more longer-dated debt.

We develop and submit plans for our rapid and
orderly resolution in the event of material financial
distress or failure to the Federal Reserve and the
FDIC. If the agencies determine that our future
submissions are not credible or would not facilitate an
orderly resolution under the U.S. Bankruptcy Code,
and we fail to address any such deficiencies in a
timely manner, we may be subject to more stringent
capital or liquidity requirements or restrictions on our
growth, activities or operations.

Our global activities are also subject to extensive
regulation by various non-U.S. regulators, including
governments, securities exchanges, central banks and
other regulatory bodies in the jurisdictions in which
we operate, relating to, among other things, the
safeguarding, administration and management of
client assets and client funds.

Various new, revised and proposed directives and
regulations globally have an impact on our provision
of many of our products and services.
Implementation of, and revisions to, these directives
and regulations have affected our operations and risk
profile, including the Capital Requirements Directive/
Regulation, the Investment Firms Directive/
Regulation, the Bank Recovery and Resolution
Directive, the Deposit Guarantee Scheme Directive,
MiFID II/MiFIR, Market Abuse Regulation, AIFMD,
UCITS V, Payment Services Directive II, Securities
Financing Transactions Regulation, Central Securities
Depositories Regulation, European Market
Infrastructure Regulation, EU Benchmark Regulation
and Shareholder Rights Directive.

In addition, we are subject in our global operations to
rules and regulations relating to corrupt and illegal
payments and money laundering, economic sanctions
and embargo programs administered by the U.S.
Office of Foreign Assets Control and similar bodies
and governmental agencies worldwide, and laws
relating to doing business with certain individuals,
groups and countries, such as the U.S. Foreign
Corrupt Practices Act, the USA PATRIOT Act, the
Iran Threat Reduction and Syria Human Rights Act of

80 BNY Mellon

2012 and the UK Bribery Act. While we have
invested and continue to invest significant resources
in training and in compliance monitoring, the
geographical diversity of our operations, employees,
clients and customers, as well as the vendors and
other third parties that we deal with, presents the risk
that we may be found in violation of such rules,
regulations or laws and any such violation could
subject us to significant penalties or adversely affect
our reputation. In addition, such rules could impact
our ability to engage in business with certain
individuals, entities, groups and countries, which
could materially adversely affect certain of our
businesses and results of operations.

As privacy-related laws and regulations, such as the
EU General Data Protection Regulation (“GDPR”),
the California Consumer Privacy Act of 2018 and the
New York Department of Financial Services’
cybersecurity regulation, are implemented, the time
and resources needed for us to comply with such laws
and regulations, as well as our potential liability for
non-compliance and reporting obligations in the case
of data breaches, may significantly increase. In
addition, our businesses are increasingly subject to
laws and regulations relating to privacy, surveillance,
encryption and data localization in the jurisdictions in
which we operate. Compliance with these laws and
regulations may require us to change our policies,
procedures and technology for information security
and segregation of data, which could, among other
things, make us more vulnerable to operational
failures, and to monetary penalties for breach of such
laws and regulations.

Failure to comply with laws, regulations or policies
applicable to our business could result in sanctions by
regulatory or governmental authorities, civil money
penalties and reputational damage, which could have
a material adverse effect on our business, financial
condition and results of operations. If violations do
occur, they could damage our reputation, increase our
legal and compliance costs, and ultimately adversely
impact our results of operations. Laws, regulations or
policies currently affecting us and our subsidiaries, or
regulatory and governmental authorities’
interpretation of these statutes and regulations may
change at any time, which may adversely impact our
business and results of operations.

See “Supervision and Regulation” for additional
information regarding the potential impact of the
regulatory environment on our business.

Risk Factors (continued)

Regulatory or enforcement actions or litigation
could materially adversely affect our results of
operations or harm our businesses or reputation.

Like many major financial institutions, we and our
affiliates are the subject of inquiries, investigations,
lawsuits and proceedings by counterparties, clients,
other third parties, tax authorities and regulatory and
other governmental agencies in the U.S. and abroad,
as well as the Department of Justice (the “DOJ”) and
state attorneys general. See “Legal proceedings” in
Note 22 of the Notes to Consolidated Financial
Statements for a discussion of material legal and
regulatory proceedings in which we are involved.
The number of these investigations and proceedings,
as well as the amount of penalties and fines sought,
has remained elevated for many firms in the financial
services industry, including us. We may become
subject to heightened regulatory scrutiny, inquiries or
investigations, and potentially client-related inquiries
or claims, relating to broad, industry-wide concerns
that could lead to increased expenses or reputational
damage. The current trend of large settlements by
financial institutions with governmental entities may
adversely affect the outcomes for other financial
institutions in similar actions, especially where
governmental officials have announced that the large
settlements will be used as the basis or a template for
other settlements. Separately, policy makers globally
continue to focus on protection of client assets, as
well as tax avoidance and evasion.

The complexity of the federal and state regulatory
and enforcement regimes in the U.S., coupled with
the global scope of our operations and the increased
aggressiveness of the tax and regulatory environment
worldwide, also means that a single event may give
rise to a large number of overlapping investigations
and regulatory proceedings, either by multiple federal
and state agencies in the U.S. or by multiple
regulators and other governmental entities or tax
authorities in different jurisdictions. Responding to
inquiries, investigations, lawsuits and proceedings,
regardless of the ultimate outcome of the matter, is
time-consuming and expensive and can divert the
attention of our senior management from our
business. The outcome of such proceedings may be
difficult to predict or estimate until late in the
proceedings, which may last a number of years.

Certain of our subsidiaries are subject to periodic
examination, special inquiries and potential
proceedings by regulatory authorities. If compliance

failures or other violations are found during an
examination, inquiry or proceeding, a regulatory
agency could initiate actions and impose sanctions for
violations, including, for example, regulatory
agreements, cease and desist orders, civil monetary
penalties or termination of a license and could lead to
litigation by investors or clients, any of which could
cause our earnings to decline.

Our businesses involve the risk that clients or others
may sue us, claiming that we or third parties for
whom they say we are responsible have failed to
perform under a contract or otherwise failed to carry
out a duty perceived to be owed to them, including
perceived fiduciary or contractual duties. This risk
may be heightened during periods when credit, equity
or other financial markets are deteriorating in value or
are particularly volatile, or when clients or investors
are experiencing losses. As a publicly held company,
we are also subject to the risk of claims under the
federal securities laws. Volatility in our stock price
increases this risk.

Increasingly, regulators, tax authorities and courts
have sought to hold financial institutions liable for the
misconduct of their clients where such regulators and
courts have determined that the financial institution
should have detected that the client was engaged in
wrongdoing, even though the financial institution had
no direct knowledge of the wrongdoing.

Actions brought against us may result in lawsuits,
enforcement actions, injunctions, settlements,
damages, fines or penalties, which could have a
material adverse effect on our financial condition or
results of operations or require changes to our
business. Claims for significant monetary damages
are asserted in many of these legal actions, while
claims for disgorgement, penalties and/or other
remedial sanctions may be sought in regulatory
matters. Although we establish accruals for our
litigation and regulatory matters in accordance with
applicable accounting guidance when those matters
proceed to a stage where they present loss
contingencies that are both probable and reasonably
estimable, there may be a material exposure to loss in
excess of any amounts accrued, or in excess of any
loss contingencies disclosed as reasonably possible.
Such loss contingencies may not be probable and
reasonably estimable until the proceedings have
progressed significantly, which could take several
years and occur close to resolution of the matter.

BNY Mellon 81

Risk Factors (continued)

Each of the risks outlined above could result in
increased regulatory supervision and affect our ability
to attract and retain customers or maintain access to
the capital markets.

Our businesses may be negatively affected by
adverse events, publicity, government scrutiny or
other reputational harm.

We are subject to reputational, legal and regulatory
risk in the ordinary course of our business. The
public perception of financial institutions remains
negative. Harm to our reputation can result from
numerous sources, including adverse publicity arising
from events occurring at BNY Mellon or in the
financial markets, our perceived failure to comply
with legal and regulatory requirements or deliver
appropriate standards of service and quality, or a
failure to appropriately describe our products and
services, the purported actions of our employees or
the use of social media by our employees, alleged
financial reporting irregularities involving ourselves
or other large and well-known companies and
perceived conflicts of interest. In particular, a
cybersecurity event impacting us or our customers’
data could have a negative impact on our reputation
and customer confidence in BNY Mellon and our
cybersecurity defenses and business continuity and
resiliency capabilities. Our reputation could also be
harmed by the failure of an affiliate, joint venture or a
vendor or other third party with which we do business
to comply with laws or regulations. Damage to our
reputation could affect the confidence of clients,
rating agencies, regulators, employees, stockholders
and other stakeholders and could in turn have an
impact on our business and results of operations.

Additionally, governmental scrutiny from regulators,
tax authorities, legislative bodies and law
enforcement agencies with respect to financial
services companies has remained at elevated levels.
Press coverage and other public statements, including
information posted on social media, that assert some
form of wrongdoing (including, in some cases, press
coverage and public statements that do not directly
involve BNY Mellon) often result in some type of
investigation or in lawsuits. Certain enforcement
authorities have recently required admissions of
wrongdoing, and in some cases, criminal pleas, as
part of the resolution of matters brought by them
against financial institutions. Any such resolution of
a matter involving BNY Mellon could lead to
increased exposure to civil litigation, could adversely

82 BNY Mellon

affect our reputation and ability to do business in
certain products and in certain jurisdictions and could
have other negative effects.

Failure to satisfy regulatory standards, including
“well capitalized” and “well managed” status or
capital adequacy and liquidity rules more generally,
could result in limitations on our activities and
adversely affect our business and financial
condition.

Under U.S. and international regulatory capital
adequacy rules and other regulatory requirements,
BNY Mellon and our subsidiary banks must meet
thresholds that include quantitative measures of
assets, liabilities and certain off-balance sheet items,
subject to qualitative judgments by regulators about
components, risk weightings and other factors. As
discussed in “Supervision and Regulation,” BNY
Mellon is registered with the Federal Reserve as a
BHC and an FHC. An FHC’s ability to maintain its
status as an FHC is dependent upon a number of
factors, including its U.S. bank subsidiaries’
qualifying on an ongoing basis as “well capitalized”
and “well managed” under the banking agencies’
prompt corrective action regulations as well as
applicable Federal Reserve regulations. Failure by an
FHC or one of its U.S. bank subsidiaries to qualify as
“well capitalized” and “well managed,” if
unremedied over a period of time, would cause it to
lose its status as an FHC and could affect the
confidence of clients in it, compromising its
competitive position. Additionally, an FHC that does
not continue to meet all the requirements for FHC
status could lose the ability to undertake new
activities or make acquisitions that are not generally
permissible without FHC status or to continue such
activities.

The failure by one of our bank subsidiaries to
maintain its status as “well capitalized” could lead to,
among other things, higher FDIC assessments and
could have reputational and associated business
consequences.

If we or our subsidiary banks fail to meet U.S. and
international minimum capital rules and other
regulatory requirements, we may not be able to
deploy capital in the operation of our business or
distribute capital to stockholders, which may
adversely affect our business.

Risk Factors (continued)

Failure to meet any current or future capital or
liquidity requirements, including those imposed by
the U.S. capital rules, the LCR, or by regulators in
implementing other portions of the Basel III
framework, could materially adversely affect our
financial condition. Compliance with U.S. and
international regulatory capital and liquidity
requirements may impact our ability to return capital
to shareholders and may impact our operations by
requiring us to liquidate assets, increase borrowings,
issue additional equity or other securities, or cease or
alter certain operations, which may adversely affect
our results of operations.

Finally, our regulatory capital ratios, liquidity metrics,
and related components are based on our current
interpretation, expectations and understanding of the
applicable rules and are subject to, among other
things, ongoing regulatory review, regulatory
approval of certain statistical models, additional
refinements, modifications or enhancements (whether
required or otherwise) to our models, and further
implementation guidance. Any modifications
resulting from these ongoing reviews or the continued
implementation of the U.S. capital rules, the LCR, the
resolution planning process, and related amendments
could result in changes in our risk-weighted assets,
capital components, liquidity inflows and outflows,
HQLA, or other elements involved in the calculation
of these measures, which could impact these ratios.
Further, because operational risk is currently
measured based not only upon our historical
operational loss experience but also upon ongoing
events in the banking industry generally, our level of
operational risk-weighted assets could significantly
increase or otherwise remain elevated and may
potentially be subject to significant volatility,
negatively impacting our capital and liquidity ratios.
The uncertainty caused by these factors could
ultimately impact our ability to meet our goals,
supervisory requirements, and regulatory standards.

A failure or circumvention of our controls and
procedures could have a material adverse effect on
our business, reputation, results of operations and
financial condition.

Management regularly reviews and updates our
internal controls, disclosure controls and procedures,
and corporate governance policies and procedures.
Any system of controls, however well designed and
operated, is based in part on certain assumptions and
can provide only reasonable, not absolute, assurances

that the objectives of the system will be met. Any
failure or circumvention of our controls and
procedures or failure to comply with regulations
related to controls and procedures could have a
material adverse effect on our business, reputation,
results of operations and financial condition. If we
identify material weaknesses in our internal control
over financial reporting or are otherwise required to
restate our financial statements, we could be required
to implement expensive and time-consuming
remedial measures and could lose investor confidence
in the accuracy and completeness of our financial
reports. In addition, there are risks that individuals,
either employees or contractors, may circumvent
established control mechanisms in order to, for
example, exceed exposure, liquidity, trading or
investment management limitations, or commit fraud.

The application of our Title I preferred resolution
strategy or resolution under the Title II orderly
liquidation authority could adversely affect the
Parent’s liquidity and financial condition and the
Parent’s security holders.

In 2017, in connection with our single point of entry
resolution strategy under Title I of the Dodd-Frank
Act, the Parent entered into a binding support
agreement with certain key subsidiaries to facilitate
the provision of capital and liquidity resources to
them in the event of material financial distress or
failure. The support agreement requires the Parent to
transfer significant excess liquid financial assets to
the IHC on an ongoing basis, subject to certain
amounts retained by the Parent to meet its near-term
cash needs, in exchange for unsecured subordinated
funding notes issued by the IHC as well as a
committed line of credit to the Parent to service its
near term obligations. The Parent’s and the IHC’s
obligations under the support agreement are secured.

If our projected liquidity resources deteriorate so
severely that resolution of the Parent becomes
imminent, the committed line of credit the IHC
provided to the Parent will automatically terminate,
with all amounts outstanding becoming due and
payable, and the support agreement will require the
Parent to transfer most of its remaining assets (other
than stock in subsidiaries and a cash reserve to fund
bankruptcy expenses) to the IHC. As a result, during
a period of severe financial stress the Parent could
become unable to meet its debt and payment
obligations (including with respect to its securities),

BNY Mellon 83

Risk Factors (continued)

causing the Parent to seek protection under
bankruptcy laws earlier than it otherwise would have.

If the Parent were to become subject to a bankruptcy
proceeding and our single point of entry strategy is
successful, our material entities will not be subject to
insolvency proceedings and their creditors would not
be expected to suffer losses, while the Parent’s
security holders, including unsecured debt holders,
could face significant losses, potentially including the
loss of their entire investment. The single point of
entry strategy, in which the Parent would be the only
legal entity to enter resolution proceedings, is
designed to result in greater risk of loss to holders of
the Parent’s unsecured senior debt securities and
other securities than would be the case under a
different resolution strategy.

Further, if the single point of entry strategy is not
successful, our liquidity and financial condition
would be adversely affected and all security holders
may, as a consequence, be in a worse position than if
the strategy had not been implemented.

In addition, Title II of the Dodd-Frank Act established
an orderly liquidation process in the event of the
failure of a large systemically important financial
institution, such as BNY Mellon, in order to avoid or
mitigate serious adverse effects on the U.S. financial
system. Specifically, if BNY Mellon is in default or
danger of default, and certain specified conditions are
met, the FDIC may be appointed receiver under the
orderly liquidation authority, and we would be
resolved under that authority instead of the U.S.
Bankruptcy Code.

U.S. supervisors have indicated that a single point of
entry strategy may be a desirable strategy to resolve a
large financial institution such as BNY Mellon under
Title II in a manner that would, similar to our
preferred strategy under our Title I resolution plan,
impose losses on shareholders, unsecured debt
holders and other unsecured creditors of the Parent,
while permitting the holding company’s subsidiaries
to continue to operate and remain solvent. Under
such a strategy, assuming the Parent entered
resolution proceedings and its subsidiaries remained
solvent, losses at the subsidiary level would be
absorbed by the Parent and ultimately borne by the
Parent’s security holders (including holders of the
Parent’s unsecured debt securities), while third-party
creditors of the Parent’s subsidiaries would not be
expected to suffer losses. Accordingly, the Parent’s

84 BNY Mellon

security holders (including holders of unsecured debt
securities and other unsecured creditors) could face
losses in excess of what otherwise would have been
the case.

Impacts from climate change, natural disasters, acts
of terrorism, pandemics, global conflicts and other
geopolitical events may have a negative impact on
our business and operations.

In conducting our business and maintaining and
supporting our global operations, which includes
vendors and other third parties, we are subject to risks
of loss from the outbreak of hostilities, acts of
terrorism, impacts from climate change, natural
disasters, pandemics, global conflicts or other similar
catastrophic events that could have a negative impact
on our business and operations. We may also be
impacted by unfavorable political, economic, legal or
other developments, including but not limited to
social or political instability, changes in governmental
policies or policies of central banks, sanctions,
expropriation, nationalization, confiscation of assets,
price, capital and exchange controls, the imposition
of tariffs or other limitations on international trade
and travel, and changes in laws and regulations.

While we have business continuity and disaster
recovery plans in place, such events could still
damage our facilities, disrupt or delay normal
business operations (including communications and
technology), result in harm or cause travel limitations
on our employees, with a similar impact on our
clients, suppliers and counterparties. Catastrophic
events, including those caused by climate change,
could also negatively impact the purchase of our
products and services if those events result in reduced
capital markets activity, lower asset price levels, or
disruptions in general economic activity, or in
financial market settlement functions, which could
negatively impact our business and results of
operation. In addition, catastrophic events, including
those caused by climate change, war, terror attacks,
political unrest, global conflicts, efforts to combat
terrorism and other potential military activities and
outbreaks of hostilities may lead, and in some cases
have led, to an increase in delinquencies,
bankruptcies or defaults that could result in our
experiencing higher levels of non-performing assets,
net charge-offs and provisions for credit losses,
negatively impacting our business and operations.

Risk Factors (continued)

Our international clients accounted for 35% of our
revenue in 2019. Given the scope of our global
operations, clients and counterparties, persistent
disruptions in the global financial markets,
uncertainty around and escalating use of tariffs, a
breakdown of the Eurozone or persistent weakness in
a leading global currency could have a material
adverse impact on our business or results of
operations.

Market Risk

We are dependent on fee-based business for a
substantial majority of our revenue and our fee-
based revenues could be adversely affected by
slowing in market activity, weak financial markets,
underperformance and/or negative trends in savings
rates or in investment preferences.

Our principal operational focus is on fee-based
business, which is distinct from commercial banking
institutions that earn most of their revenues from
loans and other traditional interest-generating
products and services. In 2019, 80% of our total
revenue was fee-based. Our fee-based businesses
include investment management and performance
fees, custody, corporate trust, depositary receipts,
clearing, collateral management and treasury
services, which are highly competitive businesses.

Fees for many of our products and services are based
on the volume of transactions processed, the market
value of assets managed and/or administered,
securities lending volume and spreads, and fees for
other services rendered. Corporate actions, cross-
border investing, global mergers and acquisitions
activity, new debt and equity issuances, and
secondary trading volumes, among other things, all
affect the level of our fee revenue. If the volume of
these activities decrease due to low client activity,
weak financial markets or otherwise, our fee-based
revenues will also decrease, which would negatively
impact our results of operations.

Poor investment returns in our Investment
Management business, due to weak market conditions
or underperformance (relative to competitors or
benchmarks) have resulted in reduced market values
of portfolios that we manage and/or administer and
may affect our ability to retain existing assets and
attract new client assets. Market and regulatory
trends have also resulted in increased demand for
lower fee asset management products, and

performance-based fees, both of which have impacted
and may continue to impact our fee revenue. Some
of these dynamics have also negatively impacted our
Investment Services business fees and any of these
dynamics may also occur in the future. Significant
declines in the volume of capital markets activity
would reduce the number of transactions we process
and the amount of securities we lend and therefore
would also have an adverse effect on our results of
operations. Our business generally benefits when
individuals invest their savings in mutual funds and
other collective funds, unit investment trusts or
exchange-traded funds, or contribute more to defined
contribution plans.

When our Investment Management revenues decline,
we may have, and in the past have had, declines in
the fair value in our Asset Management reporting
unit, one of the two reporting units in our Investment
Management segment. If the fair value of the Asset
Management reporting unit declines below its
carrying value, we would be required to take an
impairment charge.

Weakness and volatility in financial markets and the
economy generally may materially adversely affect
our business, results of operations and financial
condition.

As a financial institution, our Investment
Management, Depositary Receipts and Markets,
including Securities Lending, businesses, are
particularly sensitive to economic and market
conditions, including in the capital and credit
markets. When these markets are volatile or
disruptive, we could experience a decline in our
marked-to-market assets, including in our securities
portfolio and our equity investments, including seed
capital. Our results of operations may be materially
affected by conditions in the financial markets and
the economy generally, both in the U.S. and
elsewhere around the world.

Our foreign exchange trading generates revenues
which are primarily driven by the volume of client
transactions and the spread realized on these
transactions, both of which are impacted by market
volatility and the impact of foreign exchange hedging
activities. Our clients’ cross-border investing activity
could decrease in reaction to economic and political
uncertainties, including changes in laws or
regulations governing cross-border transactions, such
as currency controls or tariffs. Volumes and/or

BNY Mellon 85

Risk Factors (continued)

spreads in some of our products tend to benefit from
currency volatility and are likely to decrease during
times of lower currency volatility. Our revenues also
depend on our ability to manage the risk associated
with the currency transactions we execute and
program pricing.

A variety of factors impact global economies and
financial markets, including interest rates and their
associated yield curves, commodity pricing, such as a
continued weakness in oil prices when compared to
historic highs, certain market and political
instabilities, volatile debt and equity market values,
the strength of the U.S. dollar, the imposition of
tariffs or other limitations on international trade or
travel, high unemployment and governmental budget
deficits (including, in the U.S., at the federal, state
and municipal level), contagion risk from possible
default by other countries on sovereign debt,
declining business and consumer confidence and the
risk of increased inflation. Any resulting economic
pressure on consumers and lack of confidence in the
financial markets may adversely affect certain
portions of our business, financial condition and
results of operations. In particular, we face the
following risks in connection with these factors, some
of which are discussed at greater length in separate
risk factors:

• Geopolitical tension and economic instability in
countries around the world can at times increase
the demand for low-risk investments, particularly
in U.S. Treasuries and the dollar. A “flight to
safety” has historically increased BNY Mellon’s
balance sheet, which has negatively impacted,
and could continue to negatively impact, our
leverage-based regulatory capital measures. A
sustained “flight to safety” has historically
triggered a decline in trading, capital markets and
cross-border activity which would likely decrease
our revenue, negatively impacting our results of
operations, financial condition and, if sustained in
the long term, our business.

• The fees earned by our Investment Management
business are higher as assets under management
and/or investment performance increase. Those
fees are also impacted by the composition of the
assets under management, with higher fees for
some asset categories as compared to others.
Uncertain and volatile capital markets,
particularly declines, could result in reductions in
assets under management because of investors’
decisions to withdraw assets, switch from higher

86 BNY Mellon

to lower fee products or from simple declines in
the value of assets under management as markets
decline. At Dec. 31, 2019, we estimate that a 5%
change in global equity markets, spread evenly
throughout the year, would impact fee revenue by
less than 1% and diluted earnings per common
share by $0.03 to $0.05.

• Market conditions resulting in lower transaction
volumes could have an adverse effect on the
revenues and profitability of certain of our
businesses such as clearing, settlement, payments
and trading.

• Uncertain and volatile capital markets,

particularly declines, could reduce the value of
our investments in securities, including pension
and other post-retirement plan assets and produce
downward pressure on our stock price and credit
availability without regard to our underlying
financial strength.

• Derivative instruments we hold to hedge and
manage exposure to market risks, including
interest rate risk, equity price risk, foreign
currency risk and credit risk associated with our
products and businesses might not perform as
intended or expected, resulting in higher realized
losses and unforeseen stresses on liquidity. Our
derivative-based hedging strategies also rely on
the performance of counterparties to such
derivatives. These counterparties may fail to
perform for various reasons resulting in losses on
under-collateralized positions.

• A decline in oil prices may negatively impact

capital markets and the ability of certain of our
clients, including oil and gas exploration and
production companies and sovereign funds in oil-
exporting countries, to continue using our
services. Increased defaults among oil and gas
exploration and production companies may also
negatively impact the high-yield market and our
high-yield funds.

• The process we use to estimate our projected
credit losses and to ascertain the fair value of
securities held by us is subject to uncertainty in
that it requires use of statistical models and
difficult, subjective and complex judgments,
including forecasts of economic conditions and
how these conditions might impair the ability of
our borrowers and others to meet their
obligations. In uncertain and volatile capital
markets, our ability to estimate our projected
credit losses may be impaired, which could

Risk Factors (continued)

adversely affect our overall profitability and
results of operations.

increases in mortgage prepayment speeds, which
can be caused by refinancing activity.

For a discussion of our management of market risk,
see “Risk Management - Market Risk.”

Changes in interest rates and yield curves could
have a material adverse effect on our profitability.

We earn revenue, known as “net interest revenue,” on
the difference between the interest income earned on
our interest-earning assets, such as the loans we make
and the securities we hold in our investment securities
portfolio, and the interest expense incurred on our
interest-bearing liabilities, such as deposits and
borrowed money. Additionally, we may earn net
interest revenue on certain interest-earning assets and
interest-bearing liabilities, such as reverse repurchase
agreements and repurchase agreements, respectively,
that may be netted and excluded from the balance
sheet based on specific accounting criteria. Our net
interest margin, which is the result of dividing net
interest revenue by average interest-earning assets, is
sensitive to changes in the spread between short-term
and long-term interest rates (the “yield curve”). Our
net interest margin tends to increase in a positive
yield curve environment and decrease when the yield
curve flattens or inverts. A flattening of the yield
curve, on its own or together with the current low
interest rate environment, may continue to adversely
impact our revenue and results of operations by
compressing our net interest spreads, particularly if
we are unable to replace our higher-yielding maturing
assets with assets of comparable yields, which will
constrain our ability to grow net interest margins.

The decrease in rates in the past year, and any further
future rate decreases will likely adversely impact our
revenue and results of operations by:

•

continued compression of our net interest
spreads, depending on our balance sheet position;

constraining our ability to achieve a net interest
margin consistent with historical averages;

sustained weakness of our spread-based revenues,
resulting in continued voluntary waiving of
particular fees on certain money market mutual
funds and related distribution fees by us in order
to prevent the yields on such funds from
becoming uneconomic; and

•

adversely impacting the value of fixed-rate
mortgage-backed securities we hold if there are

A rise in rates could trigger one or more of the
following, which could adversely impact our
business, results of operations and financial
condition, including:

•

less liquidity in bonds and fixed-income funds in
the case of a sharp rise in interest rates resulting
in lower performance, yield and fees;

increased number of delinquencies, bankruptcies
or defaults and more nonperforming assets and
net charge-offs, as borrowers may have more
difficulty making higher interest payments;

higher redemptions from our fixed-income funds
or separate accounts, as clients move funds into
investments with higher rates of return;

decreases in deposit levels, which may reduce our
LCR measure;

reduction in accumulated OCI in our
shareholders’ equity and therefore our tangible
common equity due to the impact of rising long
term rates on our available-for-sale securities in
our investment portfolio, which could negatively
impact our risk-based and leverage based
regulatory capital ratios; or

•

higher funding costs.

A more detailed discussion of the interest rate and
market risks we face is contained in “Risk
Management.”

Transitions away from and the anticipated
replacement of LIBOR and other IBORs could
adversely impact our business and results of
operations.

