SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549



Massachusetts		04-2456637
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification No.)
One Lincoln Street Boston, Massachusetts		02111
(Address of principal executive office)		(Zip Code)
617-786-3000 (Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

GENERAL

State Street Corporation, or the parent company, is a financial holding company headquartered in Boston, Massachusetts. Unless otherwise indicated or unless the context requires otherwise, all references in this Management's Discussion and Analysis to “State Street,” “we,” “us,” “our” or similar terms mean State Street Corporation and its subsidiaries on a consolidated basis. Our principal banking subsidiary is State Street Bank and Trust Company, or State Street Bank. As of ~~September 30, 2013~~March 31, 2014, we had consolidated total assets of $~~217.18~~256.66 billion, consolidated total deposits of $~~154.20~~194.65 billion, consolidated total shareholders' equity of $~~20.43~~21.27 billion and ~~29,230~~29,530 employees. With $~~26.03~~27.48 trillion of assets under custody and administration and $~~2.24~~2.38 trillion of assets under management as of ~~September 30, 2013~~March 31, 2014, we are a leading specialist in meeting the needs of institutional investors worldwide.

We have two lines of business:

Investment Servicing provides services for mutual funds, collective investment funds and other investment pools, corporate and public retirement plans, insurance companies, foundations and endowments worldwide. Products include ~~custody,~~custody; product- and participant-level ~~accounting,~~accounting; daily pricing and administration; master trust and master custody; record-keeping; cash management; foreign exchange, brokerage and other trading services; securities finance; deposit and short-term investment facilities; loans and lease financing; investment manager and alternative investment manager operations outsourcing; and performance, risk and compliance analytics to support institutional investors.

Investment Management, through State Street Global Advisors, or SSgA, provides a broad ~~range~~array of investment management, ~~strategies, specialized~~ investment ~~management~~research and investment advisory services ~~and other financial services, such as securities finance, for~~to corporations, public funds and other sophisticated investors. ~~Management~~SSgA offers active and passive asset management strategies ~~offered by SSgA include passive~~across equity, fixed-income and ~~active, such as enhanced indexing,~~cash asset classes. Products are distributed directly and through intermediaries using ~~quantitative and fundamental methods for both U.S. and non-U.S. equity and fixed-income securities. SSgA also offers~~a variety of investment vehicles, including exchange-traded funds, or ~~ETFs.~~ETFs, such as the SPDR^® ETF brand.

For financial and other information about our lines of business, refer to “Line of Business Information” included in this Management's Discussion and Analysis and in note 16 to the consolidated financial statements included in this Form 10-Q.

In July 2013, Moody's Investors Service announced that it had placed the long-term ratings of State Street and State Street Bank on review for possible downgrade. Moody's made a similar announcement regarding two other major U.S. trust and custody banks. Other major independent credit rating agencies did not take similar actions. In September 2013, Moody's Investors Service announced that it was continuing to review the long-term ratings of State Street and State Street Bank and the two other major U.S. trust and custody banks. In addition, in August 2013, Moody's also undertook a review of its systemic support assumptions for the eight largest U.S. banks, including State Street.

This Management's Discussion and Analysis is part of our Quarterly Report on Form 10-Q for the

quarter ended ~~September 30, 2013~~March 31, 2014, and updates the Management's Discussion and Analysis in our Annual Report on Form 10-K for the year ended December 31, ~~2012~~,2013, referred to as our ~~2012~~2013 Form 10-K, ~~and in our Quarterly Reports on Form 10-Q for the quarters ended March 31, 2013 and June 30, 2013, all of~~ which we previously filed with the SEC. You should read the financial information contained in this Management's Discussion and Analysis and elsewhere in this Form 10-Q in conjunction with the financial and other information contained in ~~those reports.~~our 2013 Form 10-K. Certain previously reported amounts presented in this Form 10-Q have been reclassified to conform to current-period presentation.

We prepare our consolidated financial statements in conformity with accounting principles generally accepted in the U.S., referred to as GAAP. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions in its application of certain accounting policies that materially affect the reported amounts of assets, liabilities, equity, revenue and expenses.

The significant accounting policies that require us to make judgments, estimates and assumptions that are difficult, subjective or complex about matters that are uncertain and may change in subsequent periods are accounting for fair value measurements; other-than-temporary impairment of investment securities; and impairment of goodwill and other intangible assets. These significant accounting policies require the most subjective or complex judgments, and underlying estimates and assumptions could be subject to revision as new information becomes available. An understanding of the judgments, estimates and assumptions underlying these significant accounting policies is essential in order to understand our reported consolidated results of operations and financial condition.

Additional information about these significant accounting policies is included under “Significant Accounting Estimates” in ~~Management’s~~Management's Discussion and Analysis in our ~~2012~~2013 Form 10-K. We did not change these significant accounting policies ~~during~~in the first ~~nine months~~quarter of ~~2013~~.2014.

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~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (Continued)~~

Certain financial information provided in this Management's Discussion and Analysis is prepared on both a GAAP, or reported basis, and a non-GAAP, or operating basis, including certain non-GAAP measures used in the calculation of identified regulatory capital ratios. We measure and compare certain financial information on an operating basis, as we believe that this presentation supports meaningful comparisons from period to period and the analysis of comparable financial trends with respect to State

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Street's normal ongoing business operations. We believe that operating-basis financial information, which reports non-taxable revenue, such as interest revenue associated with tax-exempt investment securities, on a fully taxable-equivalent basis, facilitates an investor's understanding and analysis of State Street's underlying financial performance and trends in addition to financial information prepared and reported in conformity with GAAP.

We also believe that the use of certain non-GAAP measures in the calculation of identified regulatory capital ratios is useful in understanding State Street's capital position and is of interest to investors. Operating-basis financial information should be considered in addition to, not as a substitute for or superior to, financial information prepared in conformity with GAAP. Any non-GAAP, or operating-basis, financial information presented in this Management’s Discussion and Analysis is reconciled to its most directly comparable GAAP-basis measure.

We provide additional disclosures required by applicable bank regulatory standards, including supplemental qualitative and quantitative information with respect to market risk associated with our trading activities, and summary results of semi-annual State Street-run stress tests which we conduct under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, on the “Investor Relations” section of our website at www.statestreet.com.

FORWARD-LOOKING STATEMENTS

This Form 10-Q, ~~(including statements in this Management's Discussion and Analysis),~~ as well as other reports submitted by us under the Securities Exchange Act of 1934, registration statements filed by us under the Securities Act of 1933, our annual report to shareholders and other public statements we may make, contain statements (including statements in this Management's Discussion and Analysis) that are considered “forward-looking statements” within the meaning of U.S. securities laws, including statements about ~~industry, regulatory, economic~~our goals and ~~market trends, management's~~ expectations ~~about~~regarding our business, financial and capital condition, results of operations, strategies, financial portfolio performance, ~~capital,~~dividend and stock purchase programs, market growth, acquisitions, joint ventures and divestitures and new technologies, services and opportunities, as well as regarding industry, regulatory, economic and ~~earnings, management's confidence in our strategies~~market trends, initiatives and developments, the business environment and other matters that do not relate strictly to historical facts.

Terminology such as “plan,” “expect,” “intend,” “objective,” “forecast,” “outlook,” “believe,” “anticipate,” “estimate,” “seek,” “may,” “will,” “trend,” “target,” “strategy” and “goal,” or similar statements or variations of such terms, are intended to identify

forward-looking statements, although not all forward-looking statements contain such terms.

Forward-looking statements are subject to various risks and uncertainties, which change over time, are based on management's expectations and assumptions at the time the statements are made, and are not guarantees of future results. Management's expectations and assumptions, and the continued validity of the forward-looking statements, are subject to change due to a broad range of factors affecting the national and global economies, the equity, debt, currency and other financial markets, as well as factors specific to State Street and its subsidiaries, including State Street Bank. Factors that could cause changes in the expectations or assumptions on which forward-looking statements are based cannot be foreseen with certainty and include, but are not limited to:

the financial strength and continuing viability of the counterparties with which we or our clients do business and to which we have investment, credit or financial exposure, including, for example, the direct and indirect effects on counterparties of the ~~current~~ sovereign-debt risks in the U.S., Europe and ~~other regions;~~

~~financial market disruptions or economic recession, whether in the U.S., Europe, Asia or~~ other regions;

increases in the volatility of, or declines in the level of, our net interest revenue, changes in the composition or valuation of the assets recorded in our consolidated statement of condition (and our ability to measure the fair value of investment securities) and the possibility that we may change the manner in which we fund those assets;

the liquidity of the U.S. and international securities markets, particularly the markets for fixed-income securities and inter-bank credits, and the liquidity requirements of our clients;

the level and volatility of interest rates and the performance and volatility of securities, credit, currency and other markets in the U.S. and internationally;

the credit quality, credit-agency ratings and fair values of the securities in our investment securities portfolio, a deterioration or downgrade of which could lead to other-than-temporary impairment of the respective securities and the recognition of an impairment loss in our consolidated statement of income;

our ability to attract deposits and other low-cost, short-term funding, and our ability to deploy deposits in a profitable manner consistent with our liquidity requirements and risk profile;

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

the manner and timing with which the Federal Reserve and other U.S. and foreign regulators implement the Dodd-Frank Act, changes to the ~~Basel II and~~ Basel III capital ~~and liquidity standards,~~framework and European legislation, such as the Alternative Investment Fund Managers Directive and Undertakings for Collective Investment in Transferable Securities Directives, with respect to the levels of regulatory capital we must maintain, our credit exposure to third parties, margin requirements applicable to derivatives, banking and financial activities and other regulatory initiatives in the U.S. and internationally, including regulatory developments that result in changes to our structure or operating model, increased costs or other changes to how we provide services;

adverse changes in the regulatory capital ratios that we are required or will be required to meet, whether arising under the Dodd-Frank Act

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~~AND RESULTS OF OPERATIONS (Continued)~~

or the ~~Basel II or~~ Basel III capital and liquidity standards, or due to changes in regulatory positions, practices or regulations in jurisdictions in which we engage in banking activities, including changes in internal or external data, formulae, models, assumptions or other advanced systems used in ~~calculating~~the calculation of our capital ratios that cause changes in those ratios as they are measured from period to period;

increasing requirements to obtain the prior approval of the Federal Reserve or our other regulators for the use, allocation or distribution of our capital or other specific capital actions or programs, including acquisitions, dividends and equity purchases, without which our growth plans, distributions to shareholders, equity purchase programs or other capital initiatives may be restricted;

changes in law or regulation, or the enforcement of law or regulation, that may adversely affect our business activities or those of our clients or our counterparties, and the products or services that we sell, including additional or increased taxes or assessments thereon, capital adequacy requirements, margin requirements and changes that expose us to risks related to the adequacy of our controls or compliance programs;

financial market disruptions or economic recession, whether in the U.S., Europe, Asia or other regions;

our ability to promote a strong culture of risk management, operating controls, compliance oversight and governance that meet our

expectations orand those of our clients and our regulators;

the ~~credit agency ratings~~results of, ~~our debt~~ and ~~depository obligations~~costs associated with, governmental or regulatory inquiries and ~~investor~~investigations, litigation and ~~client perceptions of our financial strength;~~similar claims, disputes, or proceedings;

delays or difficulties in the execution of our previously announced Business Operations and Information Technology Transformation program, which could lead to changes in our estimates of the charges, expenses or savings associated with the planned program and may cause volatility of our earnings;

the ~~results of, and costs associated with, government investigations, litigation, and similar claims, disputes, or proceedings;~~potential for losses arising from our investments in sponsored investment funds;

the possibility that our clients will incur substantial losses in investment pools for which we act as agent, and the possibility of significant reductions in the liquidity or valuation of assets underlying those pools;

our ability to anticipate and manage the level and timing of redemptions and withdrawals from our collateral pools and other collective investment products;

the credit agency ratings of our debt and depository obligations and investor and client perceptions of our financial strength;

adverse publicity, whether specific to State Street or regarding other industry participants or industry-wide factors, or other reputational harm;

our ability to control operational risks, data security breach risks and outsourcing risks, and our ability to protect our intellectual property rights, the possibility of errors in the quantitative models we use to manage our business and the possibility that our controls will prove insufficient, fail or be circumvented;

dependencies on information technology and our ability to control related risks, including cyber-crime and other threats to our information technology infrastructure and systems and their effective operation both independently and with external systems, and complexities and costs of protecting the security of our systems and ~~difficulties with protecting our intellectual property rights;~~data;

our ability to grow revenue, control expenses, attract and retain highly skilled people and raise the capital necessary to achieve our business goals and comply with regulatory requirements;

changes or potential changes to the competitive environment, including changes due to regulatory and technological changes, the effects of industry consolidation and perceptions of State Street as a suitable service provider or counterparty;

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AND RESULTS OF OPERATIONS (Continued)

changes or potential changes in how and in what amounts clients compensate us for our services, and the mix of services provided by us that clients choose;

~~the~~our ability to complete acquisitions, joint ventures and divestitures, including the ability to obtain regulatory approvals, the ability to arrange financing as required and the ability to satisfy closing conditions;

the risks that our acquired businesses and joint ventures will not achieve their anticipated financial and operational benefits or will not be integrated successfully, or that the integration will take longer than anticipated, that expected synergies will not be achieved or unexpected negative synergies will be experienced, that client and deposit retention goals will not be met, that other regulatory or operational challenges will be experienced, and that disruptions from the transaction will harm our relationships with our clients, our employees or regulators;

our ability to recognize emerging needs of our clients and to develop products that are responsive to such trends and profitable to us, the performance of and demand for the products and services we offer, and the potential for new products and services to impose additional costs on us and expose us to increased operational risk;

~~our ability to anticipate and manage the level and timing of redemptions and withdrawals from our collateral pools and other collective investment products;~~

our ability to control operational risks, data security breach risks, information technology systems risks and outsourcing risks, and our ability to protect our intellectual property rights, the possibility of errors in the quantitative models we use to manage our business and the possibility that our controls will prove insufficient, fail or be circumvented;

changes in accounting standards and practices; and

changes in tax legislation and in the interpretation of existing tax laws by U.S. and non-U.S. tax authorities that affect the amount of taxes due.

Actual outcomes and results may differ materially from what is expressed in our forward-looking statements and from our historical financial results due to the factors discussed in this section and elsewhere in this Form 10-Q or disclosed in our other SEC filings, including the risk factors discussed in our ~~2012~~2013 Form 10-K. Forward-looking statements in this Form 10-Q should not be relied on as representing our expectations or beliefs as of any date subsequent to the time this Form 10-Q is filed with the SEC. We undertake no obligation to revise our forward-looking statements after the time they are made. The factors discussed above are not intended to be a complete statement of all risks and uncertainties that may affect our businesses. We cannot anticipate all developments that may adversely affect our business or operations or our consolidated results of operations ~~and~~or financial condition.

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~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (Continued)~~

Forward-looking statements should not be viewed as predictions, and should not be the primary

basis on which investors evaluate State Street. Any investor in State Street should consider all risks and uncertainties disclosed in our SEC filings, including our filings under the Securities Exchange Act of 1934, in particular our annual reports on ~~Forms~~Form 10-K, our quarterly reports on Form 10-Q and our current reports on Form 8-K, or registration statements filed under the Securities Act of 1933, all of which are accessible on the SEC's website at www.sec.gov or on the “Investor Relations” section of our website at www.statestreet.com.

OVERVIEW OF FINANCIAL RESULTS

The following table presents our financial results for the quarters ended March 31, 2014 and 2013:


	Quarters Ended September 30,								Nine Months Ended September 30,								Quarters Ended March 31,
(Dollars in millions, except per share amounts)	2013			2012			% Change		2013			2012			% Change		2014			2013			% Change
Total fee revenue	$	1,883		$	1,719		10	%	$	5,711		$	5,282		8	%	$	1,924		$	1,857		4	%
Net interest revenue	546			619			(12	)	1,718			1,916			(10	)	555			576			(4	)
Gains (losses) related to investment securities, net	(4		)	18					(9		)	2					6			2
Total revenue	2,425			2,356			3		7,420			7,200			3		2,485			2,435			2
Provision for loan losses	—			—					—			(1		)			2			—
Total expenses	1,722			1,415			22		5,346			5,022			6		2,028			1,826			11
Income before income tax expense	703			941			(25	)	2,074			2,179			(5	)	455			609			(25	)
Income tax expense	163			267					491			588					92			145
Net income	$	540		$	674		(20	)	$	1,583		$	1,591		(1	)	$	363		$	464		(22	)
Adjustments to net income:
Dividends on preferred stock	(7		)	(15		)			(20		)	(29		)			(6		)	(7		)
Earnings allocated to participating securities	(2		)	(5		)			(6		)	(11		)			(1		)	(2		)
Net income available to common shareholders	$	531		$	654				$	1,557		$	1,551				$	356		$	455
Earnings per common share:
Basic	$	1.20		$	1.39				$	3.46		$	3.23				$	.83		$	1.00
Diluted	1.17			1.36			(14	)	3.40			3.19			7		.81			.98			(17	)
Average common shares outstanding (in thousands):
Basic	442,860			472,355					449,742			479,536					430,621			454,315
Diluted	452,154			480,010					458,392			485,813					438,815			462,751
Cash dividends declared per common share	$	.26		$	.24				$	.78		$	.72				$	.26		$	.26
Return on average common equity	10.8		%	13.3		%			10.4		%	10.7		%			7.2		%	9.1		%

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~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (Continued)~~

The following “Highlights” and “Financial Results” sections provide information related to significant events, as well as highlights of our consolidated financial results for the ~~third~~first quarter of ~~2013~~2014 presented in the preceding table. More detailed information about our consolidated financial results, including comparisons of our results for the ~~third~~first quarter of ~~2013~~2014 to those for the ~~third~~first quarter of ~~2012~~ ~~and for the~~ ~~nine months ended September 30,~~ 2013, ~~to those for the~~ ~~nine months ended September 30,~~ ~~2012,~~

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is provided under “Consolidated Results of Operations,” which follows these sections.

Highlights

In March 2014, we received the ~~third quarter~~results of ~~2013, under a program approved by~~the Federal Reserve's review of our 2014 capital plan in connection with its annual Comprehensive Capital Analysis and Review, or CCAR, process. The Federal Reserve did not object to the capital actions we proposed, and, in March 2014, our Board of Directors in ~~March 2013~~ ~~which authorizes us to~~approved a new common stock purchase program authorizing the purchase of up to $~~2.10~~1.70 billion of our common stock through March 31, 2015. We did not purchase any of our common stock under this new program in the first quarter of 2014.

In the first quarter of 2014, we ~~purchased~~completed the $2.10 billion common stock purchase program authorized by the Board in March 2013 by purchasing approximately ~~8.2~~6.1 million shares of our common stock, at an average ~~cost~~price of ~~$68.57~~$69.14 per share and an aggregate cost of approximately $420 million.

~~$560 million. As~~In the first quarter of ~~September 30, 2013~~2014, ~~approximately~~ ~~$980 million~~ ~~remained available for purchases of our common stock under the~~ ~~March 2013~~ ~~program. In addition, in the~~ ~~third quarter~~ ~~of 2013,~~ we declared a quarterly common stock dividend of $0.26 per share, totaling approximately ~~$115~~$112 million,, which was paid in April 2014.~~October2013~~.

Our 2014 capital plan includes a proposed increase in our second-quarter 2014 common stock dividend to $0.30 per share, subject to consideration and approval by the Board at its scheduled meeting in May.

Additional information about our common stock purchase program and our common ~~stock dividends, as well as our preferred~~ stock dividends is provided under “Financial Condition – Capital” in this Management's Discussion and Analysis. Information about our common stock purchase program is also provided in Part II Item 2, “Unregistered Sales of Equity Securities and Use of Proceeds,” included in this Form 10-Q.

In ~~2011 and 2012 combined, our Business Operations and Information Technology Transformation program generated approximately~~February ~~$198 million~~ ~~of total pre-tax expense savings compared to our 2010 expenses from operations, all else being equal. In~~ ~~2013~~2014, we ~~expect~~issued 30 million depositary shares, each representing a 1/4,000th ownership interest in a share of State Street’s fixed-to-floating-rate non-cumulative perpetual preferred stock, Series D, without par value, with a liquidation preference of $100,000 per share (equivalent to ~~achieve incremental pre-tax expense savings~~$25 per depositary share), in a public offering. The aggregate proceeds from the offering, net of underwriting discounts, commissions and other issuance costs, were approximately $742 million.

