U.S. Liquidity Coverage Ratio Disclosures

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Background and Context on Disclosure Requirement

This disclosure of State Street Corporation (“SSC”)’s liquidity coverage ratio (“LCR”) is provided to meet the requirements of Regulation WW (Liquidity Risk Measurement Standards) of the Board of Governors of the Federal Reserve System (“Federal Reserve”).

In 2014, U.S. banking regulators issued a final rule (“LCR Final Rule”) to implement the Basel Committee on Banking Supervision’s LCR in the United States. The LCR is intended to promote the short-term resilience of internationally active banking organizations, like SSC, to improve the banking industry's ability to absorb liquidity shocks arising from market and idiosyncratic stress over a 30-calendar day period and improve the measurement and management of liquidity risk. The LCR measures an institution’s high-quality liquid assets (“HQLA”) as defined in the LCR Final Rule, against its net cash outflows under a prescribed stress environment. SSC reports its LCR to the Federal Reserve daily.

Under the LCR Final Rule, certain categories of assets may qualify as eligible HQLA and may contribute to the HQLA amount if they are unencumbered by liens or other restrictions on transfer and can therefore be converted quickly into cash without reasonably being expected to incur losses in excess of the applicable prescribed LCR haircuts during a stress period. The LCR establishes three categories of HQLA: level 1, level 2A and level 2B liquid assets. The fair value, as determined under U.S. generally accepted accounting principles (“GAAP”) of level 2A and level 2B liquid assets is subject to haircuts of 15 percent and 50 percent, respectively. After application of these haircuts, the amount of level 2 liquid assets (that is, the total of level 2A and level 2B liquid assets) may not comprise more than 40 percent of the total HQLA amount and the amount of level 2B liquid assets may not comprise more than 15 percent of the total HQLA amount.

SSC is required to calculate and maintain an LCR that is equal to or greater than 100%. This means that SSC is required to maintain HQLA in an amount that is no less than its total net cash outflow amount over a forward-looking 30 calendar-day stressed period, as provided for in the LCR Final Rule. Calculation of the LCR therefore involves underlying assumptions implicit in the calculation methodology, including prescribed haircut and run-off factors, concerning the nature, scope and effects of a stressed liquidity environment over the projected 30 calendar-day period. Those assumptions do not reflect SSC’s projections regarding the nature, scope or effects of a potential stressed liquidity environment over such a period, and the LCR and the data elements underlying its calculation do not represent SSC’s forecasts. The actual nature, scope or effects of such a potential stressed liquidity environment may differ from the assumptions underlying the calculation of the LCR.

Compliance with the LCR Final Rule requires that we maintain unencumbered cash and liquid securities that qualify as HQLA for inclusion in the LCR. The level of HQLA we are required to maintain is dependent upon our client relationships and the nature of services we provide, which may change over time. For example, if the percentage of our operational deposits relative to deposits that are not maintained for operational purposes decreased, we may need an additional amount of HQLA in order to maintain our LCR above the minimum requirement.

The LCR Disclosure Rule requires SSC to make quarterly public disclosures consisting of both quantitative information in a standardized template and a qualitative discussion of factors that have a significant impact on the LCR. The disclosures must remain publicly available for a period of at least five years after the disclosure date.

Liquidity Management at SSC

SSC’s approach to risk management involves all levels of management, from the Board of Directors and its committees, to each business unit and each employee. Responsibility for risk oversight is allocated so that risk / return decisions are made at an appropriate level and are subject to robust review and challenge. Risk management is the responsibility of each employee and is implemented through three lines of defense

The business units, which own and manage the risks inherent in their businesses, are considered the first line of defense. Global Treasury is the first line of defense in, and responsible for management of, SSC’s liquidity. This includes the day-to-day management of SSC’s global liquidity position; the development and monitoring of key liquidity risk metrics and early warning indicators; the creation and execution of stress testing; the evaluation and implementation of regulatory requirements; the maintenance and execution of liquidity guidelines and contingency funding plans; and reporting to management risk committees and the Board of Directors. As part of these responsibilities, Global Treasury calculates the LCR, consistent with applicable regulatory requirements. For this purpose, Global Treasury implements a calculation process designed to include appropriate controls to promote accuracy and timeliness of the LCR calculation, including sourcing data via automated methods and attribution analysis to understand day over day variances and drivers. The Corporate Treasurer has management responsibility for the Global Treasury function.

Enterprise Risk Management (“ERM”) and other support functions are considered the second line of defense. Global Treasury Risk Management (“GTRM”), part of ERM, provides separate oversight over the identification, communication and management of Global Treasury’s risks in support of SSC’s business strategy. GTRM’s responsibilities relative to liquidity risk management include the development and review of policies and guidelines; the development of risk appetite statement limits; and the monitoring of limits related to the adherence to liquidity risk guidelines and associated reporting. As part of these responsibilities, GTRM conducts a variety of activities relative to the LCR, including: review of the liquidity risk management framework and regulations; development of internal limits for the LCR above the regulatory minimum and internal escalation framework; and separate monitoring of the LCR results produced by Global Treasury. The Chief Risk Officer has management responsibility for the GTRM function.

Corporate Audit serves as the third line of defense and assesses the effectiveness of the first and second lines of defense. The General Auditor has management responsibility for Corporate Audit.

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