Globally, financial market participants have begun to
transition away from LIBOR and other interbank
offered rates (together, the “IBORs”) to alternative
reference rates as the UK Financial Conduct
Authority will no longer persuade or compel
contributing bank to submit rates for the calculation
of LIBOR after 2021. This transition is further
supported by the requirements of the EU Benchmarks
Regulation, which no longer permits IBORs that rely
on quotes or estimates submitted by contributing
banks that are not anchored in transaction-based data.
Various regulators, industry bodies and other market
participants in the United States and other countries

BNY Mellon 87

Risk Factors (continued)

are engaged in initiatives to develop, introduce and
encourage the use of alternative rates to replace
certain benchmarks. In the United States, the Secured
Overnight Financing Rate (“SOFR”) has been
identified as an alternative benchmark rate to U.S.
dollar LIBOR. There is no assurance that SOFR or
other alternative benchmark rates will be accepted or
widely used by market participants. The
characteristics of these new rates are not similar to,
nor do they produce the economic equivalent of, the
benchmarks they seek to replace. If a particular
benchmark were to be discontinued and an alternative
rate has not been successfully introduced to replace
that benchmark, this could result in widespread
dislocation in the financial markets, engender
volatility in the pricing of securities, derivatives and
other instruments, and suppress capital markets
activities, all of which could have adverse effects on
our results of operations. Transitions to SOFR and
other alternative rates or benchmarks may cause
LIBOR or the applicable or alternative benchmark
rates to perform differently, or have other
consequences which cannot be predicted. In the
event any such benchmark or other referenced
financial metric is significantly changed or
discontinued (for example, when LIBOR and other
IBORs cease to be published), or are no longer
recognized as an acceptable benchmark, there may be
uncertainty as to the calculation of the applicable
interest rate or payment amount, depending on the
terms of the governing instrument. In addition, even
if the method of calculation of a fallback rate is clear,
the resulting interest rate or payment amount may be
different than the interest rate or payment amount that
would have applied based on the original benchmark.

We may be adversely impacted by the changes
involving LIBOR and other benchmark rates as a
result of our business activities and our underlying
operations. We utilize benchmark rates in a variety of
agreements and instruments and are responsible for
the use of benchmark rates in a variety of capacities,
as well as in our operational functions. We could be
subject to claims alleging that, notwithstanding any
uncertainty around the rate environment, we did not
correctly discharge our responsibilities. We could also
face claims in connection with the interpretation and
implementation of fallback provisions.

Fluctuations in interest rates triggered by the
transition away from LIBOR and other IBORs could
adversely affect the availability or cost of floating-
rate funding. We could experience losses on a

88 BNY Mellon

product or have to pay more or receive less on
securities that we own or have issued. We may also
not be able to successfully amend or renegotiate
IBOR-based agreements and instruments. A variety
of factors may affect the transition from existing
IBOR-based rates to alternative benchmark rates,
including for example, whether transactions that
serve as the basis for alternative benchmark rates and
IBOR-based rates are similarly secured (or
unsecured) transactions, or are of a similar tenor.

Divergences between existing IBOR-based and
alternative benchmark rates may result in our hedges
being ineffective. In addition, uncertainty relating to
LIBOR or another benchmark could result in, and in
some cases have resulted in, pricing volatility,
increased capital requirements, loss of market share
in certain products, adverse tax or accounting
consequences, higher compliance, legal and
operational costs, and risks associated with client
disclosures, discretionary actions taken or negotiation
of fallback provisions, as well as business continuity
and systems and model disruption, all of which may
adversely impact our business and results of
operations. Use of alternative benchmark rates may
also, in some cases, be limited or prohibited by
contract, law or regulation.

There can be no assurance that we, other market
participants, clients and vendors will be adequately
prepared for an actual discontinuation of IBORs, that
existing assets and liabilities based on or linked to
IBORs will transition successfully to alternative
benchmark rates or that appropriate systems and
analytics would be developed for one or more
alternative benchmark rates, any of which could
adversely impact our business, financial condition
and results of operations.

The UK’s withdrawal from the EU may have
negative effects on global economic conditions,
global financial markets, and our business and
results of operations.

On Jan. 31, 2020, the UK withdrew from the EU with
terms governing a transition period until Dec. 31,
2020. While the UK will continue to have access to
the EU’s single market during the transition period,
the future relationship between the UK and the EU
has yet to be negotiated, the uncertainty of which may
create volatility in the global financial markets in the
short- and medium-term and may negatively disrupt
regional and global financial markets.

Risk Factors (continued)

In the event the UK and the EU fail to negotiate a
future economic relationship covering financial
services by the end of the transition period, we, and
other financial institutions, may face disruption to our
operations. This includes potential uncertainty with
regard to divergent regulatory standards after the end
of the transition period, which may affect operational
capabilities and could lead to increased operational,
regulatory and compliance costs. The effects of the
UK’s exit from the EU, including those described
above, could adversely affect our business, results of
operations and financial condition.

We have executed plans adjusting our business and
operations so we may continue providing our
products and services to our UK and EU clients after
the UK’s withdrawal from the EU. However, given
the potential negative disruption to regional and
global financial markets, our results of operations and
business prospects could be negatively affected. For
additional information regarding Brexit, see “Other
Matters - UK’s Withdrawal from the EU (“Brexit”).

We may experience losses on securities related to
volatile and illiquid market conditions, reducing our
earnings and impacting our financial condition.

We maintain an investment securities portfolio of
various holdings, types and maturities. At Dec. 31,
2019, approximately 72% of these securities were
classified as available-for-sale, which are recorded on
our balance sheet at fair value with unrealized gains
or losses reported as a component of accumulated
other comprehensive income, net of tax. The
securities in our held-to-maturity portfolio, recorded
on our balance sheet at amortized cost, were
approximately 28% of our securities portfolio at Dec.
31, 2019. Our available-for-sale securities portfolio,
to the extent unhedged, may have more volatility than
a portfolio comprised exclusively of U.S. Treasury
securities or a more traditional loan portfolio.

Our investment securities portfolio represents a
greater proportion of our consolidated total assets
(approximately 32% at Dec. 31, 2019), and our loans
represent a smaller proportion of our consolidated
total assets (approximately 14% at Dec. 31, 2019), in
comparison to many other major U.S. financial
institutions due to our custody and trust bank business
model. As such, our capital levels and results of
operations and financial condition are materially
exposed to the risks associated with our investment
securities and loan portfolio.

If any of our available-for-sale securities experience a
credit impairment, it would negatively impact our
earnings. If our held-to-maturity securities
experience a loss in fair value, it would negatively
impact the fair value of our securities portfolio,
although it would not impact our earnings unless a
credit event occurred. Many of these securities
experienced significant liquidity, valuation and credit
quality deterioration during the 2008 financial crisis
and could experience a similar deterioration in the
future. U.S. state and municipal bonds have been
experiencing stress in light of fiscal concerns.

Under the U.S. capital rules, after-tax changes in the
fair value of available-for-sale investment securities
are included in CET1 capital. Since loans and held-
to-maturity securities are not subject to fair-value
accounting, changes in the fair value of these
instruments (other than incurred credit losses) are not
similarly included in the determination of CET1
capital. As a result, we may experience increased
variability in our CET1 capital relative to those major
financial institutions who maintain a lower proportion
of their consolidated total assets in an available-for-
sale accounting classification.

Generally, the fair value of available-for-sale
securities is determined based on market prices
available from third-party sources. During periods of
market disruption, it may be difficult to value certain
of our investment securities if trading becomes less
frequent and/or market data becomes less observable.
As a result, valuations may include inputs and
assumptions that are less observable or require
greater estimation and judgment as well as valuation
methods which are more complex. These values may
not be ultimately realizable in a market transaction,
and such values may change very rapidly as market
conditions change and valuation assumptions are
modified. Decreases in value may have a material
adverse effect on our results of operations or financial
condition. If any of our securities suffer credit losses,
we may recognize the credit losses as an impairment
which would impact our revenue in the period in
which we recognize the losses. The decision on
whether to record an impairment is determined in part
by management’s assessment of the financial
condition and prospects of a particular issuer,
projections of future cash flows and recoverability of
the particular security. Management’s conclusions on
such assessments are highly judgmental and include
assumptions and projections of future cash flows
which may ultimately prove to be incorrect as

BNY Mellon 89

Risk Factors (continued)

assumptions, facts and circumstances change. On the
other hand, we are limited in the actions we can take
related to our held-to-maturity securities absent a
significant deterioration in the issuer’s
creditworthiness. Therefore, we may be constrained
in our ability to liquidate a held-to-maturity security
that is deteriorating in value, which would negatively
impact the fair value of our securities portfolio. If
our determinations change about our intention or
ability to not sell available-for-sale securities that
have experienced a reduction in fair value below their
amortized cost, we could be required to recognize a
loss in earnings for the entire difference between fair
value and amortized cost.

For information regarding our investment securities
portfolio, refer to “Consolidated balance sheet review
- Securities” and for information regarding the
sensitivity of and risks associated with the market
value of portfolio investments and interest rates, refer
to “Critical accounting estimates - Fair value -
Securities.”

Credit and Liquidity Risk

The failure or perceived weakness of any of our
significant clients or counterparties, many of whom
are major financial institutions and sovereign
entities, and our assumption of credit and
counterparty risk, could expose us to loss and
adversely affect our business.

We have exposure to clients and counterparties in
many different industries, particularly financial
institutions, as a result of trading, clearing and
financing, providing custody services, securities
lending services or other relationships. We routinely
execute transactions with global clients and
counterparties in the financial industry as well as
sovereigns and other governmental or quasi-
governmental entities. Our direct exposure consists
of the extension of secured and unsecured credit to
clients and use of our balance sheet. In addition to
traditional credit activities, we also extend intraday
credit in order to facilitate our various processing,
settlement and intermediation activities. Our ability
to engage in funding or other transactions could be
adversely affected by the actions and commercial
soundness of other financial institutions or sovereign
entities, as defaults or non-performance (or even
uncertainty concerning such default or non-
performance) by one or more financial institutions, or
the financial services industry generally, have in the

90 BNY Mellon

past led to market-wide liquidity problems and could
lead to losses or defaults by us or by other institutions
(including our counterparties and/or clients) in the
future. The consolidation and failures of financial
institutions during the 2008 financial crisis increased
the concentration of our client and counterparty risk.

As a result of our membership in several industry
clearing or settlement exchanges and central
counterparty clearinghouses, we may be required to
guarantee obligations and liabilities or provide
financial support in the event that other members do
not honor their obligations or default. These
obligations may be limited to members that dealt with
the defaulting member or to the amount (or a multiple
of the amount) of our contribution to a clearing or
settlement exchange guarantee fund, or, in a few
cases, the obligation may be unlimited.

The degree of client demand for short-term credit also
tends to increase during periods of market turbulence.
For example, investors in mutual funds for which we
act as custodian may engage in significant
redemption activity due to adverse market or
economic conditions. We may then extend intraday
credit to our fund clients in order to facilitate their
ability to pay such redemptions. This may negatively
impact our leverage-based capital ratios, and in times
of sustained market volatility, may result in
significant leverage-based ratio declines.

When we provide credit to clients in connection with
providing cash management, clearing, custodial and
other services, we are exposed to potential loss if the
client experiences credit difficulties. We are also
generally not able to net exposures across affiliated
clients or counterparties and may not be able to net
exposures to the same legal entity across multiple
products. In addition, we may incur a loss in relation
to one entity or product even though our exposure to
one of the entities’ affiliates is over-collateralized.
Moreover, not all of our client or counterparty
exposure is secured.

In our agency securities lending program, we act as
agent on behalf of our clients, the lenders of
securities, in securities lending transactions with our
clients’ counterparties (including broker-dealers),
acting as borrowers, wherein securities are lent by our
clients and the securities loans are collateralized by
cash or securities posted by such counterparties.
Typically, in the case of cash collateral, our clients
authorize us as their agent to invest the cash collateral

Risk Factors (continued)

in approved investments pursuant to each client’s
investment guidelines and instructions. Such
approved investments may include reverse repurchase
transactions with repo counterparties. In many cases,
in the securities loans we enter into on behalf of our
clients, we agree to replace the client’s loaned
securities that the borrower fails to return due to
certain defaults by the borrower, mainly the
borrower’s insolvency. Therefore, in situations where
the market value of the loaned securities that the
borrower fails to return to a client (which loaned
securities we are obligated to replace and return to the
client) exceeds the amount of proceeds resulting from
the liquidation of the client’s approved investments
and cash and non-cash collateral of such client, we
may be responsible for the shortfall amount necessary
to purchase any replacement securities. In addition,
in certain cases, we may also assume the risk of loss
related to approved investments that are reverse
repurchase transactions as described above. In these
two scenarios, we, rather than our clients, are exposed
to the risks of the defaulting counterparty in the
securities lending transactions and, where applicable,
in the reverse repurchase transactions. For further
discussion on our securities lending indemnifications,
see “Commitments and contingent liabilities - Off-
balance sheet arrangements” in Note 22 of the Notes
to Consolidated Financial Statements.

From time to time, we assume concentrated credit
risk at the individual obligor, counterparty or group
level, potentially exposing us to a single market or
political event or a correlated set of events. For
example, we may be exposed to defaults by
companies located in countries with deteriorating
economic conditions or by companies in certain
industries. Such concentrations may be material.
Our material counterparty exposures change daily,
and the counterparties or groups of related
counterparties to which our risk exposure is material
also vary during any reported period; however, our
largest exposures tend to be to other financial
institutions, clearing organizations, and governmental
entities, both inside and outside the U.S.
Concentration of counterparty exposure presents
significant risks to us and to our clients because the
failure or perceived weakness of our counterparties
(or in some cases of our clients’ counterparties) has
the potential to expose us to risk of financial loss.
Changes in market perception of the financial
strength of particular financial institutions or
sovereign issuers can occur rapidly, are often based
on a variety of factors and are difficult to predict.

Although our overall business is subject to these
interdependencies, several of our businesses are
particularly sensitive to them, including our currency
and other trading activities, our securities lending and
securities finance businesses and our investment
management business. If we experience any of the
losses described above, it may materially and
adversely affect our results of operations.

We are also subject to the risk that our rights against
third parties may not be enforceable in all
circumstances. In addition, deterioration in the credit
quality of third parties whose securities or obligations
we hold, including a deterioration in the value of
collateral posted by third parties to secure their
obligations to us under derivatives contracts and other
agreements, could result in losses and/or adversely
affect our ability to rehypothecate or otherwise use
those securities or obligations for liquidity purposes.
Disputes with clients and counterparties as to the
valuation of collateral can significantly increase in
times of market stress and illiquidity. In addition,
disruptions in the liquidity or transparency of the
financial markets may result in our inability to sell,
syndicate or realize the value of our positions,
thereby leading to increased concentrations. An
inability to reduce our positions may not only
increase the market and credit risks associated with
such positions, but may also increase the level of
RWA on our balance sheet, thereby increasing our
capital requirements and funding costs, all of which
could adversely affect the operations and profitability
of our businesses.

Under U.S. regulatory restrictions on credit exposure,
which include a broadening of the measure of credit
exposure, we are required to limit our exposures to
specific obligors or groups, including financial
institutions. These regulatory credit exposure
restrictions may adversely affect our businesses and
may require us to modify our operating models or the
policies and practices we use.

Our business, financial condition and results of
operations could be adversely affected if we do not
effectively manage our liquidity.

BNY Mellon’s operating model and overall strategy
rely heavily on our access to financial market utilities
and global capital markets. Without such access, it
would be difficult to process payments and settle and
clear transactions on behalf of our clients.
Deterioration in our liquidity position, whether actual

BNY Mellon 91

Risk Factors (continued)

or perceived, can impact our market access by
affecting participants’ willingness to transact with us.
Changes to our liquidity can be caused by various
factors, such as funding mismatches, market
constraints disabling asset to cash conversion,
inability to issue debt, run-offs of core deposits, and
contingent liquidity events such as additional
collateral posting. Changes in economic conditions
or exposure to credit, market, operational, legal and
reputational risks can also affect our liquidity.

Our business is dependent in part on our ability to
meet our cash and collateral obligations at a
reasonable cost for both expected and unexpected
cash flows. We also must manage liquidity risks on
an intraday basis, in a manner designed to ensure that
we can access required funds during the business day
to make payments or settle immediate obligations,
often in real time. We receive client deposits through
a variety of investment management and investment
servicing businesses and we rely on those deposits as
a low-cost and stable source of funding. Our ability
to continue to receive those deposits, and other short-
term funding sources, is subject to variability based
on a number of factors, including volume and
volatility in the global securities markets, the relative
interest rates that we are prepared to pay for those
deposits, and the perception of the safety of those
deposits or other short-term obligations relative to
alternative short-term investments available to our
clients. We could lose deposits if we suffer a
significant decline in the level of our business
activity, our credit ratings are materially downgraded,
interest rates rise, or we are subject to significant
negative press or significant regulatory action or
litigation, among other reasons. If we were to lose a
significant amount of deposits we may need to
replace such funding with more expensive funding
and/or reduce assets, which would reduce our net
interest revenue.

In addition, our access to the debt capital markets is a
significant source of liquidity. Events or
circumstances often outside of our control, such as
market disruptions, government fiscal and monetary
policies, or loss of confidence by securities
purchasers or counterparties in us or in the funds
markets, could limit our access to capital markets,
increase our cost of borrowing, adversely affect our
liquidity, or impair our ability to execute our business
plan. In addition, clearing organizations, regulators,
clients and financial institutions with which we
interact may exercise the right to require additional

92 BNY Mellon

collateral based on market perceptions or market
conditions, which could further impair our access to
and cost of funding. Market perception of sovereign
default risks can also lead to inefficient money
markets and capital markets, which could further
impact BNY Mellon’s funding availability and cost.
Conversely, excess liquidity inflows could increase
interest expense, limit our financial flexibility, and
increase the size of our total assets in a manner that
could have a negative impact on our capital ratios.

Under the U.S. capital rules, the size of the capital
surcharge that applies to U.S. G-SIBs is based in part
on its reliance on short-term wholesale funding,
including certain types of deposit funding, which may
increase the cost of such funding. Furthermore,
certain non-U.S. authorities require large banks to
incorporate a separate subsidiary in countries in
which they operate, and to maintain independent
capital and liquidity at foreign subsidiaries. These
requirements could hinder our ability to efficiently
manage our funding and liquidity in a centralized
manner, requiring us to hold more capital and
liquidity overall.

In addition, our cost of funding could be affected by
actions that we may take in order to satisfy applicable
LCR and NSFR requirements, to lower our G-SIB
surcharge, to satisfy the amount of eligible long-term
debt outstanding under the TLAC Rule, to address
obligations under our resolution plan or to satisfy
regulatory requirements in non-U.S. jurisdictions
relating to the pre-positioning of liquidity in certain
subsidiaries.

If we are unable to raise funds using the methods
described above, we would likely need to finance or
liquidate unencumbered assets, such as our central
bank deposits and bank placements, or securities in
our investment portfolio to meet funding needs. We
may be unable to sell some of our assets, or we may
have to sell assets at a discount from market value,
either of which could adversely affect our financial
condition and results of operations. Further, our
ability to sell assets may be impaired if other market
participants are seeking to sell similar assets at the
same time, which could occur in a liquidity or other
market crisis. Additionally, if we experience cash
flow mismatches, deposit run-off or market
constraints resulting from our inability to convert
assets to cash or access capital markets, our liquidity
could be severely impacted. During periods of
market uncertainty, our level of client deposits has in

Risk Factors (continued)

recent years tended to increase; however, because
these deposits have high potential run-off rates, we
have historically deposited these so-called excess
deposits with central banks and in other highly liquid
and low-yielding instruments.

If we are unable to continue to fund our assets
through deposits or access capital markets on
favorable terms or if we suffer an increase in our
borrowing costs or otherwise fail to manage our
liquidity effectively, our liquidity, net interest margin,
financial results and condition may be materially
adversely affected. In certain cases, this could
require us to raise additional capital through the
issuance of preferred or common stock, which could
dilute the ownership of existing stockholders, and/or
reduce our common stock dividend to preserve
capital.

For a further discussion of our liquidity, see
“Liquidity and dividends.”

We could incur losses if our allowance for credit
losses, including loan and lending-related
commitments reserves, is inadequate.

When we loan money, commit to loan money or
provide credit or enter into another contract with a
counterparty, we incur credit risk, or the risk of loss if
our borrowers do not repay their loans or our
counterparties fail to perform according to the terms
of their agreements. Our revenues and profitability
are adversely affected when our borrowers default, in
whole or in part, on their loan obligations to us or
when there is a significant deterioration in the credit
quality of our loan portfolio. We reserve for potential
future credit losses by recording a provision for credit
losses through earnings. The allowance for loan
losses and allowance for lending-related
commitments represents management’s estimate of
probable losses inherent in our credit portfolio as of
Dec. 31, 2019 and, upon adoption of ASU 2016-13,
Financial Instruments - Credit Losses: Measurement
of Credit Losses on Financial Instruments in the first
quarter 2020, will represent current expected credit
losses over the lifetime of the related credit exposure.
We use a quantitative methodology and qualitative
framework for determining the allowance for loan
losses and the allowance for lending-related
commitments. Within this qualitative framework,
management applies judgment when assessing
internal risk factors and environmental factors to
compute an additional allowance for each component

of the loan portfolio. As is the case with any such
judgments, we could fail to identify these factors or
accurately estimate their impact. We cannot provide
any assurance as to whether charge-offs related to our
credit exposure may occur in the future. Current and
future market and economic developments may
increase default and delinquency rates and negatively
impact the quality of our credit portfolio, which may
impact our charge-offs. Although our estimates
contemplate current conditions, and, after adoption of
ASU 2016-13, will contemplate current conditions
and how we expect them to change over the life of
the portfolio, it is reasonably possible that actual
conditions could be worse than anticipated in those
estimates, which could materially affect our results of
operations and financial condition. See “Critical
accounting estimates.”

Any material reduction in our credit ratings or the
credit ratings of our principal bank subsidiaries,
The Bank of New York Mellon or BNY Mellon,
N.A., could increase the cost of funding and
borrowing to us and our rated subsidiaries and have
a material adverse effect on our results of
operations and financial condition and on the value
of the securities we issue.

Our debt and preferred stock and the debt and
deposits of our principal bank subsidiaries, The Bank
of New York Mellon and BNY Mellon, N.A., are
currently rated investment grade by the major rating
agencies. These rating agencies regularly evaluate us
and our rated subsidiaries. Their credit ratings are
based on a number of factors, including our financial
strength, performance, prospects and operations, as
well as factors not entirely within our control,
including conditions affecting the financial services
industry generally and the U.S. government. Rating
agencies employ different models and formulas to
assess the financial strength of a rated company, and
from time to time rating agencies have, in their
discretion, altered these models. Changes to rating
agency models, general economic conditions or other
circumstances outside our control could negatively
impact a rating agency’s judgment of the rating or
outlook it assigns to us or our rated subsidiaries. As a
result, we or our rated subsidiaries may not be able to
maintain our respective credit ratings or outlook on
our securities.

A material reduction in our credit ratings or the credit
ratings of our rated subsidiaries, which can occur at
any time without notice, could have a material

BNY Mellon 93

Risk Factors (continued)

adverse effect on our access to credit markets, the
related cost of funding and borrowing, our credit
spreads, our liquidity and on certain trading revenues,
particularly in those businesses where counterparty
creditworthiness is critical. In addition, in connection
with certain over-the-counter derivatives contracts
and other trading agreements, counterparties may
require us or our rated subsidiaries to provide
additional collateral or to terminate these contracts
and agreements and collateral financing arrangements
in the event of a credit ratings downgrade below
certain ratings levels. The requirement to provide
additional collateral or terminate these contracts and
agreements could impair our liquidity by requiring us
to find other sources of financing or to make
significant cash payments or securities movements. A
downgrade by any one rating agency, depending on
the agency’s relative ratings of the firm at the time of
the downgrade, may have an impact comparable to
the impact of a downgrade by all rating agencies. If a
rating agency downgrade were to occur during
broader market instability, our options for responding
to events may be more limited and more expensive,
possibly significantly. An increase in the costs of our
funding and borrowing, or an impairment of our
liquidity, could have a material adverse effect on our
results of operations and financial condition. A
material reduction in our credit ratings also could
decrease the number of investors and counterparties
willing or permitted to do business with or lend to us
and adversely affect the value of the securities we
have issued or may issue in the future.

We cannot predict what actions rating agencies may
take, or what actions we may elect or be required to
take in response thereto, which may adversely affect
us. For further discussion on the impact of a credit
rating downgrade, see “Disclosure of contingent
features in OTC derivative instruments” in Note 23 of
the Notes to Consolidated Financial Statements.

Strategic Risk

New lines of business, new products and services or
transformational or strategic project initiatives may
subject us to additional risks, and the failure to
implement these initiatives could affect our results
of operations.

substantial risks and uncertainties associated with
these efforts. We invest significant time and
resources in developing and marketing new lines of
business, products and services and executing on our
transformational and strategic initiatives. For
example, we have devoted considerable resources to
developing new technology solutions for our clients.
If these technology solutions are not successful, it
could adversely impact our reputation, business and
results of operations.

Regulatory requirements can affect whether
initiatives are able to be brought to market in a
manner that is timely and attractive to our customers.
Initial timetables for the development and
introduction of new lines of business or new products
or services and price and profitability targets may not
be met. Furthermore, our revenues and costs may
fluctuate because new businesses or products and
services generally require startup costs while
revenues may take time to develop, which may
adversely impact our results of operations.

From time to time we undertake transformational or
strategic project initiatives. Significant effort and
resources are necessary to manage and oversee the
successful completion of these initiatives. These
initiatives often place significant demands on
management and a limited number of employees with
subject matter expertise and may involve significant
costs to implement as well as increase operational
risk as employees learn to process transactions under
new systems. The failure to properly execute on
these transformational or strategic initiatives could
adversely impact our business, reputation and results
of operations.

Legal, regulatory and reputational risks may also
exist in connection with dealing with new products or
markets, or clients and customers whose businesses
focus on such products or markets, where there is
regulatory uncertainty or different or conflicting
regulations depending on the regulator or the
jurisdiction.

We are subject to competition in all aspects of our
business, which could negatively affect our ability to
maintain or increase our profitability.

From time to time, we may launch new lines of
business, offer new products and services within
existing lines of business or undertake
transformational or strategic projects. There are

Many businesses in which we operate are intensely
competitive around the world. Larger and more
geographically diverse companies, and financial
technology firms that invest substantial resources in

94 BNY Mellon

Risk Factors (continued)

developing and designing new technology (in
particular digital and mobile technology) and that are
not subject to the same level of regulation, may be
able to offer financial products and services at more
competitive prices than we are able to offer. Pricing
pressures, as a result of the willingness of competitors
to offer comparable or improved products or services
at a lower price, may result in a reduction in the price
we can charge for our products and services, which
could, and in some cases has, negatively affected our
ability to maintain or increase our profitability.

In addition, technological advances have made it
possible for other types of non-depository
institutions, such as financial technology firms,
outsourcing companies and data processing
companies, to offer a variety of products and services
competitive with certain areas of our business.
Competitors may develop technological advances that
could negatively impact our transaction execution or
the pricing of our clearing, settlement, payments and
trading activities. In the future, financial technology
firms may be able to provide traditional banking
products and services by obtaining a bank-like
charter, such as the OCC’s fintech charter, or offer
cryptocurrencies.

Markets, and the manner in which our clients interact
and transact within markets, can evolve quickly,
particularly if new or disruptive technologies are
introduced. Our failure to either anticipate, or
participate in, the transformational change within a
given market could result in potential negative
financial impact. In addition, business continuity and
operational resiliency are competitive factors and any
delay in our ability to maintain operations during, and
recover quickly from, unexpected events could
impact our ability to retain clients. Increased
competition in any of these areas may require us to
make additional capital investments in our businesses
in order to remain competitive. For example, along
with other financial institutions, we are researching
ways to adapt robotic process automation and
distributed ledger technology to bank services. If we
are not able to adapt these technologies as
successfully as our peers, we may become less
competitive.

Furthermore, regulations could impact our ability to
conduct certain of our businesses in a cost-effective
manner or at all. The more restrictive laws and

regulations applicable to the largest U.S. financial
services institutions, including the U.S. capital rules,
can put us at a competitive disadvantage relative to
both our non-U.S. competitors and U.S. competitors
not subject to the same laws and regulations. See
“Supervision and Regulation.”

Our business may be adversely affected if we are
unable to attract and retain employees.

Our success depends, in large part, on our ability to
attract new employees, retain and motivate our
existing employees, and continue to compensate our
employees competitively amid heightened regulatory
restrictions. Competition for the most skilled
employees in most activities in which we engage can
be intense, and we may not be able to recruit and
retain key personnel.