In the first quarter of ~~$220~~2014, in connection with the realignment of our cost base, we recorded $72 million ~~compared to our 2010 expense base, all else being equal, or approximately~~ ~~$418 million~~ of total pre-tax expense savings compared to our 2010 expense base, all else being equal, under the program since its inception at the end of 2010. These pre-tax expense savings relate only to the Business Operations and Information Technology Transformation program and are based on projected improvement from our total 2010 expenses from operations. Our actual total expenses have increased since 2010, and may in the future increase or decrease, due to other factors.severance costs associated with staff reductions. Additional information about ~~our Business Operations and Information Technology Transformation program~~these costs is provided under ~~“Consolidated~~"Consolidated Results of Operations ~~– Expenses”~~- Expenses" in this ~~Management’s~~Management's Discussion and ~~Analysis.~~Analysis, and in note 14 to the consolidated financial statements, included in this Form 10-Q.

In January 2014, we entered into a settlement agreement with the U.K. Financial Conduct Authority as a result of our having charged six clients of our U.K. transition management business amounts in excess of the underlying contractual terms in 2010 and 2011. We agreed to and paid a fine of approximately $38 million in January 2014, which we accrued as of December 31, 2013.

In the first quarter of 2014, we recorded additional pre-tax costs in connection with our transition management business of approximately $13 million, mainly composed of securities processing costs net of accrual adjustments.

Additional information about transition management is provided under “Legal and Regulatory Matters” in note 8 to the consolidated financial statements included in this Form 10-Q.

Financial Results

Total revenue in the ~~third~~first quarter of ~~2013~~2014 increased 3%2% compared to the ~~third~~first quarter of ~~2012~~,2013, as a ~~combined~~ ~~10%~~6% increase in aggregate servicing fee and management fee revenue and a 10%9% increase in ~~trading services~~securities finance revenue ~~due to increases in foreign exchange trading,~~ were partly offset by declines in ~~securities finance~~trading services revenue and net interest revenue of ~~19%~~15% and ~~12%~~4%, respectively.

Servicing fee revenue in the ~~third~~first quarter of ~~2013~~2014 increased ~~10%~~5% compared to the ~~third~~first quarter of ~~2012~~,2013, mainly the result of stronger global equity markets ~~the addition of revenue from the Goldman Sachs Administration Services, or GSAS, business, acquired in October 2012,~~ and the revenue impact of net new business installed. Servicing fees generated outside the U.S. in ~~each of~~ the ~~third~~first quarter of ~~2013~~2014 and the ~~third~~first quarter of ~~2012~~2013 were approximately 42% and 41%, respectively, of total servicing fees for those periods.

Management fee revenue increased 11% in the first quarter of ~~10%~~2014 compared to the ~~third~~first quarter of ~~2012~~,2013, primarily the result of stronger global equity ~~markets and the impact of net new business installed.~~markets. Management fees generated outside the U.S. in the ~~third~~first quarter of ~~2013~~2014 and the ~~third~~first quarter of ~~2012~~2013 were approximately ~~37%~~36% and ~~35%~~37%, ~~respectively, of total management fees for those periods.~~

~~In the~~ ~~third quarter of 2013, trading services revenue, composed of revenue generated by foreign exchange trading and revenue generated by brokerage and other trading services, increased~~ ~~10%~~ ~~compared to the~~ ~~third quarter of 2012. Foreign exchange trading revenue was up~~ ~~28%, with estimated indirect foreign exchange revenue up~~ ~~33%~~ ~~and direct sales and trading foreign exchange revenue up~~ ~~23%, from the prior-year quarter, with all increases mainly the result of higher client volumes and currency volatility, as well as higher spreads. Brokerage and other trading services revenue declined~~ 7% ~~compared to the~~ ~~third quarter of 2012, primarily reflecting the impact of lower distribution fees associated with the SPDR~~^® ~~Gold ETF, which resulted from decreases in gold prices and net outflows of ETF assets. Securities finance revenue declined~~ ~~19%~~ ~~in the~~ ~~third quarter of 2013~~ ~~compared to the~~ ~~third quarter of 2012, generally the result of lower spreads and slightly lower lending volumes.~~

~~Net interest revenue in the~~ ~~third quarter of 2013~~ ~~declined~~ ~~12%~~ ~~compared to the~~ ~~third quarter of 2012~~, generally the result of lower yields on earning assets related to lower global interest rates, partly offset by lower funding costs. The decline in net interest revenue also reflected the continued impact of the reinvestment of paydowns on existing investment securities in lower-yielding investment securities. Net interest revenue in the ~~third quarter of 2013~~ ~~and the~~ ~~third quarter of 2012~~ ~~included~~ ~~$28 million~~ ~~and~~ ~~$40 million, respectively, of discount accretion related to investment securities added to our consolidated statement of condition in connection with the consolidation of the commercial paper conduits in 2009.~~

~~Net interest margin, calculated on fully taxable-equivalent net interest revenue,~~ ~~declined~~20 ~~basis points to~~ ~~1.33%~~ ~~in the~~ ~~third quarter of 2013~~ ~~from~~ ~~1.53%~~ ~~in the~~ ~~third quarter of 2012. Continued elevated levels of client deposits, amid continued~~

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~~market uncertainty,~~

respectively, of total management fees for those periods.

•

In the first quarter of 2014, trading services revenue, composed of revenue generated by foreign exchange trading and revenue from brokerage and other trading services, declined 15% compared to the first quarter of 2013. Revenue from foreign exchange trading declined 8%, with estimated indirect foreign exchange revenue down 3% and direct sales and trading foreign exchange revenue down 12%, from the first quarter of 2013. Both declines were mainly the result of lower volatility, partly offset by higher client volumes. Brokerage and other trading services revenue in the first quarter of 2014 declined 22% compared to the first quarter of 2013, primarily reflective of lower client volumes in electronic trading and the impact of lower distribution fees associated with the SPDR^® Gold ETF, which resulted from lower average gold prices and net outflows from the SPDR^® Gold ETF.

Securities finance revenue increased 9% in the first quarter of 2014 compared to the first quarter of 2013, reflective of growth in revenue earned in connection with principal securities finance transactions, which we refer to as our enhanced custody business.

Net interest revenue in the first quarter of 2014 declined 4% compared to the first quarter of 2013, generally the result of lower yields on interest-earning assets, as lower global interest rates affected revenue from floating-rate assets, net of the benefit of those rates on interest expense.

Net interest margin, calculated on fully taxable-equivalent net interest revenue, declined 8 basis points to 1.30% in the first quarter of 2014 from 1.38% in the first quarter of 2013. Continued elevated levels of client deposits increased our average interest-earning assets, but negatively affected our net interest margin, as we ~~generally~~ placed a portion of these deposits with U.S. and non-U.S. central banks and earned the relatively low interest rates paid by the central banks on these ~~balances over the period. Discount accretion, fully~~balances.

Fully taxable-equivalent net interest revenue and net interest margin are discussed in more detail under “Consolidated Results of Operations - Net Interest Revenue” in this Management's Discussion and Analysis.

Total expenses ~~for~~in the ~~third~~first quarter of ~~2013~~2014 increased ~~22%~~11% compared to the first quarter~~third quarter~~

of ~~2012. Total expenses for the~~ ~~third quarter of 2013~~ ~~reflected aggregate credits of~~ ~~$30 million~~ ~~to other expenses, related to gains and recoveries associated with Lehman Brothers-related assets. Total expenses for the~~ ~~third quarter of 2012~~ ~~reflected a net credit of~~ ~~$277 million, composed of recoveries of~~ ~~$362 million~~ ~~associated with the 2008 Lehman Brothers bankruptcy, partly offset by provisions for litigation exposure and other costs of~~ ~~$85 million. Excluding the credits recorded in the third quarters of 2013 and 2012, total expenses increased~~ 4% ~~in the quarter-to-quarter comparison, to $1.75 billion ($1.72 billion~~ ~~plus~~ ~~$30 million) from $1.69 billion ($1.42 billion~~ ~~plus~~ ~~$277 million~~).

2013. Compensation and employee benefits expenses ~~were down~~ 1% ~~in the~~ ~~third quarter of 2013~~ ~~compared to the~~ ~~third quarter of 2012~~increased 12%, primarily due to ~~savings~~the above-described severance costs of $72 million, higher incentive compensation, and costs for additional staffing related to the installation of new business and added regulatory and compliance requirements. Compensation and employee benefits expenses in the first quarter of 2014 and the first quarter of 2013 included approximately $146 million and $118 million, respectively, associated with seasonal deferred incentive compensation expense for retirement-eligible employees and payroll taxes.

These aggregate increases were partly offset by savings generated from the ~~execution~~implementation of our Business Operations and Information Technology Transformation ~~program and lower benefit costs, partly offset by an increase in costs to support new business and higher incentive compensation.~~ program.

Information systems and communications expenses increased ~~11%~~3% compared to the ~~third~~first quarter of ~~2012~~,2013, primarily ~~from~~in connection with the planned transition of certain functions to third-party service providers in connection with the ~~execution~~implementation of our Business Operations and Information Technology Transformation program, and costs to support new business. Transaction processing services expenses were higher by 9%6%, primarily the result of higher equity market values and higher transaction volumes in the ~~asset~~investment servicing business. ~~Finally, other~~

Other expenses ~~declined~~ ~~24%, mainly~~increased 18% in the first quarter of 2014 compared to the first quarter of 2013, primarily the result of a ~~decline in provisions for litigation exposure and the above-described third-quarter-2013 gains and recoveries~~higher level of professional services associated with ~~Lehman Brothers-related assets.~~ regulatory compliance, as well as securities processing costs associated with our transition management business.

We expect continued evolving and increasing regulatory and compliance requirements to influence our expenses by, for example, increasing our employee compensation and benefits, information systems and other expenses, as we further adjust our operations and systems in response to new or proposed requirements.

With respect to our Business Operations and Information Technology Transformation program, we expect to achieve additional pre-tax expense savings for full-year 2014 of approximately $130 million. These pre-tax expense savings relate only to the Business Operations and Information Technology Transformation program and are based on projected improvement from our total 2010

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

expenses from operations, all else being equal. Our actual total expenses have increased since 2010, and may in the future increase or decrease, due to other factors.

Additional information with respect to our expenses, including our Business Operations and Information Technology Transformation program, is provided under “Consolidated Results of Operations - Expenses” in this Management's Discussion and Analysis.

In the ~~third~~first quarter of ~~2013~~,2014, we secured ~~mandates for approximately~~ ~~$200~~an estimated $189 billion of new business in assets to be serviced; of the total, $57125 billion was installed prior to ~~September 30, 2013~~March 31, 2014, with the remaining $~~143~~64 billion expected to be installed in the remainder of ~~2013~~ ~~and later periods. In~~2014. We also installed approximately $77 billion of new asset servicing business in the ~~third~~first quarter of ~~2013~~2014 that we were awarded in prior periods. As of March 31, 2014, we ~~also installed approximately~~ ~~$39~~had an estimated $136 billion of new business in assets to be serviced, ~~that was awarded to us in periods prior to~~including the ~~third quarter of 2013~~$64 billion. referenced above, that remained to be installed in future periods. New business in assets to be serviced includes assets for which we have been instructed by existing clients to provide additional services, as well as assets from new clients.

The new business not installed by ~~September 30, 2013~~March 31, 2014 was not included in our assets under custody and administration as of that date, and had no impact on our servicing fee revenue in the ~~third~~first quarter of ~~2013~~,2014, as the assets are not included until their installation is complete and we begin to service them. Once installed, the assets generate servicing fee revenue in subsequent periods in which the assets are serviced.

~~We will provide one or more of various services for~~With respect to these new assets, ~~to be serviced,~~we will provide various services, including accounting, bank loan servicing, compliance reporting and monitoring, custody, depository banking services, foreign exchange, fund administration, hedge fund servicing, ~~middle office~~middle-office outsourcing, performance and analytics, private equity administration, real estate administration, securities finance, transfer agency, and wealth management services.

In the ~~third~~first quarter of ~~2013~~,2014, SSgA had approximately ~~$15~~$4 billion of net ~~lost~~new business in assets to be managed, ~~generally~~ composed primarily of ~~approximately~~ $~~20 billion~~ ~~of net outflows from active and enhanced equity funds, partly offset by approximately~~ $535 billion of net inflows, substantially into ~~ETFs.~~managed cash, partly offset by net outflows of $31 billion from ETF and institutional

products. Outflows were primarily from passive equity funds.

An additional $2521 billion of new business awarded to SSgA but not installed by ~~September 30, 2013~~March 31, 2014 was not included in our assets under management as of that date, and had no impact on our management fee revenue for the ~~third~~first quarter of ~~2013~~,2014, as the assets are not included until their installation is complete and we begin to manage them. Once installed, the assets generate management fee revenue in subsequent periods in which the assets are managed.

CONSOLIDATED RESULTS OF OPERATIONS

This section discusses our consolidated results of operations for the ~~third~~first quarter ~~and first nine months~~ of ~~2013~~2014 compared to the ~~same periods~~first quarter of 2013 in ~~2012~~,more detail, and should be read in conjunction with the consolidated financial statements and accompanying condensed notes included in this Form 10-Q.

~~Table of Contents~~Total Revenue

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (Continued)~~

~~TOTAL REVENUE~~

Additional information with respect to the sources of our revenue, the products and activities that generate it, and the factors that influence the levels of revenue generated during any period is provided under “Consolidated Results of Operations – Total Revenue” in Management’s Discussion and Analysis included in our ~~2012~~2013 Form 10-K.

The following table presents the components of total revenue for the periods indicated:



	Quarters Ended March 31,
(Dollars in millions)	2014		2013		% Change
Fee revenue:
Servicing fees	$	1,238	$	1,175	5	%
Management fees	292		263		11
Trading services:
Foreign exchange trading	134		146		(8	)
Brokerage and other trading services	105		135		(22	)
Total trading services	239		281		(15	)
Securities finance	85		78		9
Processing fees and other	70		60		17
Total fee revenue	1,924		1,857		4
Net interest revenue:
Interest revenue	655		687		(5	)
Interest expense	100		111		(10	)
Net interest revenue	555		576		(4	)
Gains (losses) related to investment securities, net	6		2
Total revenue	$	2,485	$	2,435	2

Quarters Ended September 30, Nine Months Ended September 30,
(Dollars in millions) 2013 2012 % Change 2013 2012 % Change
Fee revenue:
Servicing fees $ 1,211
$ 1,100
10 % $ 3,587
$ 3,264
10 %
Management fees 276
251
10
816
733
11
Trading services:
Foreign exchange trading 147
115
28
464
393
18
Brokerage and other trading services 109
117
(7 ) 369
374
(1 )
Total trading services 256
232
10
833
767
9
Securities finance 74
91
(19 ) 283
331
(15 )
Processing fees and other 66
45
47
192
187
3
Total fee revenue 1,883
1,719
10
5,711
5,282
8
Net interest revenue:
Interest revenue 643
730
(12 ) 2,030
2,281
(11 )
Interest expense 97
111
(13 ) 312
365
(15 )
Net interest revenue 546
619
(12 ) 1,718
1,916
(10 )
Gains (losses) related to investment securities, net (4 ) 18
(9 ) 2

Total revenue $ 2,425
$ 2,356
3
$ 7,420
$ 7,200
3

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Fee Revenue

Servicing and management fees collectively composed approximately ~~79%~~ ~~and~~ ~~77%~~80% of our total fee revenue ~~for~~in the first quarter of ~~third quarter and first nine months of2013~~2014, ~~respectively,~~ compared to 77% in the first quarter of ~~79%~~ ~~and~~ ~~76%, respectively, for the corresponding periods in~~ ~~2012~~2013. The level of these fees is influenced by several factors, including the mix and volume of our assets under custody and administration and our assets under management, the value and type of securities positions held (with respect to assets under custody) and the volume of portfolio transactions, and the types of products and services used by our clients, and is generally affected by changes in worldwide equity and fixed-income security ~~valuations.~~valuations and trends in market asset class preferences.

Generally, servicing fees are affected ~~in part,~~ by changes in daily average valuations of assets under custody and administration. Additional factors, such as the relative mix of assets serviced, the level of transaction volumes, changes in service level, the nature of services provided, balance credits, client minimum balances, pricing concessions and other factors, may have a significant effect on our servicing fee revenue.

Generally, management fees are affected ~~in part,~~ by changes in month-end valuations of assets under management.Management fees for certain components of managed assets, such as ETFs, are affected by daily average valuations of assets under management. Management fee revenue is ~~relatively~~ more sensitive to market valuations than servicing fee revenue, since a higher proportion of the underlying services provided, and the associated management fees earned, are dependent on equity and fixed-income ~~values.~~security valuations. Additional factors, such as the relative mix of assets managed, changes in service level and other factors, may have a significant effect on our management fee revenue. While certain management fees are directly determined by the ~~value~~values of assets under management and the investment ~~strategy~~strategies employed, management fees may reflect other factors as well, including performance fee arrangements, discussed later in this section, as

well as our relationship pricing for clients using multiple services.

~~Management~~Asset-based management fees for actively managed products are generally ~~earned~~charged at a higher ~~rates~~percentage of assets under management than ~~those~~ for passive products. ~~Actively managed~~Actively-managed products may also involve performance fee arrangements. Performance fees are generated when the performance of certain managed funds exceeds benchmarks specified in the management agreements. Generally, we experience more volatility with performance fees than with more traditional management fees.

In light of the above, we estimate, using relevant information as of March 31, 2014 and assuming that all other factors remain constant, ~~that~~that: (1) a 10% increase or decrease, over the relevant periods for or on which our servicing and management fees are calculated, in worldwide equity valuations would result in a corresponding change in our total revenue of approximately 2%~~. If~~; and (2) a 10% increase or decrease, over the relevant periods for or on which our servicing and management fees are calculated, in worldwide fixed-income security valuations ~~were to increase or decrease by~~ ~~10%, we~~ would ~~anticipate, assuming all other factors remain constant,~~result in a corresponding change in our total revenue of approximately 1% ~~in our total revenue.~~.

~~Table of Contents~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (Continued)~~

The following table presents selected ~~average quarter and year-to-date~~ equity market indices. While the specific indices presented are indicative of general market trends, the asset types and classes relevant to individual client portfolios can and do differ, and the performance of associated relevant indices can therefore differ from the performance of the indices ~~presented in the table below.~~presented.

Daily averages and the averages of month-end indices demonstrate worldwide changes in equity markets that affect our servicing and management fee ~~revenue, respectively.~~revenue. Quarter-end indices affect the values of assets under custody and administration and assets under management as of those dates. The index names listed in the table are service marks of their respective owners.

INDEX


	Daily Averages of Indices				Averages of Month-End Indices				Quarter-End Indices				Daily Averages of Indices				Averages of Month-End Indices				Quarter-End Indices
	Quarters Ended September 30,				Quarters Ended September 30,				As of September 30,				Quarters Ended March 31,				Quarters Ended March 31,				As of March 31,
	2013	2012	% Change		2013	2012	% Change		2013	2012	% Change		2014	2013	% Change		2014	2013	% Change		2014	2013	% Change
S&P 500^®	1,675	1,401	20	%	1,667	1,409	18	%	1,682	1,441	17	%	1,835	1,514	21	%	1,838	1,527	20	%	1,872	1,569	19	%
NASDAQ^®	3,641	3,027	20		3,663	3,041	20		3,771	3,116	21		4,210	3,176	33		4,204	3,190	32		4,199	3,268	28
MSCI EAFE^®	1,748	1,468	19		1,747	1,474	19		1,818	1,511	20		1,894	1,668	14		1,896	1,676	13		1,916	1,674	14
	Daily Averages of Indices				Averages of Month-End Indices
	Nine Months Ended September 30,				Nine Months Ended September 30,
	2013	2012	% Change		2013	2012	% Change
S&P 500^®	1,601	1,367	17	%	1,602	1,376	16	%
NASDAQ^®	3,400	2,954	15		3,416	2,978	15
MSCI EAFE^®	1,708	1,470	16		1,707	1,478	15

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

The following table presents the components of fee revenue for the periods indicated:

FEE REVENUE



	Quarters Ended March 31,
(Dollars in millions)	2014		2013		% Change
Servicing fees	$	1,238	$	1,175	5	%
Management fees	292		263		11
Trading services:
Foreign exchange trading	134		146		(8	)
Brokerage and other trading services	105		135		(22	)
Total trading services	239		281		(15	)
Securities finance	85		78		9
Processing fees and other	70		60		17
Total fee revenue	$	1,924	$	1,857	4

Servicing Fees

Servicing fees ~~increased~~in the first quarter of ~~10%~~2014 ~~for both the~~ ~~third quarter and first nine months of2013~~increased 5% compared to the ~~same periods in~~first quarter of ~~2012~~2013, primarily as a result of stronger global equity markets ~~the addition of revenue from the GSAS business, acquired in October 2012,~~ and the revenue impact of net new business ~~installed on current-period revenue. The combined daily averages of equity market indices, individually presented in~~installed. In the ~~foregoing “INDEX” table, increased approximately 20% in the~~ ~~third~~first quarter of ~~2013~~ ~~compared to~~2014 and the ~~third~~first quarter of ~~2012, and increased approximately 16% in the year-to-date comparison. For the~~ ~~third quarter and first nine months of~~2013, servicing fees generated outside the U.S. were approximately 42% and 41%, respectively, of total servicing ~~fees, compared to approximately~~ ~~42%~~ ~~for each of the~~ ~~third quarter and first nine months of2012~~.fees.