We rely on certain employees with subject matter
expertise to assist in the implementation of important
initiatives. As technology and risk management
increase in focus in the financial industry,
competition for technologists and risk personnel has
intensified, which could constrain our ability to
execute on certain of our strategic initiatives.

Our ability to attract and retain key executives and
other employees may be negatively affected by recent
changes to immigration policies and restrictions
applicable to incentive and other compensation
programs, including limits on our ability to deduct for
federal income tax purposes compensation in excess
of $1 million paid to certain current and former
executives, as well as deferral, clawback
requirements and other limits on incentive
compensation. Some of these restrictions may not
apply to some of our competitors and to other
institutions with which we compete for talent, in
particular as we are more often competing for
personnel with financial technology providers and
other entities that are not regulated banking
organizations that may not have the same limitations
on compensation as we do.

The loss of employees’ skills, knowledge of the
market, industry experience, and the cost of finding
replacements may hurt our business. If we are unable
to continue to attract and retain highly qualified
employees, our performance, including our
competitive position, could be adversely affected.

BNY Mellon 95

Risk Factors (continued)

Our strategic transactions present risks and
uncertainties and could have an adverse effect on
our business, results of operations and financial
condition.

From time to time, to achieve our strategic objectives,
we have acquired, disposed of, or invested in
(including through joint venture relationships)
companies and businesses and have entered into
strategic alliances or other collaborations with third
party service providers to deliver products and
services to clients, and may do so in the future. Our
ability to pursue or complete strategic transactions is
in certain instances subject to regulatory approval and
we cannot be certain when or if, or on what terms and
conditions, any required regulatory approvals would
be granted. Moreover, to the extent we pursue a
strategic transaction, there can be no guarantee that
the transaction will close when anticipated, or at all.
If a strategic transaction does not close, or if the
strategic transaction fails to maximize shareholder
value or required regulatory approval is not obtained,
it could have an adverse effect on our business,
results of operations and financial condition.

Each acquisition poses integration challenges,
including successfully retaining and assimilating
clients and key employees, capitalizing on certain
revenue synergies and integrating the acquired
company’s culture, control functions, systems and
technology. In some cases, acquisitions involve entry
into new businesses or new geographic or other
markets, and these situations also present risks and
uncertainties in instances where we may be
inexperienced in these new areas. We may be
required to spend a significant amount of time and
resources to integrate these acquisitions. The
anticipated integration benefits may take longer to
achieve than projected and the time and cost needed
to consolidate control functions, platforms and
systems may significantly exceed our estimates. If
we fail to successfully integrate strategic acquisitions,
including doing so in a timely and cost-effective
manner, we may not realize the expected benefits,
which could have an adverse impact on our business,
financial condition and results of operations. In
addition, we may incur expenses, costs, losses,
penalties, taxes and other liabilities related to the
conduct of the acquired businesses prior to the date of
our ownership (including in connection with the
defense and/or settlement of legal and regulatory
claims, investigations and proceedings) which may
not be recoverable through indemnification or

96 BNY Mellon

otherwise. If the purchase price we pay in an
acquisition exceeds the fair value of assets acquired
less the liabilities we assume, then we may need to
recognize goodwill on our consolidated balance
sheet. Goodwill is an intangible asset that is not
eligible for inclusion in regulatory capital under
applicable requirements. Further, if the value of the
acquisition declines, we may be required to record an
impairment charge.

Each disposition also poses challenges, including
separating the disposed businesses, products and
systems in a way that is cost-effective and is not
disruptive to us or our customers. In addition, the
inherent uncertainty involved in the process of
evaluating, negotiating or executing a potential sale
of one of our companies or businesses may cause the
loss of key clients, employees and business partners
which could have an adverse impact on our business,
financial condition and results of operations.

Joint ventures, non-controlling investments, strategic
alliances and other collaborations contain potentially
increased financial, legal, reputational, operational,
regulatory and/or compliance risks. We may be
dependent on joint venture partners, firms with which
we collaborate, controlling shareholders or
management who may have business interests,
strategies or goals that are inconsistent with ours.
Business decisions or other actions or omissions of
the joint venture partner, the firms with which we
collaborate, controlling shareholders or management
may adversely affect the value of our investment (or,
in the case of strategic alliances or other
collaborations, the value of our products or services),
impacting our results of operations, result in litigation
or regulatory action against us and otherwise damage
our reputation and brand.

Other Risks

Tax law changes or challenges to our tax positions
with respect to historical transactions may adversely
affect our net income, effective tax rate and our
overall results of operations and financial condition.

In the course of our business, we receive inquiries
and challenges from both U.S. and non-U.S. tax
authorities on the amount of taxes we owe. If we are
not successful in defending these inquiries and
challenges, we may be required to adjust the timing
or amount of taxable income or deductions or the
allocation of income among tax jurisdictions, all of

Risk Factors (continued)

which can require a greater provision for taxes or
otherwise negatively affect earnings. Probabilities
and outcomes are reviewed as events unfold, and
adjustments to the reserves are made when necessary,
but the reserves may prove inadequate because we
cannot necessarily accurately predict the outcome of
any challenge, settlement or litigation or the extent to
which it will negatively affect us or our business.
Future tax laws or the expiration of or changes in
existing tax laws, or the interpretation of those laws
worldwide, could also have a material impact on our
business or net income. Our actions taken in
response to, or reliance upon, such changes in the tax
laws may impact our tax position in a manner that
may result in lower earnings. See Note 12 of the
Notes to Consolidated Financial Statements for
further information.

Our ability to return capital to shareholders is
subject to the discretion of our Board of Directors
and may be limited by U.S. banking laws and
regulations, including those governing capital and
the approval of our capital plan, applicable
provisions of Delaware law or our failure to pay full
and timely dividends on our preferred stock.

Holders of our common and preferred stock are only
entitled to receive such dividends or other
distributions of capital as our Board of Directors may
declare out of funds legally available for such
payments. Although we have historically declared
cash dividends on our common and preferred stock,
we are not required to do so. In addition to the Board
of Directors’ approval, our ability to take certain
actions, including our ability to declare dividends or
repurchase our common stock, is dependent on,
among other things, Federal Reserve non-objection
under the annual regulatory review of the results of
the CCAR process and the supervisory stress tests
required under the Dodd-Frank Act. These
evaluations, in turn, are dependent on, among other
things, our successful demonstration that we can
maintain capital levels above regulatory minimums in
the event of a stressed market environment. There
can be no assurance that the Federal Reserve will not
object to our future capital plans or otherwise limit
our ability to make capital distributions or that we
will perform adequately on our supervisory stress
tests. If the Federal Reserve objects to our proposed
capital actions or otherwise limits our ability to make
capital distributions or we underperform on our stress
tests, we may be required to revise our stress-testing
or capital management approaches, resubmit our

capital plan or postpone, or cancel or alter our
planned capital actions, and we would not be
permitted to make any capital distributions other than
those to which the Federal Reserve has indicated its
non-objection. The Federal Reserve is also able,
outside the CCAR non-objection process, to restrict
our ability to make capital distributions and subject us
to other supervisory or enforcement actions. We may
also be required to resubmit our capital plan in the
event of changes in our risk profile (including a
material change in business strategy or risk
exposure), financial condition or corporate structure.

Our ability to accurately predict or explain the
outcome of the CCAR process is influenced by
evolving supervisory criteria. Although the Federal
Reserve will no longer object to our annual capital
plan as part of CCAR on qualitative grounds, BNY
Mellon will continue to be subject to a rigorous
evaluation of its capital planning processes. If the
Federal Reserve determined that our capital planning
processes were weak, we could, for example, be
subject to a deficient supervisory rating, and
potentially an enforcement action, for failing to meet
supervisory expectations. In addition, BNY Mellon,
as noted, remains subject to a potential objection on
quantitative grounds. The Federal Reserve may, as
part of its stated goal to continually evolve its annual
stress testing requirements, adjust several parameters
of the annual stress testing process, including the
severity of the stress test scenario and the addition of
components deemed important by the Federal
Reserve (e.g., a counterparty failure). Further,
because the Federal Reserve’s proprietary stress test
models and qualitative assessment may differ from
the modeling techniques and capital planning
practices employed by us, it is foreseeable that our
stress test results (using our own models, estimation
methodologies and processes) may not be consistent
with those disclosed by the Federal Reserve. In
addition, the Federal Reserve has proposed to replace
the capital conservation buffer with a “stress capital
buffer,” which would result in the integration of the
G-SIB surcharge with stress-based capital
requirements.

The Federal Reserve’s instructions for the 2019
CCAR provide that, for large BHCs like BNY
Mellon, common stock dividend payout ratios
exceeding 30% of after-tax net income available to
common shareholders under certain baseline
scenarios will receive particularly close scrutiny. A
failure to increase dividends along with our

BNY Mellon 97

Risk Factors (continued)

competitors, or any reduction of, or elimination of,
our common stock dividend would likely adversely
affect the market price of our common stock, impact
our return on equity and market perceptions of BNY
Mellon.

Our ability to declare or pay dividends on, or
purchase, redeem or otherwise acquire, shares of our
common stock or any of our shares that rank junior to
preferred stock as to the payment of dividends and/or
the distribution of any assets on any liquidation,
dissolution or winding-up of BNY Mellon will be
prohibited, subject to certain exceptions, in the event
that we do not declare and pay in full dividends for
the then-current dividend period of our Series A
preferred stock or the last preceding dividend period
of our Series C, Series D, Series E or Series F
preferred stock.

In addition, regulatory capital rules that are or will be
applicable to us including the U.S. capital rules risk-
based capital requirements, the SLR, enhanced SLR,
the TLAC Rule and the U.S. G-SIB surcharge may
limit or otherwise restrict how we utilize our capital,
including common stock dividends and stock
repurchases, and may require us to increase or alter
the mix of our outstanding regulatory capital
instruments.

Any requirement to increase our regulatory capital
ratios or alter the composition of our capital could
require us to liquidate assets or otherwise change our
business and/or investment plans, which may
negatively affect our financial results. Further, any
requirement to maintain higher levels of capital may
constrain our ability to return capital to shareholders
either in the form of common stock dividends or
stock repurchases.

The Parent is a non-operating holding company,
and as a result, is dependent on dividends from its
subsidiaries and extensions of credit from its IHC to
meet its obligations, including with respect to its
securities, and to provide funds for share
repurchases and payment of dividends to its
stockholders.

The Parent is a non-operating holding company,
whose principal assets and sources of income are its
principal U.S. bank subsidiaries - The Bank of New
York Mellon and BNY Mellon, N.A. - and its other
subsidiaries, including the IHC. The Parent is a legal
entity separate and distinct from its banks, the IHC

98 BNY Mellon

and other subsidiaries. Therefore, the Parent
primarily relies on dividends, interest, distributions,
and other payments from its subsidiaries, including
extensions of credit from the IHC, to meet its
obligations, including with respect to its securities,
and to provide funds for share repurchases and
payment of common and preferred dividends to its
stockholders, to the extent declared by the Board of
Directors.

There are various limitations on the extent to which
our banks and other subsidiaries can finance or
otherwise supply funds to the Parent (by dividend or
otherwise) and certain of our affiliates. Each of these
restrictions can reduce the amount of funds available
to meet the Parent’s obligations. Many of our
subsidiaries, including our bank subsidiaries, are
subject to laws and regulations that restrict dividend
payments or authorize regulatory bodies to block or
reduce the flow of funds from those subsidiaries to
the Parent or other subsidiaries. In addition, our bank
subsidiaries would not be permitted to distribute a
dividend if doing so would constitute an unsafe and
unsound practice or if the payment would reduce their
capital to an inadequate level. Our subsidiaries may
also choose to restrict dividend payments to the
Parent in order increase their own capital or liquidity
levels. Our bank subsidiaries are also subject to
restrictions on their ability to lend to or transact with
non-bank affiliates, minimum regulatory capital and
liquidity requirements, and restrictions on their ability
to use funds deposited with them in bank or
brokerage accounts to fund their businesses. See
“Supervision and Regulation” and “Liquidity and
dividends” and Note 19 of the Notes to Consolidated
Financial Statements. Further, we evaluate and
manage liquidity on a legal entity basis, which may
place legal and other limitations on our ability to
utilize liquidity from one legal entity to satisfy the
liquidity requirements of another, including the
Parent.

There are also limitations specific to the IHC’s ability
to make distributions or extend credit to the Parent.
The IHC is not permitted to pay dividends to the
Parent if certain key capital, liquidity and operational
risk indicators are breached, and if the resolution of
the Parent is imminent, the committed lines of credit
provided by the IHC to the Parent will automatically
terminate, with all outstanding amounts becoming
due. See “The application of our Title I preferred
resolution strategy or resolution under the Title II
orderly liquidation authority could adversely affect

Risk Factors (continued)

the Parent’s liquidity and financial condition and the
Parent’s security holders.”

Because the Parent is a holding company, its rights
and the rights of its creditors, including the holders of
its securities, to a share of the assets of any subsidiary
upon the liquidation or recapitalization of the
subsidiary, will be subject to the prior claims of the
subsidiary’s creditors (including, in the case of our
banking subsidiaries, their depositors) except to the
extent that the Parent may itself be a creditor with
recognized claims against the subsidiary. The rights
of holders of securities issued by the Parent to benefit
from those distributions will also be junior to those
prior claims. Consequently, securities issued by the
Parent will be effectively subordinated to all existing
and future liabilities of our subsidiaries.

Changes in accounting standards governing the
preparation of our financial statements and future
events could have a material impact on our reported
financial condition, results of operations, cash flows
and other financial data.

From time to time, the Financial Accounting
Standards Board (“FASB”), the SEC and bank
regulators change the financial accounting and
reporting standards governing the preparation of our
financial statements or the interpretation of those
standards. These changes are difficult to predict and
can materially impact how we record and report our

financial condition, results of operations, cash flows
and other financial data. In some cases, we may be
required to apply a new or revised standard
retrospectively potentially resulting in the restatement
of our prior period financial statements and our
related disclosures.

Additionally, our accounting policies and methods are
fundamental to how we record and report our
financial condition and results of operations. The
preparation of financial statements in conformity with
U.S. GAAP requires management to make estimates
based upon assumptions about future economic and
market conditions which affect reported amounts and
related disclosures in our financial statements.
Amounts subject to estimates are items such as the
allowance for loan losses and lending-related
commitments, the fair value of financial instruments
and derivatives, goodwill and other intangibles and
litigation and regulatory contingencies. Among other
effects, such changes in estimates could result in
future impairments of goodwill and intangible assets
and establishment of allowances for loan losses and
lending-related commitments as well as litigation and
regulatory contingencies. If subsequent events occur
that are materially different than the assumptions and
estimates we used, our reported financial condition,
results of operation and cash flows may be materially
negatively impacted. See “Recent Accounting
Developments” for a discussion of recent
developments to our accounting standards.

BNY Mellon 99

Recent Accounting Developments

Recently issued accounting standards

The following ASU issued by the FASB had not yet
been adopted as of Dec. 31, 2019.

ASU 2016-13, Financial Instruments – Credit Losses:
Measurement of Credit Losses on Financial
Instruments

In June 2016, the FASB issued an ASU, Financial
Instruments – Credit Losses: Measurement of Credit
Losses on Financial Instruments. This ASU
introduces a new current expected credit losses
model, which applies to financial assets subject to
credit losses and measured at amortized cost,
including held-to-maturity securities and certain off-
balance sheet credit exposures. The guidance also
changes current practice for the impairment model for
available-for-sale debt securities by requiring the use
of an allowance to record estimated credit losses and
subsequent recoveries. The standard requires a
cumulative effect of initial application to be
recognized in retained earnings at the date of initial
application.

In conjunction with adopting the new standard, we
developed expected credit loss models and
approaches that include consideration of multiple
forecast scenarios and other methodologies. We
expect to record an after-tax increase to retained
earnings as of Jan. 1, 2020 of approximately $50
million primarily attributable to a reduction to the
allowance for credit losses for our commercial
lending portfolios. The Company is currently
developing the required disclosures and finalizing
changes to internal control.

100 BNY Mellon

Supplemental Information (unaudited)

Explanation of GAAP and Non-GAAP
financial measures

BNY Mellon has included in this Annual Report
certain Non-GAAP financial measures on a tangible
basis as a supplement to generally accepted
accounting principles (“GAAP”) information, which
exclude goodwill and intangible assets, net of
deferred tax liabilities. We believe that the return on
tangible common equity is additional useful
information for investors because it presents a
measure of those assets that can generate income, and
the tangible book value per common share is
additional useful information because it presents the
level of tangible assets in relation to shares of
common stock outstanding.

The presentation of the growth rates of investment
management and performance fees on a constant
currency basis permits investors to assess the

significance of changes in foreign currency exchange
rates. Growth rates on a constant currency basis were
determined by applying the current period foreign
currency exchange rates to the prior period revenue.
We believe that this presentation, as a supplement to
GAAP information, gives investors a clearer picture
of the related revenue results without the variability
caused by fluctuations in foreign currency exchange
rates.

BNY Mellon has also included the operating margin
for the Investment Management business net of
distribution and servicing expense that was passed to
third parties who distribute or service our managed
funds. We believe that this measure is useful when
evaluating the performance of the Investment
Management business relative to industry
competitors.

The following table presents the reconciliation of the return on common equity and tangible common equity.

Return on common equity and tangible common equity reconciliation
(dollars in millions)
Net income applicable to common shareholders of The Bank of New York

Mellon Corporation – GAAP

Add: Amortization of intangible assets
Less: Tax impact of amortization of intangible assets

Adjusted net income applicable to common shareholders of The Bank of

New York Mellon Corporation, excluding amortization of intangible assets
– Non-GAAP

Average common shareholders’ equity
Less: Average goodwill

Average intangible assets

Add: Deferred tax liability – tax deductible goodwill (a)
Deferred tax liability – intangible assets (a)

Average tangible common shareholders’ equity – Non-GAAP

2019

2018

2017

2016

2015

4,272
117
28

4,097

3,915

3,425

3,053

180
42

209
72

237
81

261
89

4,361

4,235

4,052

3,581

3,225

$ 37,505
17,329
3,162
1,098
670
$ 18,782

$ 37,818
17,458
3,314
1,072
692
$ 18,810

$ 36,145
17,441
3,508
1,034
718
$ 16,948

$ 35,504
17,497
3,737
1,497
1,105
$ 16,872

$ 35,564
17,731
3,992
1,401
1,148
$ 16,390

Return on common shareholders’ equity – GAAP
Return on tangible common shareholders’ equity – Non-GAAP
(a) Deferred tax liabilities are based on fully phased-in U.S. capital rules.

11.4%
23.2%

10.8%
22.5%

10.8%
23.9%

9.6 %
21.2 %

8.6%
19.7%

BNY Mellon 101

Supplemental Information (unaudited) (continued)

The following table presents the reconciliation of book value and tangible book value per common share.

Book value and tangible book value per common share reconciliation
(dollars in millions, except per share amounts and unless otherwise noted)
BNY Mellon shareholders’ equity at year end – GAAP
Less: Preferred stock

BNY Mellon common shareholders’ equity at year end – GAAP

Less: Goodwill

Intangible assets

Add: Deferred tax liability – tax deductible goodwill (a)
Deferred tax liability – intangible assets (a)

BNY Mellon tangible common shareholders’ equity at year
end – Non-GAAP

2019
41,483 $
3,542
37,941
17,386
3,107
1,098
670

Dec. 31,

2018
40,638 $
3,542
37,096
17,350
3,220
1,072
692

2017
41,251 $
3,542
37,709
17,564
3,411
1,034
718

2016
38,811 $
3,542
35,269
17,316
3,598
1,497
1,105

2015
38,037
2,552
35,485
17,618
3,842
1,401
1,148

19,216 $

18,290 $

18,486 $

16,957 $

16,574

Year-end common shares outstanding (in thousands)

900,683

960,426

1,013,442

1,047,488

1,085,343

Book value per common share – GAAP
Tangible book value per common share – Non-GAAP
(a) Deferred tax liabilities are based on fully phased-in U.S. capital rules.

$
$

42.12 $
21.33 $

38.63 $
19.04 $

37.21 $
18.24 $

33.67 $
16.19 $

32.69
15.27

The following table presents the impact of changes in foreign currency exchange rates on our consolidated
investment management and performance fees.

Constant currency reconciliation – Consolidated
(dollars in millions)
Investment management and performance fees – GAAP (a)
Impact of changes in foreign currency exchange rates

2019 vs.
2018
(7)%

2019
3,389 $
—
3,389 $

2018
3,647
(53)
3,594

Adjusted investment management and performance fees – Non-GAAP

(6)%
(a) In 2019, we reclassified certain platform-related fees to clearing services fees from investment management and performance fees. Prior

periods have been reclassified.

The following table presents the impact of changes in foreign currency exchange rates on investment management
and performance fees reported in the Investment Management business.

Constant currency reconciliation – Investment Management business
(dollars in millions)
Investment management and performance fees – GAAP
Impact of changes in foreign currency exchange rates

Adjusted investment management and performance fees – Non-GAAP

2019
3,373 $
—
3,373 $

2018
3,632
(53)
3,579

2019 vs.
2018
(7)%

(6)%

The following table presents the reconciliation of the pre-tax operating margin for the Investment Management
business.

Pre-tax operating margin reconciliation – Investment Management business
(dollars in millions)
Income before income taxes – GAAP

Total revenue – GAAP
Less: Distribution and servicing expense

Adjusted total revenue, net of distribution and servicing expense – Non-GAAP

Pre-tax operating margin – GAAP (a)
Adjusted pre-tax operating margin, net of distribution and servicing expense – Non-GAAP (a)
(a) Income before taxes divided by total revenue.

2019

$ 1,079

$ 3,721
376
$ 3,345

2018

1,263

4,084
407
3,677

2017

1,141

3,997
422
3,575

29%
32%

31%
34%

29%
32%

102 BNY Mellon

Supplemental Information (unaudited) (continued)

Rate/volume analysis

Rate/volume analysis (a)

(in millions)

Interest revenue
Interest-earning assets:

2019 over (under) 2018

2018 over (under) 2017

Due to change in
Average
balance

Average
rate

Net
change

Due to change in
Average
balance

Average
rate

Net
change

(49) $
(1)
420
(115)

(34) $
47
618
59

(83)
46
1,038
(56)

(9) $
(1)
11
(2)

221 $
100
682
169

Domestic offices
Foreign offices

Total non-margin loans

Securities:

U.S. government obligations
U.S. government agency obligations
State and political subdivisions (b)
Other securities:

Domestic offices (b)
Foreign offices

Total other securities (b)

Trading securities (primarily domestic) (b)

Total securities (b)

Total interest revenue (b)

Interest expense
Interest-bearing liabilities:
Interest-bearing deposits:

Domestic offices
Foreign offices

Total interest-bearing deposits

Federal funds purchased and securities sold under repurchase agreements
Trading liabilities
Other borrowed funds:
Domestic offices
Foreign offices

Total other borrowed funds

Commercial paper
Payables to customers and broker-dealers
Long-term debt

Total interest expense

Changes in net interest revenue (b)

(16)
(29)
(45)

(82)
63
(28)

86
17
103
31
87
297 $

206 $
(8)
198
(176)
4

(14)
(1)
(15)
(2)
(9)
(4)
(4) $
301 $

1
23
24

27
90
5

(15)
(6)
(21)

(55)
153
(23)

12
(74)
69
52
81
(22)
29
(2)
98
185
812 $ 1,109

215 $
304
519
855
2

421
296
717
679
6

18
(2)
16
6
56
89

4
(3)
1
4
47
85
1,543 $ 1,539
(430)
(731) $

$
$

212
99
693
167

201
78
279

61
323
(31)

(21)
(25)
(46)

(31)
76
(19)

222
103
325

92
247
(12)

(25)
3
(22)
60
64
17 $

151
26
177
5
509

126
29
155
65
573
2,006 $ 2,023

35 $
—
35
(56)
—

24
(2)
22
—
(10)
18
9 $
8 $

395 $
285
680
589
22

430
285
715
533
22

10
—
10
22
137
278

34
(2)
32
22
127
296
1,738 $ 1,747
276

268 $

(a) Changes which are solely due to balance changes or rate changes are allocated to such categories on the basis of the respective percentage changes in

average balances and average rates. Changes in interest revenue or interest expense arising from the combination of rate and volume variances are
allocated proportionately to rate and volume based on their relative absolute magnitudes.

(b) Presented on an FTE basis.

BNY Mellon 103

Selected Quarterly Data (unaudited)

Selected Quarterly Data

(dollars in millions, except per share

amounts)

Consolidated income statement
Fee and other revenue
Income (loss) from consolidated investment

management funds

Net interest revenue

Total revenue

Provision for credit losses
Noninterest expense

Income before taxes

Provision for income taxes

Net income

Net (income) loss attributable to

noncontrolling interests

Net income applicable to shareholders of

The Bank of New York Mellon
Corporation

Preferred stock dividends

Net income applicable to common

shareholders of The Bank of New York
Mellon Corporation

Basic earnings per common share
Diluted earnings per common share
Average balances
Interest-bearing deposits with banks
Securities
Trading securities
Loans
Total interest-earning assets
Total assets
Deposits
Long-term debt
Preferred stock
Total The Bank of New York Mellon

Corporation common shareholders’ equity

Net interest margin
Annualized return on common equity
Pre-tax operating margin
Common stock data (b)
Closing price per share (c)
Cash dividends per share
Market capitalization (c)

2019

2018

Quarter ended

Dec. 31

Sept. 30

June 30 March 31

Dec. 31

Sept. 30

June 30 March 31

3,946

3,128

3,112

3,032

3,146

3,168

3,210

3,270

815
4,778
(8)
2,964
1,822
373
1,449

730
3,861
(16)
2,590
1,287
246
1,041

802
3,924
(8)
2,647
1,285
264
1,021

841
3,899
7
2,699
1,193
237
956

(9)

(3)

(4)

(10)

(24)

885
4,007
—
2,987
1,020
150
870

891
4,069
(3)
2,738
1,334
220
1,114

916
4,138
(3)
2,747
1,394
286
1,108

(11)

919
4,178
(5)
2,739
1,444
282
1,162

(3)

(5)

1,440

(49)

1,038

(36)

1,017

(48)

946

(36)

881

(49)

1,111

(36)

1,103

(48)

1,171

(36)

$
$

1,391

1.52
1.52

$
$

1,002

1.07
1.07

$
$

969

1.01
1.01

$
$

910

0.94
0.94

$
$

832

0.84
0.84

$
$

1,075

1.07
1.06

$
$

1,055

1.04
1.03

$
$

1,135

1.11
1.10

$ 77,415
122,314
6,695
52,717
297,987
354,341
232,056
28,117
3,542

$ 75,354
121,496
5,653
50,835
294,154
350,679
226,428
28,386
3,542

$ 75,422
117,820
5,764
50,373
287,417
342,384
220,501
27,681
3,542

$ 77,440
119,317
5,102
51,358
282,185
336,165
214,462
28,254
3,542

$ 78,582
118,904
5,543
53,834
285,706
338,591
220,635
28,201
3,542

$ 75,907
118,505
4,261
53,807
279,218
332,341
209,313
28,074
3,542

$ 85,424
117,761
3,784
57,066
292,086
346,328
217,567
28,349
3,542

$ 92,918
118,459
4,183
58,606
302,069
358,175
226,709
28,407
3,542

37,842

37,597

37,487

37,086

37,886

38,036

37,750

37,593

1.09%
14.6%
38%

0.99% (a)
10.6%
33%

1.12%
10.4%
33%

1.20%
10.0%
31%

1.24%
8.7%
25%

1.27%
11.2%
33%

1.26%
11.2%
34%

1.22%
12.2%
35%

50.33
$
$
0.31
$ 45,331

45.21
$
$
0.31
$ 41,693

44.15
$
$
0.28
$ 41,619

50.43
$
$
0.28
$ 48,288

47.07
$
$
0.28
$ 45,207

50.99
$
$
0.28
$ 50,418

53.93
$
$
0.24
$ 53,927

51.53
$
$
0.24
$ 52,080

(a)

Includes the impact of the lease-related impairment of $70 million recorded in the third quarter of 2019. Excluding the lease-related impairment, the
adjusted net interest margin would have been 1.09% (Non-GAAP) in the third quarter of 2019. We believe providing the adjusted net interest margin is
useful to investors as it is more reflective of the actual rates earned.

(b) At Dec. 31, 2019, there were 26,415 shareholders registered with our stock transfer agent, compared with 27,805 at Dec. 31, 2018 and 29,472 at Dec. 31,
2017. In addition, there were 44,876 of BNY Mellon’s current and former employees at Dec. 31, 2019 who participate in BNY Mellon’s 401(k) Retirement
Savings Plan. All shares of BNY Mellon’s common stock held by the Plan for its participants are registered in the name of The Bank of New York Mellon,
as trustee.
(c) At period end.

104 BNY Mellon

Forward-looking Statements

Some statements in this document are forward-
looking. These include all statements about the
usefulness of Non-GAAP measures, the future results
of BNY Mellon, our businesses, financial, liquidity
and capital condition, results of operations, liquidity,
risk and capital management and processes, goals,
strategies, outlook, objectives, expectations
(including those regarding our performance results,
expenses, nonperforming assets, products, impacts of
currency fluctuations, impacts of trends on our
businesses, regulatory, technology, market, economic
or accounting developments and the impacts of such
developments on our businesses, legal proceedings
and other contingencies), effective tax rate, net
interest revenue, estimates (including those regarding
expenses, losses inherent in our credit portfolios and
capital ratios), intentions (including those regarding
our capital returns and expenses, including our
investments in technology and pension expense),
targets, opportunities, potential actions, growth and
initiatives.

In this report, any other report, any press release or
any written or oral statement that BNY Mellon or its
executives may make, words, such as “estimate,”
“forecast,” “project,” “anticipate,” “likely,” “target,”
“expect,” “intend,” “continue,” “seek,” “believe,”
“plan,” “goal,” “could,” “should,” “would,” “may,”
“might,” “will,” “strategy,” “synergies,”
“opportunities,” “trends,” “future” and words of
similar meaning, may signify forward-looking
statements.

Actual results may differ materially from those
expressed or implied as a result of a number of
factors, including those discussed in “Risk Factors,”
such as:

•

a communications or technology disruption or
failure within our infrastructure or the
infrastructure of third parties that results in a loss
of information, delays our ability to access
information or impacts our ability to provide
services to our clients may materially adversely
affect our business, financial condition and
results of operations;
a cybersecurity incident, or a failure to protect
our computer systems, networks and information
and our clients’ information against cybersecurity
threats, could result in the theft, loss,
unauthorized access to, disclosure, use or
alteration of information, system or network
failures, or loss of access to information; any
such incident or failure could adversely impact

•

our ability to conduct our businesses, damage our
reputation and cause losses;
our business may be materially adversely affected
by operational risk;
our risk management framework may not be
effective in mitigating risk and reducing the
potential for losses;

• we are subject to extensive government

•

rulemaking, regulation and supervision; these
rules and regulations have, and in the future may,
compel us to change how we manage our
businesses, which could have a material adverse
effect on our business, financial condition and
results of operations;
regulatory or enforcement actions or litigation
could materially adversely affect our results of
operations or harm our businesses or reputation;
our businesses may be negatively affected by
adverse events, publicity, government scrutiny or
other reputational harm;
failure to satisfy regulatory standards, including
“well capitalized” and “well managed” status or
capital adequacy and liquidity rules more
generally, could result in limitations on our
activities and adversely affect our business and
financial condition;
a failure or circumvention of our controls and
procedures could have a material adverse effect
on our business, reputation, results of operations
and financial condition;
the application of our Title I preferred resolution
strategy or resolution under the Title II orderly
liquidation authority could adversely affect the
Parent’s liquidity and financial condition and the
Parent’s security holders;
impacts from climate change, natural disasters,
acts of terrorism, pandemics, global conflicts and
other geopolitical events may have a negative
impact on our business and operations;
• we are dependent on fee-based business for a

•

substantial majority of our revenue and our fee-
based revenues could be adversely affected by
slowing in market activity, weak financial
markets, underperformance and/or negative
trends in savings rates or in investment
preferences;

• weakness and volatility in financial markets and
the economy generally may materially adversely
affect our business, results of operations and
financial condition;
changes in interest rates and yield curves could
have a material adverse effect on our
profitability;

•

BNY Mellon 105

•

our strategic transactions present risks and
uncertainties and could have an adverse effect on
our business, results of operations and financial
condition;
tax law changes or challenges to our tax positions
with respect to historical transactions may
adversely affect our net income, effective tax rate
and our overall results of operations and financial
condition;
our ability to return capital to shareholders is
subject to the discretion of our Board of Directors
and may be limited by U.S. banking laws and
regulations, including those governing capital and
the approval of our capital plan, applicable
provisions of Delaware law or our failure to pay
full and timely dividends on our preferred stock;
the Parent is a non-operating holding company,
and as a result, is dependent on dividends from its
subsidiaries and extensions of credit from its IHC
to meet its obligations, including with respect to
its securities, and to provide funds for share
repurchases and payment of dividends to its
stockholders; and
changes in accounting standards governing the
preparation of our financial statements and future
events could have a material impact on our
reported financial condition, results of operations,
cash flows and other financial data.

Investors should consider all risk factors discussed in
our 2019 Annual Report and any subsequent reports
filed with the SEC by BNY Mellon pursuant to the
Exchange Act. All forward-looking statements speak
only as of the date on which such statements are
made, and BNY Mellon undertakes no obligation to
update any statement to reflect events or
circumstances after the date on which such forward-
looking statement is made or to reflect the occurrence
of unanticipated events. The contents of BNY
Mellon’s website or any other websites referenced
herein are not part of this report.

Forward-looking Statements (continued)

•

transitions away from and the anticipated
replacement of LIBOR and other IBORs could
adversely impact our business and results of
operations;
the UK’s withdrawal from the EU may have
negative effects on global economic conditions,
global financial markets, and our business and
results of operations;

•

• we may experience losses on securities related to
volatile and illiquid market conditions, reducing
our earnings and impacting our financial
condition;
the failure or perceived weakness of any of our
significant clients or counterparties, many of
whom are major financial institutions and
sovereign entities, and our assumption of credit
and counterparty risk, could expose us to loss and
adversely affect our business;
our business, financial condition and results of
operations could be adversely affected if we do
not effectively manage our liquidity;

•

• we could incur losses if our allowance for credit
losses, including loan and lending-related
commitments reserves, is inadequate;
any material reduction in our credit ratings or the
credit ratings of our principal bank subsidiaries,
The Bank of New York Mellon or BNY Mellon,
N.A., could increase the cost of funding and
borrowing to us and our rated subsidiaries and
have a material adverse effect on our results of
operations and financial condition and on the
value of the securities we issue;
new lines of business, new products and services
or transformational or strategic project initiatives
may subject us to additional risks, and the failure
to implement these initiatives could affect our
results of operations;

•

• we are subject to competition in all aspects of our
business, which could negatively affect our
ability to maintain or increase our profitability;
our business may be adversely affected if we are
unable to attract and retain employees;

•

106 BNY Mellon

Acronyms

ABS
Asset-backed security
APAC
Asia-Pacific region
ASC
Accounting Standards Codification
ASU
Accounting Standards Update
AUC/A Assets under custody and/or administration
AUM
Assets under management
BCBS
Basel Committee on Banking Supervision
BHCs
Bank holding companies
CCAR
Comprehensive Capital Analysis and Review
CET1
Common Equity Tier 1 capital
CFTC
Commodity Futures Trading Commission
CLO
Collateralized loan obligation
EMEA
Europe, the Middle East and Africa
FASB
Financial Accounting Standards Board
FDIC
Federal Deposit Insurance Corporation
FHC
Financial holding company
FICC
Fixed Income Clearing Corporation
FINRA Financial Industry Regulatory Authority, Inc.
FTE
GAAP
G-SIBs
HQLA
IDI

Fully taxable equivalent
Generally accepted accounting principles
Global systemically important banks
High-quality liquid assets
Insured depository institution

Intermediate holding company
Liquidity coverage ratio

IHC
LCR
LIBOR London Interbank Offered Rate
LTD
MBS
N/A
N/M
NSFR
OCC
OCI
OTC
RMBS
RWAs
S&P
SBIC
SBLC
SEC
SIFIs
SLR
TLAC
VaR
VIE

Long-term debt
Mortgage-backed security
Not applicable or Not available
Not meaningful
Net stable funding ratio
Office of the Comptroller of the Currency
Other comprehensive income
Over-the-counter
Residential mortgage-backed security
Risk-weighted assets
Standard & Poor’s
Small business investment company
Standby letters of credit
Securities and Exchange Commission
Systemically important financial institutions
Supplementary leverage ratio
Total loss-absorbing capacity
Value-at-risk
Variable interest entity

BNY Mellon 107

Glossary

Assets under custody and/or administration
(“AUC/A”) – Assets that we hold directly or
indirectly on behalf of clients under a safekeeping or
custody arrangement or for which we provide
administrative services for clients. The following
types of assets under administration are not and
historically have not been included in AUC/A:
performance and risk analytics, transfer agency and
asset aggregation services. To the extent that we
provide more than one AUC/A service for a client’s
assets, the value of the asset is only counted once in
the total amount of AUC/A.

Assets under management (“AUM”) – Includes
assets beneficially owned by our clients or customers
which we hold in various capacities that are either
actively or passively managed, as well as the value of
hedges supporting customer liabilities. These assets
and liabilities are not on our balance sheet.

CAMELS – An international bank-rating system
where bank supervisory authorities rate institutions
according to six factors. The six factors are Capital
adequacy, Asset quality, Management quality,
Earnings, Liquidity and Sensitivity to market risk.

Collateral management – A comprehensive program
designed to simplify collateralization and expedite
securities transfers for buyers and sellers.

Credit valuation adjustment (“CVA”) – The market
value of counterparty credit risk on OTC derivative
transactions.

Global systemically important bank (“G-SIB”) – A
financial institution whose distress or disorderly
failure, because of its size, complexity and systemic
interconnectedness, would cause significant
disruption to the wider financial system and
economic activity.

Grantor Trust – A legal, passive entity through
which pass-through securities are sold to investors.

High-quality liquid assets (“HQLA”) –
Unencumbered assets of the types identified in the
U.S. LCR rule, which the U.S. banking agencies
describe as able to be convertible into cash with little
or no expected loss of value during a period of
liquidity stress.

Investment grade – Represents Moody’s long-term
rating of Baa3 or better; and/or a Standard & Poor’s,
Fitch or DBRS long-term rating of BBB- or better; or
if unrated, an equivalent rating using our internal risk
ratings. Instruments that fall below these levels are
considered to be non-investment grade.

Real estate investment trust (“REIT”) – An
investor-owned corporation, trust or association that
sells shares to investors and invests in income-
producing property.

Repurchase agreement (“Repo”) – An instrument
used to raise short-term funds whereby securities are
sold with an agreement for the seller to buy back the
securities at a later date.

Debit valuation adjustment (“DVA”) – The market
value of our credit risk on OTC derivative
transactions.

Reverse repurchase agreement – The purchase of
securities with the agreement to sell them at a higher
price at a specific future date.

Depositary Receipts – A negotiable security that
generally represents a non-U.S. company’s publicly
traded equity.

Sub-custodian – A local provider (e.g., a bank)
contracted to provide specific custodial-related
services in a selected country or geographic area.

Economic capital – The amount of capital required to
absorb potential losses and reflects the probability of
remaining solvent with a target debt rating over a
one-year time horizon.

108 BNY Mellon

Report of Management on Internal Control Over Financial Reporting

Management of BNY Mellon is responsible for
establishing and maintaining adequate internal
control over financial reporting for BNY Mellon, as
such term is defined in Rule 13a-15(f) under the
Exchange Act.

BNY Mellon’s management, including its principal
executive officer and principal financial officer, has
assessed the effectiveness of BNY Mellon’s internal
control over financial reporting as of December 31,
2019. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission in
Internal Control – Integrated Framework (2013).
Based upon such assessment, management believes
that, as of December 31, 2019, BNY Mellon’s
internal control over financial reporting is effective
based upon those criteria.

KPMG LLP, the independent registered public
accounting firm that audited BNY Mellon’s 2019
financial statements included in this Annual Report
under “Financial Statements” and “Notes to
Consolidated Financial Statements,” has issued a
report with respect to the effectiveness of BNY
Mellon’s internal control over financial reporting.
This report appears on page 110.

BNY Mellon 109

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
The Bank of New York Mellon Corporation:

Opinion on Internal Control Over Financial Reporting

We have audited The Bank of New York Mellon Corporation and subsidiaries (BNY Mellon) internal control over
financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our
opinion, BNY Mellon maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2019, based on criteria established in Internal Control - Integrated Framework (2013) issued by the
Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United
States) (PCAOB), the consolidated balance sheets of BNY Mellon as of December 31, 2019 and 2018, the related
consolidated statements of income, comprehensive income, cash flows, and changes in equity for each of the years
in the three-year period ended December 31, 2019, and the related notes (collectively, the consolidated financial
statements), and our report dated February 27, 2020 expressed an unqualified opinion on those consolidated
financial statements.

Basis for Opinion

BNY Mellon’s management is responsible for maintaining effective internal control over financial reporting and for
its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report
of Management on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on BNY
Mellon’s internal control over financial reporting based on our audit. We are a public accounting firm registered
with the PCAOB and are required to be independent with respect to BNY Mellon in accordance with the U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the
PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting
was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our
audit also included performing such other procedures as we considered necessary in the circumstances. We believe
that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. A company’s internal control over financial reporting
includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company are being made
only in accordance with authorizations of management and directors of the company; and (3) provide reasonable
assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial statements.

110 BNY Mellon

Report of Independent Registered Public Accounting Firm (continued)

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.

New York, New York
February 27, 2020

BNY Mellon 111

The Bank of New York Mellon Corporation (and its subsidiaries)

Consolidated Income Statement

(in millions)
Fee and other revenue
Investment services fees:
Asset servicing fees
Clearing services fees (a)
Issuer services fees
Treasury services fees

Total investment services fees (a)

Investment management and performance fees (a)
Foreign exchange and other trading revenue
Financing-related fees
Distribution and servicing
Investment and other income
Total fee revenue

Net securities (losses) gains — including other-than-temporary impairment
Noncredit-related portion of other-than-temporary impairment (recognized in other comprehensive income)

Net securities (losses) gains
Total fee and other revenue

Operations of consolidated investment management funds
Investment income (loss)
Interest of investment management fund note holders

Income (loss) from consolidated investment management funds

Net interest revenue
Interest revenue
Interest expense

Net interest revenue
Total revenue

Provision for credit losses
Noninterest expense
Staff
Professional, legal and other purchased services
Software and equipment
Net occupancy
Sub-custodian and clearing
Distribution and servicing
Business development
Bank assessment charges
Amortization of intangible assets
Other

Total noninterest expense

Income
Income before income taxes
Provision for income taxes

Net income

Net (income) loss attributable to noncontrolling interests (includes $(26), $12 and $(33) related to

consolidated investment management funds, respectively)

Net income applicable to shareholders of The Bank of New York Mellon Corporation

Preferred stock dividends

Year ended Dec. 31,

2019

2018

2017

4,563 $
1,648
1,130
559
7,900
3,389
654
196
129
968
13,236
(17)
1
(18)
13,218

4,608 $
1,616
1,099
554
7,877
3,647
732
207
139
240
12,842
(47)
1
(48)
12,794

57
1
56

7,548
4,360
3,188
16,462
(25)

6,063
1,345
1,222
564
450
374
213
125
117
427
10,900

5,587
1,120
4,467

(12)
1
(13)

6,432
2,821
3,611
16,392
(11)

6,145
1,334
1,062
630
450
406
228
170
180
606
11,211

5,192
938
4,254

(26)
4,441
(169)
4,272 $

4,266
(169)
4,097 $

4,383
1,598
977
557
7,515
3,539
668
216
160
64
12,162
6
3
3
12,165

74
4
70

4,382
1,074
3,308
15,543
(24)

6,033
1,276
985
570
414
419
229
220
209
602
10,957

4,610
496
4,114

(24)
4,090
(175)
3,915

(a)

Net income applicable to common shareholders of The Bank of New York Mellon Corporation
In 2019, we reclassified certain platform-related fees to clearing services fees from investment management and performance fees. Prior periods
have been reclassified.

112 BNY Mellon

The Bank of New York Mellon Corporation (and its subsidiaries)

Consolidated Income Statement (continued)

Net income applicable to common shareholders of The Bank of New York Mellon Corporation used

for the earnings per share calculation

(in millions)
Net income applicable to common shareholders of The Bank of New York Mellon Corporation
Less: Earnings allocated to participating securities

Net income applicable to common shareholders of The Bank of New York Mellon Corporation after

required adjustment for the calculation of basic and diluted earnings per common share

Year ended Dec. 31,

2019
4,272 $
18

2018
4,097 $
27

2017
3,915
43

4,254 $

4,070 $

3,872

Average common shares and equivalents outstanding of The Bank of New York Mellon Corporation
(in thousands)
Basic
Common stock equivalents
Less: Participating securities
Diluted

Year ended Dec. 31,

2019
939,623
5,087
(1,601)
943,109

2018
1,002,922
6,801
(2,582)
1,007,141

2017
1,034,281
13,030
(7,021)
1,040,290

Anti-dilutive securities (a)
(a) Represents stock options, restricted stock, restricted stock units and participating securities outstanding but not included in the computation of

6,804

4,014

12,383

diluted average common shares because their effect would be anti-dilutive.

Earnings per share applicable to common shareholders of The Bank of New York Mellon Corporation
(in dollars)
Basic
Diluted

$
$

Year ended Dec. 31,

2019
4.53 $
4.51 $

2018
4.06 $
4.04 $

2017
3.74
3.72

See accompanying Notes to Consolidated Financial Statements.

BNY Mellon 113

The Bank of New York Mellon Corporation (and its subsidiaries)

Consolidated Comprehensive Income Statement

(in millions)
Net income
Other comprehensive income (loss), net of tax:

Foreign currency translation adjustments
Unrealized gain (loss) on assets available-for-sale:
Unrealized gain (loss) arising during the period
Reclassification adjustment

Total unrealized gain (loss) on assets available-for-sale

Defined benefit plans:

Prior service cost arising during the period
Net (loss) gain arising during the period
Foreign exchange adjustment
Amortization of prior service credit, net loss and initial obligation included in net periodic

benefit cost
Total defined benefit plans

Net unrealized gain (loss) on cash flow hedges

Total other comprehensive income (loss), net of tax (a)
Total comprehensive income

Net (income) loss attributable to noncontrolling interests
Other comprehensive (income) loss attributable to noncontrolling interests

Year ended Dec. 31,

2019
4,467 $

2018
4,254 $

2017
4,114

151

512
14
526

(1)
(87)
—

34
(54)
3
626
5,093
(26)
(3)

(313)

(416)
36
(380)

—
(189)
—

69
(120)
(10)
(823)
3,431
12
11

853

153
(3)
150

—
342
1

68
411
9
1,423
5,537
(24)
(15)

Comprehensive income applicable to shareholders of The Bank of New York Mellon

Corporation

5,064 $

3,454 $

5,498

(a) Other comprehensive income (loss) attributable to The Bank of New York Mellon Corporation shareholders was $623 million for the
year ended Dec. 31, 2019, $(812) million for the year ended Dec. 31, 2018 and $1,408 million for the year ended Dec. 31, 2017.

See accompanying Notes to Consolidated Financial Statements.

114 BNY Mellon

The Bank of New York Mellon Corporation (and its subsidiaries)

Consolidated Balance Sheet

(dollars in millions, except per share amounts)
Assets
Cash and due from banks
Interest-bearing deposits with the Federal Reserve and other central banks
Interest-bearing deposits with banks ($2,437 and $2,394 is restricted)
Federal funds sold and securities purchased under resale agreements
Securities:

Held-to-maturity (fair value of $34,805 and $33,302)
Available-for-sale
Total securities

Trading assets
Loans
Allowance for loan losses

Net loans

Premises and equipment
Accrued interest receivable
Goodwill
Intangible assets
Other assets (includes $419 and $742, at fair value)

Subtotal assets of operations

Assets of consolidated investment management funds, at fair value

Total assets

Liabilities
Deposits:

Noninterest-bearing (principally U.S. offices)
Interest-bearing deposits in U.S. offices
Interest-bearing deposits in non-U.S. offices

Total deposits

Federal funds purchased and securities sold under repurchase agreements
Trading liabilities
Payables to customers and broker-dealers
Commercial paper
Other borrowed funds
Accrued taxes and other expenses
Other liabilities (including allowance for lending-related commitments of $94 and $106, also includes $607

and $88, at fair value)

Long-term debt (includes $387 and $371, at fair value)

Subtotal liabilities of operations

Liabilities of consolidated investment management funds, at fair value

Total liabilities
Temporary equity
Redeemable noncontrolling interests
Permanent equity
Preferred stock – par value $0.01 per share; authorized 100,000,000 shares; issued 35,826 and 35,826 shares
Common stock – par value $0.01 per share; authorized 3,500,000,000 shares; issued 1,374,443,376 and

1,364,877,915 shares
Additional paid-in capital
Retained earnings
Accumulated other comprehensive loss, net of tax
Less: Treasury stock of 473,760,338 and 404,452,246 common shares, at cost
Total The Bank of New York Mellon Corporation shareholders’ equity

Nonredeemable noncontrolling interests of consolidated investment management funds

Total permanent equity
Total liabilities, temporary equity and permanent equity

See accompanying Notes to Consolidated Financial Statements.

Dec. 31,

2019

4,830 $
95,042
14,811
30,182

34,483
88,550
123,033
13,571
54,953
(122)
54,831
3,625
624
17,386
3,107
20,221
381,263
245
381,508 $

57,630 $
101,542
100,294
259,466
11,401
4,841
18,758
3,959
599
5,642

7,612
27,501
339,779
1
339,780

2018

5,864
67,988
14,148
46,795

33,982
85,809
119,791
7,035
56,564
(146)
56,418
1,832
671
17,350
3,220
21,298
362,410
463
362,873

70,783
74,904
93,091
238,778
14,243
3,479
19,731
1,939
3,227
5,669

5,774
29,163
322,003
2
322,005

143

129

3,542

14
27,515
31,894
(2,638)
(18,844)
41,483
102
41,585
381,508 $

14
27,118
28,652
(3,171)
(15,517)
40,638
101
40,739
362,873

BNY Mellon 115

The Bank of New York Mellon Corporation (and its subsidiaries)

Consolidated Statement of Cash Flows

(in millions)
Operating activities
Net income
Net (income) loss attributable to noncontrolling interests
Net income applicable to shareholders of The Bank of New York Mellon Corporation
Adjustments to reconcile net income to net cash provided by operating activities:

Provision for credit losses
Pension plan contributions
Depreciation and amortization
Deferred tax (benefit) expense
Net securities losses (gains)

Change in trading assets and liabilities
Change in accruals and other, net

Net cash provided by operating activities

Investing activities

Change in interest-bearing deposits with banks
Change in interest-bearing deposits with the Federal Reserve and other central banks
Purchases of securities held-to-maturity
Paydowns of securities held-to-maturity
Maturities of securities held-to-maturity
Purchases of securities available-for-sale
Sales of securities available-for-sale
Paydowns of securities available-for-sale
Maturities of securities available-for-sale
Net change in loans
Sales of loans and other real estate
Change in federal funds sold and securities purchased under resale agreements
Net change in seed capital investments
Purchases of premises and equipment/capitalized software
Proceeds from the sale of premises and equipment
Proceeds from the sale of an equity method investment
Dispositions, net of cash
Other, net

Net cash (used for) provided by investing activities

Financing activities

Change in deposits
Change in federal funds purchased and securities sold under repurchase agreements
Change in payables to customers and broker-dealers
Change in other borrowed funds
Change in commercial paper
Net proceeds from the issuance of long-term debt
Repayments of long-term debt
Proceeds from the exercise of stock options
Issuance of common stock
Treasury stock acquired
Common cash dividends paid
Preferred cash dividends paid
Other, net

Net cash provided by (used for) financing activities

Effect of exchange rate changes on cash
Change in cash and due from banks and restricted cash
Change in cash and due from banks and restricted cash
Cash and due from banks and restricted cash at beginning of year
Cash and due from banks and restricted cash at end of year

Cash and due from banks and restricted cash:

Cash and due from banks at end of year (unrestricted cash)
Restricted cash at end of year

Cash and due from banks and restricted cash at end of year

Supplemental disclosures

Interest paid
Income taxes paid
Income taxes refunded

See accompanying Notes to Consolidated Financial Statements.

116 BNY Mellon

Year ended Dec. 31,

2019

2018

2017

4,467 $
(26)
4,441

4,254 $
12
4,266

(25)
(45)
1,315
(69)
18
(5,167)
(372)
96

(970)
(26,763)
(8,822)
5,149
3,192
(46,435)
11,444
7,516
26,504
1,486
147
16,615
74
(1,210)
—
849
—
676
(10,548)

20,663
(2,822)
(981)
(2,651)
2,020
2,993
(5,250)
65
21
(3,327)
(1,120)
(169)
17
9,459
2

(11)
(55)
1,339
(525)
48
(574)
1,508
5,996

(2,011)
21,954
(5,055)
4,346
6,317
(32,404)
8,247
7,716
9,063
4,620
263
(18,662)
59
(1,108)
23
—
84
(153)
3,299

(2,874)
(920)
(433)
164
(1,136)
5,143
(3,650)
80
40
(3,269)
(1,052)
(169)
(22)
(8,098)
(72)

(991)
8,258
7,267 $

4,830 $
2,437
7,267 $

4,400 $
989
669

1,125
7,133
8,258 $

5,864 $
2,394
8,258 $

2,711 $
983
175

4,114
(24)
4,090

(24)
(114)
1,474
133
(3)
(694)
(195)
4,667

2,199
(29,613)
(8,329)
4,448
3,992
(26,151)
6,001
9,129
6,319
2,794
392
(2,334)
(124)
(1,197)
—
—
—
(231)
(32,705)

17,069
5,174
(813)
1,852
3,075
4,738
(1,046)
431
34
(2,686)
(901)
(175)
26
26,778
189

(1,071)
8,204
7,133

5,382
1,751
7,133

1,033
498
20

The Bank of New York Mellon Corporation (and its subsidiaries)

Consolidated Statement of Changes in Equity

The Bank of New York Mellon Corporation shareholders

(in millions, except per
share amount)

Preferred
stock

Common
stock

Additional
paid-in
capital

Retained
earnings

Accumulated
other
comprehensive
(loss) income,
net of tax

Treasury
stock

Non-redeemable
noncontrolling
interests of
consolidated
investment
management
funds

Total
permanent
equity

Redeemable
non-
controlling
interests/
temporary
equity

3,542 $

14 $

27,118 $ 28,652 $

(3,171) $(15,517) $

101 $

40,739 (a) $

129

Balance at Dec. 31, 2018
Reclassification of certain tax
effects related to adopting
Accounting Standards Update
(“ASU”) 2018-02

Adjusted balance at Jan. 1,

2019

Shares issued to shareholders of

noncontrolling interests

Redemption of subsidiary shares
from noncontrolling interests

Other net changes in

noncontrolling interests

Net income
Other comprehensive income
Dividends:

Common stock at $1.18 per
share
Preferred stock

Repurchase of common stock
Common stock issued under:
Employee benefit plans
Direct stock purchase and

dividend reinvestment plan

Stock awards and options

exercised

—

3,542

—

—
—

—

—
—

—

—
—

—

—
—

—

(90)

—

27,118

28,742

(3,261)

(15,517)

101

40,739

—

—
—

—

4,441
—

— (1,120)

—
—

352

(169)
—

—

—
623

—

—
—

—

—
—
— (3,327)

—

(25)

26
—

—

—
—

—

(19)

4,467
623

(1,120)

(169)
(3,327)

352

—

129

(48)

(18)

—
3

—

—
—

—

143

Balance at Dec. 31, 2019

3,542 $

14 $

27,515 $ 31,894 $

(2,638) $(18,844) $

102 $

41,585 (a) $

(a)

Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $37,096 million at Dec. 31, 2018 and $37,941 million at Dec.
31, 2019.