The following tables present the components, financial instrument mix and geographic mix of assets under custody and administration, as of the dates indicated:

COMPONENTS OF ASSETS UNDER CUSTODY AND ADMINISTRATION



(In billions)	March 31, 2014		December 31, 2013		March 31, 2013
Mutual funds	$	6,908	$	6,811	$	6,275
Collective funds	6,637		6,428		5,753
Pension products⁽¹⁾	5,472		5,851		5,331
Insurance and other products	8,460		8,337		8,063
Total	$	27,477	$	27,427	$	25,422

(In billions) September 30, 2013 December 31, 2012 September 30, 2012
Mutual funds $ 6,524
$ 5,852
$ 5,828
Collective funds 6,013
5,363
4,912
Pension products 5,446
5,339
5,258
Insurance and other products 8,050
7,817
7,443
Total $ 26,033
$ 24,371
$ 23,441
⁽¹⁾Decline as of March 31, 2014 compared to December 31, 2013 resulted primarily from the loss of assets serviced referenced later in this “Servicing Fees” section.

FINANCIAL INSTRUMENT MIX OF ASSETS UNDER CUSTODY AND ADMINISTRATION



(In billions)	March 31, 2014		December 31, 2013		March 31, 2013
Equities	$	15,040	$	15,050	$	13,095
Fixed-income	9,053		9,072		9,069
Short-term and other investments	3,384		3,305		3,258
Total	$	27,477	$	27,427	$	25,422

(In billions) September 30, 2013 December 31, 2012 September 30, 2012
Equities $ 13,849
$ 12,276
$ 12,021
Fixed-income 8,894
8,885
8,518
Short-term and other investments 3,290
3,210
2,902
Total $ 26,033
$ 24,371
$ 23,441

~~Table of Contents~~

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (Continued)~~

GEOGRAPHIC MIX OF ASSETS UNDER CUSTODY AND ADMINISTRATION⁽¹⁾


(In billions)	September 30, 2013		December 31, 2012		September 30, 2012		March 31, 2014		December 31, 2013		March 31, 2013
United States	$	18,998	$	17,711	$	17,066
Other Americas	739		752		703
North America							$	20,540	$	20,764	$	19,234
Europe/Middle East/Africa	5,219		4,801		4,636		5,704		5,511		5,060
Asia/Pacific	1,077		1,107		1,036		1,233		1,152		1,128
Total	$	26,033	$	24,371	$	23,441	$	27,477	$	27,427	$	25,422

⁽¹⁾Geographic mix is based on the location at which the assets are serviced.

The increase in total assets under custody and administration ~~from~~as of March 31, 2014 compared to December 31, ~~2012~~2013 and compared to ~~September 30,~~March 31, 2013 primarily resulted from stronger global equity markets and net ~~client cash inflows, as well as~~shareholder subscriptions, partly offset by net ~~new business installations. The increase in total~~losses of assets ~~under custody and administration from~~ ~~September 30, 2012~~ to ~~September 30, 2013~~ ~~primarily resulted from stronger global equity markets, net client cash inflows and net new business installations.~~serviced. Asset levels as of ~~September 30, 2013~~March 31, 2014 did not reflect ~~the~~ ~~$143~~$136 billion of new business in assets to be serviced ~~that was~~ awarded to us in the ~~third~~first quarter of ~~2013~~2014 and prior periods but not installed prior to ~~September 30, 2013~~March 31, 2014. This new business will be reflected in assets under custody and administration in future periods after installation, and will generate servicing fee revenue in subsequent periods.

The value of assets under custody and administration is a broad measure of the relative size of various markets served. Changes in the values of assets under custody and administration from period to period do not necessarily result in proportional changes in our servicing fee revenue.

Management Fees

Management fees ~~increased~~in the first quarter of ~~10%~~2014 ~~and~~increased 11% ~~during the~~ ~~third quarter and first nine months of2013, respectively,~~ compared to the ~~same periods in~~first quarter of ~~2012~~2013, primarily the result of stronger global equity market valuations and the impact of net new business installed on current-period revenue. Combined average month-end equity market indices, individually presented in the foregoing “INDEX” table, increased approximately 19% in the ~~third quarter of 2013~~ ~~compared to the~~ ~~third quarter of 2012, and increased approximately~~ ~~15%~~ ~~in the year-to-date comparison. For the~~ ~~third quarter and first nine months of2013, management~~markets. Management fees generated outside the U.S. were approximately ~~37%~~ ~~and~~ 36%~~, respectively,~~ of total management fees ~~compared to~~ ~~35%~~ ~~and~~ ~~36%, respectively,~~ for the ~~same periods in~~ ~~2012~~.

~~The following tables present the components and geographic mix of assets under management as of the dates indicated:~~

~~ASSETS UNDER MANAGEMENT~~

(In billions) September 30, 2013 December 31, 2012 September 30, 2012
Passive:
Equities $ 867
$ 755
$ 727
Fixed-income 282
293
295
Exchange-traded funds⁽¹⁾
360
337
337
Other⁽²⁾
240
215
203
Total passive 1,749
1,600
1,562
Active:⁽³⁾

Equities 40
46
46
Fixed-income 14
17
17
Other 52
53
53
Total active 106
116
116
Cash 386
370
387
Total $ 2,241
$ 2,086
$ 2,065

⁽¹⁾~~Includes SPDR~~^® ~~Gold Fund, for which State Street is not the investment manager, but acts as distribution agent.~~

⁽²⁾~~Includes currency, alternatives, assets passed to sub-advisors and multi-asset class solutions.~~

⁽³⁾~~Decline as~~first quarter of ~~September 30, 2013~~2014 compared to ~~December 31, 2012~~37% ~~mainly resulted from net outflows, partly offset by market appreciation and impact~~for the first quarter of ~~foreign currency translation.~~2013.

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

The following tables present assets under management by asset class and investment approach, ETFs by asset class, and the geographic mix of assets under management, as of the dates indicated:

ASSETS UNDER MANAGEMENT BY ASSET CLASS AND INVESTMENT APPROACH⁽¹⁾



(In billions)	March 31, 2014		December 31, 2013		March 31, 2013
Equity:
Active	$	42	$	42	$	45
Passive	1,323		1,334		1,134
Total Equity	1,365		1,376		1,179
Fixed-Income:
Active	16		16		16
Passive	320		311		325
Total Fixed-Income	336		327		341
Cash⁽²⁾	419		385		383
Multi-Asset-Class Solutions:
Active	25		23		23
Passive	108		110		99
Total Multi-Asset-Class Solutions	133		133		122
Alternative Investments⁽³⁾:
Active	16		14		12
Passive	112		110		139
Total Alternative Investments	128		124		151
Total	$	2,381	$	2,345	$	2,176

⁽¹⁾As of December 31, 2013, the presentation was changed to align with the reporting of core businesses. Amounts reported as of March 31, 2013 have been adjusted for comparative purposes.

⁽²⁾Includes both floating- and constant-net-asset-value portfolios held in commingled structures or separate accounts.

⁽³⁾Includes real estate investment trusts, currency and commodities, including SPDR^®Gold Fund, for which State Street is not the investment manager, but acts as distribution agent.

EXCHANGE-TRADED FUNDS BY ASSET CLASS⁽¹⁾⁽²⁾



(In billions)	March 31, 2014		December 31, 2013		March 31, 2013
Alternative Investments	$	42	$	39	$	70
Cash	1		1		1
Equity	308		325		251
Fixed-income	36		34		32
Total Exchange-Traded Funds	$	387	$	399	$	354

⁽¹⁾Exchange-traded funds are a component of assets under management presented in the preceding table.

⁽²⁾Includes SPDR^®Gold Fund, for which State Street is not the investment manager, but acts as distribution agent.

GEOGRAPHIC MIX OF ASSETS UNDER MANAGEMENT⁽¹⁾



(In billions)	March 31, 2014		December 31, 2013		March 31, 2013
North America	$	1,480	$	1,456	$	1,362
Europe/Middle East/Africa	562		560		499
Asia/Pacific	339		329		315
Total	$	2,381	$	2,345	$	2,176

(In billions) September 30, 2013 December 31, 2012 September 30, 2012
United States $ 1,555
$ 1,410
$ 1,402
Other Americas⁽²⁾
1
21
16
Europe/Middle East/Africa 378
353
342
Asia/Pacific 307
302
305
Total $ 2,241
$ 2,086
$ 2,065

⁽¹⁾Geographic mix is based on ~~the~~client location ~~at which the assets are managed.~~

⁽²⁾Asor fund management location. Amounts reported as of ~~September 30,~~March 31, 2013~~, substantially all~~ were adjusted for comparative purposes to reflect realignment of ~~the assets were managed in the U.S.~~reporting.

The increase in total assets under management as of ~~September 30, 2013~~March 31, 2014 compared to December 31, ~~2012~~2013 resulted from stronger global equity ~~market valuations during the~~ ~~nine-month~~ ~~period~~markets and net new business installed, as presented in the ~~values of the assets managed, partly offset by~~following table. The net ~~lost~~new business of ~~$11~~approximately $4 billion~~. The net lost business~~ was primarily composed of $~~11 billion~~ ~~was generally composed of approximately~~ ~~$15 billion~~ ~~of net outflows from equity funds, approximately~~ ~~$6 billion~~ ~~of net outflows from ETFs and approximately~~ ~~$8 billion~~ ~~of net outflows from fixed-income and other funds, partly offset by approximately~~ ~~$18~~35 billion of net inflows, substantially into managed ~~cash.~~cash, partly offset by net outflows of $31 billion from ETF and institutional products. Outflows were primarily from passive equity funds.

The following table presents activity in assets under management for the twelve months ended ~~September 30, 2013~~March 31, 2014:

ASSETS UNDER MANAGEMENT

(In billions)
September 30, 2012 $ 2,065
Net lost business (1 )
Market appreciation⁽¹⁾
22
December 31, 2012 2,086
Net lost business (11 )
Market appreciation⁽¹⁾
166
September 30, 2013 $ 2,241

⁽¹⁾~~Amounts include the impact of foreign currency translation.~~



(In billions)
March 31, 2013	$	2,176
Net lost business	(10		)
Market appreciation	179
December 31, 2013	2,345
Net new business	4
Market appreciation	32
March 31, 2014	$	2,381

The net ~~lost~~new business of $4 billion for ~~$11 billion~~ ~~in the first nine months of~~ ~~2013~~2014 presented in the preceding table did not include $2521 billion of new asset management business, substantially all of which was awarded to SSgA in the ~~third~~first quarter of ~~2013~~2014 but not installed prior to ~~September 30, 2013~~March 31, 2014. This new business will be reflected in assets under management in future periods after installation, and will generate management fee revenue in subsequent periods.

Total assets under management as of March 31, 2014 included managed assets lost but not yet liquidated. Lost business occurs from time to time and it is difficult to predict the timing of client behavior in transitioning these assets. This timing can vary significantly.

Table of Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Trading Services

The following table summarizes the components of trading services revenue for the periods indicated:


	Quarters Ended September 30,						Nine Months Ended September 30,						Quarters Ended March 31,
(Dollars in millions)	2013		2012		% Change		2013		2012		% Change		2014		2013		% Change
Foreign exchange trading:
Direct sales and trading	$	74	$	60	23	%	$	241	$	197	22	%	$	71	$	81	(12	)%
Indirect foreign exchange trading	73		55		33		223		196		14		63		65		(3	)
Total foreign exchange trading	147		115		28		464		393		18		134		146		(8	)
Brokerage and other trading services:
Electronic foreign exchange trading	52		51		2		182		160		14		53		64		(17	)
Other trading, transition management and brokerage	57		66		(14	)	187		214		(13	)	52		71		(27	)
Total brokerage and other trading services	109		117		(7	)	369		374		(1	)	105		135		(22	)
Total trading services revenue	$	256	$	232	10		$	833	$	767	9		$	239	$	281	(15	)

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~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (Continued)~~

Trading services revenue is composed of revenue generated by foreign exchange, or FX, trading, as well as revenue generated by brokerage and other trading services. We earn FX trading revenue by acting as a principal market maker. We offer a range of FX products, services and execution models. Most of our FX products and execution services can be grouped into three broad categories, which are further explained below: “direct sales and trading FX,” “indirect FX” and “electronic FX trading.” With respect to electronic FX trading, we provide an execution venue but do not act as agent or principal.

We also offer a range of brokerage and other trading products tailored specifically to meet the needs of the global pension community, including transition management and commission recapture. In addition, we act as distribution agent for the SPDR^® Gold ETF. These products and services are generally differentiated by our ~~position~~role as an agent of the institutional investor. Revenue earned from these brokerage and other trading products and services is recorded in other trading, transition management and brokerage revenue within brokerage and other trading services revenue.

FX trading revenue is influenced by three principal factors: the volume and type of client FX ~~transactions;~~transactions and related spreads; currency volatility; and the management of market risk associated with currencies and interest rates. Revenue earned from direct sales and trading FX and indirect FX is recorded in FX trading revenue. Revenue earned from electronic FX trading is recorded in brokerage and other trading services revenue.

The ~~changes~~15% decrease in total trading services revenue infor the first quarter of ~~third quarter and first nine months of2013~~2014 compared to the ~~same periods in~~first quarter of ~~2012~~2013, composed of separate changes related to FX trading and brokerage and other trading services, is explained below.

Total FX trading revenue ~~increased~~ ~~28%~~ ~~and~~ ~~18%~~declined 8% in the ~~third~~first quarter ~~and first nine months~~ of~~2013~~ 2014 compared to the ~~same periods in~~first quarter of ~~2012~~2013, primarily the result of lower currency volatility and spreads, partly offset by higher client volumes and higher currency volatility, as well as higher spreads. Aggregate client volumes increased 18% and 32% in the quarterly and nine-month comparisons, respectively. In the same comparisons, volatility increased 12% and 8%, respectively.volumes.

We enter into FX transactions with clients and investment managers that contact our trading desk directly. These trades are all executed at negotiated rates. We refer to this activity, and our principal market-making activities, as “direct sales and trading FX.” Alternatively, clients or their investment managers may elect to route FX transactions to our FX desk through our asset-servicing operation; we refer to this activity as “indirect FX.” We execute indirect FX trades as a principal at rates disclosed to our clients. We calculate revenue for indirect FX using an attribution methodology based on estimated effective mark-ups/downs and observed client volumes. All other FX trading revenue, other than this indirect FX revenue estimate, is considered by us to be direct sales and trading FX revenue. Our clients that utilize indirect FX can, in addition to executing their FX transactions through dealers not affiliated with us, transition from indirect FX to either direct sales and trading FX execution, including our “Street FX” service that enables our clients to define their FX execution strategy and automate the FX trade execution process, in which State Street continues to act as a principal market maker, or to one of our electronic trading platforms.

~~For~~In the first quarter of ~~third quarter and first nine months of2013~~2014, our estimated indirect FX revenue ~~increased 33% and 14%, respectively. For the~~ ~~third quarter and first nine months of2013~~declined 3% compared to the ~~same periods in~~first quarter of ~~2012~~2013, and our direct sales and trading FX revenue ~~increased~~ ~~23%~~ ~~and 22%, respectively.~~declined 12%. The ~~increases~~decline in ~~all comparisons were~~estimated indirect FX revenue mainly ~~the result of higher~~resulted from lower client volumes and ~~higher~~ currency ~~volatility, as well as higher spreads.~~

~~Total brokerage and other trading services~~volatility. The decline in direct FX revenue ~~declined~~ 7% ~~and~~ 1% ~~in the~~ ~~third quarter and first nine months of2013, respectively, compared to the same periods in~~ ~~2012~~.

Our clients may choose to execute FX transactions through one of our electronic trading platforms. This service generates revenue through a “click” fee. Revenue from such electronic FX trading increased 2% ~~and~~ ~~14%~~ ~~in the~~ ~~third quarter~~ ~~and the~~ ~~first nine months of 2013~~ ~~compared to the same periods in~~ ~~2012, mainly due to increases in client volumes. In the~~ ~~third quarter and first nine months of2013, other trading, transition management and brokerage revenue declined~~ 14~~% and~~ 13~~%, respectively, compared to the same periods in 2012. The decrease in the quarterly comparison~~ mainly resulted from ~~a decline in distribution fees associated with the SPDR~~^® ~~Gold ETF, which resulted from decreases in gold prices and net outflows of ETF assets. In the nine-month comparison, the decline in distribution fees associated with the SPDR~~^®~~Gold ETF and a decline in transition management revenue contributed to the decrease. With respect to the SPDR~~^® ~~Gold ETF, fees earned~~lower currency volatility, partly offset by ~~us as distribution agent are recorded in other trading, transition management and brokerage revenue within brokerage and other trading services revenue, and not in management fee revenue.~~higher client volumes.

We continue to expect that some clients may choose, over time, to reduce their level of indirect FX transactions in favor of other execution methods, including either direct FX transactions or electronic FX trading which we provide. To the extent that clients shift to other execution methods that we provide, our FX trading revenue may decrease, even if volumes remain consistent.

Total brokerage and other trading services revenue declined 22% in the first quarter of 2014 compared to the first quarter of 2013. Our clients may choose to execute FX transactions through one

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

of our electronic trading platforms. This service generates revenue through a “click” fee. Revenue from such electronic FX trading declined 17% compared to the first quarter of 2013, mainly due to declines in client volumes.

Other trading, transition management and brokerage revenue declined 27% in the first quarter of 2014 compared to the first quarterof2013. The decrease mainly resulted from a decline in distribution fees associated with the SPDR^®Gold ETF, which resulted from lower average gold prices and net outflows from the SPDR^® Gold ETF, partially offset by a slight increase in transition management revenue. With respect to the SPDR^® Gold ETF, fees earned by us as distribution agent are recorded in other trading, transition management and brokerage revenue within brokerage and other trading services revenue, and not in management fee revenue.

Our revenue from transition management and related expenses in the first quarter of 2014, as well as in full-years 2013, 2012 and 2011, were adversely affected by compliance issues in our U.K. business, the reputational and regulatory impact of which may continue to adversely affect our transition management revenue in future periods.

Securities Finance

Our agency securities finance business consists of two principal components: an agency lending program for SSgA-managed investment funds with a broad range of investment objectives, which we refer to as the SSgA lending funds, and an agency lending program for third-party investment managers and asset owners, which we refer to as the agency lending funds.

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~~AND RESULTS OF OPERATIONS (Continued)~~

We also participate in securities lending transactions as a principal. As principal, we borrow securities from the lending client and then lend such securities to the subsequent borrower, either a State Street client or a broker/dealer. Our involvement as principal is utilized when the lending client is unable to, or elects not to, transact directly with the market and requires us to execute the transaction and furnish the securities. In our role as principal, we provide support to the transaction through our credit rating, and we have the ability to source securities through our assets under custody and administration.

Securities finance revenue earned from our agency lending activities, which is composed of our split of both the spreads related to cash collateral and the fees related to non-cash collateral, is principally a function of the volume of securities on loan, the interest-rate spreads and fees earned on the underlying collateral, and our share of the fee split.

We also participate in securities lending transactions as a principal in our enhanced custody business. As principal, we borrow securities from the lending client and then lend such securities to the subsequent borrower, either a State Street client or a broker/dealer. Our involvement as principal is utilized when the lending client is unable to, or elects not to, transact directly with the market and requires us to

execute the transaction and furnish the securities. In our role as principal, we provide support to the transaction through our credit rating. While a significant proportion of the securities furnished by us in our role as principal is sourced from third parties, we have the ability to source securities through our assets under custody and administration.