BNY Mellon 117

—

179

(92)

(8)

—
(11)

—

—
—

—

129

The Bank of New York Mellon Corporation (and its subsidiaries)

Consolidated Statement of Changes in Equity (continued)

The Bank of New York Mellon Corporation shareholders

(in millions, except per
share amount)

Preferred
stock

Common
stock

Additional
paid-in
capital

Retained
earnings

Accumulated
other
comprehensive
(loss), net
of tax

Treasury
stock

Non-redeemable
noncontrolling
interests of
consolidated
investment
management
funds

Total
permanent
equity

Redeemable
non-
controlling
interests/
temporary
equity

3,542 $

14 $

26,665 $ 25,635 $

(2,357) $(12,248) $

316 $

41,567 (a) $

179

Balance at Dec. 31, 2017
Adjustment for the cumulative

effect of applying ASU
2014-09 for contract revenue

Adjustment for the cumulative

effect of applying ASU
2017-12 for derivatives and
hedging
Adjusted balance at Jan. 1,

2018

Shares issued to shareholders of

noncontrolling interests

Redemption of subsidiary shares
from noncontrolling interests

Other net changes in

noncontrolling interests

Net income (loss)
Other comprehensive (loss)
Dividends:

Common stock at $1.04 per
share
Preferred stock

Repurchase of common stock
Common stock issued under:
Employee benefit plans
Direct stock purchase and

dividend reinvestment plan

Stock awards and options

exercised

—

3,542

—

—
—

—

—
—

—

—
—

—

—
—

—

(55)

—

(2)

—

(55)

26,665

25,607

(2,359)

(12,248)

316

41,537

—

—
—

—

4,266
—

—

—
(812)

— (1,052)

—

—
—

—

—
—

380

(169)
—

—

—
—
— (3,269)

—

(203)

(12)
—

—

—
—

—

(191)

4,254
(812)

(1,052)

(169)
(3,269)

380

Balance at Dec. 31, 2018

3,542 $

14 $

27,118 $ 28,652 $

(3,171) $(15,517) $

101 $

40,739 (a) $

(a)

Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $37,709 million at Dec. 31, 2017 and $37,096 million at Dec.
31, 2018.

118 BNY Mellon

The Bank of New York Mellon Corporation (and its subsidiaries)

Consolidated Statement of Changes in Equity (continued)

The Bank of New York Mellon Corporation shareholders

(in millions, except per
share amount)

Preferred
stock

Common
stock

Additional
paid-in
capital

Retained
earnings

Accumulated
other
comprehensive
(loss) income,
net of tax

Treasury
stock

Non-redeemable
noncontrolling
interests of
consolidated
investment
management
funds

Total
permanent
equity

Redeemable
non-
controlling
interests/
temporary
equity

Balance at Dec. 31, 2016
Shares issued to shareholders of

noncontrolling interests

Redemption of subsidiary shares
from noncontrolling interests

Other net changes in

noncontrolling interests

Net income (loss)
Other comprehensive income
Dividends:

Common stock at $0.86 per
share
Preferred stock

Repurchase of common stock
Common stock issued under:
Employee benefit plans
Direct stock purchase and

dividend reinvestment plan

Stock awards and options

exercised

3,542 $

13 $

25,962 $ 22,621 $

(3,765) $ (9,562) $

618 $

39,429 (a) $

—

—
—

—

—
—

—

—
—

—

—
—

—

(35)

—
—

—

—
—

684

—

4,090
—

(901)

(175)
—

—

—
1,408

—

—
—

—

—
—
— (2,686)

—

(335)

(370)

33
—

—

—
—

—

4,123
1,408

(901)

(175)
(2,686)

685

Balance at Dec. 31, 2017

3,542 $

14 $

26,665 $ 25,635 $

(2,357) $(12,248) $

316 $

41,567 (a) $

151

(70)

(9)
15

—

—
—

—

179

(a)

Includes total The Bank of New York Mellon Corporation common shareholders’ equity of $35,269 million at Dec. 31, 2016 and $37,709 million at Dec.
31, 2017.

See accompanying Notes to Consolidated Financial Statements.

BNY Mellon 119

Notes to Consolidated Financial Statements

Note 1–Summary of significant accounting
and reporting policies

General

Nature of operations

BNY Mellon is a global leader in providing a broad
range of financial products and services in domestic
and international markets. Through our two principal
businesses, Investment Services and Investment
Management, we serve institutions, corporations and
high-net-worth individuals. See Note 24 for the
primary products and services of our principal
businesses and other information.

Basis of presentation

The accounting and financial reporting policies of
BNY Mellon, a global financial services company,
conform to U.S. generally accepted accounting
principles (“GAAP”) and prevailing industry
practices.

In the opinion of management, all adjustments
necessary for a fair presentation of financial position,
results of operations and cash flows for the periods
presented have been made. Certain immaterial
reclassifications have been made to prior periods to
place them on a basis comparable with current period
presentation.

Use of estimates

The preparation of financial statements in conformity
with U.S. GAAP requires management to make
estimates based upon assumptions about future
economic and market conditions which affect
reported amounts and related disclosures in our
financial statements. Our most significant estimates
pertain to our allowance for loan losses and lending-
related commitments, fair value of financial
instruments and derivatives, goodwill and other
intangibles and litigation and regulatory
contingencies. Although our current estimates
contemplate current conditions and how we expect

120 BNY Mellon

them to change in the future, it is reasonably possible
that actual conditions could be worse than anticipated
in those estimates, which could materially affect our
results of operations and financial condition.

Foreign currency translation

Assets and liabilities denominated in foreign
currencies are translated to U.S. dollars at the rate of
exchange on the balance sheet date. Transaction
gains and losses are included in the income statement.
Translation gains and losses on investments in foreign
entities with functional currencies that are not the
U.S. dollar are recorded as foreign currency
translation adjustments in other comprehensive
income (“OCI”). Revenue and expense transactions
are translated at the applicable daily rate or the
weighted average monthly exchange rate when
applying the daily rate is not practical.

Acquired businesses

The income statement and balance sheet include
results of acquired businesses accounted for under the
acquisition method of accounting pursuant to
Accounting Standards Codification (“ASC”) 805,
Business Combinations and equity investments from
the dates of acquisition. Contingent purchase
consideration is measured at its fair value and
recorded on the purchase date. Any subsequent
changes in the fair value of a contingent consideration
liability are recorded through the income statement.

Consolidation

We evaluate an entity for possible consolidation in
accordance with ASC 810, Consolidation. We first
determine whether or not we have variable interests
in the entity, which are investments or other interests
that absorb portions of an entity’s expected losses or
receive portions of the entity’s expected returns. Our
variable interests may include decision-maker or
service provider fees, direct and indirect investments
and investments made by related parties, including
related parties under common control. If it is
determined that we do not have a variable interest in
the entity, no further analysis is required and the
entity is not consolidated.

If we hold a variable interest in the entity, further
analysis is performed to determine if the entity is a
variable interest entity (“VIE”) or a voting model
entity (“VME”).

Notes to Consolidated Financial Statements (continued)

We consider the underlying facts and circumstances
of individual entities when assessing whether or not
an entity is a VIE. An entity is determined to be a
VIE if the equity investors:

•

do not have sufficient equity at risk for the entity
to finance its activities without additional
subordinated financial support; or
lack one or more of the following characteristics
of a controlling financial interest:
•

the power, through voting rights or similar
rights, to direct the activities of an entity that
most significantly impact the entity’s
economic performance;
the obligation to absorb the expected losses
of the entity; and
the right to receive the expected residual
returns of the entity.

•

We reconsider and reassess whether or not we are the
primary beneficiary of a VIE when governing
documents or contractual arrangements are changed
that would reallocate the obligation to absorb
expected losses or receive expected residual returns
between BNY Mellon and the other investors. This
could occur when BNY Mellon disposes of its
variable interests in the fund, when additional
variable interests are issued to other investors or
when we acquire additional variable interests in the
VIE.

We consolidate a VIE if it is determined that we have
a controlling financial interest in the entity. We have
a controlling financial interest in a VIE when we have
both (1) the power to direct the activities of the VIE
that most significantly impact the VIE’s economic
performance and (2) the obligation to absorb losses or
the right to receive benefits of the VIE that could
potentially be significant to that VIE.

For entities that do not meet the definition of a VIE,
the entity is considered a VME. We consolidate these
entities if we can exert control over the financial and
operating policies of an investee, which can occur if
we have a 50% or more voting interest in the entity.

Equity method investments, including renewable
energy investments

Equity investments of less than a majority but at least
20% ownership are accounted for by the equity
method and included in other assets. Earnings on
these investments are reflected as investment services
fees, investment management and performance fees
or investment and other income, as appropriate, in the
period earned.

A loss in value of an equity investment that is
determined to be other-than-temporary is recognized
by reducing the carrying value of the equity
investment to its fair value.

Renewable energy investment projects through
limited liability companies are accounted for using
the equity method of accounting. The hypothetical
liquidation at book value (“HLBV”) methodology is
used to determine the pre-tax loss that is recognized
in each period. HLBV estimates the liquidation value
at the beginning and end of each period, with the
difference recognized as the amount of loss under the
equity method.

The pre-tax losses are reported in investment and
other income on the income statement. The
corresponding tax benefits and credits are recorded as
a reduction to provision for income taxes on the
income statement. The pre-tax losses, tax benefits
and credits are included in our projected annual
effective tax rate.

See Note 8 for the amount of our renewable energy
investments. Below are our most significant equity
method investments, other than the investments in
renewable energy.

Equity method investments at Dec. 31, 2019

(dollars in millions)
CIBC Mellon Global Securities
Services Company (“CIBC
Mellon”)
Siguler Guff

Percentage
ownership Book value

50.0% $
20.0% $

626
233

See Note 14 for additional disclosures related to our
variable interests.

Restricted cash and securities

Cash and securities may be segregated under federal
and other regulatory requirements and consists of
excess client funds held by our broker-dealer entities.
Restricted cash is included in interest-bearing
deposits with banks on the balance sheet and with

BNY Mellon 121

Notes to Consolidated Financial Statements (continued)

cash and due from banks when reconciling the
beginning and end-of-period balances on the
consolidated statement of cash flows.

Securities purchased under resale agreements and
securities sold under repurchase agreements

Securities purchased under resale agreements and
securities sold under repurchase agreements are
accounted for as collateralized financings. Generally,
these agreements are recorded at the amounts at
which the securities will be subsequently resold or
repurchased, plus accrued interest.

Securities purchased under resale agreements are
fully collateralized with high-quality liquid securities.
Collateral requirements are monitored and additional
collateral is received or provided, as required. As
such, these transactions carry minimal credit risk and
are not allocated an allowance for credit losses.

Where an enforceable netting agreement exists, resale
and repurchase agreements executed with the same
counterparty and the same maturity date are reported
on a net basis on the balance sheet.

Securities – Debt

Debt securities are classified as available-for-sale,
held-to-maturity or trading securities when they are
purchased. Debt securities are classified as available-
for-sale securities when we intend to hold the
securities for an indefinite period of time or when the
securities may be used for tactical asset/liability
purposes and may be sold from time to time to
effectively manage interest rate exposure, prepayment
risk and liquidity needs. Debt securities are classified
as held-to-maturity securities when we intend and
have the ability to hold them until maturity. Debt
securities are classified as trading securities when our
intention is to resell the securities.

Available-for-sale securities are measured at fair
value. The difference between fair value and
amortized cost representing unrealized gains or losses
on assets classified as available-for-sale, are recorded
net of tax as an addition to or deduction from OCI,
unless a security is deemed to have other-than-
temporary impairment (“OTTI”). Realized gains and
losses on sales of available-for-sale securities are
reported on the income statement. The cost of debt
securities sold is determined on a specific
identification method. Held-to-maturity securities are
measured at amortized cost.

122 BNY Mellon

Trading securities are measured at fair value and
included in trading assets on the balance sheet.
Trading revenue includes both realized and unrealized
gains and losses. The liability incurred on short-sale
transactions, representing the obligation to deliver
securities, is included in trading liabilities at fair
value.

Income on securities purchased is adjusted for
amortization of premium and accretion of discount on
a level yield basis, generally over their contractual
life.

We routinely conduct periodic reviews to identify and
evaluate each security not measured at fair value
through earnings to determine whether OTTI has
occurred. We examine various factors when
determining whether an impairment, representing the
fair value of a security being below its amortized
cost, is other-than-temporary. The following are
examples of factors that we consider:

• The length of time and the extent to which the
fair value has been less than the amortized cost
basis;

• Whether management has an intent to sell the

security;

• Whether the decline in fair value is attributable to
specific conditions, such as conditions in an
industry or in a geographic area, affecting a
particular investment;

• Whether a debt security has been downgraded by

a rating agency;

• Whether a debt security exhibits cash flow

deterioration; and

• For each non-agency residential mortgage-backed
security (“RMBS”), we compare the remaining
credit enhancement that protects the individual
security from losses against the projected losses
of principal and/or interest expected to come
from the underlying mortgage collateral, to
determine whether such credit losses might
directly impact the relevant security.

When we do not intend to sell the security and it is
more likely than not that we will not be required to
sell the security prior to recovery of its cost basis, the
credit component of an OTTI of a debt security is
recognized in earnings and the non-credit component
is recognized in OCI. For held-to-maturity debt
securities, the amount of OTTI recorded in OCI for
the non-credit portion of a previous OTTI is
amortized prospectively, as an increase to the

Notes to Consolidated Financial Statements (continued)

carrying amount of the security, over the remaining
life of the security on the basis of the timing of future
estimated cash flows of the securities.

The determination of whether a credit loss exists is
based on the best estimate of the present value of cash
flows to be collected from the debt security.
Generally, cash flows are discounted at the effective
interest rate implicit in the debt security at the time of
acquisition. For debt securities that are beneficial
interests in securitized financial assets and are not
high credit quality, ASC 325, Investments - Other,
provides that cash flows be discounted at the current
yield used to accrete the beneficial interest.

If we intend to sell the security or it is more likely
than not that we will be required to sell the security
prior to recovery of its cost basis, the credit and non-
credit components of OTTI are recognized in
earnings and subsequently accreted to interest income
on an effective yield basis over the life of the security.

The accounting policy for the determination of the
fair value of financial instruments has been identified
as a “critical accounting estimate” as it requires us to
make numerous assumptions based on available
market data. See Note 4 for these disclosures.

Securities – Equity

Investments in equity securities that do not result in
consolidation and are not accounted for under the
equity method are measured at fair value with
changes in the fair value recognized through earnings,
unless one of two available exceptions applies. The
first exception, a scope exception, allows Federal
Reserve Bank stock, Federal Home Loan Bank stock
and exchange memberships to remain accounted for
at cost, less impairment. The second practicability
exception is an election available for equity
investments that do not have readily determinable fair
values. For certain investments where the Company
has chosen the practicability exception, such
investments are accounted for in other assets on the
balance sheet at cost adjusted for impairment, if any,
plus or minus observable price changes in orderly
transactions for an identical or similar investment of
the same issuer with any such changes reflected in
investment and other income. Equity securities with
readily determinable fair values are classified in
trading assets with changes in fair value reflected in
foreign exchange and other trading revenue.

Loans

Loans are reported at amortized cost, net of any
unearned income and deferred fees and costs. Certain
loan origination and upfront commitment fees, as
well as certain direct loan origination and
commitment costs, are deferred and amortized as a
yield adjustment over the lives of the related loans.
Loans held for sale are carried at the lower of cost or
fair value.

A modified loan is considered a troubled debt
restructuring (“TDR”) if the debtor is experiencing
financial difficulties and the creditor grants a
concession to the debtor that would not otherwise be
considered. A TDR may include a transfer of real
estate or other assets from the debtor to the creditor,
or a modification of the term of the loan. TDRs are
accounted for as impaired loans (see the
Nonperforming assets policy).

Nonperforming assets

Commercial loans are placed on nonaccrual status
when principal or interest is past due 90 days or
more, or when there is reasonable doubt that interest
or principal will be collected.

When a first or second lien residential mortgage loan
reaches 90 days delinquent, it is subject to an
impairment test and placed on nonaccrual status.

When a loan is placed on nonaccrual status,
previously accrued and uncollected interest is
reversed against current period interest revenue.
Interest receipts on nonaccrual and impaired loans are
recognized as interest revenue or are applied to
principal when we believe the ultimate collectability
of principal is in doubt. Nonaccrual loans generally
are restored to an accrual basis when principal and
interest become current and remain current for a
specified period.

A loan is considered to be impaired when it is
probable that we will be unable to collect all principal
and interest amounts due according to the contractual
terms of the loan agreement. An impairment
allowance is measured based upon the loan’s market
value, the present value of expected future cash
flows, discounted at the loan’s initial effective interest
rate, or at fair value of the collateral if the loan is
collateral dependent. If the loan valuation is less than
the recorded value of the loan, an impairment
allowance is established by a provision for credit loss

BNY Mellon 123

Notes to Consolidated Financial Statements (continued)

or a write-down is taken. Impairment allowances are
not needed when the recorded investment in an
impaired loan is less than the loan valuation.

Allowance for loan losses and allowance for lending-
related commitments

The allowance for loan losses, presented as a
valuation allowance to loans, and the allowance for
lending-related commitments recorded in other
liabilities, are referred to as BNY Mellon’s allowance
for credit losses. The accounting policy for
determining the allowances has been identified as a
“critical accounting estimate” as it requires us to
make numerous complex and subjective estimates
and assumptions relating to amounts which are
inherently uncertain.

The allowance for loan losses is maintained to absorb
losses inherent in the loan portfolio as of the balance
sheet date based on our judgment. The allowance
determination methodology is designed to provide
procedural discipline in assessing the appropriateness
of the allowance. Credit losses are charged against
the allowance. Recoveries are added to the
allowance.

The methodology for determining the allowance for
lending-related commitments considers the same
factors as the allowance for loan losses, as well as an
estimate of the probability of drawdown at default.
We utilize a quantitative methodology and qualitative
framework for determining the allowance for loan
losses and the allowance for lending-related
commitments. Within this qualitative framework,
management applies judgment when assessing
internal risk factors and environmental factors to
compute an additional allowance for each component
of the loan portfolio.

The components of the allowance for loan losses and
the allowance for lending-related commitments are
inclusive of the qualitative allowance framework and
consist of the following three elements:

•

an allowance for impaired credits of $1 million or
greater;
an allowance for higher risk-rated credits and
pass-rated credits; and
an allowance for residential mortgage loans.

Our lending is primarily to institutional customers.
As a result, our loans are generally larger than $1
million. Therefore, the first element, impaired

124 BNY Mellon

credits, is based on individual analysis of all impaired
loans of $1 million and greater. The allowance is
measured by the difference between the recorded
value of impaired loans and their impaired value.
Impaired value is either the present value of the
expected future cash flows from the borrower, the
market value of the loan, or the fair value of the
collateral, if the loan is collateral dependent.

The second element, higher risk-rated credits and
pass-rated credits, is based on our incurred loss
model. Individual credit analyses are performed on
such loans before being assigned a credit rating. All
borrowers are collectively evaluated based on their
credit rating. The loss inherent in each loan
incorporates the borrower’s credit rating, facility
rating and maturity. The loss given default, derived
from the facility rating, incorporates a recovery
expectation and an estimate of the use of the facility
at default (usage given default). The borrower’s
probability of default is derived from the associated
credit rating. Borrower ratings are reviewed at least
annually and are periodically mapped to third-party
databases, including rating agency and default and
recovery databases, to ensure ongoing consistency
and validity. Higher risk-rated credits are reviewed
quarterly.

The third element, the allowance for residential
mortgage loans, is determined by segregating
mortgage pools into delinquency periods ranging
from current through foreclosure. Each of these
delinquency periods is assigned a probability of
default. A specific loss given default is assigned for
each mortgage pool. We assign all residential
mortgage pools, except home equity lines of credit, a
probability of default and loss given default based on
default and loss data derived from internal historical
data related to our residential mortgage portfolio.
The resulting incurred loss factor (the probability of
default multiplied by the loss given default) is applied
against the loan balance to determine the allowance
held for each pool. This approach is applied to the
other residential mortgage portfolio (a relatively
small sub-segment of our mortgage loans). The
allowance for wealth management loans and
mortgages originated by our Wealth Management
business (the majority of mortgage loans held) is
assessed using the second element described above.
For home equity lines of credit, probability of default
and loss given default are based on external data from
third-party databases due to the small size of the
portfolio and insufficient internal data.

Notes to Consolidated Financial Statements (continued)

The qualitative framework is used to determine an
additional allowance for each portfolio based on the
factors below:

Internal risk factors:

• Ratio of nonperforming loans to total non-margin

loans;

• Ratio of criticized assets to total loans and

lending-related commitments;

• Borrower concentration; and
• Significant concentrations in high risk industries

and countries.

Environmental risk factors:

• U.S. non-investment grade default rate;
• Unemployment rate; and
• Change in real gross domestic product.

The objective of the qualitative framework is to
capture incurred losses that may not have been fully
captured in the quantitative reserve, which is based
primarily on historical data. Management determines
the qualitative allowance for each period based on
judgment informed by consideration of internal and
external risk factors and other considerations that
may be deemed relevant during the period. Once
determined in the aggregate, our qualitative
allowance is then allocated to each of our loan classes
based on the respective classes’ quantitative
allowance balances with the allocations adjusted,
when necessary, for class specific risk factors.

Based on this analysis, we assign a risk level–no
impact, low, moderate, high and elevated–to each risk
factor for the current quarter. Management assesses
the impact of each risk factor to determine an
aggregate risk level. We do not quantify the impact
of any particular risk factor. Management’s
assessment of the risk factors, as well as the trend in
the quantitative allowance, supports management’s
judgment for the overall required qualitative
allowance. A smaller qualitative allowance may be
required when our quantitative allowance has
reflected incurred losses associated with the

aggregate risk level. A greater qualitative allowance
may be required if our quantitative allowance does
not yet reflect the incurred losses associated with the
aggregate risk level.

The allocation of the allowance for credit losses is
inherently judgmental, and the entire allowance for
credit losses is available to absorb credit losses
regardless of the nature of the loss.

Premises and equipment

Premises and equipment are carried at cost less
accumulated depreciation and amortization.
Depreciation and amortization is computed using the
straight-line method over the estimated useful life of
the owned asset and, for leasehold improvements,
over the lesser of the remaining term of the leased
facility or the estimated economic life of the
improvement. For owned and capitalized assets,
estimated useful lives range from 2 to 40 years.
Maintenance and repairs are charged to expense as
incurred, while major improvements are capitalized
and amortized to operating expense over their
identified useful lives.

Leasing

We determine if an arrangement is a lease at
inception. Right-of-use (“ROU”) assets represent our
right to use an underlying asset for the lease term and
lease liabilities represent our obligation to make lease
payments. The ROU assets and lease liabilities are
recognized based on the present value of the future
minimum lease payments over the lease term at
commencement date. For all leases, we use a
discount rate that represents a collateralized
incremental borrowing rate based on similar terms
and information available at commencement date of
the lease in determining the present value of lease
payments. In addition to the lease payments, the
determination of an ROU asset may also include
certain adjustments related to lease incentives and
initial direct costs incurred. Options to extend or
terminate a lease are included in the determination of
the ROU asset and lease liability only when it is
reasonably certain that we will exercise that option.

Lease expense for operating leases is recognized on a
straight-line basis over the lease term, while the lease
expense for finance leases is recognized using the
effective interest method. ROU assets are reviewed
for impairment when events or circumstances indicate
that the carrying amount may not be recoverable. For

BNY Mellon 125

Notes to Consolidated Financial Statements (continued)

operating leases, if deemed impaired, the ROU asset
is written down and the remaining balance is
subsequently amortized on a straight-line basis which
results in lease expense recognition that is similar to
finance leases.

For all leases, we have elected to account for the
contractual lease and non-lease components as a
single lease component and include them in the
calculation of the lease liability. The non-lease
variable components, such as maintenance expense
and other variable costs including non-index or rate
escalations, have been excluded from the calculation.
Additionally, for certain equipment leases, we apply a
portfolio approach to account for the operating lease
ROU assets and liabilities.

For subleasing activities, the rental income is reported
as part of net occupancy expense, as this activity is
not a significant business activity and is part of the
Company’s customary business practice.

For direct finance leases, unearned revenue is
accreted over the lives of the leases in decreasing
amounts to provide a constant rate of return on the net
investment in the leases. We have leveraged lease
transactions that were entered into prior to Dec. 31,
2018. These leases are grandfathered under ASC
842, Leases, which became effective Jan. 1, 2019,
and will continue to be accounted for under the prior
guidance unless the leases are subsequently modified.
Revenue on leveraged leases is recognized on a basis
to achieve a constant yield on the outstanding
investment in the lease, net of the related deferred tax
liability, in the years in which the net investment is
positive. Gains and losses on residual values of
leased equipment sold are included in investment and
other income. Impairment of leveraged lease residual
values that is deemed other-than-temporary is
reflected in net interest revenue. Considering the
nature of these leases and the number of significant
assumptions, there is risk associated with the income
recognition on these leases should any of the
assumptions change materially in future periods.

Software

We capitalize costs relating to acquired software and
internal-use software development projects that
provide new or significantly improved functionality.
We capitalize projects that are expected to result in
longer-term operational benefits, such as replacement
systems or new applications that result in
significantly increased operational efficiencies or

126 BNY Mellon

functionality. All other costs incurred in connection
with an internal-use software project are expensed as
incurred. Capitalized software is recorded in other
assets on the balance sheet. We record amortization
of capitalized software in software and equipment
expense on the income statement.

Identified intangible assets and goodwill

Identified intangible assets with estimable lives are
amortized in a pattern consistent with the assets’
identifiable cash flows or using a straight-line method
over their remaining estimated benefit periods if the
pattern of cash flows is not estimable. Intangible
assets with estimable lives are reviewed for possible
impairment when events or changed circumstances
may affect the underlying basis of the asset.
Goodwill and intangibles with indefinite lives are not
amortized, but are assessed annually for impairment,
or more often if events and circumstances indicate it
is more likely than not they may be impaired and to
determine if the lives are no longer indefinite and
should be amortized. The amount of goodwill
impairment is determined by the excess of the
carrying value of the reporting unit over its fair value.
The accounting policy for valuing and impairment
testing of identified intangible assets and goodwill
has been identified as a “critical accounting estimate”
as it requires us to make numerous complex and
subjective estimates. See Note 7 for additional
disclosures related to goodwill and intangible assets.

Investments in qualified affordable housing projects

Investments in qualified affordable housing projects
through a limited liability entity are accounted for
utilizing the proportional amortization method.
Under the proportional amortization method, the
initial cost of the investment is amortized to the
provision for income taxes in proportion to the tax
credits and other tax benefits received. The net
investment performance, including tax credits and
other benefits received, is recognized in the income
statement as a component of the provision for income
taxes. Additionally, the value of the commitments to
fund qualified affordable housing projects is included
in other assets on the balance sheet and a liability is
recorded for the unfunded portion.

Seed capital

Seed capital investments are generally classified as
other assets and carried at fair value. Unrealized
gains and losses on seed capital investments are

Notes to Consolidated Financial Statements (continued)

recorded in investment and other income. Certain
risk retention investments in our collateralized loan
obligations (“CLOs”) are classified as available-for-
sale securities.

Noncontrolling interests

Noncontrolling interests included in permanent equity
are adjusted for the income or loss attributable to the
noncontrolling interest holders and any distributions
to those shareholders. Redeemable noncontrolling
interests are reported as temporary equity. We
recognize changes in the redemption value of the
redeemable noncontrolling interests as they occur and
adjust the carrying value to be equal to the
redemption value.

Fee revenue

Investment Services and Investment Management
revenue is based on terms specified in a contract with
a customer, and excludes any amounts collected on
behalf of third parties. Revenue is recognized when,
or as, a performance obligation is satisfied by
transferring control of a good or service to a
customer. A performance obligation may be satisfied
over time or at a point in time. Revenue from a
performance obligation satisfied over time is
recognized by measuring our progress in satisfying
the performance obligation in a manner that reflects
the transfer of goods and services to the customer.
Revenue from a performance obligation satisfied at a
point in time is recognized at the point in time the
customer obtains control of the promised good or
service. The amount of revenue recognized reflects
the consideration we expect to be entitled to in
exchange for the promised goods and services. Taxes
assessed by a governmental authority, that are both
imposed on, and concurrent with, a specific revenue-
producing transaction, are collected from a customer
and are excluded from revenue.

Performance fees are recognized in the period in
which the performance fees are earned and become
determinable. Performance fees are constrained until
all uncertainties are resolved and reversal of
previously recorded amounts is not probable.
Performance fees are generally calculated as a
percentage of the applicable portfolio’s performance
in excess of a benchmark index or a peer group’s
performance. When a portfolio underperforms its
benchmark or fails to generate positive performance,
subsequent years’ performance must generally exceed
this shortfall prior to fees being earned. Amounts

billable, which are subject to a clawback if future
performance thresholds in current or future years are
not met, are not recognized since the fees are
potentially uncollectible. These fees are recognized
when it is determined that they will be collected.
When a multi-year performance contract provides
that fees earned are billed ratably over the
performance period, only the portion of the fees
earned that are non-refundable are recognized.

Additionally, we recognize revenue from non-
refundable, implementation fees under outsourcing
contracts using a straight-line method, commencing
in the period the ongoing services are performed
through the expected term of the contractual
relationship. Incremental direct set-up costs of
implementation, up to the related customer margin or
minimum fee revenue amount, are deferred and
amortized over the same period that the related
implementation fees are recognized. If a client
terminates an outsourcing contract prematurely, the
unamortized deferred incremental direct set-up costs
and the unamortized deferred implementation fees
related to that contract are recognized in the period
the contract is terminated.

We record foreign exchange and other trading
revenue, financing-related fees and other revenue
when the services are provided and earned based on
contractual terms, when amounts are determined and
collectability is reasonably assured.

Net interest revenue

Revenue on interest-earning assets and expense on
interest-bearing liabilities are recognized based on the
effective yield of the related financial instrument.
The amortization of premiums and accretion of
discounts are included in interest revenue and are
adjusted for prepayments when they occur, such that,
the effective yield remains constant throughout the
contractual life of the security. Negative interest
incurred on assets or charged on liabilities is
presented as contra interest income and contra
expense, respectively.

Pension

The measurement date for BNY Mellon’s pension
plans is December 31. Plan assets are determined
based on fair value generally representing observable
market prices. The projected benefit obligation is
determined based on the present value of projected
benefit distributions at an assumed discount rate. The

BNY Mellon 127

Notes to Consolidated Financial Statements (continued)

discount rate utilized is based on the yield curves of
high-quality corporate bonds available in the
marketplace. The net periodic pension expense or
credit includes service costs (if applicable), interest
costs based on an assumed discount rate, an expected
return on plan assets based on an actuarially derived
market-related value, amortization of prior service
cost and amortization of prior years’ actuarial gains
and losses.

Actuarial gains and losses include gains or losses
related to changes in the amount of the projected
benefit obligation or plan assets resulting from
demographic or investment experience different than
assumed, changes in the discount rate or other
assumptions. To the extent an actuarial gain or loss
exceeds 10% of the greater of the projected benefit
obligation or the market-related value of plan assets,
the excess is generally recognized over the future
service periods of active employees. Benefit accruals
under the U.S. pension plans and the largest foreign
pension plan in the United Kingdom (“UK”) are
frozen. Future unrecognized actuarial gains and
losses for these frozen plans that exceed a threshold
amount are amortized over the average future life
expectancy of plan participants with a maximum of
15 years.

Our expected long-term rate of return on plan assets
is based on anticipated returns for each applicable
asset class. Anticipated returns are weighted for the
expected allocation for each asset class and are based
on forecasts for prospective returns in the equity and
fixed-income markets, which should track the long-
term historical returns for these markets. We also
consider the growth outlook for U.S. and global
economies, as well as current and prospective interest
rates.

The market-related value utilized to determine the
expected return on plan assets is based on the fair
value of plan assets adjusted for the difference
between expected returns and actual performance of
plan assets. The difference between actual experience
and expected returns on plan assets is included as an
adjustment in the market-related value over a five-
year period.

See Note 18 for additional disclosures related to
pensions.

128 BNY Mellon

Stock-based compensation

Compensation expense relating to share-based
payments is recognized in staff expense on the
income statement, on a straight-line basis, over the
applicable vesting period.

Certain stock compensation grants vest when the
employee retires. New grants with this feature are
expensed by the first date the employee is eligible to
retire. We estimate forfeitures when recording
compensation cost related to share-based payment
awards.

Severance

BNY Mellon provides separation benefits for U.S.-
based employees through The Bank of New York
Mellon Corporation Supplemental Unemployment
Benefit Plan. These benefits are provided to eligible
employees separated from their jobs for business
reasons not related to individual performance. Basic
separation benefits are generally based on the
employee’s years of continuous benefited service.
Severance for employees based outside of the U.S. is
determined in accordance with local agreements and
legal requirements. Severance expense is recorded
when management commits to an action that will
result in separation and the amount of the liability can
be reasonably estimated.

Income taxes

We record current tax liabilities or assets through
charges or credits to the current tax provision for the
estimated taxes payable or refundable for the current
year. Deferred tax assets and liabilities are recorded
for future tax consequences attributable to differences
between the financial statement carrying amounts of
assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are
expected to be recovered or settled. A deferred tax
valuation allowance is established if it is more likely
than not that all or a portion of the deferred tax assets
will not be realized. A tax position that fails to meet a
more-likely-than-not recognition threshold will result
in either reduction of current or deferred tax assets,
and/or recording of current or deferred tax liabilities.
Interest and penalties related to income taxes are
recorded as income tax expense.

Notes to Consolidated Financial Statements (continued)

Derivative financial instruments

Derivatives are recorded on the balance sheet at fair
value and include futures, forwards, interest rate
swaps, foreign currency swaps and options and
similar products. Derivatives in an unrealized gain
position are recognized as assets while derivatives in
unrealized loss position are recognized as liabilities.
Derivatives are reported net by counterparty and after
consideration of cash collateral, to the extent subject
to legally enforceable netting agreements.
Derivatives designated and effective in qualifying
hedging relationships are classified in other assets or
other liabilities on the balance sheet. All other
derivatives are classified within trading assets or
trading liabilities on the balance sheet. Gains and
losses on trading derivatives are generally included in
foreign exchange and other trading revenue.

We enter into various derivative financial instruments
for non-trading purposes primarily as part of our
asset/liability management process. These non-
trading derivatives are designated as one of three
types of hedge activities: fair value, cash flow or net
investment hedges. Gains and losses on derivatives
associated with fair value hedges are recorded in
income as well as any change in the value of the
related hedged item associated with the designated
risks being hedged. Gains and losses on cash flow
hedges are recorded in OCI, until reclassified into
earnings in the same period the hedged item impacts
earnings. Foreign currency transaction gains and
losses related to a hedged net investment in a foreign
operation, net of their tax effect, are recorded with
cumulative foreign currency translation adjustments
within OCI.

To qualify for hedge accounting, each hedge
relationship is required to be highly effective at
reducing the risk associated with the exposure being
hedged, both prospectively and retrospectively. We
formally document all relationships including
hedging instruments and hedged items, as well as our
risk management objectives and strategy for
undertaking each hedging transaction. At inception,
the potential cause of ineffectiveness related to each
of our hedges is assessed to determine if we can
expect the hedge to be highly effective over the life of
the transaction. At hedge inception, we document the
methodology to be utilized for evaluating
effectiveness on an ongoing basis, and we monitor
ongoing hedge effectiveness at least quarterly.

For qualifying fair value hedges, changes in the fair
value of the derivative, and changes in the value of
the hedged item associated with the designated risks
being hedged, are recognized in earnings. Certain
amounts excluded from the assessment of
effectiveness are recorded in OCI and recognized in
earnings through an amortization approach over the
life of the derivative. We discontinue hedge
accounting prospectively when we determine that the
hedge is no longer effective or the derivative expires,
is sold, or management discontinues the derivative’s
hedge designation. Subsequent gains and losses on
these derivatives are included in foreign exchange
and other trading revenue. For discontinued fair
value hedges, the accumulated gain or loss on the
hedged item is amortized on a yield basis over the
remaining life of the hedged item.

For qualifying cash flow hedges, changes in the fair
value of the derivative are recorded in OCI, until
reclassified into earnings in the same period the
hedged item impacts earnings. If the hedge
relationship is terminated, then the change in value
will be reclassified from OCI to earnings when the
cash flows that were previously hedged affect
earnings. If cash flow hedge accounting is
discontinued as a result of a forecasted transaction no
longer being probable to occur, then the amount
reported in OCI is immediately reclassified to current
earnings.

Derivative amounts affecting earnings are recognized
in the same income statement line as the hedged item
affects earnings, principally interest income, interest
expense and other revenue.

Foreign currency transaction gains and losses related
to qualifying hedges of net investments in a foreign
operation are recorded with cumulative foreign
currency translation adjustments within OCI net of
their tax effect. The Company evaluates effectiveness
of its foreign currency derivatives designated as
hedges of its net investments utilizing the forward
rate method.

The determination of fair value of derivative financial
instruments has been identified as a “critical
accounting estimate.” See Note 23 for additional
disclosures related to derivative financial instruments.

Earnings per common share

Earnings per common share is calculated using the
two-class method under which earnings are allocated

BNY Mellon 129

Notes to Consolidated Financial Statements (continued)

to common shareholders and holders of participating
securities. Unvested stock-based compensation
awards that contain non-forfeitable rights to
dividends or dividend equivalents are considered
participating securities under the two-class method.

Note 2–Accounting changes and new
accounting guidance

The following accounting changes and new
accounting guidance were adopted in 2019.

Basic earnings per share is calculated by dividing net
income allocated to common shareholders of BNY
Mellon by the average number of common shares
outstanding and vested stock-based compensation
awards where recipients have satisfied either the
explicit vesting terms or retirement-eligibility
requirements.

Diluted earnings per common share is computed
under the more dilutive of either the treasury stock
method or the two-class method. We increase the
average number of shares of common stock
outstanding by the assumed number of shares of
common stock that would be issued assuming the
exercise of stock options and the issuance of shares
related to stock-based compensation awards using the
treasury stock method, if dilutive. Diluted earnings
per share is calculated by dividing net income
allocated to common shareholders of BNY Mellon by
the adjusted average number of common shares
outstanding.

Statement of cash flows

We have defined cash as cash and due from banks.
Cash flows from hedging activities are classified in
the same category as the items hedged. Distributions
received from equity method investees are classified
as cash inflows from operating activities on the
statement of cash flows. Excess returns on
investments of equity method investments are
classified as cash flows from investing activities on
the statement of cash flows.

130 BNY Mellon

ASU 2016-02, Leases

In February 2016, the Financial Accounting
Standards Board (“FASB”) issued an ASU, Leases.
The primary objective of this ASU is to increase
transparency and comparability by recognizing lease
assets and liabilities on the balance sheet and expand
related disclosures. This ASU requires a “right-of-
use” asset and a payment obligation liability on the
balance sheet for most leases and subleases.
Additionally, depending on the lease classification
under the standard, it may result in different expense
recognition patterns and classification than under
existing accounting principles. For leases classified
as finance leases, it will result in higher expense
recognition in the earlier periods and lower expense
in the later periods of the lease.

The Company adopted this guidance on Jan. 1, 2019
using the alternative transition method on a
prospective basis (and elected to utilize the basket of
practical expedients available at implementation) and
recognized right-of-use assets of $1.3 billion and
lease liabilities of $1.5 billion on the consolidated
balance sheet, both based on the present value of the
expected remaining lease payments. See Note 6 for
the disclosures required by this ASU.

ASU 2018-02, Income Statement—Reporting
Comprehensive Income: Reclassification of Certain
Tax Effects from Accumulated Other Comprehensive
Income

In February 2018, the FASB issued an ASU, Income
Statement—Reporting Comprehensive Income:
Reclassification of Certain Tax Effects from
Accumulated Other Comprehensive Income. This
ASU permits a reclassification from accumulated
other comprehensive income to retained earnings for
the tax effects of items within accumulated other
comprehensive income that do not reflect the lower
statutory tax rate which was enacted by the 2017 U.S.
tax legislation. BNY Mellon adopted this guidance in
the first quarter of 2019, which resulted in a $90
million reclassification that decreased accumulated
other comprehensive income and increased retained
earnings.

Notes to Consolidated Financial Statements (continued)

Note 3–Acquisitions and dispositions

Note 4–Securities

We sometimes structure our acquisitions with both an
initial payment and later contingent payments tied to
post-closing revenue or income growth. Contingent
payments totaled $6 million in 2019.

The following tables present the amortized cost, the
gross unrealized gains and losses and the fair value of
securities at Dec. 31, 2019, Dec. 31, 2018 and Dec.
31, 2017, respectively.

At Dec. 31, 2019, we are potentially obligated to pay
additional consideration which, using reasonable
assumptions, could range from $5 million to $13
million over the next two years, but could be higher
as certain of the arrangements do not contain a
contractual maximum.

Transaction in 2019

On Nov. 8, 2019, BNY Mellon, along with the other
holders of Promontory Interfinancial Network, LLC
(“PIN”), completed the sale of their interests in PIN.
BNY Mellon recorded an after-tax gain of $622
million on the sale of this equity investment.

Transactions in 2018

On Jan. 2, 2018, BNY Mellon completed the sale of
CenterSquare Investment Management
(“CenterSquare”), one of our Investment
Management investment firms, and recorded a gain
on this transaction. CenterSquare had approximately
$10 billion in assets under management (“AUM”) in
U.S. and global real estate and infrastructure
investments. In addition, goodwill of $52 million
was removed from the consolidated balance sheet as a
result of this sale.

On June 29, 2018, BNY Mellon completed the
exchange of its majority equity interest in Amherst
Capital Management LLC for a minority equity stake
in Amherst Holdings LLC. Goodwill of $13 million
was removed from the consolidated balance sheet and
a gain was recorded as a result of this sale.

Securities at Dec. 31, 2019

(in millions)
Available-for-sale:
Agency RMBS
U.S. Treasury
Sovereign debt/sovereign

guaranteed

Agency commercial
mortgage-backed
securities (“MBS”)
Foreign covered bonds
CLOs
Supranational
Foreign government

agencies

Non-agency commercial

MBS

Other asset-backed
securities (“ABS”)

U.S. government

agencies

Non-agency RMBS (a)
State and political

subdivisions
Corporate bonds
Other debt securities
Total securities

available-for-sale (b)

Held-to-maturity:
Agency RMBS
U.S. Treasury
Agency commercial MBS
U.S. government

agencies

Sovereign debt/sovereign

guaranteed

Non-agency RMBS
Foreign covered bonds
Supranational
State and political

subdivisions
Total securities held-to-

Amortized
cost

Gross
unrealized

Gains Losses

Fair
value

27,022 $ 164 $ 143 $ 27,043
15,431
14,979

472

12,548

109

12,646

9,231
4,189
4,078
3,697

2,638

2,134

2,141

1,890
1,038

1,017
832
1

203
15
1
18

61
202

27
21
—

17
7
16
6

2
7

—
—
—

9,417
4,197
4,063
3,709

2,643

2,178

2,143

1,949
1,233

1,044
853
1

87,435 $1,353 $ 238 $ 88,550

27,357 $ 292 $

3,818
1,326

1,023

756
80
79
27

28
21

31
4
—
—

—

46 $ 27,603
3,843
1,344

3
3

—
1
—
—

—

1,022

787
83
79
27

(a)

(b)

34,483 $ 377 $

$
55 $ 34,805
maturity
$ 121,918 $1,730 $ 293 $ 123,355
Total securities
Includes $640 million that was included in the former Grantor
Trust.
Includes gross unrealized gains of $32 million and gross
unrealized losses of $65 million recorded in accumulated other
comprehensive income related to securities that were transferred
from available-for-sale to held-to-maturity. The unrealized
gains and losses are primarily related to Agency RMBS and will
be amortized into net interest revenue over the contractual lives
of the securities.

BNY Mellon 131

Notes to Consolidated Financial Statements (continued)

The following table presents the realized gains, losses
and impairments, on a gross basis.

Net securities (losses) gains
(in millions)
Realized gross gains
Realized gross losses
Recognized gross impairments

Total net securities (losses) gains

2019

2018

23 $
(39)
(2)
(18) $

8 $

(55)
(1)
(48) $

2017
47
(40)
(4)
3

In 2018, we adopted the new accounting guidance
included in ASU 2016-01, Financial Instruments—
Overall: Recognition and Measurement of Financial
Assets and Financial Liabilities. As a result, money
market fund investments were reclassified to trading
assets, primarily from available-for-sale securities.

In 2018, certain debt securities with an aggregate
amortized cost of $1,117 million and fair value of
$1,070 million were transferred from held-to-maturity
securities to available-for-sale securities as part of the
adoption of ASU 2017-12, Derivatives and Hedging:
Targeted Improvements to Accounting for Hedging
Activities.

The following table presents pre-tax net securities
(losses) gains by type.

Net securities (losses) gains
(in millions)
U.S. Treasury
Agency RMBS
Other

Total net securities (losses) gains

2019

2018

(13) $
1
(6)
(18) $

(4) $
(42)
(2)
(48) $

2017
(16)
(12)
31
3

Securities at Dec. 31, 2018

(in millions)
Available-for-sale:
Agency RMBS
U.S. Treasury
Sovereign debt/sovereign

guaranteed

Agency commercial MBS
CLOs
Supranational
Foreign covered bonds
State and political

subdivisions

Other ABS
U.S. government

agencies

Non-agency commercial

MBS

Non-agency RMBS (a)
Foreign government

agencies

Corporate bonds
Other debt securities
Total securities

available-for-sale (b)

Held-to-maturity:
Agency RMBS
U.S. Treasury
U.S. government

agencies

Agency commercial MBS
Sovereign debt/sovereign

guaranteed

Non-agency RMBS
Foreign covered bonds
Supranational
State and political

subdivisions
Total securities held-to-

Amortized
cost

Gross
unrealized

Gains Losses

Fair
value

25,594 $
20,190

83 $ 369 $ 25,308
20,076
96

210

10,663

108

9,836
3,410
2,985
2,890

2,251

1,776

1,676

1,491

1,095

1,164

1,074
72

16
—
7
7

241

6
5

161
46
8
19

26
—

10,750

9,691
3,364
2,984
2,878

2,247

1,773

1,657

1,464

1,325

1,161

1,054
77

86,167 $ 595 $ 953 $ 85,809

25,507 $
4,727

1,497

1,195

833

100
80
26

32 $ 632 $ 24,907
4,653

—

4
1
1

—

2
—
—

—

1,487

1,169

859

102
81
27

(a)

(b)

33,982 $

67 $ 747 $ 33,302

$
$ 120,149 $ 662 $1,700 $ 119,111

maturity
Total securities
Includes $832 million that was included in the former Grantor
Trust.
Includes gross unrealized gains of $39 million and gross
unrealized losses of $87 million recorded in accumulated other
comprehensive income related to securities that were transferred
from available-for-sale to held-to-maturity. The unrealized
gains and losses are primarily related to Agency RMBS and will
be amortized into net interest revenue over the contractual lives
of the securities.

132 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Temporarily impaired securities

At Dec. 31, 2019, the gross unrealized losses on the
securities portfolio were primarily attributable to an
increase in interest rates from the date of purchase,
and for certain securities that were transferred from
available-for-sale to held-to-maturity, an increase in
interest rates through the date they were transferred.
Specifically, $65 million of the unrealized losses at
Dec. 31, 2019 and $87 million at Dec. 31, 2018
reflected in the available-for-sale sections of the
tables below relate to certain securities (primarily

Agency RMBS) that were transferred in prior periods
from available-for-sale to held-to-maturity. The
unrealized losses will be amortized into net interest
revenue over the contractual lives of the securities.
The transfer created a new cost basis for the
securities. As a result, if these securities have
experienced unrealized losses since the date of
transfer, the corresponding fair value and unrealized
losses would be reflected in the held-to-maturity
sections of the following tables. We do not intend to
sell these securities, and it is not more likely than not
that we will have to sell these securities.

The following tables show the aggregate fair value of securities with a continuous unrealized loss position for less
than 12 months and those that have been in a continuous unrealized loss position for 12 months or more.

Temporarily impaired securities at Dec. 31, 2019

Less than 12 months

12 months or more

Total

(in millions)
Available-for-sale:
Agency RMBS
U.S. Treasury
Sovereign debt/sovereign guaranteed
Agency commercial MBS
Foreign covered bonds
CLOs
Supranational
Foreign government agencies
Non-agency commercial MBS
Other ABS
U.S. government agencies
Non-agency RMBS (a)
State and political subdivisions
Corporate bonds

Total securities available-for-sale (b)

Fair
value

Unrealized
losses

Fair
value

Unrealized
losses

Fair
value

Unrealized
losses

8,373 $
1,976
4,045
1,960
1,009
1,066
1,336
1,706
525
456
377
101
—
82
23,012 $

33
16
10
12
4
2
6
2
2
3
2
—
—
—
92

5,912 $
766
225
775
690
1,499
360
47
45
305
—
113
16
21
10,774 $

110
4
1
5
3
14
—
—
—
2
—
7
—
—
146

14,285 $
2,742
4,270
2,735
1,699
2,565
1,696
1,753
570
761
377
214
16
103
33,786 $

143
20
11
17
7
16
6
2
2
5
2
7
—
—
238

Held-to-maturity:
Agency RMBS
U.S. Treasury
Agency commercial MBS
U.S. government agencies
Non-agency RMBS

46
4,714 $
3
406
3
375
2
506
1
6
55
6,007 $
293
29,019 $
(a) Includes $2 million of securities with an unrealized loss of less than $1 million for less than 12 months and $2 million of securities with

Total securities held-to-maturity
Total temporarily impaired securities

8,443 $
1,227
375
551
46
10,642 $
44,428 $

3,729 $
821
—
45
40
4,635 $
15,409 $

17
3
3
2
—
25
117

29
—
—
—
1
30
176

$
$

an unrealized loss of less than $1 million for 12 months or more that were included in the former Grantor Trust.

(b) Includes gross unrealized losses of $65 million for 12 months or more recorded in accumulated other comprehensive income related to

securities that were transferred from available-for-sale to held-to-maturity. The unrealized losses are primarily related to Agency RMBS
and will be amortized into net interest revenue over the contractual lives of the securities. There were no gross unrealized losses for less
than 12 months.

BNY Mellon 133

Notes to Consolidated Financial Statements (continued)

Temporarily impaired securities at Dec. 31, 2018

Less than 12 months

12 months or more

Total

(in millions)
Available-for-sale:
Agency RMBS
U.S. Treasury
Sovereign debt/sovereign guaranteed
Agency commercial MBS
CLOs
Supranational
Foreign covered bonds
State and political subdivisions
Other ABS
U.S. government agencies
Non-agency commercial MBS
Non-agency RMBS (a)
Foreign government agencies
Corporate bonds

Total securities available-for-sale (b)

Fair
value

Unrealized
losses

Fair
value

Unrealized
losses

Fair
value

Unrealized
losses

6,678 $
6,126
2,185
4,505
3,280
974
1,058
316
1,289
513
1,015
94
397
685
29,115 $

30
23
8
50
46
2
7
1
4
4
14
1
1
24
215

9,250 $
6,880
988
3,082
2
481
736
668
23
673
362
157
256
50
23,608 $

339
187
13
111
—
6
12
21
—
20
14
10
3
2
738

15,928 $
13,006
3,173
7,587
3,282
1,455
1,794
984
1,312
1,186
1,377
251
653
735
52,723 $

369
210
21
161
46
8
19
22
4
24
28
11
4
26
953

Held-to-maturity:
Agency RMBS
U.S. Treasury
U.S. government agencies
Agency commercial MBS
Non-agency RMBS

632
77
10
26
2
747
1,700
(a) Includes $22 million of securities with an unrealized loss of less than $1 million for less than 12 months and $3 million of securities with

Total securities held-to-maturity
Total temporarily impaired securities

21,709 $
4,500
1,111
1,131
53
28,504 $
81,227 $

17,107 $
4,343
1,111
654
31
23,246 $
46,854 $

4,602 $
157
—
477
22
5,258 $
34,373 $

576
75
10
19
1
681
1,419

56
2
—
7
1
66
281

$
$

an unrealized loss of less than $1 million for 12 months or more that were included in the former Grantor Trust.

(b) Includes gross unrealized losses of $87 million for 12 months or more recorded in accumulated other comprehensive income related to

The following table shows the maturity distribution by carrying amount and yield (on a tax equivalent basis) of our
securities portfolio.

Maturity distribution and yields
on securities at Dec. 31, 2019

U.S. Treasury

U.S. government
agencies

State and political
subdivisions

Other bonds, notes
and debentures

Mortgage/
asset-backed

(dollars in millions)
Securities available-for-sale:

One year or less
Over 1 through 5 years
Over 5 through 10 years
Over 10 years
Mortgage-backed securities
Asset-backed securities

Total

Securities held-to-maturity:

One year or less
Over 1 through 5 years
Over 5 through 10 years
Over 10 years
Mortgage-backed securities

Total

Amount Yield (a) Amount Yield (a) Amount Yield (a) Amount Yield (a) Amount Yield (a)

Total

$ 2,104
6,876
3,693
2,758
—
—
$ 15,431

881
2,937
—
—
—
$ 3,818

2.51% $
1.70
2.21
3.11
—
—

25
411
1,513
—
—
—
2.18% $ 1,949

1.44% $
1.98
—
—
—

135
688
200
—
—
1.86% $ 1,023

2.73% $
2.07
2.70
—
—
—

162
774
94
14
—
—
2.56% $ 1,044

1.69% $ —
3
2.04
—
2.58
14
—
—
—
17

2.10% $

2.90% $ 8,241
13,909
3.26
1,705
2.57
194
2.50
—
—
—
—
3.13% $ 24,049

—% $

5.68
—
4.76
—

4.94% $

138
610
114
—
—
862

1.19% $ —
—
0.99
—
0.87
—
1.67
39,871
—
6,206
—
1.06% $ 46,077

0.78% $ —
—
0.77
—
0.22
—
—
28,763
—
0.70% $ 28,763

—% $ 10,532
21,970
—
7,005
—
2,966
—
39,871
2.87
6,206
2.90
2.87% $ 88,550

—% $ 1,154
4,238
—
314
—
14
—
28,763
2.94
2.94% $ 34,483

(a) Yields are based upon the amortized cost of securities.

134 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Other-than-temporary impairment

For each security in the securities portfolio, a
quarterly review is conducted to determine if an
OTTI has occurred. See Note 1 for a discussion of
the determination of OTTI.

The following table reflects securities credit losses
recorded in earnings. The beginning balance
represents the credit loss component for which OTTI
occurred on debt securities in prior periods. The
additions represent the first time a debt security was
credit impaired or when subsequent credit
impairments have occurred. The deductions represent
credit losses on securities that have been sold, are
required to be sold, or for which it is our intention to
sell.

Debt securities credit loss roll forward
(in millions)
Beginning balance as of Dec. 31
Add: Initial OTTI credit losses

Subsequent OTTI credit losses
Less: Realized losses for securities sold
Ending balance as of Dec. 31

2019

78 $
—
1
7
72 $

2018
84
—
1
7
78

Pledged assets

At Dec. 31, 2019, BNY Mellon had pledged assets of
$118 billion, including $80 billion pledged as
collateral for potential borrowings at the Federal
Reserve Discount Window and $6 billion pledged as
collateral for borrowing at the Federal Home Loan
Bank. The components of the assets pledged at Dec.
31, 2019 included $98 billion of securities, $13
billion of loans, $7 billion of trading assets and less
than $1 billion of interest-bearing deposits with
banks.

If there has been no borrowing at the Federal Reserve
Discount Window, the Federal Reserve generally
allows banks to freely move assets in and out of their
pledged assets account to sell or repledge the assets
for other purposes. BNY Mellon regularly moves
assets in and out of its pledged assets account at the
Federal Reserve.

At Dec. 31, 2018, BNY Mellon had pledged assets of
$120 billion, including $96 billion pledged as
collateral for potential borrowing at the Federal
Reserve Discount Window and $7 billion pledged as
collateral for borrowing at the Federal Home Loan
Bank. The components of the assets pledged at Dec.
31, 2018 included $100 billion of securities, $15
billion of loans, $4 billion of trading assets and $1
billion of interest-bearing deposits with banks.

At Dec. 31, 2019 and Dec. 31, 2018, pledged assets
included $29 billion and $13 billion, respectively, for
which the recipients were permitted to sell or
repledge the assets delivered.

We also obtain securities as collateral, including
receipts under resale agreements, securities borrowed,
derivative contracts and custody agreements on terms
which permit us to sell or repledge the securities to
others. At Dec. 31, 2019 and Dec. 31, 2018, the
market value of the securities received that can be
sold or repledged was $153 billion and $151 billion,
respectively. We routinely sell or repledge these
securities through delivery to third parties. As of
Dec. 31, 2019 and Dec. 31, 2018, the market value of
securities collateral sold or repledged was $107
billion and $101 billion, respectively.