Securities finance revenue in the first quarter of ~~third~~2014 increased 9% compared to the first quarter ~~and first nine months~~ of2013, ~~securities finance~~reflective of growth in revenue ~~declined~~ ~~19%~~ ~~and~~ ~~15%, respectively, compared to the same periods~~earned in ~~2012, mainly due to lower spreads and slightly lower lending volumes. Average spreads declined 27% and~~ ~~17%~~ ~~in the~~ ~~third quarter and first nine months of2013, respectively, compared to the same periods in~~ ~~2012. Securities on loan averaged approximately~~ ~~$316 billion~~ ~~and~~ ~~$320 billion~~ ~~for the~~ ~~third quarter and first nine months of2013, respectively, compared to approximately~~ ~~$321 billion~~ ~~and~~ ~~$330 billion, respectively, for the same periods in~~ ~~2012, a 2% and~~ 3% ~~decline, respectively.~~connection with our enhanced custody business.

Market influences may continue to affect client demand for securities finance, and as a result our revenue from, and the profitability of, our securities lending activities in future periods. In addition, proposed or anticipated regulatory changes may affect the volume of our securities lending activity and related revenue and profitability in future periods.

Processing Fees and Other

Processing fees and other revenue in the first quarter of 2014 increased ~~47%~~17% ~~and~~ 3% ~~in the~~ ~~third quarter and first nine months of2013, respectively,~~ compared to the ~~same periods in~~first quarterof ~~2012~~2013. The ~~increases were~~increase was primarily the result of higher ~~fee~~ revenue associated with our investment in bank-owned life insurance. The year-to-date increase also benefited from a gain from the sale of an investment by one of our joint ventures. These increases were partly offset in both comparisons by the impact of positive fair-value adjustments recorded in ~~2012~~ ~~related to our withdrawal from our fixed-income trading initiative and hedge ineffectiveness recorded in~~ ~~2013~~.

~~NET INTEREST REVENUE~~Net Interest Revenue

Net interest revenue is defined as ~~total~~ interest revenue earned on interest-earning assets less interest expense incurred on interest-bearing liabilities. Interest-earning assets, which principally consist of investment securities, interest-bearing deposits with banks, repurchase agreements, loans and leases and other liquid assets, are financed primarily by client deposits, short-term borrowings and long-term debt. Net interest margin represents the relationship between annualized fully taxable-equivalent net interest revenue and average total interest-earning assets for the period. Revenue that is exempt from income taxes, mainly that earned from certain investment securities (state and political subdivisions), is adjusted to a fully taxable-equivalent basis using a federal statutory income tax rate of 35%, adjusted for applicable state income taxes, net of the related federal tax benefit.

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~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (Continued)~~

The following ~~tables present~~table presents the components of average interest-earning assets and average interest-bearing liabilities, related interest revenue and interest expense, and rates earned and paid, for the periods indicated:

Quarters Ended September 30,
2013 2012
(Dollars in millions; fully taxable-equivalent basis)
Average
Balance

Interest
Revenue/
Expense
Rate
Average
Balance

Interest
Revenue/
Expense
Rate
Interest-bearing deposits with banks $ 25,270
$ 29
.46 % $ 26,553
$ 31
.47 %
Securities purchased under resale agreements 5,895
8
.54
7,773
15
.72
Trading account assets 802
—
—
610
—
—
Investment securities 115,552
582
2.02
113,899
658
2.31
Loans and leases 13,859
58
1.66
11,626
58
1.99
Other interest-earning assets 11,927
1
.02
8,136
—
—
Average total interest-earning assets $ 173,305
$ 678
1.56
$ 168,597
$ 762
1.80
Interest-bearing deposits:
U.S. $ 5,735
$ 1
.06 % $ 11,624
$ 5
.14 %
Non-U.S. 99,253
16
.06
89,658
32
.14
Securities sold under repurchase agreements 8,757
—
—
7,757
—
—
Federal funds purchased 247
—
—
722
—
—
Other short-term borrowings 3,413
15
1.63
4,759
18
1.55
Long-term debt 8,824
59
2.67
6,408
52
3.20
Other interest-bearing liabilities 6,777
6
.35
6,359
4
.25
Average total interest-bearing liabilities $ 133,006
$ 97
.29
$ 127,287
$ 111
.35
Interest-rate spread 1.27 % 1.45 %
Net interest revenue—fully taxable-equivalent basis $ 581
$ 651

Net interest margin—fully taxable-equivalent basis 1.33 % 1.53 %
Tax-equivalent adjustment (35 ) (32 )
Net interest revenue—GAAP basis $ 546
$ 619

1615

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	Nine Months Ended September 30,														Quarters Ended March 31,
	2013							2012							2014							2013
(Dollars in millions; fully taxable-equivalent basis)	Average Balance		Interest Revenue/ Expense			Rate		Average Balance		Interest Revenue/ Expense			Rate		Average Balance		Interest Revenue/ Expense			Rate		Average Balance		Interest Revenue/ Expense			Rate
Interest-bearing deposits with banks	$	28,014	$	91		.43	%	$	25,776	$	108		.56	%	$	33,410	$	34		.42	%	$	30,586	$	31		.41	%
Securities purchased under resale agreements	5,799		33			.76		7,735		37			.63		6,631		9			.53		5,649		13			.95
Trading account assets	723		—			—		659		—			—		901		—			—		728		—			—
Investment securities	117,877		1,809			2.05		112,109		2,044			2.43		117,835		597			2.02		119,601		618			2.07
Loans and leases	13,537		193			1.91		11,232		184			2.19		14,602		58			1.61		12,737		56			1.77
Other interest-earning assets	10,666		4			.04		7,253		2			.03		13,527		1			.02		9,023		1			.06
Average total interest-earning assets	$	176,616	$	2,130		1.61		$	164,764	$	2,375		1.93		$	186,906	$	699		1.52		$	178,324	$	719		1.63
Interest-bearing deposits:
U.S.	$	9,006	$	10		.14	%	$	7,192	$	12		.22	%	$	12,072	$	1		.03	%	$	13,398	$	6		.19	%
Non-U.S.	100,365		68			.09		88,250		115			.17		101,282		14			.06		99,720		28			.11
Securities sold under repurchase agreements	8,358		—			—		7,828		1			.01		8,424		—			—		7,839		—			—
Federal funds purchased	303		—			—		835		—			—		20		—			—		363		—			—
Other short-term borrowings	3,894		46			1.55		4,723		54			1.53		3,909		15			1.57		4,640		16			1.42
Long-term debt	8,146		169			2.77		7,160		172			3.20		9,668		63			2.60		7,400		56			3.03
Other interest-bearing liabilities	6,517		19			.39		6,023		11			.25		6,758		7			.43		6,496		5			.31
Average total interest-bearing liabilities	$	136,589	$	312		.30		$	122,011	$	365		.40		$	142,133	$	100		.29		$	139,856	$	111		.32
Interest-rate spread						1.31	%						1.53	%						1.23	%						1.31	%
Net interest revenue—fully taxable-equivalent basis			$	1,818						$	2,010						$	599						$	608
Net interest margin—fully taxable-equivalent basis						1.38	%						1.63	%						1.30	%						1.38	%
Tax-equivalent adjustment			(100		)					(94		)					(44		)					(32		)
Net interest revenue—GAAP basis			$	1,718						$	1,916						$	555						$	576

~~For~~Average total interest-earning assets for the first ~~nine months~~quarter of ~~2013~~2014 were higher compared to the first ~~nine months~~quarter of ~~2012, average total interest-earning assets increased, mainly~~2013, the result of higher levels of cash collateral (included in other interest-earning assets in the preceding table) provided in connection with our enhanced custody business, as well as increased investment in interest-bearing deposits with banks and higher average loans and leases.

Our average other interest-earning assets associated with enhanced custody composed approximately 6% of our total average interest-earning assets for the first quarter of 2014, compared to approximately 5% for the first quarter of 2013, as this business continued to grow. While these securities finance activities support our overall profitability by generating securities finance revenue, they put downward pressure on our net interest margin, as interest on the collateral provided is earned at a lower rate than on our investment securities portfolio.

The higher level of investment in interest-bearing deposits with banks resulted from continued elevated levels of client deposits, discussed further below, while the increase in ~~purchases of~~average loans and leases resulted from growth in mutual fund lending and our investment ~~securities as well as~~ in ~~interest-bearing deposits with banks.~~ senior secured bank loans.

During the past year, our clients have continued to place elevated levels of deposits with us, as low global interest rates have made deposits attractive relative to other investment options. ~~Those~~The portion of these client deposits ~~determined to be~~classified as transient in nature ~~have~~has been placed with various central banks globally, ~~whereas~~while deposits ~~determined to be~~classified as more stable have been invested in our investment securities portfolio ~~or elsewhere~~ to support growth in other client-related activities.

~~Average loans and leases were higher in the same nine-month comparison, due to growth in short-duration advances to our mutual fund clients.~~ Higher levels of cash collateral provided in connection with our role as principal in certain securities finance activities drove other interest-earning assets higher as this business grew. While these activities support our overall profitability, they put downward pressure on our net interest margin.

Net interest revenue ~~decreased12%~~ ~~for~~declined 4% in the ~~third~~first quarter of ~~2013~~2014, and on a fully taxable-equivalent basis declined 1%, compared to the ~~third~~first quarter of ~~2012~~ ~~and~~ ~~decreased10%~~ ~~for the~~ ~~first nine months of 2013~~ ~~compared to the~~ ~~first nine months of 2012~~.2013. The decreases were ~~primarily~~generally the result of lower yields on ~~earning~~interest-earning assets, ~~related to~~as lower global interest rates ~~partly offset by lower funding costs.~~affected revenue from floating-rate assets, net of the benefit of those rates on interest expense. The ~~decreases~~decrease also reflected the continued impact of the reinvestment of ~~paydowns~~pay-downs on existing investment ~~securities in lower-yielding investment~~ securities. ~~These decreases in net interest revenue were partly offset by the impact of growth in the investment portfolio.~~

Subsequent to the commercial paper conduit consolidation in 2009,, we have recorded aggregate discount accretion in interest revenue of $~~1.87~~1.93 billion ($621 million in 2009,, $712 million in 2010,, $220 million in 2011, $215 million in 2012 ~~and~~, $~~106~~137 million in ~~the~~ ~~first nine months of~~ 2013) and $27 million in the first quarter of 2014). The timing and ultimate recognition of any applicable discount accretion depends, in part, on factors that

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

are outside of our control, including anticipated prepayment speeds and credit quality. The impact of these factors is uncertain and can be significantly influenced by general economic and financial market conditions. The timing and recognition of any applicable discount accretion can also be influenced by our ongoing management of the risks and other characteristics associated with our investment securities portfolio, including sales of securities which would otherwise generate interest revenue through accretion.

Depending on the factors discussed above, among others, we anticipate that, until the former conduit securities remaining in our investment portfolio mature or are sold, discount accretion will continue to contribute, though generally in declining amounts, to

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~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (Continued)~~

our net interest revenue. Assuming that we hold the remaining former conduit securities to maturity, all else being equal, we expect the remaining former conduit securities carried in our investment portfolio as of ~~September 30, 2013~~March 31, 2014 to generate aggregate discount accretion in future periods of approximately ~~$603~~$548 million over their remaining terms, with approximately half of this aggregate discount accretion to be recorded over the next four years.

Changes in the components of interest-earning assets and interest-bearing liabilities are discussed in more detail below. Additional detail about the components of interest revenue and interest expense is provided in note 13 to the consolidated financial statements included in this Form 10-Q.

Interest-bearing deposits with banks, which include cash balances maintained at the Federal Reserve, the European Central Bank, or ECB, and other non-U.S. central banks to satisfy reserve requirements, averaged ~~$25.27~~$33.41 billion for the quarter ended ~~third quarter of 2013~~March 31, 2014, compared to ~~$26.55~~$30.59 billion for the ~~third~~ quarter ~~of 2012. For the~~ ~~first nine months of~~ended March 31, 2013,~~, such deposits averaged~~ ~~$28.01 billion, compared to~~ ~~$25.78 billion~~ ~~for the~~ ~~first nine months of 2012. Both comparisons reflected~~ reflecting the impact of ~~the placement~~ofcontinued elevated levels of client deposits. Certain client deposits ~~which~~ were ~~determined to be~~classified as transient in nature and were placed with various central banks globally. ~~In 2013, our investment of these elevated client deposits has been diversified in part through purchases of investment securities.~~ If client deposits remain at or close to current elevated levels, we expect to continue to invest ~~client deposits~~them in either money market assets, including central bank deposits, or in investment securities, depending on our assessment of the underlying characteristics of the deposits.

~~Our average~~ AAverage investment securities ~~portfolio~~ ~~increased~~decreased to ~~$115.55~~$117.84 billion for the quarter ended ~~third quarter of 2013~~March 31, 2014 from ~~$113.90~~$119.60 billion for the ~~third~~ quarter ~~of 2012, and in the year-to-date comparison~~ ~~increased~~ to ~~$117.88 billion~~ ~~from~~ ~~$112.11 billion~~.ended March 31, 2013. The ~~increases were~~decrease was generally the result of ~~ongoing purchases of securities, partly offset by maturities, sales and paydowns. Period-end portfolio balances are more significantly influenced by~~an asset allocation shift from the ~~timing of purchases, sales and runoff; as a result, average portfolio balances are a more effective indication of trends in portfolio activity. As of~~ ~~September 30, 2013, securities rated “AAA” and “AA” represented approximately~~ ~~88%~~ ~~of our~~ investment portfolio ~~consistent~~to loans and leases. Detail with respect to the ~~composition of our~~investment portfolio as of ~~September 30, 2012~~March 31, 2014. and December 31, 2013 is provided in note 3 to the

consolidated financial statements included in this Form 10-Q.

Loans and leases averaged ~~$13.86~~$14.60 billion for the quarter ended ~~third quarter of 2013~~March 31, 2014, compared to ~~$11.63~~$12.74 billion for the ~~third~~ quarter ~~of 2012, and~~ ~~$13.54 billion~~ ~~for the~~ ~~first nine months of 2013~~, up ~~from~~ ~~$11.23 billion~~ ~~in the~~ ~~2012~~ ~~period.~~ended March 31, 2013. The ~~increases were~~increase was mainly related to mutual fund lending and our investment in senior secured bank loans, which in the aggregate averaged ~~$8.59~~$10.02 billion for the quarter ended ~~third quarter of 2013~~March 31, 2014 compared to ~~$6.32~~$8.11 billion, the latter of which was all mutual fund lending, for the ~~third~~ quarter ~~of 2012~~ended March 31, 2013.

~~. Overall, the~~Average loans and leases also include short-duration advances. The proportion of average short-duration liquidity ~~declined~~ to ~~approximately 25% of~~ our average loan-and-lease portfolio declined to approximately 24% for the quarter ended ~~third quarter of 2013~~March 31, 2014 from approximately 27% for the ~~third~~ quarter ~~of 2012~~.ended March 31, 2013. Short-duration advances provide liquidity to clients in support of their investment activities related to securities settlement.

The following table presents average U.S. and non-U.S. short-duration advances for the periods indicated:


	Quarters Ended September 30,				Nine Months Ended September 30,				Quarters Ended March 31,
(In millions)	2013		2012		2013		2012		2014		2013
Average U.S. short-duration advances	$	2,292	$	1,813	$	2,343	$	1,815	$	2,079	$	2,089
Average non-U.S. short-duration advances	1,219		1,319		1,409		1,362		1,411		1,401
Average total short-duration advances	$	3,511	$	3,132	$	3,752	$	3,177	$	3,490	$	3,490

~~The increases in average~~Average short-duration advances for the quarter ended ~~third quarter~~ ~~and~~ ~~first nine months of 2013~~ ~~compared to the~~ ~~third quarter~~ ~~and~~ ~~first nine months of 2012~~March 31, 2014 were flat compared with the quarter ended March 31, 2013. Average short-duration advances remained low, mainly the result of clients continuing to hold higher ~~trading volumes and volatility influenced by stronger overall market valuations.~~levels of liquidity.

Average other interest-earning assets increased to ~~$11.93~~$13.53 billion for the quarter ended ~~third quarter of 2013~~March 31, 2014 from ~~$8.14~~$9.02 billion for the ~~third~~ quarter ~~of 2012, and to~~ ~~$10.67 billion~~ ~~from~~ ~~$7.25 billion~~ ~~in the year-to-date comparison. These increases~~ended March 31, 2013. The increased levels were primarily the result of higher levels of cash collateral provided in connection with our ~~participation in principal securities finance transactions.~~enhanced custody business.

Aggregate average interest-bearing deposits ~~increased~~ to ~~$104.99~~were flat at $113.35 billion for the quarter ended ~~third quarter of 2013~~March 31, 2014 from ~~$101.28~~$113.12 billion for the ~~third~~ quarter ~~of 2012, and increased to~~ ~~$109.37 billion~~ ~~from~~ ~~$95.44 billion~~ ~~in the year-to-date comparison. These increases mainly reflected higher~~ended March 31, 2013. Higher levels of ~~interest-bearing demand deposit accounts, as low interest rates worldwide made deposits attractive to our clients relative to other investment options. In addition,~~ non-U.S. transaction accounts ~~associated with new and existing business in assets under custody and administration continued to grow, although there has been~~were offset by a ~~modest~~ decline in ~~non-interest bearing deposits following~~U.S. certificates of deposit, the ~~expiration of the FDIC's Transaction Account Guarantee, or TAG, program effective December 31, 2012.~~latter in connection with our liability management. Future ~~deposit~~transaction account levels will be influenced by the underlying asset servicing business, as well as market conditions, including the general levels of U.S. and non-U.S. interest rates.

Average ~~long-term debt~~ ~~increased~~other short-term borrowings declined to ~~$8.82~~$3.91 billion for the quarter ended ~~third quarter of 2013~~March 31, 2014 from ~~$6.41~~$4.64 billion for the ~~third~~ quarter ~~of 2012, and to~~ ~~$8.15 billion~~ ~~from~~ ~~$7.16 billion~~ ~~in the year-to-date comparison. The increases primarily reflected the issuance of~~ended March 31,

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AND RESULTS OF OPERATIONS (Continued)

2013, as higher levels of client deposits provided additional liquidity. Average long-term debt increased to $9.67 billion ~~of extendible notes by State Street Bank in December 2012 and~~for the ~~issuance~~quarter ended March 31, 2014 from $7.40 billion for the quarter ended March 31, 2013. The increase primarily reflected the issuances of $1.5 billion of senior and subordinated debt in May ~~2013. These increases were partly offset by maturities~~2013 and the issuance of ~~$1.75~~$1.0 billion of senior debt in ~~the second quarter of 2012.~~November 2013.

Average other interest-bearing liabilities increased to $6.76 billion for the quarter ended ~~increased~~March 31, 2014 tofrom $~~6.78~~6.50 billion for the ~~third~~ quarter ofended March 31, 2013, ~~from~~ ~~$6.36 billion~~ ~~for the~~ ~~third quarter of 2012~~ ~~and to~~ ~~$6.52 billion~~ ~~from~~ ~~$6.02 billion~~ ~~in the year-to-date comparison,~~ primarily the result of higher levels of cash collateral received from clients in connection with our ~~participation in principal securities finance transactions.~~enhanced custody business.

Several factors could affect future levels of our net interest revenue and margin, including the mix of client liabilities; actions of various central banks; changes in U.S. and non-U.S. interest rates; changes in the various yield curves around the world; revised or proposed regulatory capital or liquidity standards, or interpretations of those standards; the amount of discount accretion generated by the former conduit securities that remain in our investment securities portfolio; and the yields earned on securities purchased compared to the yields earned on securities sold or matured.

Based on market conditions and other factors, we continue to reinvest the majority of the proceeds from ~~paydowns~~pay-downs and maturities of investment securities in highly-rated securities, such as U.S. Treasury and agency securities, federal agency mortgage-backed securities and U.S. and non-U.S. mortgage- and asset-backed securities. The pace at which we continue to reinvest and the types of investment securities purchased will depend on the impact of market conditions and other factors over time. We expect these factors and the levels of global interest rates to ~~dictate~~influence what effect our reinvestment program will have on future levels of our net interest revenue and net interest margin.