Restricted cash and securities

Cash and securities may be segregated under federal
and other regulations or requirements. At both Dec.
31, 2019 and Dec. 31, 2018, cash segregated under
federal and other regulations or requirements was $2
billion. Restricted cash is included in interest-bearing
deposits with banks on the consolidated balance
sheet. Securities segregated under federal and other
regulations or requirements were $1 billion at Dec.
31, 2019 and $2 billion at Dec. 31, 2018. Restricted
securities were sourced from securities purchased
under resale agreements and are included in federal
funds sold and securities purchased under resale
agreements on the consolidated balance sheet.

BNY Mellon 135

Notes to Consolidated Financial Statements (continued)

Note 5–Loans and asset quality

Loans

The table below provides the details of our loan
portfolio and industry concentrations of credit risk at
Dec. 31, 2019 and Dec. 31, 2018.

Loans
(in millions)
Domestic:

Commercial
Commercial real estate
Financial institutions
Lease financings
Wealth management loans and
mortgages

Other residential mortgages
Overdrafts
Other
Margin loans

Total domestic

Foreign:

Commercial
Commercial real estate
Financial institutions
Lease financings
Wealth management loans and

mortgages

Other (primarily overdrafts)
Margin loans

Total foreign
Total loans (a)

Dec. 31,

2019

2018

1,442 $
5,575
4,852
537

16,050
494
524
1,167
11,907
42,548

347
7
7,626
576

140
2,230
1,479
12,405
54,953 $

1,949
4,787
5,091
706

15,843
594
1,550
1,181
13,343
45,044

183
—
6,492
551

122
4,031
141
11,520
56,564

(a) Net of unearned income of $313 million at Dec. 31, 2019
and $358 million at Dec. 31, 2018 primarily related to
domestic and foreign lease financings.

Our loan portfolio consists of three portfolio
segments: commercial, lease financings and
mortgages. We manage our portfolio at the class
level, which consists of six classes of financing
receivables: commercial, commercial real estate,
financial institutions, lease financings, wealth
management loans and mortgages, and other
residential mortgages.

The following tables are presented for each class of
financing receivables and provide additional
information about our credit risks and the adequacy
of our allowance for credit losses.

136 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Allowance for credit losses

Activity in the allowance for credit losses is presented below.

Allowance for credit losses activity for the year ended Dec. 31, 2019

(in millions)

Beginning balance

Charge-offs
Recoveries

Net (charge-offs) recoveries

Provision
Ending balance
Allowance for:
Loan losses
Lending-related commitments

Individually evaluated for

impairment:
Loan balance
Allowance for loan losses

Collectively evaluated for

impairment:
Loan balance
Allowance for loan losses

Commercial

Commercial
real estate

Financial
institutions

Lease
financings

Wealth
management
loans and
mortgages

Other
residential
mortgages

All
other

Foreign

Total

81 $
(12)
—
(12)
(9)
60 $

11 $
49

— $
—

75 $
—
—
—
1
76 $

57 $
19

— $
—

22 $
—
—
—
(2)
20 $

5 $
15

— $
—

5 $

—
—
—
(2)
3 $

3 $

—

— $
—

21 $
(1)
—
(1)
—
20 $

18 $
2

15 $
—

16 $
(1)
3
2
(5)
13 $

13 $
—

— $
—

—
—
—
—
—
—

—
—

32 $
—
—
—
(8)
24 $

15 $
9

252
(14)
3
(11)
(25)
216

122
94

— $
—

15
—

1,442 $
11

5,575 $
57

4,852 $
5

537 $
3

16,035 $
18

494 $ 13,598 (a) $ 12,405 $ 54,938
122

—

(a)

Includes $524 million of domestic overdrafts, $11,907 million of margin loans and $1,167 million of other loans at Dec. 31, 2019.

Allowance for credit losses activity for the year ended Dec. 31, 2018

(in millions)

Beginning balance

Charge-offs
Recoveries

Net recoveries

Provision
Ending balance
Allowance for:
Loan losses
Lending-related commitments

Individually evaluated for

impairment:
Loan balance
Allowance for loan losses

Collectively evaluated for

impairment:
Loan balance
Allowance for loan losses

Commercial

Commercial
real estate

Financial
institutions

Lease
financings

Wealth
management
loans and
mortgages

Other
residential
mortgages

All
other

Foreign

Total

77 $
—
—
—
4
81 $

24 $
57

— $
—

76 $
—
—
—
(1)
75 $

56 $
19

— $
—

23 $
—
—
—
(1)
22 $

7 $
15

— $
—

8 $

—
—
—
(3)
5 $

5 $

—

— $
—

22 $
—
—
—
(1)
21 $

18 $
3

4 $
—

20 $
(1)
2
1
(5)
16 $

16 $
—

— $
—

—
—
—
—
—
—

—
—

35 $
—
1
1
(4)
32 $

20 $
12

261
(1)
3
2
(11)
252

146
106

— $
—

4
—

1,949 $
24

4,787 $
56

5,091 $
7

706 $
5

15,839 $
18

594 $ 16,074 (a) $ 11,520 $ 56,560
146

—

(a)

Includes $1,550 million of domestic overdrafts, $13,343 million of margin loans and $1,181 million of other loans at Dec. 31, 2018.

BNY Mellon 137

Notes to Consolidated Financial Statements (continued)

Allowance for credit losses activity for the year ended Dec. 31, 2017

(in millions)

Beginning balance

Charge-offs
Recoveries

Net recoveries

Provision
Ending balance
Allowance for:
Loans losses
Unfunded commitments
Individually evaluated for

impairment:
Loan balance
Allowance for loan losses

Collectively evaluated for

impairment:
Loan balance
Allowance for loan losses

Commercial

Commercial
real estate

Financial
institutions

Lease
financings

Wealth
management
loans and
mortgages

Other
residential
mortgages

All
other

Foreign

Total

82 $
—
—
—
(5)
77 $

24 $
53

— $
—

73 $
—
—
—
3
76 $

58 $
18

— $
—

26 $
—
—
—
(3)
23 $

7 $
16

1 $
—

13 $
—
—
—
(5)
8 $

8 $

—

— $
—

23 $
—
—
—
(1)
22 $

18 $
4

28 $
(1)
5
4
(12)
20 $

20 $
—

5 $
1

— $
—

—
—
—
—
—
—

—
—

36 $
—
—
—
(1)
35 $

24 $
11

— $
—

281
(1)
5
4
(24)
261

159
102

6
1

2,744 $
24

4,900 $
58

5,567 $
7

772 $
8

16,415 $
17

708 $ 17,783 (a) $ 12,645 $ 61,534
158

—

(a)

Includes $963 million of domestic overdrafts, $15,689 million of margin loans and $1,131 million of other loans at Dec. 31, 2017.

Nonperforming assets

Lost interest

The table below presents our nonperforming assets.

The table below presents the amount of lost interest
income.

Lost interest
(in millions)
Amount by which interest income recognized
on nonperforming loans exceeded reversals

2019

2018

2017

Total
Foreign

Amount by which interest income would have
increased if nonperforming loans at year-
end had been performing for the entire year

$ — $ — $ —
—

—

Total
Foreign

6 $
—

5 $
—

5
—

Nonperforming assets
(in millions)
Nonperforming loans:

Other residential mortgages
Wealth management loans and

mortgages

Total nonperforming loans

Other assets owned

Total nonperforming assets

Dec. 31,

2019

2018

62 $

24
86
3
89 $

9
76
3
79

At Dec. 31, 2019, undrawn commitments to
borrowers whose loans were classified as nonaccrual
or reduced rate were not material.

138 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Impaired loans

The tables below present information about our impaired loans. We use the discounted cash flow method as the
primary method for valuing impaired loans.

Impaired loans

(in millions)
Impaired loans with an allowance:

Commercial
Financial institutions
Wealth management loans and mortgages
Lease financings

Total impaired loans with an allowance
Impaired loans without an allowance: (a)
Wealth management loans and mortgages

2019

2018

2017

Average
recorded
investment

Interest
revenue
recognized

Average
recorded
investment

Interest
revenue
recognized

Average
recorded
investment

Interest
revenue
recognized

39 $
—
—
—
39

— $
—
—
—
—

— $
—
1
—
1

— $
—
—
—
—

— $
1
2
1
4

—
—
—
—
—

11
—
50 $
—
(a) When the discounted cash flows, collateral value or market price equals or exceeds the carrying value of the loan, then the loan does not

Total impaired loans

—
— $

3
7 $

4
5 $

require an allowance under the accounting standard related to impaired loans.

Impaired loans

(in millions)
Impaired loans without an allowance: (b)
Wealth management loans and mortgages

Total impaired loans (c)

Dec. 31, 2019
Unpaid
principal
balance

Related
allowance (a)

Dec. 31, 2018
Unpaid
principal
balance

Related
allowance (a)

Recorded
investment

$
$

15 $
15 $

15
15 $

N/A $
— $

4 $
4 $

4
4 $

N/A
—

(a) The allowance for impaired loans is included in the allowance for loan losses.
(b) When the discounted cash flows, collateral value or market price equals or exceeds the carrying value of the loan, then the loan does not

require an allowance under the accounting standard related to impaired loans.

(c) Excludes an aggregate of less than $1 million of impaired loans in amounts individually less than $1 million at both Dec. 31, 2019 and

Dec. 31, 2018, respectively. The allowance for loan losses associated with these loans totaled less than $1 million at both Dec. 31, 2019
and Dec. 31, 2018, respectively.

Past due loans

The table below presents our past due loans.

Past due loans and still accruing interest

Dec. 31, 2019

(in millions)
Financial institutions
Wealth management loans and mortgages
Commercial real estate
Other residential mortgages
Total past due loans

Days past due

30-59

60-89

1 $

22
6
8
37 $

30 $
5
12
3
50 $

Total
past due
31
27
18
11
87

— $
—
—
—
— $

Dec. 31, 2018

Days past due

30-59

60-89

3 $

22
1
12
38 $

3 $
1
—
6
10 $

Total
past due
6
28
1
25
60

— $
5
—
7
12 $

Troubled debt restructurings

A modified loan is considered a TDR if the debtor is
experiencing financial difficulties and the creditor
grants a concession to the debtor that would not
otherwise be considered. A TDR may include a
transfer of real estate or other assets from the debtor

to the creditor, or a modification of the term of the
loan. Not all modified loans are considered TDRs.

We modified 12 other residential loans with an
aggregate pre- and post-modification recorded
investment of $6 million in 2019, and 17 other
residential loans with an aggregate pre- and post-

BNY Mellon 139

Notes to Consolidated Financial Statements (continued)

modification recorded investment of $4 million in
2018.

The modifications of the other residential mortgage
loans in 2019 and 2018 consisted of reducing the
stated interest rates and, in certain cases, a
forbearance of default and extending the maturity
dates. The modified loans are primarily collateral
dependent for which the value is based on the fair
value of the collateral.

TDRs that subsequently defaulted

There were nine residential mortgage loans and one
wealth management loan, with an aggregate recorded

investment of $4 million, which were restructured in
a TDR during the previous 12 months and
subsequently defaulted in 2019.

Credit quality indicators

Our credit strategy is to focus on investment-grade
clients that are active users of our non-credit services.
Each customer is assigned an internal credit rating,
which is mapped to an external rating agency grade
equivalent, if possible, based upon a number of
dimensions, which are continually evaluated and may
change over time.

The following tables present information about credit quality indicators.

Commercial loan portfolio

Commercial loan portfolio – Credit risk profile

by creditworthiness category

(in millions)
Investment grade
Non-investment grade

Total

Commercial
Dec. 31,

2019
1,744 $
45
1,789 $

Commercial real estate
Dec. 31,

Financial institutions
Dec. 31,

2018
2,036
96
2,132

2019
5,045 $
537
5,582 $

2018
4,184
603
4,787

2019
10,265 $
2,213
12,478 $

2018
9,586
1,997
11,583

The commercial loan portfolio is divided into
investment grade and non-investment grade
categories based on the assigned internal credit
ratings, which are generally consistent with those of
the public rating agencies. Customers with ratings
consistent with BBB- (Standard & Poor’s (“S&Ps”))/
Baa3 (Moody’s) or better are considered to be
investment grade. Those clients with ratings lower
than this threshold are considered to be non-
investment grade.

Wealth management loans and mortgages

Wealth management loans and mortgages – Credit risk
profile by internally assigned grade

(in millions)
Wealth management loans:

Investment grade
Non-investment grade

Wealth management mortgages

Total

Dec. 31,

2019

2018

7,254 $
140
8,796
16,190 $

6,901
106
8,958
15,965

Wealth management non-mortgage loans are not
typically rated by external rating agencies. A

140 BNY Mellon

majority of the wealth management loans are secured
by the customers’ investment management accounts
or custody accounts. Eligible assets pledged for these
loans are typically investment grade fixed-income
securities, equities and/or mutual funds. Internal
ratings for this portion of the wealth management
portfolio, therefore, would equate to investment-
grade external ratings. Wealth management loans are
provided to select customers based on the pledge of
other types of assets, including business assets, fixed
assets or a modest amount of commercial real estate.
For the loans collateralized by other assets, the credit
quality of the obligor is carefully analyzed, but we do
not consider this portfolio of loans to be investment
grade.

Credit quality indicators for wealth management
mortgages are not correlated to external ratings.
Wealth management mortgages are typically loans to
high-net-worth individuals, which are secured
primarily by residential property. These loans are
primarily interest-only, adjustable rate mortgages
with a weighted-average loan-to-value ratio of 62% at
origination. In the wealth management portfolio, less

Notes to Consolidated Financial Statements (continued)

than 1% of the mortgages were past due at Dec. 31,
2019.

Note 6–Leasing

At Dec. 31, 2019, the wealth management mortgage
portfolio consisted of the following geographic
concentrations: California - 23%; New York - 17%;
Massachusetts - 10%; Florida - 8%; and other - 42%.

Other residential mortgages

The other residential mortgage portfolio primarily
consists of 1-4 family residential mortgage loans and
totaled $494 million at Dec. 31, 2019 and $594
million at Dec. 31, 2018. These loans are not
typically correlated to external ratings. Included in
this portfolio at Dec. 31, 2019 were $91 million of
mortgage loans purchased in 2005, 2006 and the first
quarter of 2007, of which, 10% of the serviced loan
balance was at least 60 days delinquent.

Overdrafts

Overdrafts primarily relate to custody and securities
clearance clients and totaled $2.7 billion at Dec. 31,
2019 and $5.5 billion at Dec. 31, 2018. Overdrafts
occur on a daily basis primarily in the custody and
securities clearance business and are generally repaid
within two business days.

Other loans

Other loans primarily include loans to consumers that
are fully collateralized with equities, mutual funds
and fixed-income securities.

Margin loans

We had $13.4 billion of secured margin loans at Dec.
31, 2019, compared with $13.5 billion at Dec. 31,
2018. Margin loans are collateralized with
marketable securities, and borrowers are required to
maintain a daily collateral margin in excess of 100%
of the value of the loan. We have rarely suffered a
loss on these types of loans and do not allocate any of
our allowance for credit losses to margin loans.

Reverse repurchase agreements

Reverse repurchase agreements are transactions fully
collateralized with high-quality liquid securities.
These transactions carry minimal credit risk and
therefore are not allocated an allowance for credit
losses.

We have operating and finance leases for corporate
offices, data centers and certain equipment. Our
leases have remaining lease terms of one year to 20
years, some of which include options to extend or
terminate the lease. In some of our corporate office
locations, we may enter into sublease arrangements
for portions or all of the space and/or lease term.

The following table presents the consolidated balance
sheet information related to operating and finance
leases.

Balance sheet information

(dollar in millions)
Right-of-use assets (a)
Lease liability (b)

Weighted average:

Operating
leases
$ 1,530
$ 1,772

Dec. 31, 2019
Finance
leases
12
2

$
$

Total
1,542
1,774

Remaining lease term
Discount rate (annualized)

11.3 years
2.76%

2.6 years
2.88%

(a) Included in premises and equipment on the consolidated

balance sheet.

(b) Operating lease liabilities are included in other liabilities

and finance lease liabilities are included in other borrowed
funds, both on the consolidated balance sheet.

The following table presents the components of lease
expense.

Lease expense
(in millions)
Operating lease expense
Variable lease expense
Sublease income
Finance lease expense:

Amortization of right-of-use assets
Interest on lease liabilities

Total finance lease expense
Total lease expense

Year ended
Dec. 31, 2019
266
$
39
(33)

7
—
7
279

$
$

The following table presents cash flow information
related to leases.

Cash flow information
(in millions)
Cash paid for amounts included in

measurement of liabilities:
Operating cash flows from finance leases
Operating cash flows from operating leases
Financing cash flows from finance leases

Year ended
Dec. 31, 2019

$ —
285
$
20
$

BNY Mellon 141

Notes to Consolidated Financial Statements (continued)

See Note 26 for information on non-cash operating
and/or finance lease transactions.

The following table presents the maturities of lease
liabilities.

Maturities of lease liabilities
(in millions)
For the year ended Dec. 31,

2020
2021
2022
2023
2024
2025 and thereafter

Total lease payments

Less: Imputed interest

Total

Operating
leases

Finance
leases

284 $
224
199
166
136
1,057
2,066
(294)
1,772 $

2
—
—
—
—
—
2
—
2

The following table presents the maturity of lease
liabilities on operating leases prior to adopting ASU
2016-02, Leases.

Maturities of lease liabilities
(in millions)
For the year ended Dec. 31,

2020
2021
2022
2023
2024 and thereafter

Total

Operating
leases

244
211
172
136
432
1,195

Note 7–Goodwill and intangible assets

Goodwill

The table below provides a breakdown of goodwill by business.

Goodwill by business
(in millions)
Balance at Dec. 31, 2017
Dispositions
Foreign currency translation
Balance at Dec. 31, 2018
Foreign currency translation
Balance at Dec. 31, 2019

Investment
Services

Investment
Management

Other

8,389 $
—
(56)
8,333 $
(1)
8,332 $

9,128 $
(65)
(93)
8,970 $
37
9,007 $

47 $
—
—
47 $
—
47 $

Consolidated
17,564
(65)
(149)
17,350
36
17,386

Total goodwill increased in 2019 compared with 2018 reflecting the impact of foreign currency translation on non-
U.S. dollar denominated goodwill.

Intangible assets

The table below provides a breakdown of intangible assets by business.

Intangible assets – net carrying amount by business
(in millions)
Balance at Dec. 31, 2017
Amortization
Foreign currency translation
Balance at Dec. 31, 2018

Amortization
Foreign currency translation
Balance at Dec. 31, 2019

Investment
Services

Investment
Management

Other

888 $
(129)
(1)
758 $
(80)
—
678 $

1,674 $
(51)
(10)
1,613 $
(37)
4
1,580 $

849 $
—
—
849 $
—
—
849 $

Consolidated
3,411
(180)
(11)
3,220
(117)
4
3,107

Intangible assets decreased in 2019 compared with 2018 primarily reflecting amortization.

142 BNY Mellon

Notes to Consolidated Financial Statements (continued)

The table below provides a breakdown of intangible assets by type.

Intangible assets

Dec. 31, 2019

Dec. 31, 2018

(in millions)
Subject to amortization: (a)

Customer contracts—Investment Services
Customer relationships—Investment
Management
Other

Total subject to amortization

Not subject to amortization: (b)

Tradenames
Customer relationships

Gross
carrying
amount

Accumulated
amortization

Net
carrying
amount

Remaining
weighted-
average
amortization
period

Gross
carrying
amount

Accumulated
amortization

Net
carrying
amount

1,520 $

(1,214) $

712
64
2,296

(544)
(16)
(1,774)

1,293
1,292
2,585
4,881 $

N/A
N/A
N/A
(1,774) $

306

168
48
522

1,293
1,292
2,585
3,107

10 years

1,572 $

(1,186) $

11 years
14 years
10 years

899
26
2,497

(699)
(12)
(1,897)

386

200
14
600

N/A
N/A
N/A
N/A $

1,332
1,288
2,620
5,117 $

N/A
N/A
N/A
(1,897) $

1,332
1,288
2,620
3,220

Total not subject to amortization
Total intangible assets

$
(a) Excludes fully amortized intangible assets.
(b) Intangible assets not subject to amortization have an indefinite life.

Estimated annual amortization expense for current
intangibles for the next five years is as follows:

Note 8–Other assets

For the year ended
Dec. 31,
2020
2021
2022
2023
2024

Estimated amortization expense
(in millions)
104
81
63
52
45

Impairment testing

The goodwill impairment test is performed at least
annually at the reporting unit level. Intangible assets
not subject to amortization are tested for impairment
annually or more often if events or circumstances
indicate they may be impaired.

BNY Mellon’s three business segments include seven
reporting units for which goodwill impairment testing
is performed on an annual basis. The Investment
Services segment is comprised of four reporting
units; the Investment Management segment is
comprised of two reporting units and one reporting
unit is included in the Other segment. As a result of
the annual goodwill impairment test of the seven
reporting units conducted in the second quarter of
2019, no goodwill impairment was recognized.

The following table provides the components of other
assets presented on the consolidated balance sheet.

Other assets
(in millions)
Corporate/bank-owned life insurance
Accounts receivable
Fails to deliver
Software
Prepaid pension assets
Renewable energy investments
Equity in a joint venture and other

investments

Qualified affordable housing project

investments
Prepaid expense
Federal Reserve Bank stock
Income taxes receivable
Seed capital
Fair value of hedging derivatives
Other (a)

Total other assets

Dec. 31,

2019
5,219 $
3,802
1,671
1,590
1,464
1,144

1,102

1,024
491
466
388
184
21
1,655
20,221 $

2018
4,937
3,692
2,274
1,652
1,357
1,264

1,064

999
385
484
1,125
224
289
1,552
21,298

(a) At Dec. 31, 2019 and Dec. 31, 2018, other assets include

$22 million and $111 million, respectively, of Federal Home
Loan Bank stock, at cost.

Non-readily marketable equity securities

Non-readily marketable equity securities do not have
readily determinable fair values. These investments
are valued using a measurement alternative where the
investments are carried at cost, less any impairment,
and plus or minus changes resulting from observable
price changes in orderly transactions for an identical

BNY Mellon 143

Notes to Consolidated Financial Statements (continued)

or similar investment of the same issuer. The
observable price changes are recorded in investment
and other income on the consolidated income
statement. Our non-readily marketable equity
securities totaled $61 million at Dec. 31, 2019 and
$55 million at Dec. 31, 2018 and are included in
equity in a joint venture and other investments in the
table above.

The following table presents the adjustments on the
non-readily marketable equity securities.

Non-readily marketable equity securities
(in millions)
Upward adjustments
Downward adjustments

Net adjustments

4 $
(3)
1 $

Life-
to-date
32
(4)
28

28 $
(1)
27 $

2019

2018

Qualified affordable housing project investments

We invest in affordable housing projects primarily to
satisfy the Company’s requirements under the
Community Reinvestment Act. Our total investment
in qualified affordable housing projects totaled $1.0
billion at both Dec. 31, 2019 and Dec. 31, 2018.
Commitments to fund future investments in qualified
affordable housing projects totaled $422 million at
Dec. 31, 2019 and $479 million at Dec. 31, 2018 and

are recorded in other liabilities. A summary of the
commitments to fund future investments is as
follows: 2020 – $152 million; 2021 – $161 million;
2022 – $82 million; 2023 – $5 million; 2024 – $2
million; and 2025 and thereafter – $20 million.

Tax credits and other tax benefits recognized were
$148 million in 2019, $163 million in 2018 and $156
million in 2017.

Amortization expense included in the provision for
income taxes was $121 million in 2019, $136 million
in 2018 and $153 million in 2017.

Investments valued using net asset value (“NAV”) per
share

In our Investment Management business, we make
seed capital investments in certain funds we manage.
We also hold private equity investments, specifically
small business investment companies (“SBICs”),
which are compliant with the Volcker Rule, and
certain other corporate investments. Seed capital,
private equity and other corporate investments are
included in other assets on the consolidated balance
sheet. The fair value of certain of these investments
was estimated using the NAV per share for our
ownership interest in the funds.

The table below presents information on our investments valued using NAV.

Investments valued using NAV

Dec. 31, 2019

Dec. 31, 2018

(in millions)

Seed capital (a)

Private equity investments (SBICs) (b)

Other (c)

Total

Fair value

Unfunded
commitments

Fair value

181

$ — $

—

215

Unfunded
commitments

$ —

—

(a) Primarily includes leveraged loans and structured credit funds which are generally not redeemable. Distributions from such investments will be

received as the underlying investments in the funds, which have a life of six years, are liquidated.

(b) Private equity investments include Volcker Rule-compliant investments in SBICs that invest in various sectors of the economy. Private equity
investments do not have redemption rights. Distributions from such investments will be received as the underlying investments in the private
equity investments, which have a life of 10 years, are liquidated.

(c) Primarily relates to investments in funds that relate to deferred compensation arrangements with employees. Investments in funds can be
redeemed on a quarterly basis with redemption notice periods up to 95 days. At Dec. 31, 2018, also included investments which could be
redeemed daily or monthly with a redemption notice period of one day.

144 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Note 9–Deposits

Total time deposits in denominations of $250,000 or
more were $44.1 billion at Dec. 31, 2019 and $32.1
billion at Dec. 31, 2018. At Dec. 31, 2019, the
scheduled maturities of all time deposits are as
follows: 2020 – $48.3 billion; 2021 – $2 million;
2022 – $- million; 2023 – $- million; 2024 – $-
million; and 2025 and thereafter – $1 million.

Note 10–Contract revenue

Fee revenue in Investment Services and Investment
Management is primarily variable, based on levels of
assets under custody and/or administration (“AUC/
A”), AUM and the level of client-driven transactions,
as specified in fee schedules.

Investment services fees are based primarily on the
market value of AUC/A; client accounts, balances
and the volume of transactions; securities lending
volume and spreads; and fees for other services.
Certain fees based on the market value of assets are
calculated in arrears on a monthly or quarterly basis.

Substantially all services within the Investment
Services business are provided over time. Revenue
on these services is recognized using the time elapsed
method, equal to the expected invoice amount, which
typically represents the value provided to the
customer for our performance completed to date.

Clearing services revenue includes multiple types of
fees, some of which are driven by customer actions

and are delivered at a point-in-time. These
transaction-based fees are generally recognized on
trade date. Other contractual clearing services fees
are driven by the amount of AUC/A or the number of
accounts or securities positions and are billed on a
monthly or quarterly basis.

Investment management fees are dependent on the
overall level and mix of AUM. The management
fees, expressed in basis points, are charged for
managing those assets. Management fees are
typically subject to fee schedules based on the overall
level of assets managed and products in which those
assets are invested.

Investment management fee revenue also includes
transactional- and account-based fees. These fees
along with distribution and servicing fees are
recognized when the services have been completed.
Clients are generally billed for services performed on
a monthly or quarterly basis.

Performance fees are generally calculated as a
percentage of the applicable portfolio’s performance
in excess of a benchmark index or a peer group’s
performance. Performance fees are recognized at the
end of the measurement period when they are
determinable.

See Note 24 for additional information on our
principal businesses, Investment Services and
Investment Management, and the primary services
provided.

BNY Mellon 145

Notes to Consolidated Financial Statements (continued)

Disaggregation of contract revenue

Contract revenue is included in fee revenue on the consolidated income statement. The following table presents fee
revenue related to contracts with customers, disaggregated by type of fee revenue, for each business segment.

Disaggregation of contract revenue by business segment (a)

(in millions)
Fee revenue - contract revenue:

Investment services fees:
Asset servicing fees
Clearing services fees (b)
Issuer services fees
Treasury services fees

Total investment services fees (b)

Investment management and performance fees (b)
Financing-related fees
Distribution and servicing
Investment and other income

Total fee revenue - contract revenue

Fee and other revenue - not in scope of ASC 606 (c)(d)

Year ended Dec. 31,

2019

2018

Other

Total

Other

Total

$ 4,365 $
1,649
1,130
560
7,704
17
59
(49)
282
8,013
881

85 $
—
—
1
86
3,373
—
178
(197)
3,440
26

1 $ 4,451
(1)
1,648
— 1,130
—
561
— 7,790
— 3,390
60
1
129
—
85
—
11,454
1
887
1,794
888 $ 13,248

$ 4,395 $
1,615
1,099
553
7,662
16
61
(51)
279
7,967
959

88 $
—
—
1
89
3,619
1
191
(202)
3,698
83

$ 8,926 $ 3,781 $

1 $ 4,484
— 1,615
— 1,099
554
—
7,752
1
— 3,635
60
(2)
140
—
79
2
11,666
1
84
1,126
85 $ 12,792

Total fee and other revenue

$ 8,894 $ 3,466 $

(a) Business segment data has been determined on an internal management basis of accounting, rather than the generally accepted

accounting principles used for consolidated financial reporting.