Gains (Losses) Related to Investment Securities, Net

The following table presents net realized gains from sales of available-for-sale securities and the components of net impairment losses, included in net gains and losses related to investment securities, for the periods indicated:



	Quarters Ended March 31,
(In millions)	2014			2013
Net realized gains from sales of available-for-sale securities	$	15		$	5
Net impairment losses:
Gross losses from other-than-temporary impairment	(1		)	—
Losses reclassified (from) to other comprehensive income	(8		)	(3		)
Net impairment losses⁽¹⁾	(9		)	(3		)
Gains (losses) related to investment securities, net	$	6		$	2

⁽¹⁾ Net impairment losses, recognized in our consolidated statement of income, were composed of the following:
Impairment associated with expected credit losses	$	(9	)	$	—
Impairment associated with adverse changes in timing of expected future cash flows	—			(3		)
Net impairment losses	$	(9	)	$	(3	)

Quarters Ended September 30, Nine Months Ended September 30,
(In millions) 2013 2012 2013 2012
Net realized gains from sales of available-for-sale securities $ 6
$ 24
$ 11
$ 29
Losses from other-than-temporary impairment (8 ) (4 ) (8 ) (50 )
Losses reclassified (from) to other comprehensive income (2 ) (2 ) (12 ) 23
Net impairment losses recognized in consolidated statement of income (10 ) (6 ) (20 ) (27 )
Gains (losses) related to investment securities, net $ (4 ) $ 18
$ (9 ) $ 2
Impairment associated with expected credit losses (8 ) (1 ) (8 ) (14 )
Impairment associated with management’s intent to sell impaired securities prior to recovery in value —
—
(6 ) —
Impairment associated with adverse changes in timing of expected future cash flows (2 ) (5 ) (6 ) (13 )
Net impairment losses recognized in consolidated statement of income $ (10 ) $ (6 ) $ (20 ) $ (27 )

From time to time, in connection with our ongoing management of our investment securities portfolio, we sell available-for-sale securities to manage risk, to take advantage of favorable market conditions, or for other reasons. In the first ~~nine months~~quarter of ~~2013~~,2014, we sold approximately $~~8.09~~1.82 billion of such investment securities, compared to approximately $2.75 billion in the first quarter of 2013, and recorded net realized gains of $1115 million~~. In the~~ and ~~first nine months of 2012~~$5 million, ~~we sold approximately~~ ~~$4.21 billion~~ ~~of such investment securities and recorded net realized gains of~~ ~~$29 million~~.

~~The net realized gains recorded~~respectively, as presented in the ~~first nine months of 2012~~ ~~reflected a loss of~~ ~~$46 million~~ ~~from the second-quarter sale of all of our Greek investment securities, which had an aggregate carrying value of approximately~~ ~~$91 million~~. These securities, which were previously classified as held to maturity, were sold as a result of the effect of significant deterioration in the creditworthiness of the underlying collateral, including significant downgrades of the securities' external credit ratings.preceding table.

We regularly review our investment securities portfolio to identify other-than-temporary impairment of individual securities. Additional information about investment securities, the gross gains and losses that compose the net gains from sales of securities and other-than-temporary impairment is provided in note 3 to the consolidated financial statements included in this Form 10-Q.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

~~EXPENSES~~

Expenses

The following table presents the components of expenses for the periods indicated:


	Quarters Ended September 30,							Nine Months Ended September 30,							Quarters Ended March 31,
(Dollars in millions)	2013		2012			% Change		2013		2012			% Change		2014		2013			% Change
Compensation and employee benefits	$	903	$	916		(1	)%	$	2,855	$	2,922		(2	)%	$	1,157	$	1,035		12	%
Information systems and communications	235		211			11		707		610			16		244		237			3
Transaction processing services	185		170			9		551		523			5		191		180			6
Occupancy	113		115			(2	)	343		349			(2	)	114		116			(2	)
Claims resolution	—		(362		)			—		(362		)
Acquisition costs	18		13					52		41					21		15
Restructuring charges, net	12		15					22		45					12		(1		)
Other:
Professional services	98		89			10		280		266			5		105		79			33
Amortization of other intangible assets	53		46			15		160		145			10		54		53			2
Securities processing costs	14		2					24		26					23		5
Regulator fees and assessments	23		15					55		44
Regulatory fees and assessments															19		15
Other	68		185			(63	)	297		413			(28	)	88		92			(4	)
Total other	256		337			(24	)	816		894			(9	)	289		244			18
Total expenses	$	1,722	$	1,415		22		$	5,346	$	5,022		6		$	2,028	$	1,826		11
Number of employees at period-end	29,230		29,650
Number of employees as of quarter-end															29,530		29,500

Expenses

Total expenses ~~for~~in the ~~third~~first quarter ~~and~~ ~~first nine months~~ of ~~2013~~2014 increased ~~22%~~11% ~~and~~ 6%~~, respectively,~~ compared to the ~~third quarter and~~ first ~~nine months of 2012.~~

~~Total expenses for the~~ ~~third~~ quarter of ~~2013~~ ~~reflected aggregate credits of~~ ~~$30 million~~ ~~in other expenses, presented in "other" in the table above, related to gains and recoveries associated with Lehman Brothers-related assets. Total expenses for the~~ ~~first nine months of 2013~~ ~~reflected aggregate credits of $57 million (the~~ ~~$30 million~~ described above plus an additional $27 million recorded in the second quarter of 2013) in other expenses, presented in "other" in the nine-month table above, related to recoveries associated with Lehman Brothers-related assets.2013.

~~Total expenses for the~~ ~~third quarter of 2012~~ ~~reflected a net credit of~~ ~~$277 million, composed of recoveries of~~ ~~$362 million~~ ~~associated with the 2008 Lehman Brothers bankruptcy, presented separately in the table above, partly offset by provisions for litigation exposure and other costs of~~ ~~$85 million, the latter presented in "other" in the table above.~~

~~Excluding the credits of~~ ~~$30 million~~ ~~and~~ ~~$277 million~~ ~~recorded in the third quarters of 2013 and 2012, respectively, as well as the aggregate credits of $57 million recorded in the~~ ~~first nine months of 2013, total expenses in the quarterly and nine-month comparisons increased~~ 4% ~~and~~ ~~2%,~~ ~~respectively.~~

The ~~declines~~12% increase in compensation and employee benefits expenses in ~~both comparisons primarily resulted from lower staffing levels and associated savings related~~the first quarter of 2014 compared to the ~~execution~~first quarter of 2013 was primarily due to the severance costs of $72 million, more fully described below, recorded in the first quarter of 2014, higher incentive compensation, and costs for additional staffing associated with the installation of new business and added regulatory and compliance requirements. Compensation and employee benefits expenses in the first quarter of 2014 and the first quarter of 2013 included approximately $146 million and $118 million, respectively, associated with seasonal deferred incentive compensation expense for retirement-eligible employees and payroll taxes.

These increases were partly offset by savings generated from the implementation of our Business Operations and Information Technology Transformation ~~program and lower benefit~~program.

In the first quarter of 2014, we recorded $72 million of severance costs ~~partly offset by expenses~~associated with staff reductions. These reductions were undertaken in connection with the realignment of our cost base to support ~~new business~~our investments in growth opportunities and ~~higher incentive compensation.~~ meet evolving regulatory requirements.

Compensation and employee benefits expenses in the ~~third~~first quarter ~~and~~ ~~first nine months~~ of ~~2013~~2014 included approximately $2212 million ~~and~~ ~~$64 million, respectively,~~ of costs related to ~~our continuing execution~~the implementation of ~~the~~our Business Operations and Information Technology Transformation program, compared to approximately $2223 million ~~and~~in the first quarter of ~~$62 million, respectively, for the same periods in~~ ~~2012~~2013. These costs are not expected to recur subsequent to full ~~execution~~implementation of the ~~program.~~program, planned for the end of 2014.

The ~~increases~~3% increase in information systems and communications expenses in the ~~third~~first quarter ~~and~~ ~~first nine months~~ of ~~2013~~2014 compared to the ~~same periods in~~first quarter of ~~2012~~2013 ~~were~~was primarily the result of the planned transition of certain functions to third-party service providers ~~associated with components of our technology infrastructure and application maintenance and support,~~ as part of the Business Operations and Information Technology Transformation program, ~~as well as~~and costs to support new business.

Additional information with respect to the impact of the Business Operations and Information Technology Transformation program on future compensation and employee benefits and information systems and communications expenses is provided in the following “Restructuring Charges” section.

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~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (Continued)~~

The ~~increases~~6% increase in transaction processing services expenses in the ~~third~~first quarter ~~and~~ ~~first nine months~~ of ~~2013~~2014 compared to the ~~same periods in~~first quarter of ~~2012~~2013 ~~generally~~primarily reflected higher equity market values and higher transaction volumes in the ~~asset~~investment servicing business.

The ~~decreases~~18% increase in otherexpenses in the ~~third~~first quarter ~~and~~ ~~first nine months~~ of ~~2013~~2014 compared to the ~~same periods in~~first quarter of ~~2012~~2013 ~~were mainly~~was primarily the result of a ~~decline in litigation-related provisions. In addition, other expenses for the~~ ~~third quarter~~ ~~and~~ ~~first nine months of 2013~~ reflected the above-described credits associated with Lehman Brothers-related assets. These credits were partly offset by higher professional services fees, the addition of amortization of other intangible assets associated with the GSAS acquisition, which was completed in October 2012, and, in the quarterly comparison, a higher level of professional services associated with regulatory compliance, as well as securities processing ~~costs.~~costs associated with our transition management business. Additional information about transition management is provided under “Highlights” in this Management's Discussion and Analysis and in note 8 to the consolidated financial statements included in this Form 10-Q.

Acquisition Costs

~~For~~In the first quarter of 2014, we recorded acquisition costs of ~~third quarter~~$21 million ~~and~~compared to $15 million in the first quarter of ~~first nine months of~~ 2013, ~~we incurred acquisition costs~~with both amounts related to previously disclosed acquisitions, mainly

our October 2012. acquisition of Goldman Sachs Administration Services.

Restructuring Charges

Information with respect to our Business Operations and Information Technology Transformation program and our ~~2011~~ ~~and~~ 2012 expense control measures, including charges, employee reductions and aggregate activity in the related accruals, is provided in the following sections.

Business Operations and Information Technology Transformation Program

In November 2010, we announced a global multi-year Business Operations and Information Technology Transformation program. The program includes operational, information technology and targeted cost initiatives, including plans related to reductions in both staff and occupancy costs.

With respect to our business operations, we are standardizing certain core business processes,

primarily through our execution of the State Street Lean methodology, and driving automation of these business processes. We are currently creating a new technology platform, including transferring certain core software applications to a private cloud, and have expanded our use of third-party service providers associated with components of our information technology infrastructure and application maintenance and support. We ~~expect~~transferred the ~~transfer~~majority of our core software applications to a private cloud ~~to occur primarily~~ in 2013, and we expect to transfer the remaining core software applications in 2014.

To implement this program, we expect to incur aggregate pre-tax restructuring charges of approximately $400 million to $450 million over the four-year period ending December 31, 2014. To date, we have recorded aggregate restructuring charges of $~~375~~390 million in our consolidated statement of income, as presented in the following table by type of cost:

Employee-related costs included severance, benefits and outplacement services. Real estate consolidation costs resulted from actions taken to reduce our occupancy costs through the consolidation of leases and properties. Information technology costs included transition fees related to the above-described expansion of our use of third-party service providers.

In 2010, in connection with the program, we initiated the involuntary termination of 1,400 employees, or approximately 5% of our global workforce, which we ~~had substantially~~ completed by the end of ~~2011~~.2011. In addition, in connection with our announcement in 2011 of the expansion of our use of third-party service providers associated with our information technology infrastructure and application maintenance and support, as well as the continued ~~execution~~implementation of the business operations transformation component of the program, we ~~have~~ identified ~~1,234~~1,436 additional involuntary ~~terminations and role eliminations, including~~ ~~263~~ ~~in the~~ ~~first nine months of 2013~~.terminations. As of ~~September 30, 2013~~March 31, 2014, we ~~have~~ eliminated ~~1,168~~1,375 of these positions.

In connection with the continuing ~~execution~~implementation of the program, we achieved ~~approximately~~ ~~$86 million~~ ~~of pre-tax expense savings in~~ ~~2011, and~~ incremental pre-tax expense savings of approximately ~~$112~~$220 million in 2013, $112 million in

2012, and $86 million in 2011, in each case compared to our 2010 ~~total~~ expenses from ~~operations. As of~~ ~~December 31, 2012, we have achieved total~~operations, all else being equal. We expect to achieve additional pre-tax expense savings in 2014 of approximately ~~$198~~$130 million.

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~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (Continued)~~

~~million~~ ~~since the program's inception in~~ ~~2010. Incremental~~These pre-tax expense savings relate only to ~~be achieved~~the Business Operations and Information Technology Transformation program and are based on projected improvement from our total 2010 expenses from operations, all else being equal. Our actual total expenses have increased since 2010, and may in ~~2013~~ ~~are forecasted~~the future increase or decrease, due to ~~be approximately~~ ~~$220 million~~.other factors. The majority of the annual savings have affected compensation and employee benefits expenses. These savings have been modestly offset by increases in information systems and communications expenses.

Excluding the expected aggregate restructuring charges of $400 million to $450 million described earlier, we expect the program to reduce our pre-tax expenses from operations, on an annualized basis, by approximately $575 million to $625 million by the end of 2014 compared to 2010, all else being equal, with the full effect to be realized in 2015. We expect the business operations transformation component of

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

the program to result in approximately $450 million of these savings ~~with the majority of these savings expected to be achieved by the end of~~ ~~2013. In addition, we expect~~and the information technology transformation component of the program to result in approximately $150 million of ~~savings.~~

~~These pre-tax savings relate only to the Business Operations and Information Technology Transformation program and are based on projected improvement from our total~~ ~~2010~~ ~~expenses from operations. Our actual total expenses have increased since~~ ~~2010~~, and may in the future increase or decrease, due to other factors. The majority of the annual savings will affect compensation and employee benefits expenses. These savings will be modestly offset by increases in information systems and communications expenses as we execute the program.

~~2011 Expense Control Measures~~

~~In the fourth quarter of~~ ~~2011, in connection with expense control measures designed to calibrate our expenses to our outlook for our capital markets-facing businesses in~~ ~~2012~~, we took two actions. First, we withdrew from our fixed-income trading initiative, in which we traded in fixed-income securities and derivatives as principal with our custody clients and other third-parties that trade in these ~~securities and derivatives. Second, we undertook other targeted staff reductions. As a result of these actions, we recorded aggregate pre-tax restructuring charges and credits of~~ ~~$119 million~~ ~~in our consolidated statement of income, as presented in the following table by type of cost:~~

(In millions)
Employee-Related
Costs
Fixed-Income Trading Portfolio Asset and Other Write-Offs Total
2011 $ 62
$ 38
$ 20
$ 120
2012 3
(9 ) 5
(1 )
Total $ 65
$ 29
$ 25
$ 119

~~Employee-related costs included severance, benefits and outplacement services. We identified~~ ~~442~~ ~~employees to be involuntarily terminated as their roles were eliminated. As of~~ ~~September 30, 2013, we had substantially completed these reductions.~~

Costs for the fixed-income trading portfolio resulted primarily from fair-value adjustments to the initiative's trading portfolio related to our decision to withdraw from the initiative. In connection with our withdrawal, in ~~2012, we wound down that initiative's remaining trading portfolio. Costs for asset and other write-offs were related to asset write-downs and contract terminations.~~savings.

2012 Expense Control Measures

In the fourth quarter of 2012, in connection with expense control measures designed to better align

our expenses to our business strategy and related outlook for 2013, we identified additional targeted staff reductions. As a result of these actions, we have recorded aggregate pre-tax restructuring charges of $~~136~~139 million in our consolidated statement of income, as presented in the following table by type of cost:

⁽¹⁾ ~~Total charges included~~ ~~$1 million~~ ~~in the~~ ~~third quarter of 2013~~.

Employee-related costs included severance, benefits and outplacement services. Costs for asset and other write-offs were primarily related to contract terminations. We originally identified involuntary terminations ~~and role eliminations~~ of 960 employees (630 positions after replacements). As of ~~September 30, 2013~~March 31, 2014, ~~720~~ ~~positions had been eliminated through voluntary and involuntary terminations.~~we substantially completed these reductions.

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~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (Continued)~~

Aggregate Restructuring-Related Accrual Activity

The following table presents aggregate activity associated with accruals that resulted from the charges associated with the Business Operations and Information Technology Transformation program and ~~the 2011 and 2012~~ expense control measures:

Information Technology

~~INCOME TAX EXPENSE~~

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Income Tax Expense

Income tax expense was ~~$163~~$92 million in the ~~third~~first quarter of ~~2013~~2014 compared to ~~$267~~$145 million in the ~~third~~first quarter of ~~2012~~2013. ~~In the~~ ~~first nine months of 2013~~ ~~and~~ ~~2012, income tax expense was~~ ~~$491 million~~ ~~and~~ ~~$588 million, respectively.~~ Our effective tax rate ~~for~~in the first ~~nine months~~quarter of ~~2013~~2014 was ~~23.7%~~20.3%, compared to ~~27.0%~~23.8% for the same period in ~~first nine months of 2012~~2013, with the decline ~~mainly the result of the tax effect of the net credit related to recoveries~~primarily associated with ~~the 2008 Lehman Brothers bankruptcy, which was reflected~~our expansion of our tax-exempt investment securities portfolio and an increase in ~~results of operations as additional income tax expense in the third quarter of 2012.~~tax-advantaged investments, primarily renewable energy.

LINE OF BUSINESS INFORMATION

We have two lines of business: Investment Servicing and Investment Management. Given our services and management organization, the results of operations for these lines of business are not necessarily comparable with those of other companies, including companies in the financial services industry. Information about our two lines of business, as well as the revenues, expenses and capital allocation methodologies associated with

them, is provided in note 2425 to the consolidated financial statements included in our ~~2012~~2013 Form 10-K.

The following ~~tables provide~~table provides a summary of our ~~line of business~~line-of-business results for the periods indicated. The “Other” column for the first quarter of ~~third quarter and first nine months of2013~~2014 included ~~net~~$72 million of severance costs associated with staff reductions; $33 million of acquisition and restructuring ~~costs~~costs; and $6 million of ~~$30 million~~ ~~and~~ ~~$74 million, respectively, and certain~~net provisions for litigation exposure and other ~~costs~~costs. The “Other” column for the first quarter of ~~$5 million~~ ~~and~~ ~~$20 million, respectively. The~~ ~~third quarter and first nine months of2012~~2013 included ~~the~~ ~~$362~~$14 million ~~credit related to recoveries associated with the 2008 Lehman Brothers bankruptcy, as well as certain provisions for litigation exposure and other costs~~ of~~$85 million~~ ~~and~~ ~~$107 million, respectively, and~~ net acquisition and restructuring ~~costs of~~ ~~$28 million~~ ~~and~~ ~~$86 million, respectively. In addition, the~~ ~~first nine months of2012~~ ~~included the net realized loss from the sale of all of our Greek investment securities.~~costs. The amounts in the

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~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (Continued)~~

~~“Other”~~ “Other” columns were not allocated to State Street's business lines. Results for ~~2012~~2013 reflect reclassifications, for comparative purposes, related to management changes in ~~methodology~~methodologies associated with ~~funds transfer pricing~~allocations of revenue and ~~expense allocation~~expenses reflected in line-of-business results for ~~2013~~2014.

Investment Servicing

Total revenue and total fee revenue in the first quarter of 2014 for our Investment Servicing line of business, as presented in the preceding table, increased 2% and 3%, respectively, compared to the first quarter of 2013. The 3% increase in total fee revenue mainly resulted from increases in servicing fees, securities finance revenue, and processing fees and other revenue, partly offset by a decline in trading services revenue.

Servicing fees in the first quarter of 2014 increased 5% compared to the first quarter of 2013,

primarily the result of stronger global equity markets and the revenue impact of net new business installed.

Trading services revenue in the first quarter of 2014 declined 12% compared to the first quarter of 2013, mainly due to lower currency volatility and spreads, partly offset by increases in client volumes, in foreign exchange trading, and lower client volumes in electronic trading.

Securities finance revenue in the first quarter of 2014 increased 9% compared to the first quarter of 2013, primarily the result of higher revenue in our growing enhanced custody business. Processing fees and other revenue in the first quarter of 2014

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Nine Months Ended September 30,

Investment
Servicing

Investment
Management
Other Total
(Dollars in millions, except where otherwise noted) 2013 2012 % Change 9 mos. 2013 vs. 9 mos. 2012 2013 2012 % Change 9 mos. 2013 vs. 9 mos. 2012 2013 2012 2013 2012
Fee revenue:
Servicing fees $ 3,587
$ 3,264
10 % $ —
$ —

$ —
$ —
$ 3,587
$ 3,264
Management fees —
—

816
733
11 % —
—
816
733
Trading services 778
695
12
55
72
(24 ) —
—
833
767
Securities finance 255
296
(14 ) 28
35
(20 ) —
—
283
331
Processing fees and other 181
183
(1 ) 11
4
175
—
—
192
187
Total fee revenue 4,801
4,438
8
910
844
8
—
—
5,711
5,282
Net interest revenue 1,655
1,858
(11 ) 63
58
9
—
—
1,718
1,916
Gains (losses) related to investment securities, net (9 ) 48

—
—

—
(46 ) (9 ) 2
Total revenue 6,447
6,344
2
973
902
8
—
(46 ) 7,420
7,200
Provision for loan losses —
(1 )

—
—

—
—
—
(1 )
Total expenses 4,628
4,537
2
624
654
(5 ) 94
(169 ) 5,346
5,022
Income before income tax expense $ 1,819
$ 1,808
1
$ 349
$ 248
41
$ (94 ) $ 123
$ 2,074
$ 2,179
Pre-tax margin 28 % 28 % 36 % 27 % 28 % 30 %
Average assets (in billions) $ 201.9
$ 187.2
$ 3.8
$ 3.8
$ 205.7
$ 191.0

~~Investment Servicing~~

~~Total revenue in the~~ ~~third quarter and first nine months of 2013~~ ~~for our Investment Servicing line of business, as presented in the preceding tables,~~ increased3% 25% compared to the ~~third~~first quarter of~~2012~~ ~~and~~ ~~increased~~2% ~~in the~~ ~~nine-month~~ ~~comparison. Total fee revenue~~ ~~increased11%~~ ~~and~~ 8%2013, respectively, in the same comparisons. The increase in total fee revenue in the quarterly comparison generally resulted from increases in servicing fees, trading services revenue and processing fees and other revenue, partly offset by a decline in securities finance revenue. The increase in the ~~nine-month~~ ~~comparison mainly resulted from increases in servicing fees and trading services revenue, partly offset by a decline in securities finance revenue.~~

~~Servicing fees in both the~~ ~~third quarter and first nine months of 2013increased10%~~ ~~compared to the same periods in~~ ~~2012. The increase~~ primarily ~~resulted from stronger global equity markets, the addition of revenue from the October 2012 GSAS acquisition and the impact of net new business installed on current-period revenue.~~

~~Trading services revenue in the~~ ~~third quarter and first nine months of 2013increased16%~~ ~~and~~ ~~12%, respectively, compared to the same periods in~~ ~~2012, mainly~~ due to higher ~~foreign exchange trading revenue associated with higher client volumes and higher currency volatility, as well as higher spreads.~~

~~Processing fees and other revenue in the~~ ~~third quarter of 2013increased58%~~ ~~compared to the~~ ~~third quarter of 2012, with the increase mainly due to higher fee~~ revenue associated with our investment in bank-owned life insurance. ~~The~~ ~~nine-month~~ ~~comparison showed a slight decline, as the fee revenue from bank-owned life insurance was offset by the impact of positive fair-value adjustments recorded in~~ ~~2012~~ ~~related to our withdrawal from our fixed-income trading initiative and hedge ineffectiveness recorded in~~ ~~2013~~.

~~Securities finance revenue in both the~~ ~~third quarter and first nine months of 2013~~ ~~decreased compared to the same periods in~~ ~~2012, primarily as a result of lower spreads and slightly lower lending volumes.~~

Servicing fees, securities finance revenue, and ~~net~~ gains (losses) related to investment securities, net, for our Investment Servicing business line are identical to the respective consolidated results. Refer to “Servicing Fees,” “Securities Finance Revenue,” and “Gains (Losses) Related to Investment Securities, Net” under “Total Revenue” in this ~~Management's~~Management’s Discussion and Analysis for a more in-depth discussion. ~~A discussion~~Discussions of trading services ~~revenue, securities finance revenue~~ and processing fees and other revenue isare provided ~~under~~in “Trading ~~Services,” “Securities Finance”~~Services” and “Processing Fees and Other” inunder “Total Revenue.”

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~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (Continued)~~

Net interest revenue in the ~~third~~first quarter ~~and first nine months~~ of ~~2013~~2014 decreased~~12%~~ ~~and~~ ~~11%, respectively,~~ 3% compared to the ~~same periods in~~first quarter of ~~2012~~2013. The decrease was primarily ~~driven by~~due to the impact of lower yields on ~~earning~~interest-earning assets, ~~related to~~as lower global interest rates ~~partly offset by lower funding costs.~~affected revenue from floating-rate assets, net of the benefit of these rates on interest expense. The decrease also reflected the continued impact of the reinvestment of ~~paydowns~~pay-downs on existing ~~investment securities in lower-yielding~~ investment securities. A discussion of net interest revenue is provided under ~~"Net~~“Net Interest ~~Revenue"~~Revenue” in ~~"Total~~“Total Revenue."”

Total expenses in the first quarter of ~~third quarter and first nine months of 2013increased~~3%2014 ~~and~~increased 2%5%~~, respectively,~~ compared to the ~~same periods in~~first quarter of ~~2012~~2013. ~~Both comparisons reflected declines in compensation~~Compensation and employee benefits expenses increased, primarily ~~driven by savings~~due to higher incentive compensation, and higher costs associated with the ~~execution~~installation of new business and additional regulatory and compliance requirements. The increase was partly offset by savings generated from the continued implementation of our Business Operations and Information Technology Transformation ~~program and lower benefit costs, partly offset by an increase in costs to support new business and higher incentive compensation.~~program.

Information systems and communications expenses ~~also~~ increased, ~~in both comparisons,~~ primarily ~~the result of~~due to the planned transition of certain functions to third-party service providers, as well as higher maintenance costs associated with ~~components of our~~the new technology ~~infrastructure and application maintenance and support~~implemented as part of the Business Operations and Information Technology Transformation ~~program, as well as costs to support new business.~~

program. Transaction processing services expenses increased in the same ~~comparisons,~~comparison, primarily reflective of higher equity market values and higher transaction volumes in the asset servicing business.

Other expenses increased, ~~in both comparisons, mainly~~primarily the result of ~~the addition of amortization of other intangible assets~~higher professional services costs associated with ~~the GSAS acquisition and higher regulator fees and assessments, including the new Federal Reserve supervisory assessment fee.~~regulatory compliance. A more detailed discussion of expenses is provided under ~~"Expenses"~~“Expenses” in ~~"Consolidated~~“Consolidated Results of Operations."”

Investment Management

Total revenue and total fee revenue in the first quarter of ~~third quarter and first nine months of 2013~~2014 for our Investment Management line of business, as presented in the preceding ~~tables,~~ table, both increased3% 4% compared to the ~~third~~first quarter of ~~2012~~ ~~and~~ 2013~~increased~~8%. The increase in ~~the~~ ~~nine-month~~ ~~comparison. Total~~total fee revenue ~~increased~~3% ~~and~~ 8%~~, respectively, in the same comparisons,~~was generally reflective of an increase in management ~~fees.~~fees, partly offset by a decline in trading services revenue.

Management fees in the ~~third~~first quarter ~~and first nine months~~ of ~~2013~~2014 increased~~10%~~ ~~and~~ 11%~~, respectively,~~ compared to the first quarter of 2013, primarily due to stronger global equity markets. Trading services revenue declined 50% in the same ~~periods in~~ ~~2012. The increase primarily resulted from stronger equity market valuations and~~comparison, mainly due to the impact of lower distribution fees associated with the SPDR^® Gold ETF, which resulted from lower average gold prices and net ~~new business installed on current-period revenue.~~ outflows from the SPDR^® Gold ETF.

Management fees for the Investment Management business line are identical to the respective consolidated results. Refer to “Management Fees” in “Total Revenue” in this Management's Discussion and Analysis for a more in-depth discussion.

~~Trading~~ A discussion of trading services revenue ~~decreased~~is provided under “Trading Services” in ~~the~~ ~~third quarter and first nine months of 2013~~ ~~compared to the same periods in~~ ~~2012, reflecting the impact of lower distribution fees associated with the SPDR~~^® ~~Gold ETF, which resulted from decreases in gold prices and net outflows of ETF assets.~~“Total Revenue.”

Total expenses in the first quarter of ~~third quarter and first nine months of 2013decreased~~7%2014 ~~and~~increased 5%10%~~, respectively,~~ compared to the ~~same periods in~~first quarter of ~~2012~~2013, mainly reflective of ~~third-quarter~~ ~~2013~~ ~~credits associated with Lehman Brothers-related assets, partly offset by~~ higher ~~professional services fees.~~incentive compensation, higher sales promotion expenses, and an increase in technology-related contractors.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

FINANCIAL CONDITION

The structure of our consolidated statement of condition is primarily driven by the liabilities generated by our Investment Servicing and Investment Management lines of business. Our clients' needs and our operating objectives determine balance sheet volume, mix, and currency denomination. As our clients execute their worldwide cash management and investment activities, they utilize short-term investments and deposits that constitute the majority of our liabilities. These liabilities are generally in the form of non-interest-bearing demand deposits; interest-bearing transaction account deposits, which are denominated in a variety of currencies; and repurchase agreements, which generally serve as short-term investment alternatives for our clients.

Deposits and other liabilities generated by client activities are invested in assets that generally match the liquidity and interest-rate characteristics of the liabilities, although the weighted-average maturities of our assets are significantly longer than the contractual maturities of our liabilities. Our assets consist primarily of securities held in our available-for-sale or held-to-maturity portfolios and short-duration financial instruments, such as interest-bearing deposits and securities purchased under resale agreements. The actual mix of assets is determined by the characteristics of the client liabilities and our desire to maintain a well-diversified portfolio of high-quality assets.

The following table presents the components of our average total interest-earning and noninterest-earning assets, average total interest-bearing and noninterest-bearing liabilities, and average preferred and common shareholders' equity for the ~~nine months~~quarters ended ~~September 30, 2013~~March 31, 2014 and ~~2012~~.2013. Additional

information about our average statement of condition, primarily our

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~~AND RESULTS OF OPERATIONS (Continued)~~

interest-earning assets and interest-bearing liabilities, is included under “Consolidated Results of Operations - Total Revenue - Net Interest Revenue” in this Management's Discussion and Analysis.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Investment Securities

The following ~~table presents~~tables present the carrying values of investment securities by type as of the dates indicated:

(In millions) September 30, 2013 December 31, 2012
Available for sale:
U.S. Treasury and federal agencies:
Direct obligations $ 738
$ 841
Mortgage-backed securities 24,575
32,212
Asset-backed securities:
Student loans⁽¹⁾
14,871
16,421
Credit cards 8,626
9,986
Sub-prime 1,266
1,399
Other 4,901
4,677
Total asset-backed securities 29,664
32,483
Non-U.S. debt securities:
Mortgage-backed securities 11,001
11,405
Asset-backed securities 5,467
6,218
Government securities 3,541
3,199
Other 4,600
4,306
Total non-U.S. debt securities 24,609
25,128
State and political subdivisions 9,298
7,551
Collateralized mortgage obligations 5,158
4,954
Other U.S. debt securities 5,045
5,298
U.S. equity securities 39
31
Non-U.S. equity securities 2
1
U.S. money-market mutual funds 680
1,062
Non-U.S. money-market mutual funds 174
121
Total $ 99,982
$ 109,682
Held to Maturity:
U.S. Treasury and federal agencies:
Direct obligations $ 5,003
$ 5,000
Mortgage-backed securities 100
153
Asset-backed securities:
Student loans⁽¹⁾
1,502
—
Credit cards 531
—
Other 818
16
Total asset-backed securities 2,851
16
Non-U.S. debt securities:
Mortgage-backed securities 4,109
3,122
Asset-backed securities 1,486
434
Government securities 16
3
Other 190
167
Total non-U.S. debt securities 5,801
3,726
State and political subdivisions 61
74
Collateralized mortgage obligations 2,882
2,410
Total $ 16,698
$ 11,379



(In millions)	March 31, 2014		December 31, 2013
Available for sale:
U.S. Treasury and federal agencies:
Direct obligations	$	1,963	$	709
Mortgage-backed securities	23,092		23,563
Asset-backed securities:
Student loans⁽¹⁾	14,280		14,542
Credit cards	7,237		8,210
Sub-prime	1,155		1,203
Other	4,880		5,064
Total asset-backed securities	27,552		29,019
Non-U.S. debt securities:
Mortgage-backed securities	11,196		11,029
Asset-backed securities	4,994		5,390
Government securities	3,692		3,761
Other	4,984		4,727
Total non-U.S. debt securities	24,866		24,907
State and political subdivisions	10,444		10,263
Collateralized mortgage obligations	5,262		5,269
Other U.S. debt securities	4,946		4,980
U.S. equity securities	36		34
Non-U.S. equity securities	1		1
U.S. money-market mutual funds	993		422
Non-U.S. money-market mutual funds	7		7
Total	$	99,162	$	99,174



(In millions)	March 31, 2014		December 31, 2013
Held to Maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	5,096	$	5,041
Mortgage-backed securities	81		91
Asset-backed securities:
Student loans⁽¹⁾	1,889		1,627
Credit cards	897		762
Other	738		782
Total asset-backed securities	3,524		3,171
Non-U.S. debt securities:
Mortgage-backed securities	4,323		4,211
Asset-backed securities	2,399		2,202
Government securities	2		2
Other	192		192
Total non-U.S. debt securities	6,916		6,607
State and political subdivisions	16		24
Collateralized mortgage obligations	2,709		2,806
Total	$	18,342	$	17,740

⁽¹⁾Substantially composed of securities guaranteed by the federal government with respect to at least 97% of defaulted principal and accrued interest on the underlying loans.

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~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (Continued)~~

Additional information about our investment securities portfolio is provided in note 3 to the consolidated financial statements included in this Form 10-Q.

We manage our investment securities portfolio to align with the interest-rate and duration characteristics of our client liabilities and in the context of the overall structure of our consolidated statement of condition, ~~and~~ in consideration of the global interest-rate environment. We consider a well-diversified, high-credit quality investment securities portfolio to be an important element in the management of our consolidated statement of condition.

Our portfolio is concentrated in securities with high credit quality, with approximately ~~88%~~89% of the carrying value of the portfolio rated “AAA” or “AA” as of ~~September 30, 2013~~March 31, 2014.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

The following table presents the percentages of the carrying value of the portfolio, by external credit rating, as of the dates indicated:

September 30, 2013 December 31, 2012
AAA⁽¹⁾
69 % 69 %
AA 19
19
A 7
7
BBB 3
3
Below BBB 2
2
100 % 100 %



	March 31, 2014		December 31, 2013
AAA⁽¹⁾	70	%	70	%
AA	19		19
A	6		6
BBB	3		3
Below BBB	2		2
	100	%	100	%

⁽¹⁾Includes U.S. Treasury and federal agency securities that are split-rated, “AAA” by Moody’s Investors Service and “AA+” by Standard & Poor’s.

As of ~~September 30, 2013~~March 31, 2014, the investment portfolio of ~~approximately~~ ~~10,680~~10,040 securities was diversified with respect to asset class. ~~Approximately~~As of ~~75%~~March 31, 2014 and December 31, 2013, approximately 72% and 74%, respectively, of the aggregate carrying value of the portfolio as of that date was composed of mortgage-backed and asset-backed securities. The asset-backed portfolio, of which approximately 97% of the carrying value as of both dates was floating-rate, consisted primarily of student loan-backed and credit card-backed securities. Mortgage-backed securities were composed of securities issued by the Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, as well as U.S. and non-U.S. large-issuer collateralized mortgage obligations.

~~Our investment securities portfolio represented approximately~~ ~~54%~~In December 2013, U.S. regulators issued final regulations to implement the so-called “Volcker rule,” one of ~~our consolidated total assets as of both~~ ~~September 30, 2013~~ ~~and~~ ~~December 31, 2012, and the gross interest revenue generated by our investment securities portfolio represented approximately~~ ~~22%~~ ~~of our consolidated total gross revenue for each~~many provisions of the ~~third quarter~~Dodd-Frank Act. The Volcker rule will, among other things, require banking organizations covered by the rule to either restructure or divest certain investments in and ~~first nine months of2013, compared to approximately~~ ~~25%~~ ~~and~~ ~~26%~~ ~~of our consolidated total gross revenue for the~~ ~~third quarter and first nine months of2012, respectively.~~

~~Our investment securities portfolio represents a greater proportion of our consolidated statement of condition~~relationships with “covered funds,” as ~~described above, and our loan-and-lease portfolio represents a smaller proportion (approximately 7% and 6% of our consolidated total assets as of~~ ~~September 30, 2013~~ ~~and~~ ~~December 31, 2012~~, respectively), in comparison to many other major banking organizations. In some respects, the accounting and regulatory treatment of our investment securities portfolio may be less favorable to us than a more traditional held-for-investment lending portfolio or a portfolio of U.S. Treasury securities. For example, under the July 2013 Basel III final rule, after-tax changesdefined in the ~~fair value~~final Volcker rule regulations. The classification of certain types of investment securities ~~classified~~or structures, such as ~~available for sale~~collateralized loan obligations, or CLOs, as “covered funds” remains subject to market, and ultimately regulatory, interpretation, based on the specific terms and other characteristics relevant to such investment securities and structures.

As of March 31, 2014, we held an aggregate of approximately $5.45 billion of investments in CLOs. As of the same date, these investments had an aggregate pre-tax net unrealized gain of approximately $120 million, composed of gross unrealized gains of $137 million and gross unrealized losses of $17 million. In the event that we or our banking regulators conclude that such investments in CLOs, or other investments, are “covered funds,” we will be ~~included~~required to divest such investments if we are

unable to “cure” those investments before the conformance period ends on July 21, 2017. If other banking entities reach similar conclusions with respect to similar investments held by them, the prices of such investments could decline significantly, and we may be required to divest such investments at a significant discount compared to the investments' book value. This could result in a material adverse effect on our consolidated results of operations in the ~~determination of tier 1 capital. Since loans held for investment are not subject to~~period in which such a fair-value accounting framework, changes in the fair value of loans (other than incurred credit losses) are not similarly included in the determination of tier 1 capital under the Basel III final rule.divestment occurs or on our consolidated financial condition.

Non-U.S. Debt Securities

Approximately ~~26%~~27% of the aggregate carrying value of our investment securities portfolio as of both ~~September 30,~~March 31, 2014 and December 31, 2013 was composed of non-U.S. debt securities.

The following table presents our non-U.S. debt securities available for sale and held to maturity, included in the preceding table of investment securities carrying values, by significant country of issuer or location of collateral, as of the dates indicated:



(In millions)	March 31, 2014		December 31, 2013
Available for Sale:
United Kingdom	$	9,238	$	9,357
Australia	3,694		3,551
Netherlands	3,528		3,471
Canada	2,352		2,549
France	1,516		1,581
Germany	1,384		1,410
Japan	991		971
South Korea	837		744
Finland	378		397
Norway	368		369
Sweden	143		142
Italy	142		—
Austria	83		83
Other	212		282
Total	$	24,866	$	24,907
Held to Maturity:
Australia	$	2,295	$	2,216
Germany	1,536		1,263
United Kingdom	1,414		1,474
Netherlands	970		934
Italy	266		270
Spain	204		206
Ireland	84		86
Other	147		158
Total	$	6,916	$	6,607

Approximately 90% and 89% of the aggregate carrying value of these non-U.S. debt securities was rated “AAA” or “AA” as of March 31, 2014 and

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

(In millions) September 30, 2013 December 31, 2012
Available for Sale:
United Kingdom $ 10,264
$ 10,263
Australia 3,609
4,035
Netherlands 3,338
3,006
Canada 2,121
2,274
France 1,560
1,364
Japan 1,037
1,173
Germany 995
1,836
Korea 575
257
Norway 371
210
Finland 265
259
Mexico 133
70
Sweden 74
72
Other 267
309
Total $ 24,609
$ 25,128
Held to Maturity:
Australia $ 2,260
$ 2,189
United Kingdom 1,231
920
Netherlands 901
—
Germany 575
—
Italy 269
276
Spain 205
209
Luxembourg 102
—
Other 258
132
Total $ 5,801
$ 3,726

~~Approximately~~ ~~88%~~ ~~and~~ ~~87%~~ ~~of the aggregate carrying value of these non-U.S. debt securities was rated “AAA” or “AA” as of~~ ~~September 30, 2013~~ ~~and~~ December 31, ~~2012~~2013, respectively. The majority of these securities comprise senior positions within the security structures; these positions have a level of protection provided through subordination and other forms of credit protection. ~~Approximately~~As of March 31, 2014 and December 31, 2013, approximately 74% and 72%, respectively, of the aggregate carrying value of these non-U.S. debt securities was floating-rate, and accordingly, the securities are considered to have minimal interest-rate risk. As of ~~September 30, 2013~~March 31, 2014, these non-U.S. debt securities had an average market-to-book ratio of ~~101.3%~~101.4%, and an aggregate pre-tax net unrealized gain of approximately ~~$378~~$457 million,, composed of gross unrealized gains of ~~$476~~$504 million and gross unrealized losses of ~~$98 million~~.$47 million. These unrealized amounts included a pre-tax net unrealized gain of ~~$298~~$295 million, composed of gross unrealized gains of ~~$328~~$313 million and gross unrealized losses of ~~$30~~$18 million, associated with non-U.S. debt securities available for sale.