(b) In 2019, we reclassified certain platform-related fees to clearing services fees from investment management and performance fees. Prior

periods have been reclassified.

(c) Primarily includes investment and other income, foreign exchange and other trading revenue, financing-related fees, asset servicing fees

and net securities gains (losses), all of which are accounted for using other accounting guidance.

(d) The Investment Management business includes income from consolidated investment management funds, net of noncontrolling interests,

of $30 million in 2019 and a loss of $1 million in 2018.

IS - Investment Services segment.
IM - Investment Management segment.

Contract balances

Our clients are billed based on fee schedules that are
agreed upon in each customer contract. Receivables
from customers were $2.4 billion at Dec. 31, 2019
and $2.5 billion at Dec. 31, 2018. An allowance is
maintained for accounts receivable which is generally
based on the number of days outstanding.
Adjustments to the allowance are recorded in other
expense on the consolidated income statement. We
recorded a provision of $15 million in 2019 and $11
million in 2018.

Contract assets represent accrued revenues that have
not yet been billed to the customers due to certain
contractual terms other than the passage of time and
were $32 million at Dec. 31, 2019 and $36 million at
Dec. 31, 2018. Accrued revenues recorded as
contract assets are usually billed on an annual basis.

146 BNY Mellon

There were no impairments recorded on contract
assets in 2019.

Both receivables from customers and contract assets
are included in other assets on the consolidated
balance sheet.

Contract liabilities represent payments received in
advance of providing services under certain contracts
and were $168 million at Dec. 31, 2019 and $171
million at Dec. 31, 2018. Contract liabilities are
included in other liabilities on the consolidated
balance sheet. Revenue recognized in 2019 relating
to contract liabilities as of Dec. 31, 2018 was $99
million.

Changes in contract assets and liabilities primarily
relate to either party’s performance under the
contracts.

Notes to Consolidated Financial Statements (continued)

Contract costs

Note 11–Net interest revenue

Incremental costs for obtaining contracts that are
deemed recoverable are capitalized as contract costs.
Such costs result from the payment of sales
incentives, primarily in the Wealth Management
business, and totaled $86 million at Dec. 31, 2019
and $98 million at Dec. 31, 2018. Capitalized sales
incentives are amortized based on the transfer of
goods or services to which the assets relate and
typically average nine years. The amortization of
capitalized sales incentives, which is primarily
included in staff expense on the consolidated income
statement, totaled $22 million in both 2019 and 2018.

Costs to fulfill a contract are capitalized when they
relate directly to an existing contract or a specific
anticipated contract, generate or enhance resources
that will be used to fulfill performance obligations
and are recoverable. Such costs generally represent
set-up costs, which include any direct cost incurred at
the inception of a contract which enables the
fulfillment of the performance obligation and totaled
$16 million at Dec. 31, 2019 and $20 million at Dec.
31, 2018. These capitalized costs are amortized on a
straight-line basis over the expected contract period
which generally ranges from seven to nine years. The
amortization is included in other expense on the
consolidated income statement and totaled $5 million
in both 2019 and 2018. There were no impairments
recorded on capitalized contract costs in 2019.

The following table provides the components of net
interest revenue presented on the consolidated income
statement.

Net interest revenue
(in millions)
Interest revenue
Deposits with the Federal Reserve
and other central banks
Deposits with banks
Federal funds sold and securities
purchased under resale
agreements
Margin loans
Non-margin loans
Securities:
Taxable
Exempt from federal income

taxes
Total securities
Trading securities

Total interest revenue

Interest expense
Deposits in domestic offices
Deposits in foreign offices
Federal funds purchased and

securities sold under repurchase
agreements

Trading liabilities
Other borrowed funds
Commercial paper
Customer payables
Long-term debt

Total interest expense
Net interest revenue
Provision for credit losses

Year ended Dec. 31,
2019

2018

2017

448 $
265

531 $
219

319
120

2,154
454
1,335

1,116
510
1,356

423
343
1,077

2,701

2,520

1,977

36
2,737
155
7,548

958
636

1,437
35
59
55
238
942
4,360
3,188
(25)

54
2,574
126
6,432

537
340

758
29
58
51
191
857
2,821
3,611
(11)

64
2,041
59
4,382

107
55

225
7
26
29
64
561
1,074
3,308
(24)

Unsatisfied performance obligations

Net interest revenue after

provision for credit losses

$ 3,213 $ 3,622 $ 3,332

We do not have any unsatisfied performance
obligations other than those that are subject to a
practical expedient election under ASC 606, Revenue
From Contracts With Customers. The practical
expedient election applies to (i) contracts with an
original expected length of one year or less, and (ii)
contracts for which we recognize revenue at the
amount to which we have the right to invoice for
services performed.

Note 12–Income taxes

The components of the income tax provision are as
follows:

Provision for income taxes
(in millions)
Current tax expense (benefit):

Federal
Foreign
State and local

Total current tax expense
Deferred tax (benefit) expense:

Federal
Foreign
State and local

Total deferred tax (benefit)

expense

Year ended Dec. 31,
2019

2018

2017

592 $
484
113
1,189

902 $
442
119
1,463

(3)
(13)
(53)

(69)

(556)
9
22

(525)
938 $

(99)
388
74
363

36
14
83

133
496

Provision for income taxes

$ 1,120 $

BNY Mellon 147

Notes to Consolidated Financial Statements (continued)

In December 2017, the Tax Cuts and Jobs Act of 2017
(“U.S. tax legislation”) was signed into law. Also in
December 2017, the Securities and Exchange
Commission staff issued Staff Accounting Bulletin
No.118 (“SAB 118”). SAB 118 allowed the
recording of a provisional estimate to reflect the
income tax impact of the U.S. tax legislation and
provided a measurement period up to one year from
the enactment date. Due to the timing of the
enactment and the complexity involved in applying
the provisions of the U.S. tax legislation, we recorded
a provisional tax benefit of $710 million in the fourth
quarter of 2017.

In 2018, we completed our analysis of the U.S. tax
legislation and recorded an additional $106 million
tax benefit.

The components of income before taxes are as
follows:

Income before taxes
(in millions)
Domestic
Foreign

Income before taxes

2018

Year ended Dec. 31,
2019

2017
$ 3,516 $ 3,008 $ 2,699
1,911
$ 5,587 $ 5,192 $ 4,610

2,071

2,184

The components of our net deferred tax liability are
as follows:

Net deferred tax liability
(in millions)
Depreciation and amortization
Pension obligation
Renewable energy investment
Equity investments
Lease financings
Securities valuation
Credit losses on loans
Reserves not deducted for tax
Employee benefits
Other assets
Other liabilities
U.S. foreign tax credits
Valuation allowance

Net deferred tax liability

Dec. 31,

2019

2018
$ 2,136 $ 2,060
300
295
65
130
(15)
(54)
(143)
(266)
(65)
189
—
—
$ 2,555 $ 2,496

282
268
63
42
1
(46)
(120)
(257)
(43)
229
(39)
39

As of Dec. 31, 2019, BNY Mellon has $39 million of
U.S. foreign tax credit carryforwards which will
expire in 2029. We believe it is more likely than not
that the benefit from these foreign tax credits will not
be realized. Accordingly, we have recorded a
valuation allowance of $39 million. We believe it is

148 BNY Mellon

more likely than not that we will fully realize our
remaining deferred tax assets. This conclusion is
based on historical financial results and profit
forecasts.

As of Dec. 31, 2019, we had approximately $280
million of earnings attributable to foreign subsidiaries
that have been permanently reinvested abroad and for
which no local distribution tax provision has been
recorded. If these earnings were to be repatriated, the
estimated tax liability as of Dec. 31, 2019 would be
up to $60 million.

The statutory federal income tax rate is reconciled to
our effective income tax rate below:

Effective tax rate

Federal rate
State and local income taxes, net of

federal income tax benefit

Foreign operations
Tax credits
Tax-exempt income
Leverage lease adjustment
Federal Deposit Insurance

Corporation (“FDIC”) assessment

Stock compensation
U.S. tax legislation
Other – net

Effective tax rate

Year ended Dec. 31,
2019
2017
2018
21.0% 21.0% 35.0%

0.9
2.4
(3.2)
(0.7)
—

2.1
0.5
(3.3)
(0.8)
—

1.8
(4.2)
(3.7)
(1.9)
(1.4)

0.5
—
0.2
(0.4)
(0.6)
(1.1)
—
(1.7)
(13.3)
(0.2)
0.4
(0.4)
20.0% 18.1% 10.8%

Unrecognized tax positions
(in millions)
Beginning balance at Jan. 1, – gross $
Prior period tax positions:

Increases
Decreases

Current period tax positions
Settlements

Ending balance at Dec. 31, – gross $

2019
103 $

2018
128 $

2017
146

60
(3)
17
(4)
173 $

6
(8)
9
(32)
103 $

20
(4)
10
(44)
128

Our total tax reserves as of Dec. 31, 2019 were $173
million compared with $103 million at Dec. 31, 2018.
If these tax reserves were unnecessary, $173 million
would affect the effective tax rate in future periods.
We recognize accrued interest and penalties, if
applicable, related to income taxes in income tax
expense. Included in the balance sheet at Dec. 31,
2019 is accrued interest, where applicable, of $31
million. The additional tax expense related to interest
for the year ended Dec. 31, 2019 was $13 million,
compared with $8 million for the year ended Dec. 31,
2018.

Notes to Consolidated Financial Statements (continued)

It is reasonably possible the total reserve for uncertain
tax positions could decrease within the next 12
months by approximately $100 million as a result of
adjustments related to tax years that are still subject
to examination.

Note 13–Long-term debt

Our federal income tax returns are closed to
examination through 2013. Our New York State,
New York City and UK income tax returns are closed
to examination through 2012.

Long-term debt
(in millions)
Senior debt:
Fixed rate
Floating rate

Subordinated debt (a)

Total

(a) Fixed rate.

Dec. 31, 2019

Rate

Maturity

Amount

Dec. 31, 2018
Rate

Amount

1.95 - 4.60%
1.71 - 2.96%
3.00 - 7.50%

2020 - 2028 $
2020 - 2038
2021 - 2029

23,519
2,328
1,654
27,501

2.05 - 5.45% $
2.61 - 3.86%
3.00 - 7.50%

24,995
2,628
1,540
29,163

Total long-term debt maturing during the next five
years is as follows: 2020 – $4.0 billion, 2021 – $5.9
billion, 2022 – $2.3 billion, 2023 – $5.5 billion and
2024 – $2.5 billion.

Note 14–Variable interest entities and securitization

We have variable interests in VIEs, which include
investments in retail, institutional and alternative
investment funds, including CLO structures in which
we provide asset management services, some of
which are consolidated.

We earn management fees from these funds as well as
performance fees in certain funds and may also
provide start-up capital for new funds. The funds are
primarily financed by our customers’ investments in
the funds’ equity or debt.

Additionally, we invest in qualified affordable
housing and renewable energy projects, which are

designed to generate a return primarily through the
realization of tax credits. The projects, which are
structured as limited partnerships and limited liability
companies, are also VIEs, but are not consolidated.

The following table presents the incremental assets
and liabilities included in the consolidated balance
sheet as of Dec. 31, 2019 and Dec. 31, 2018. The net
assets of any consolidated VIE are solely available to
settle the liabilities of the VIE and to settle any
investors’ ownership liquidation requests, including
any seed capital we invested in the VIE.

Consolidated investments

Dec. 31, 2019

(in millions)
Trading assets
Other assets

Total assets
Other liabilities
Total liabilities

Dec. 31, 2018

Investment
Management
funds

Securitization

Investment
Management
funds

$
$
$
$

229
16
245 (a) $
1
$
1 (a) $
102 (a) $

Securitization
$

Total
consolidated
investments
629
16
645
388
388
102

400 $
—
400 $
387 $
387 $
— $

$
$
$
$

243
220
463 (b) $
2
$
2 (b) $
101 (b) $

Total
consolidated
investments
643
220
863
373
373
101

400 $
—
400 $
371 $
371 $
— $

Nonredeemable noncontrolling interests
(a)
(b)

Includes VMEs with assets of $50 million, liabilities of $1 million and nonredeemable noncontrolling interests of $1 million.
Includes VMEs with assets of $253 million, liabilities of $2 million and nonredeemable noncontrolling interests of less than $1 million.

BNY Mellon 149

Notes to Consolidated Financial Statements (continued)

We have not provided financial or other support that
was not otherwise contractually required to be
provided to our VIEs. Additionally, creditors of any
consolidated VIEs do not have any recourse to the
general credit of BNY Mellon.

Non-consolidated VIEs

As of Dec. 31, 2019 and Dec. 31, 2018, the following
assets and liabilities related to the VIEs where we are

not the primary beneficiary were included in our
consolidated balance sheets and primarily related to
accounting for our investments in qualified affordable
housing and renewable energy projects.

The maximum loss exposure indicated in the table
below relates solely to our investments in, and
unfunded commitments to, the VIEs.

Non-consolidated VIEs

(in millions)
Securities - Available-for-sale (a)
2,400
Other
(a) Includes investments in the Company’s sponsored CLOs.

Assets

208 $

Dec. 31, 2019

Liabilities

Maximum
loss exposure
208
2,822

— $
422

Dec. 31, 2018

Assets

Liabilities

Maximum
loss exposure

214 $

2,450

— $
479

214
2,929

Note 15–Shareholders’ equity

Common stock

BNY Mellon has 3.5 billion authorized shares of
common stock with a par value of $0.01 per share.
At Dec. 31, 2019, 900,683,038 shares of common
stock were outstanding.

Common stock repurchase program

In June 2018, in connection with the Federal
Reserve’s non-objection to our 2018 capital plan,
BNY Mellon announced a share repurchase plan
providing for the repurchase of up to $2.4 billion of
common stock. The 2018 capital plan began in the
third quarter of 2018 and continued through the
second quarter of 2019.

In December 2018, BNY Mellon announced that the
Federal Reserve approved the repurchase of $830
million of additional common stock. Our Board of
Directors approved the additional share repurchases,
which were completed in the fourth quarter of 2018.
These repurchases were in addition to the Company’s
repurchase of $2.4 billion of common stock
previously approved by the Board and announced in
June 2018.

Share repurchases may be executed through open
market repurchases, in privately negotiated
transactions or by other means, including through
repurchase plans designed to comply with Rule
10b5-1 and other derivative, accelerated share
repurchase and other structured transactions. In
2019, we repurchased 69.3 million common shares at
an average price of $48.01 per common share for a
total of $3.3 billion. At Dec. 31, 2019, the maximum
dollar value of shares that may yet be purchased
under the June 2019 program, including employee
benefit plan repurchases, totaled $1.9 billion.

Preferred stock

BNY Mellon has 100 million authorized shares of
preferred stock with a par value of $0.01 per share.
The following table summarizes BNY Mellon’s
preferred stock issued and outstanding at Dec. 31,
2019 and Dec. 31, 2018.

150 BNY Mellon

Notes to Consolidated Financial Statements (continued)

Preferred stock summary (a)

Per annum dividend rate
Greater of (i) three-month LIBOR plus 0.565% for the related
distribution period; or (ii) 4.000%
5.2%
4.50% to but excluding June 20, 2023, then a floating rate equal to the
three-month LIBOR plus 2.46%
4.95% to and including June 20, 2020, then a floating rate equal to the
three-month LIBOR plus 3.42%
4.625% to and including Sept. 20, 2026, then a floating rate equal to
the three-month LIBOR plus 3.131%

Series A

Series C
Series D

Series E

Series F

Total

Total shares issued and
outstanding
Dec. 31,

2019

5,001
5,825

5,000

2018

5,001
5,825

5,000

10,000

Carrying value (b)
(in millions)
Dec. 31,

2019

2018

500 $
568

494

990

500
568

494

990

10,000
35,826

990
3,542 $

990
3,542

(a) All outstanding preferred stock is noncumulative perpetual preferred stock with a liquidation preference of $100,000 per share.
(b) The carrying value of the Series C, Series D, Series E and Series F preferred stock is recorded net of issuance costs.

Holders of both the Series A and Series C preferred
stock are entitled to receive dividends on each
dividend payment date (March 20, June 20,
September 20 and December 20 of each year), if
declared by BNY Mellon’s Board of Directors.
Holders of the Series D preferred stock are entitled to
receive dividends, if declared by BNY Mellon’s
Board of Directors, on each June 20 and December
20, to but excluding June 20, 2023; and on each
March 20, June 20, September 20 and December 20,
from and including June 20, 2023. Holders of the
Series E preferred stock are entitled to receive
dividends, if declared by BNY Mellon’s Board of
Directors, on each June 20 and December 20, to and
including June 20, 2020; and on each March 20, June
20, September 20 and December 20, from and
including Sept. 20, 2020. Holders of the Series F
preferred stock are entitled to receive dividends, if
declared by BNY Mellon’s Board of Directors, on
each March 20 and September 20, commencing
March 20, 2017, to and including Sept. 20, 2026; and
on each March 20, June 20, September 20 and
December 20, commencing Dec. 20, 2026. BNY
Mellon’s ability to declare or pay dividends on, or

purchase, redeem or otherwise acquire, shares of our
common stock or any of our shares that rank junior to
the preferred stock as to the payment of dividends
and/or the distribution of any assets on any
liquidation, dissolution or winding-up of BNY
Mellon will be prohibited, subject to certain
restrictions, in the event that we do not declare and
pay in full preferred dividends for the then current
dividend period of the Series A preferred stock or the
last preceding dividend period of the Series C, Series
D, Series E and Series F preferred stock.

All of the outstanding shares of the Series A preferred
stock are owned by Mellon Capital IV, which will
pass through any dividend on the Series A preferred
stock to the holders of its Normal Preferred Capital
Securities. All of the outstanding shares of the Series
C, Series D, Series E and Series F preferred stock are
held by the depositary of the depositary shares, which
will pass through the applicable portion of any
dividend on the Series C, Series D, Series E and
Series F preferred stock to the holders of record of
their respective depositary shares.

The table below presents the dividends paid on our preferred stock.

Preferred dividends paid

(dollars in millions, except per share
amounts)
Series A
Series C
Series D
Series E
Series F

Total

Depositary
shares
per share

100 (a)

4,000
100
100
100

2019

2018

2017

Per share
$ 4,055.55 $
5,200.00
4,500.00
4,950.00
4,625.00

Total
dividend
20
31
22
50
46
169

Per share
$ 4,055.55 $
5,200.00
4,500.00
4,950.00
4,625.00

Total
dividend
20
31
22
50
46
169

Per share
$ 4,055.55 $
5,200.00
4,500.00
4,950.00
5,254.51

Total
dividend
20
31
22
50
52
175

(a) Represents Normal Preferred Capital Securities.

BNY Mellon 151

Notes to Consolidated Financial Statements (continued)

The regulatory capital ratios of our consolidated and
largest bank subsidiary, The Bank of New York
Mellon, are shown below.

Consolidated and largest bank
subsidiary regulatory capital ratios (a)

Consolidated regulatory capital ratios:
Common Equity Tier 1 (“CET1”) ratio
Tier 1 capital ratio
Total capital ratio
Tier 1 leverage ratio
Supplementary leverage raio (“SLR”) (b)

Dec. 31,

2019

2018

11.5% 10.7%
13.7
14.4
6.6
6.1

12.8
13.6
6.6
6.0

The Bank of New York Mellon
regulatory capital ratios:
CET1 ratio
Tier 1 capital ratio
Total capital ratio
Tier 1 leverage ratio
SLR (b)

14.3
14.7
7.6
6.8
(a) For our CET1, Tier 1 capital and Total capital ratios, our

15.1% 14.0%
15.1
15.2
6.9
6.4

effective capital ratios under U.S. capital rules are the lower
of the ratios as calculated under the Standardized and
Advanced Approaches, which for the periods noted above
was the Advanced Approaches. The Tier 1 leverage ratio is
based on Tier 1 capital and quarterly average total assets.
For BNY Mellon to qualify as “well capitalized,” its Tier 1
capital and Total capital ratios must be at least 6% and
10%, respectively. For The Bank of New York Mellon, our
largest bank subsidiary, to qualify as “well capitalized,” its
CET1, Tier 1 capital, Total capital and Tier 1 leverage ratios
must be at least 6.5%, 8%, 10% and 5%, respectively.
(b) The SLR is based on Tier 1 capital and total leverage
exposure, which includes certain off-balance sheet
exposures. For The Bank of New York Mellon to qualify as
“well capitalized,” its SLR must be at least 6%.

Failure to satisfy regulatory standards, including
“well capitalized” status or capital adequacy rules
more generally, could result in limitations on our
activities and adversely affect our financial condition.
If a bank holding company (“BHC”) such as BNY
Mellon or bank such as The Bank of New York
Mellon or BNY Mellon, N.A. fails to qualify as
“adequately capitalized,” regulatory sanctions and
limitations are imposed.

The preferred stock is not subject to the operation of a
sinking fund and is not convertible into, or
exchangeable for, shares of our common stock or any
other class or series of our other securities. We may
redeem the Series A or Series C preferred stock, in
whole or in part, at our option. We may also, at our
option, redeem the shares of the Series D preferred
stock, in whole or in part, on or after the dividend
payment date in June 2023, the Series E preferred
stock, in whole or in part, on or after the dividend
payment date in June 2020, and the Series F preferred
stock, in whole or in part, on or after the dividend
payment date in September 2026. The Series C,
Series D, Series E or Series F preferred stock can be
redeemed, in whole but not in part, at any time within
90 days following a regulatory capital treatment
event. Redemption of the preferred stock is subject to
the prior approval of the Federal Reserve.

Temporary equity

Temporary equity was $143 million at Dec. 31, 2019
and $129 million at Dec. 31, 2018. Temporary equity
represents the redemption value recorded for
redeemable noncontrolling interests resulting from
equity-classified share-based payment arrangements
that are currently redeemable or are expected to
become redeemable.

Capital adequacy

Regulators establish certain levels of capital for bank
holding companies and banks, including BNY Mellon
and our bank subsidiaries, in accordance with
established quantitative measurements. For the
Parent to maintain its status as a financial holding
company, our U.S. bank subsidiaries and BNY
Mellon must, among other things, qualify as “well
capitalized.”

As of Dec. 31, 2019 and Dec. 31, 2018, BNY Mellon
and our U.S. bank subsidiaries were “well
capitalized.”

152 BNY Mellon

Notes to Consolidated Financial Statements (continued)

The following table presents our capital components
and risk-weighted assets (“RWAs”) determined under
the Standardized and Advanced Approaches, the
average assets used for leverage capital purposes and
leverage exposure used for SLR purposes.

The following table presents the amount of capital by
which BNY Mellon and our largest bank subsidiary,
The Bank of New York Mellon, exceeded the capital
thresholds determined under U.S. capital rules.

Capital above thresholds at Dec. 31, 2019

Regulatory capital ratio components

(in millions)
CET1:

Common shareholders’ equity
Adjustments for:

Goodwill and intangible assets (a)
Net pension fund assets
Equity method investments
Deferred tax assets
Other

Total CET1

Other Tier 1 capital:

Preferred stock
Other

Total Tier 1 capital

Tier 2 capital:

Subordinated debt
Allowance for credit losses
Other

Total Tier 2 capital –

Standardized Approach

Excess of expected credit losses
Less: Allowance for credit losses

Dec. 31,

2019

2018

$ 37,941 $ 37,096

(18,725)
(272)
(311)
(46)
(47)
18,540

(18,806)
(320)
(361)
(42)
—
17,567

3,542
(86)

3,542
(65)
$ 21,996 $ 21,044

1,248 $
216
(11)

1,453
—
216

1,250
252
(10)

1,492
65
252

Total Tier 2 capital – Advanced

Approaches

1,237 $

1,305

Total capital:

Standardized Approach
Advanced Approaches

Risk-weighted assets:

Standardized Approach
Advanced Approaches:

Credit Risk
Market Risk
Operational Risk

Total Advanced Approaches

$ 23,449 $ 22,536
$ 23,233 $ 22,349

$ 148,695 $ 149,618

$ 95,490 $ 92,917
3,454
68,300
$ 160,898 $ 164,671

4,020
61,388

Average assets for Tier 1 leverage
ratio
Total leverage exposure for SLR
(a) Reduced by deferred tax liabilities associated with intangible

$ 334,869 $ 319,007
$ 362,452 $ 347,943

assets and tax deductible goodwill.

The Bank of
New York

(a)

(in millions)
Mellon (b)
11,045
CET1
9,130
Tier 1 capital
6,623
Total capital
5,424
Tier 1 leverage ratio
1,157
SLR
(a) Based on minimum required standards, with applicable

Consolidated
4,864
$
5,906
3,925
8,601
3,873

buffers.

(b) Based on well capitalized standards.

BNY Mellon 153

Notes to Consolidated Financial Statements (continued)

Note 16–Other comprehensive income (loss)

Components of other comprehensive

income (loss)

(in millions)

Foreign currency translation:

2019

Tax
(expense)
benefit

Pre-tax
amount

Year ended Dec. 31,
2018

After-tax
amount

Pre-tax
amount

Tax
(expense)
benefit

After-tax
amount

Pre-tax
amount

2017

Tax
(expense)
benefit

After-tax
amount

Foreign currency translation adjustments arising

during the period (a)

135 $

Total foreign currency translation

Unrealized gain (loss) on assets available-for-sale:

Unrealized gain (loss) arising during period
Reclassification adjustment (b)

Net unrealized gain (loss) on assets available-

for-sale

Defined benefit plans:

Prior service cost arising during the period
Net (loss) gain arising during the period
Foreign exchange adjustment
Amortization of prior service credit, net loss and

initial obligation included in net periodic
benefit cost (b)
Total defined benefit plans

Unrealized gain (loss) on cash flow hedges:

Unrealized hedge gain (loss) arising during

period

Reclassification of net loss (gain) to net income:

Interest rate contracts - interest expense
Foreign exchange (“FX”) contracts - other
revenue
FX contracts - trading revenue
FX contracts - staff expense

Total reclassifications to net income

Net unrealized gain (loss) on cash flow hedges
Total other comprehensive income (loss)

135

680
18

698

(1)
(121)
—

(70)

(7)

—

—
(3)
(10)
6
769 $

16 $

(168)
(4)

(172)

—
34
—

(18)

(7)

—

—
2
4
(3)
(143) $

151

512
14

526

(1)
(87)
—

(54)

(5)

—

—
(1)
(6)
3
626

(157) $

(156) $

(313) $

659 $

194 $

(157)

(156)

(313)

659

194

(542)
48

(494)

—
(244)
—

(151)

(15)

—

(2)

126
(12)

(416)
36

114

(380)

—
55
—

(24)

—

—
(189)
—

(120)

(11)

—

(2)

237
(3)

234

—
454
1

100

555

—

(8)

—
4
2
(13)
(815) $

—
(1)
(1)
3
(8) $

—
3
1
(10)
(823) $

(2)
(10)
(20)
13
1,461 $

(84)
—

(84)

—
(112)
—

(32)

(144)

(9)

—

1
2
5
(4)
(38) $

853

153
(3)

150

—
342
1

411

—

(6)

(1)
(8)
(15)
9
1,423

Includes the impact of hedges of net investments in foreign subsidiaries. See Note 23 for additional information.

(a)
(b) The reclassification adjustment related to the unrealized gain (loss) on assets available-for-sale is recorded as net securities gains on the consolidated

income statement. The amortization of prior service credit, net loss and initial obligation included in net periodic benefit cost is recorded as staff expense
on the consolidated income statement.

Changes in accumulated other comprehensive income (loss) attributable to The Bank of New York Mellon Corporation shareholders

(in millions)

2016 ending balance

Change in 2017

2017 ending balance

Adjustment for the cumulative effect of applying

ASU 2017-12 for derivatives and hedging
Adjusted balance at Jan. 1, 2018

Change in 2018

2018 ending balance

Adjustment for the cumulative effect of applying

ASU 2018-02 for income taxes

Adjusted balance at Jan. 1, 2019
Change in 2019
2019 ending balance

Foreign
currency
translation

Pensions