As of ~~September 30, 2013~~March 31, 2014, the underlying collateral for these mortgage- and asset-backed securities primarily included U.K. prime mortgages, Australian and Dutch mortgages and German automobile loans. The securities listed under “Canada” were ~~mainly~~ composed of Canadian government ~~securities.~~securities and corporate debt. The securities listed under “France” were ~~mainly~~ composed of automobile loans and corporate ~~debt and asset-backed securities.~~debt. The securities listed under “Japan” were substantially composed of Japanese government securities. The securities listed under “South Korea” were composed of South Korean government securities. The “other” category of available-for-sale securities as of March 31, 2014included approximately $6573 million ~~and~~ ~~$105 million~~ ~~of securities as of~~ ~~September 30, 2013~~ ~~and~~ ~~December 31, 2012, respectively,~~ related to Portugal and Ireland, and as of December 31, 2013 included approximately $133 million related to Portugal, Ireland and Spain, all of which were mortgage-backed securities. The “other” category of held-to-maturity securities as of March 31, 2014 and December 31, 2013 included approximately $~~130~~43 million and $44 million, respectively, of securities ~~as of both~~ ~~September 30, 2013~~ ~~and~~ ~~December 31, 2012~~ related to Portugal, ~~and Ireland,~~ all of which were mortgage-backed securities.

Our aggregate exposure to Spain, Italy, Ireland and Portugal as of ~~September 30, 2013~~March 31, 2014 did not include any direct sovereign debt exposure to any of these countries. Our indirect exposure to these countries as of March 31, 2014totaled approximately $~~732~~812 million, including approximately $~~570~~647 million of mortgage- and asset-backed securities, ~~with~~composed of $204 million in Spain, $243 million in Italy, $120 million in Ireland and $80 million in Portugal. These mortgage- and asset-backed securities had an aggregate pre-tax net unrealized gain of approximately $3991 million as of ~~September 30, 2013~~March 31, 2014, composed of gross unrealized gains of $6396 million and gross unrealized losses of $245 million. We

recorded no other-than-temporary impairment on ~~any of~~ these ~~securities in the third quarter of 2013. We recorded other-than-temporary impairment of~~ ~~$6 million~~ ~~on certain of these~~mortgage- and asset-backed securities in our consolidated statement of income in either the ~~first nine months of 2013, all in the second quarter of 2013, associated with management's intent to sell an~~

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~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (Continued)~~

~~impaired security prior to its recovery in value. We recorded no other-than-temporary impairment on any of these securities in the third quarter of 2012. We recorded other-than-temporary impairment of~~ ~~$6 million~~ ~~on certain of these securities in our consolidated statement of income in the first nine months of~~ ~~2012, all in the second quarter of 2012, associated with expected credit losses.~~

~~Eurozone crisis tensions appeared to ease in the~~ ~~third quarter of 2013, following renewed volatility at the end of the~~ first quarter of ~~2013~~2014 or the first quarter. of 2013.~~Economic performance remains weak in Spain, Italy, Ireland and Portugal.~~

Throughout the sovereign debt crisis, the major independent credit rating agencies have downgraded, and may in the future do so again, U.S. and non-U.S. financial institutions and sovereign issuers which have been, and may in the future be, significant counterparties to us, or whose financial instruments serve as collateral on which we rely for credit risk mitigation purposes. As a result, we may be exposed to increased counterparty risk, leading to negative ratings volatility.

Country risks with respect to Spain, Italy, Ireland and Portugal are identified, assessed and monitored by our Country Risk Committee. Country limits are defined in our credit and counterparty risk guidelines, in ~~accordance~~conformity with our credit and counterparty risk policy. These limits are monitored on a daily basis by Enterprise Risk Management, or ~~ERM.~~ERM, a corporate risk oversight group (refer to “Risk Management” in this Management's Discussion and Analysis for a description of ERM). These country exposures are subject to ongoing surveillance and stress test analysis, conducted by ~~the~~our investment portfolio management team. The stress tests performed reflect the structure and nature of the exposure, its past and projected future performance based on macroeconomic and environmental analysis, with key underlying assumptions varied under a range of scenarios, reflecting downward pressure on collateral performance. The results of the stress tests are presented to senior management and ERM as part of the surveillance process.

In addition, ERM separately conducts ~~separate~~cash-flow-based stress-test analyses and evaluates the structured asset exposures in these countries for the assessment of other-than-temporary impairment. The assumptions used in these evaluations reflect the structure and expected downward pressure on collateral performance. Stress scenarios are subject to regular review, and are updated to reflect changes in the economic environment, measures taken in response to the sovereign debt crisis and collateral ~~performance, with particular attention to these specific country exposures.~~performance.

Municipal Securities

We carried an aggregate of approximately ~~$9.36~~$10.46 billion ~~and~~ ~~$7.63 billion~~ of municipal securities, classified as state and political subdivisions in the preceding table of investment securities carrying values, in our investment securities portfolio as of ~~September 30, 2013~~March 31, 2014 ~~and~~ ~~December 31, 2012, respectively.~~. Substantially all of these securities were classified as available for sale, with the remainder classified as held to maturity. ~~We also provided approximately~~ ~~$8.12 billion~~ ~~and~~ ~~$8.49 billion~~ ~~of credit and liquidity facilities to municipal issuers as a form of credit enhancement as~~As of the same ~~dates. The following tables present our combined credit exposure to state and municipal obligors that represented 5% or more of our aggregate municipal credit exposure of approximately~~ ~~$17.48 billion~~ ~~and~~ ~~$16.12 billion~~ ~~as of~~ ~~September 30, 2013~~ ~~and~~ ~~December 31, 2012, respectively, across our businesses as of the dates indicated, grouped by state to display geographic dispersion:~~date, we also

September 30, 2013
Total Municipal
Securities

Credit and
Liquidity Facilities
Total
% of Total Municipal
Exposure
(Dollars in millions)
State of Issuer:
Texas $ 1,250
$ 1,688
$ 2,938
17 %
New York 835
965
1,800
10
Massachusetts 964
762
1,726
10
California 253
1,228
1,481
8
Maryland 188
650
838
5
Total $ 3,490
$ 5,293
$ 8,783

3127

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

provided approximately $7.82 billion of credit and liquidity facilities to municipal issuers as a form of credit enhancement.

The following tables present our combined credit exposure to state and municipal obligors that

December 31, 2012
Total Municipal
Securities

Credit and
Liquidity Facilities
Total
% of Total Municipal Exposure
(Dollars in millions)
State of Issuer:
Texas $ 1,091
$ 1,957
$ 3,048
19 %
New York 486
973
1,459
9
Massachusetts 869
508
1,377
9
California 190
1,158
1,348
8
New Jersey 867
—
867
5
Florida 148
680
828
5
Total $ 3,651
$ 5,276
$ 8,927

represented 5% or more of our aggregate municipal credit exposure of approximately $18.28 billion as of March 31, 2014 and $18.45 billion as of December 31, 2013 across our businesses, grouped by state to display geographic dispersion:



March 31, 2014	Total Municipal Securities		Credit and Liquidity Facilities		Total		% of Total Municipal Exposure
(Dollars in millions)
State of Issuer:
Texas	$	1,251	$	1,628	$	2,879	16	%
New York	940		996		1,936		11
California	394		1,373		1,767		10
Massachusetts	980		756		1,736		10
Maryland	393		626		1,019		6
Total	$	3,958	$	5,379	$	9,337



December 31, 2013	Total Municipal Securities		Credit and Liquidity Facilities		Total		% of Total Municipal Exposure
(Dollars in millions)
State of Issuer:
Texas	$	1,233	$	1,628	$	2,861	16	%
New York	919		1,000		1,919		10
Massachusetts	967		759		1,726		9
California	373		1,266		1,639		9
Maryland	327		643		970		5
Total	$	3,819	$	5,296	$	9,115

Our aggregate municipal securities exposure ~~as of~~ ~~September 30, 2013~~ presented in the foregoing table was concentrated primarily with highly-rated counterparties, with approximately ~~82%~~87% of the obligors rated “AAA” or “AA” as of ~~September 30, 2013~~March 31, 2014., compared to approximately 84% rated “AAA” or “AA” as of December 31, 2013. As of ~~that date,~~March 31, 2014, approximately ~~65%~~63% and ~~33%~~35% of our aggregate exposure was associated with general obligation and revenue bonds, ~~respectively.~~respectively, compared to 64% and 34%, respectively, as of December 31, 2013. In addition, we had no exposures associated with healthcare, industrial development or land development bonds. The portfolios are also diversified geographically; the states that represent our largest exposure are widely dispersed across the U.S.

Additional information with respect to our assessment of other-than-temporary impairment of our municipal securities is provided in note 3 to the consolidated financial statements included in this Form 10-Q.

Impairment

Impairment exists when the fair value of an individual security is below its amortized cost basis. Impairment of ~~an available-for-sale security or~~ a ~~held-to-maturity~~ security is further assessed to determine whether such impairment is other-than-temporary. When the impairment is deemed to be other-than-temporary, we record the loss in our consolidated statement of income. In addition, for debt securities available for sale and held to maturity, we record impairment in our consolidated statement of income when management intends to sell (or may be required to sell) the securities before they recover in value, or when management expects the present value of cash flows expected to be collected from the securities to be less than the amortized cost of the impaired security (a credit loss).

The following table presents the amortized cost and fair value, and associated net unrealized gains and losses, of investment securities available for sale and held to maturity as of the dates indicated:

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)


	September 30, 2013⁽¹⁾							December 31, 2012⁽¹⁾						March 31, 2014⁽¹⁾							December 31, 2013⁽¹⁾
(In millions)	Amortized Cost		Net Unrealized Gains(Losses)			Fair Value		Amortized Cost		Net Unrealized Gains(Losses)		Fair Value		Amortized Cost		Net Unrealized Gains(Losses)			Fair Value		Amortized Cost		Net Unrealized Gains(Losses)			Fair Value
Available for sale⁽²⁾	$	99,747	$	235		$	99,982	$	108,563	$	1,119	$	109,682	$	98,770	$	392		$	99,162	$	99,159	$	15		$	99,174
Held to maturity⁽²⁾	16,698		(155		)	16,543		11,379		282		11,661		18,342		(16		)	18,326		17,740		(180		)	17,560
Total investment securities	116,445		80			116,525		119,942		1,401		121,343		117,112		376			117,488		116,899		(165		)	116,734
Net after-tax unrealized gain			$	45						$	885
Net after-tax unrealized gain (loss)																$	226						$	(96	)

⁽¹⁾Amounts ~~as of~~ ~~September 30, 2013~~ ~~and~~ ~~December 31, 2012~~ excluded the remaining net unrealized losses primarily related to reclassifications of securities available for sale to securities held to maturity in 2008, recorded in accumulated other comprehensive income, or AOCI, within shareholders' equity in our consolidated statement of condition. ~~Refer to~~Additional information is provided in note 10 to the consolidated financial statements included in this Form 10-Q.

⁽²⁾Securities available for sale are carried at fair value, with after-tax net unrealized gains and losses recorded in ~~accumulated other comprehensive income.~~AOCI. Securities held to maturity are carried at cost, and unrealized gains and losses are not recorded in our consolidated financial statements.

The ~~declines in the~~aggregate improvement to a net unrealized ~~gains~~gain as of ~~September 30, 2013~~March 31, 2014 ~~compared to~~from a net unrealized loss as of December 31, ~~2012~~2013 presented above ~~were~~was primarily attributable to ~~changes~~narrowing spreads in ~~interest rates in 2013.~~the first quarter of 2014.

We conduct periodic reviews of individual securities to assess whether other-than-temporary impairment exists. Our assessment of other-than-temporary impairment involves an evaluation ~~more fully described in note~~ 3 ~~to the consolidated~~

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~~AND RESULTS OF OPERATIONS (Continued)~~

~~financial statements included in this Form 10-Q,~~ of economic and security-specific factors. Such factors are based on estimates, derived by management, which contemplate current market conditions and security-specific performance. To the extent that market conditions are worse than management's expectations, other-than-temporary impairment could increase, in particular the credit-related component that would be recorded in our consolidated statement of income.

In the aggregate, we recorded net losses from other-than-temporary impairment of $~~10 million~~ ~~and~~ ~~$20~~9 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2013, respectively,~~2014, compared to $~~6 million~~ ~~and~~ ~~$27~~3 million in the ~~third~~first quarter ~~and first nine months~~ of ~~2012, respectively.~~2013. Additional information with respect to this other-than-temporary impairment and net impairment losses, as well as information about our assessment of impairment, is provided in note 3 to the consolidated financial statements included in this Form 10-Q.

Given the exposure of our investment securities portfolio, particularly mortgage- and asset-backed securities, to residential mortgage and other consumer credit risks, the performance of the U.S. housing market ~~continues to be~~is a factor in the portfolio's credit performance. As such, our assessment of other-than-temporary impairment relies, in part, on our estimates of trends in national housing prices in addition to trends in unemployment rates, interest rates and the timing of defaults. Generally, indices that measure trends in national housing prices are published in

arrears. As of ~~June 30,~~December 31, 2013, national housing prices, according to the Case-Shiller National Home Price Index, had declined by approximately ~~23%~~21% peak-to-current. Overall, our evaluation of other-than-temporary impairment as of ~~September 30, 2013~~March 31, 2014 ~~included~~continued to include an expectation of a U.S. housing recovery characterized by relatively modest growth in national housing prices over the next few years. In connection with our assessment of other-than-temporary impairment with respect to relevant securities in our investment portfolio in future periods, we will consider trends in national housing prices that we observe at those times, including the Case-Shiller National Home Price Index, in addition to trends in unemployment rates, interest rates and the timing of defaults.

The other-than-temporary impairment of our investment securities portfolio continues to be sensitive to our estimates of future cumulative losses. However, given our ~~recent more~~ positive outlook for U.S. national housing prices, our sensitivity analysis indicates, as of ~~September 30, 2013~~March 31, 2014, that our investment securities portfolio ~~is currently~~remains less exposed to the overall housing price outlook relative to other factors, including unemployment rates and interest ~~rates, than it was as of~~ ~~December 31, 2012~~.rates.

The residential mortgage servicing environment ~~remains challenging, and the~~continues to be challenging. The time line to liquidate distressed loans continues to ~~extend.~~extend, but to a lesser degree as a result of strengthening in the national housing market. The rate at which distressed residential mortgages are liquidated may affect, among other things, our investment securities portfolio. Such effects could include the timing of cash flows or the credit quality associated with the mortgages collateralizing certain of our residential mortgage-backed securities, which, accordingly, could result in the recognition of additional other-than-temporary impairment in future periods.

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Our evaluation of potential other-than-temporary impairment of mortgage-backed securities with collateral located in Spain, Italy, Ireland and Portugal takes into account government intervention in the corresponding mortgage markets and assumes a negative baseline macroeconomic environment for this region, due to a combination of ~~slower~~slow economic growth and government austerity measures. Our baseline view assumes a recessionary period characterized by high unemployment and by additional declines in housing prices of between 10% and ~~18%~~19% across these four countries. Our evaluation of other-than-temporary impairment in our base case does not assume a disorderly sovereign debt restructuring or a break-up of the Eurozone.

In addition, we perform stress testing and sensitivity analysis in order to assess the impact of more severe assumptions on potential other-than-temporary impairment. We estimate, for example, that in more stressful scenarios in which unemployment, gross domestic product and housing prices in these four countries deteriorate more than we expected as of ~~September 30, 2013~~March 31, 2014, other-than-temporary impairment could increase by a range of approximately ~~$13~~$11 million to ~~$39~~$40 million. This sensitivity estimate is based on a number of factors, including, but not limited to, the level of housing prices and the timing of defaults. To the extent that such factors differ significantly from management's current expectations, resulting loss estimates may differ materially from those stated.

Excluding other-than-temporary impairment recorded in the first ~~nine months~~quarter of ~~2013~~,2014, management considers the aggregate decline in fair value of the remaining investment securities and the resulting gross unrealized losses as of ~~September 30, 2013~~March 31, 2014 to be temporary and not the result of any material changes in the credit characteristics of the securities. Additional information about these ~~net~~gross unrealized losses ~~and our assessment of impairment~~ is provided in note 3 to the consolidated financial statements included in this Form 10-Q.

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~~AND RESULTS OF OPERATIONS (Continued)~~

Loans and Leases

The following table presents our U.S. and non-U.S. loans and leases, by segment, as of the dates indicated:



(In millions)	March 31, 2014			December 31, 2013
Institutional:
U.S.	$	12,434		$	10,623
Non-U.S.	3,446			2,654
Commercial real estate:
U.S.	234			209
Total loans and leases	16,114			13,486
Allowance for loan losses	(30		)	(28		)
Loans and leases, net of allowance for loan losses	$	16,084		$	13,458

(In millions) September 30, 2013 December 31, 2012
Institutional:
U.S. $ 12,091
$ 9,645
Non-U.S. 3,321
2,251
Commercial real estate:
U.S. 166
411
Total loans and leases 15,578
12,307
Allowance for loan losses (22 ) (22 )
Loans and leases, net of allowance for loan losses $ 15,556
$ 12,285
The increase in loans in the institutional segment presented in the preceding table was mainly related to an increase in mutual fund lending, higher levels of short-duration advances, and our continued investment in the non-investment-grade lending market through participations in loan syndications, specifically senior secured bank loans, that we began in 2013. Aggregate short-duration advances to our clients included in the institutional segment were $4.83 billion and $2.45 billion as of March 31, 2014 and December 31, 2013, respectively. Senior secured bank loans are more fully described below.

Additional information about ~~these~~all of our loan-and-lease segments, ~~including~~as well as underlying classes, is provided in note 4 to the consolidated financial statements included in this Form 10-Q, and in note 5 to the consolidated financial statements included in our ~~2012~~2013 Form 10-K.

~~During the~~As of March 31, 2014 and ~~third quarter of~~December 31, 2013, ~~we further diversified~~ our ~~loan-and-lease exposure by investing~~investment in ~~the non-investment-grade lending market through participations in loan syndications. These~~ senior secured bank loans ~~which are included in the commercial-and-financial class within the institutional segment presented in the table above,~~ totaled approximately ~~$375~~$1.15 billion and $724 million, ~~as of~~ ~~September 30, 2013~~.respectively. In addition, ~~as of the same date,~~ we had binding unfunded commitments as of March 31, 2014 and December 31, 2013totaling an additional ~~$139~~$120 million and $211 million, respectively, to participate in such syndications. We expect to increase our level of participation in these loan syndications in future periods. ~~We had no investment in senior secured bank loans as of~~ ~~December 31, 2012~~.

These loans, which we have rated “speculative” under our internal risk-rating framework (refer to note 4 to the consolidated financial statements included in this Form 10-Q), are externally rated “BBB,” “BB” or “B,” with approximately ~~90%~~93% of the loans rated “BB” or ~~“B.” These loans present more~~“B” as of March 31, 2014, compared to 94% as of as of December 31, 2013. In an effort to mitigate the significant exposure to potential credit ~~losses. However,~~losses presented by these loans relative to higher-rated loans, we ~~seek to mitigate such exposure, in part through the limitation of~~limit our investment to larger, more liquid credits underwritten by major global financial institutions, ~~the application of~~we apply our internal credit analysis process to each potential investment, and ~~diversification~~we diversify our exposure by counterparty and industry segment. As of ~~September 30, 2013, we had no~~March 31, 2014, our allowance for

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loan losses ~~with respect~~included approximately $8 million related to these commercial-and-financial loans.

~~Aggregate short-duration advances to our clients included in the institutional segment were~~ ~~$4.65 billion~~ ~~and~~ ~~$3.30 billion~~ asAs of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012, respectively. As of~~ ~~September 30,~~ 2013 ~~and~~ ~~December 31, 2012~~, unearned income deducted from our investment in leveraged lease financing was $~~124~~119 million and $~~131~~121 million, respectively, for U.S. leases and $~~306~~281 million and $~~334~~298 million, respectively, for non-U.S. leases.

As of both ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, we held an aggregate of approximately $130 million ~~and~~ ~~$197 million, respectively,~~ of commercial real estate loans which were modified in troubled debt restructurings. No impairment loss was recognized upon restructuring of the loans, as the discounted cash flows of the modified loans exceeded the carrying amount of the original loans as of the modification date. No loans were modified in troubled debt restructurings in the first ~~nine months~~quarter of ~~2013~~2014 or in all of ~~2012~~2013.

The following table presents activity in the allowance for loan losses for the periods indicated:


	Nine Months Ended September 30,					Quarters Ended March 31,
(In millions)	2013		2012			2014		2013
Allowance for loan losses:
Beginning balance	$	22	$	22		$	28	$	22
Provision for loan losses:
Commercial real estate	—		(1		)
Recoveries:
Commercial real estate	—		1
Institutional						2		—
Ending balance	$	22	$	22		$	30	$	22

34The provision in the first quarter of 2014 was associated with our exposure to the above-described senior secured bank loans. These loans were purchased in connection with our participation in loan syndications in the non-investment-grade lending market beginning in 2013.

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~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (Continued)~~

Cross-Border Outstandings

Cross-border outstandings are amounts payable to ~~State Street~~us by non-U.S. counterparties which are denominated in U.S. dollars or other non-local currency, as well as non-U.S. local currency claims not funded by local currency liabilities. Our cross-border outstandings consist primarily of deposits with banks; loans and lease financing, including short-duration advances; investment securities; amounts related to foreign exchange and interest-rate contracts; and securities finance. In addition to credit risk, cross-border outstandings have the risk that, as a result of political or economic conditions in a country, borrowers may be unable to meet their contractual repayment obligations of principal and/or interest when due because of the unavailability of, or restrictions on, foreign exchange needed by borrowers to repay their obligations.

Additional information with respect to the nature of our cross-border outstandings is provided under “Financial Condition - Cross-Border Outstandings” in

Management's Discussion and Analysis included in our ~~2012~~2013 Form 10-K.

The following table presents our cross-border outstandings in countries in which we do business, and which amounted to at least 1% of our consolidated total assets as of the dates indicated. The aggregate of the total cross-border outstandings presented in the table represented approximately 18% and ~~22%~~19% of our consolidated total assets as of ~~September 30, 2013~~March 31, 2014 and December 31, ~~2012~~2013, respectively.



(In millions)	Investment Securities and Other Assets		Derivatives and Securities on Loan		Total Cross-Border Outstandings		Investment Securities and Other Assets		Derivatives and Securities on Loan		Total Cross-Border Outstandings
September 30, 2013
United Kingdom	$	13,353	$	1,488	$	14,841
Australia	6,993		336		7,329
Netherlands	4,372		545		4,917
Germany	2,968		164		3,132
Japan	2,951		161		3,112
Canada	2,257		445		2,702
France	1,864		611		2,475
December 31, 2012
March 31, 2014
United Kingdom	$	18,046	$	1,033	$	19,079	$	13,662	$	1,328	$	14,990
Australia	7,585		328		7,913		7,210		209		7,419
Japan	6,625		1,041		7,666		6,618		133		6,751
Germany	7,426		220		7,646		4,509		406		4,915
Netherlands	3,130		188		3,318		4,582		135		4,717
France							2,849		673		3,522
Canada	2,730		500		3,230		2,709		500		3,209
December 31, 2013
United Kingdom							$	15,422	$	1,697	$	17,119
Australia							7,309		672		7,981
Netherlands							4,542		277		4,819
Canada							3,675		620		4,295
Germany							4,062		147		4,209
France							2,887		735		3,622
Japan							2,445		605		3,050

There were no aggregate cross-border outstandings in countries which amounted to between 0.75% and 1% of our consolidated total assets as of March 31, 2014. As of ~~September 30,~~December 31, 2013~~. Aggregate~~, aggregate cross-border outstandings in countries which amounted to between 0.75% and 1% of our consolidated total assets ~~as of~~ ~~December 31, 2012~~totaled approximately ~~$1.81~~$1.85 billion ~~and~~ ~~$1.70 billion~~ ~~to France and Luxembourg, respectively.~~ in China.

Several European countries, particularly Spain, Italy, Ireland and Portugal, have experienced credit deterioration associated with weaknesses in their economic and fiscal situations. With respect to this ongoing uncertainty, we are closely monitoring our exposure to these countries. We had no direct sovereign debt exposure to these countries in our investment securities portfolio as of ~~September 30, 2013. We had aggregate indirect exposure in the portfolio of approximately~~ ~~$732 million~~ ~~as of~~ ~~September 30, 2013, including~~ ~~$570 million~~ ~~of mortgage- and asset-backed securities, composed of~~ ~~$269 million~~ ~~in Spain,~~ ~~$106 million~~ ~~in Italy,~~ ~~$118 million~~ ~~in Ireland and~~ ~~$77 million~~ ~~in Portugal.~~

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The following table presents our cross-border outstandings in ~~each of these countries~~Italy, Ireland, Spain and Portugal as of the dates indicated:


(In millions)	Investment Securities and Other Assets		Derivatives and Securities on Loan		Total Cross-Border Outstandings		Investment Securities and Other Assets		Derivatives and Securities on Loan		Total Cross-Border Outstandings
September 30, 2013
Ireland	$	391	$	272	$	663
Italy	619		4		623
Spain	269		26		295
Portugal	77		—		77
December 31, 2012
March 31, 2014
Italy	$	937	$	1	$	938	$	1,012	$	1	$	1,013
Ireland	342		277		619		408		240		648
Spain	277		16		293		204		15		219
Portugal	76		—		76		80		—		80
December 31, 2013
Italy							$	763	$	2	$	765
Ireland							369		304		673
Spain							271		11		282
Portugal							78		—		78

As of ~~September 30, 2013~~March 31, 2014, none of the exposures in these countries was individually greater than 0.75% of our consolidated total assets. The aggregate exposures consisted primarily of interest-bearing deposits, investment securities, loans, including short-duration advances, and foreign exchange contracts. We had not recorded any ~~other-than-temporary impairment associated with expected credit losses, or~~ provisions for loan losses with respect to any of our exposure toin these countries as of ~~September 30,~~March 31, 2014.

Risk Management

General

In the normal course of our global business activities, we are exposed to a variety of risks, some inherent in the financial services industry, others more specific to our business activities. State Street’s risk management framework focuses on material risks, which include the following:

credit and counterparty risk;

liquidity risk, funding and management;

operational risk, including execution, technology, business practice and fiduciary risks;

market risk, including market risk associated with our trading activities and market risk associated with our non-trading, or asset-and-liability management, activities, the latter of which is primarily composed of interest-rate risk;

model risk; and

business risk, including reputational risk.

These material risks, as well as certain of the factors underlying each of these risks that could affect our businesses, our consolidated results of operations and our consolidated financial condition, are discussed in detail under Item 1A, ��Risk Factors,” included in our 2013 Form 10-K.

The scope of our business requires that we balance these risks with a comprehensive and well-integrated risk management function. The identification, assessment, monitoring, mitigation and reporting of risks are essential to our financial performance and successful management of our businesses. These risks, if not effectively managed, can result in current losses to State Street as well as erosion of our capital and damage to our reputation. Our systematic approach allows for an assessment of risks within a framework for evaluating opportunities for the prudent use of capital that appropriately balances risk and return.

Our objective is to optimize our return and to operate at a prudent level of risk. In support of this objective, we have instituted a risk appetite framework that aligns our business strategy and financial objectives with the level of risk that we are willing to incur.

Our risk management is based on the following major principles:

A culture of risk awareness that extends across all of our business activities;

The identification, classification and quantification of State Street's material risks;

The establishment of our risk appetite and associated limits and policies, and our compliance with these limits;

The establishment of a risk management structure at the “top of the house” that enables the control and coordination of risk-taking across the business lines;

The implementation of stress testing practices and a dynamic risk-assessment capability; and

The overall flexibility to adapt to the ever-changing business and market conditions.

Our Risk Appetite Statement outlines the quantitative limits and qualitative goals that define our risk appetite, as well as the responsibilities for measuring and monitoring risk against limits, and for reporting, escalating, approving and addressing exceptions. The Risk Appetite Statement is established by management with the guidance of Enterprise Risk Management, or ERM, a corporate risk oversight group, in conjunction with our Board of Directors. The Board formally reviews and approves our Risk Appetite Statement annually.

The Risk Appetite Statement describes the level and types of risk that we are willing to accommodate in executing our business strategy, and also serves as a guide in setting risk limits across our business units. In addition to our Risk Appetite Statement, we use stress testing as another important tool in our risk management practice. Additional information with respect to our stress-testing process and practices is

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provided under “Capital” in this Management’s Discussion and Analysis.

The following table provides a reference to the disclosures about our management of significant risks provided herein.



	Form 10-Q Page Number
Risk Governance and Structure	33
Credit Risk Management	36
Liquidity Risk Management	38
Operational Risk Management	42
Market Risk Management	44

Risk Governance and Structure

We have a disciplined approach to risk management that involves all levels of management, from the Board and the Board’s Risk and Capital Committee, or RCC, and its Examining & Audit, or E&A, Committee, to each business unit and each employee. We allocate responsibility for risk oversight so that risk/return decisions are made at an appropriate level, and are subject to robust and effective 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 business; ERM, which provides separate oversight, monitoring and control; and

Corporate Audit, which assesses the effectiveness of the first two lines of defense.

The responsibilities for effective review and challenge reside with senior managers, oversight committees, Corporate Audit, the Board's RCC and, ultimately, the Board. While we believe that our risk management program is effective in managing the risks in our businesses, internal and external factors may create risks that cannot always be identified or anticipated.

Corporate-level risk committees provide focused oversight, and establish corporate standards and policies for specific risks, including credit, sovereign exposure, new business products, regulatory compliance and ethics, as well as operational, market, liquidity and model risks. These committees have been delegated the responsibility to develop recommendations and remediation strategies to address issues that affect or have the potential to affect State Street.

We maintain a risk governance committee structure which serves as the formal governance mechanism through which we seek to undertake the consistent identification, discussion and management of various risks facing State Street in connection with its business activities. This governance structure is enhanced and integrated through multi-disciplinary involvement, particularly through ERM. The following chart presents this structure.

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Model Assessment Committee

Basel ICAAP Oversight Committee

CCAR Steering Committee⁽¹⁾

⁽¹⁾Oversees the submission of capital plans in connection with the Federal Reserve's annual Comprehensive Capital Analysis and Review, or CCAR, process.

ERM provides risk oversight, support and coordination to allow for the consistent identification, measurement and management of risks across business units separate from the business units' activities, and is responsible for the formulation and maintenance of enterprise-wide risk management policies and guidelines. In addition, ERM establishes and reviews approved limits and, in collaboration with business unit management, monitors key risks. Ultimately, ERM works to validate that risk-taking falls within our risk appetite approved by the Board and conforms to associated risk policies, limits and guidelines.

The Chief Risk Officer, or CRO, who is responsible for State Street’s risk management globally, leads ERM and has a dual reporting line to State Street’s Chief Executive Officer and the Board’s

RCC. ERM discharges its responsibilities globally through a three-dimensional organization structure:


▪	“Vertical” business unit-aligned risk groups that assist business managers with risk management, measurement and monitoring activities;


▪	“Horizontal” risk groups that monitor the risks that cross all of our business units (for example, credit and operational risk); and


▪	Risk oversight for international activities, which adds important regional and legal entity perspectives to global vertical and horizontal risk management.

Sitting on top of this three-dimensional organization structure is a centralized group responsible for the aggregation of risk exposures across the vertical, horizontal and regional

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dimensions, for consolidated reporting, for setting the enterprise-level risk appetite framework and associated limits and policies, and for dynamic risk assessment across State Street.

The Board's RCC is responsible for oversight related to our assessment and management of risk, including credit, liquidity, operational, fiduciary, market, interest-rate and business risks and related policies. In addition, the RCC provides oversight on strategic capital governance principles and controls, and monitors capital adequacy in relation to risk. The RCC is also responsible for discharging certain duties and obligations of the Board under applicable Basel and other regulatory requirements. The Chief Financial Officer, together with the CRO, attend meetings of the RCC.

The E&A Committee oversees the operation of our system of internal controls covering the integrity of our consolidated financial statements and reports, compliance with laws, regulations and corporate policies, and the qualifications, performance and independence of our independent registered public accounting firm. The E&A Committee acts on behalf of the Board in monitoring and overseeing the performance of Corporate Audit and in reviewing certain communications with banking regulators. The E&A Committee has direct responsibility for the appointment, compensation, retention, evaluation and oversight of the work of our independent registered public accounting firm, including sole authority for the establishment of pre-approval policies and procedures for all audit engagements and any non-audit engagements.

The Management Risk and Capital Committee, or MRAC, is the senior management decision-making body for risk and capital issues, and is responsible for ensuring that our strategy, budget, risk appetite and capital adequacy are properly aligned. The main responsibilities of MRAC are as follows:

The review of our risk appetite framework and top-level risk limits and policies;

The monitoring and assessment of our capital adequacy based on regulatory requirements and internal policies; and

The review of business performance in the context of risk and capital allocation.

The committee is co-chaired by our CRO and Chief Financial Officer. In addition, the MRAC regularly presents a report to the Board’s RCC outlining developments in the risk environment and performance trends in our key business areas.

The Business Conduct Review Committee, or BCRC, provides additional risk governance and leadership, by overseeing State Street's business practices and reinforcing our commitment to the

highest standards of ethical conduct. Management considers adherence to high ethical standards to be critical to the success of our business and to our reputation. The BCRC is co-chaired by our CRO and our Chief Legal Officer.

The Technology and Operational Risk Committee, or TORC, oversees and assesses the effectiveness of corporate-wide technology and operational risk management programs, to manage and control technology and operational risk consistently across the organization. The TORC may meet jointly with the MRAC periodically to review or approve common areas of interest such as risk frameworks and policies. The TORC is co-chaired by our CRO and the Head of Global Operations, Technology and Product Development.

Risk Committees

Our Asset, Liability and Capital Committee, or ALCCO, is a risk committee that oversees the management of our consolidated statement of condition, the management of our global liquidity and our interest-rate risk positions, our regulatory and economic capital, the determination of the framework for capital allocation and strategies for capital structure, and issuances of debt and equity securities. ALCCO’s roles and responsibilities are designed to work complementary to, and be coordinated with, the MRAC, which approves State Street’s balance sheet strategy and related activities. ALCCO is chaired by our Treasurer and directly reports into the MRAC.

The following other risk committees have focused responsibilities for oversight of specific areas of risk management:

The Credit Risk and Policy Committee is responsible for cross-business unit review and oversight of credit and counterparty risk;


▪	The Country Risk Committee oversees the identification, assessment, monitoring, reporting and mitigation, where necessary, of country risks;


▪	The Trading and Markets Risk Committee, or TMRC, reviews the effectiveness of, and approves, the market risk framework at least annually; it is the most senior oversight and decision making committee for risk management within State Street Global Markets and the trading-and-clearing business of State Street Global Exchange;


▪	The Securities Finance Risk Management Committee provides oversight of the risks in our securities finance business, including collateral and margin policies;


▪	The Model Assessment Committee, or MAC, provides recommendations concerning technical modeling issues and validates

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financial models utilized by our business units;


▪	The Basel / ICAAP Oversight Committee, or BIOC, reviews and assesses compliance with regulatory capital rules, and oversees initiatives related to the development and enhancement of relevant reporting capabilities;


▪	The CCAR Steering Committee provides primary supervision of the stress tests performed in conformity with CCAR and the Dodd-Frank Act, and is responsible for the overall management, review, and approval of all material assumptions, methodologies, and results of each stress scenario;


▪	The Recovery and Resolution Planning Executive Steering Group oversees the development of recovery and resolution plans as required by banking regulators;


▪	The New Business and Product Committee provides oversight of the evaluation of the risk inherent in proposed new products or services and new business, as well as divestitures, restructurings and outsourcing arrangements; evaluations include economic justification, material risk, compliance, regulatory and legal considerations, and capital and liquidity analyses;

The Compliance and Ethics Committee provides review and oversight of State Street's compliance programs, including its culture of compliance and high standards of ethical behavior;


▪	The Fiduciary Review Committee reviews and assesses the risk management programs of those units in which State Street serves in a fiduciary capacity;


▪	The Operational Risk Committee provides cross-business oversight of operational risk to identify, measure, manage and control operational risk in an effective and consistent manner across State Street; and


▪	The Technology Risk Governance Committee provides regular reporting to the TORC and escalates technology risk issues to the TORC, as appropriate.

Credit Risk Management

Core Policies and Principles

Credit and counterparty risk is defined as the risk of financial loss if a counterparty, borrower or obligor, referred to collectively as counterparties, is either unable or unwilling to repay borrowings or settle a transaction in accordance with underlying contractual terms. We assume credit and counterparty risk in our traditional non-trading lending activities (such as loans and contingent

commitments), in our investment securities portfolio (where recourse to a counterparty exists), and in our direct or indemnified agency trading activities (such as securities lending and foreign exchange). We also assume credit and counterparty risk in our day-to-day treasury and securitiesand other settlement operations, in the form of deposit placements and other cash balances with central banks or private sector institutions.

We distinguish between three kinds of credit and counterparty risk:


▪	Default risk is the risk that a counterparty fails to meet its contractual payment obligations;


▪	Country risk is the risk that we may suffer a loss, in any given country, due to any of the following reasons: deterioration of economic conditions, political and social upheaval, nationalization and appropriation of assets, government repudiation of indebtedness, exchange controls, and disruptive currency depreciation or devaluation; and


▪	Settlement risk is the risk that the settlement or clearance of transactions will fail, and arises whenever the exchange of cash, securities and/or other assets is not simultaneous.

The extension of credit and the acceptance of counterparty risk are governed by corporate guidelines based on a counterparty's risk profile, the markets served, counterparty and country concentrations, and regulatory compliance. These guidelines include reference to a number of core policies and principles:


▪	All credit risks to each counterparty, or group of counterparties, are measured and consolidated in accordance with a ‘one obligor’ principle that aggregates all risks types across all business areas;


▪	We seek to avoid or minimize undue concentrations of risk; counterparty (or groups of counterparties), industry, country and product-specific concentrations of risk are subject to frequent review and approval in accordance with State Street’s prevailing risk appetite;


▪	All extensions of credit, or material changes to extensions of credit (such as its tenor, collateral structure or covenants), are approved by ERM in conformity with assigned credit-approval authorities;


▪	We assign credit approval authorities to individuals according to their qualifications, experience and training, and review these authorities periodically; our largest exposures require approval by the Credit Committee, a sub-committee of the Credit Risk and Policy

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Committee; for certain small and low-risk extensions of credit, for certain counterparty types, approval authority has been granted to individuals outside of ERM;


▪	The creditworthiness of all counterparties is determined by way of a detailed risk assessment, including the use of comprehensive internal rating methodologies; all rating methodologies in use at State Street are authorized for use within the advanced internal-ratings-based approach under applicable Basel requirements; and


▪	A review of the creditworthiness of all counterparties, as well as all extensions of credit, is undertaken at least annually; the nature and extent of these reviews is determined by the size, nature and tenor of the extensions of credit, as well as the creditworthiness of the counterparty.

All core policies and principles are subject to annual review, as an integral part of State Street’s periodic assessment of its risk appetite.

Governance

The Credit Risk Management group is an integral part of ERM and is responsible for assessing, approving and monitoring all types of credit risk across State Street. It has responsibility for all requisite policies and procedures, and for State Street’s advanced internal credit-rating systems and methodologies. Additionally, Credit Risk Management, in conjunction with the appropriate business units, establishes appropriate measurements and limits to control the amount of credit risk accepted across its various business activities, both at a portfolio level and for each individual obligor, or group of obligors.

A number of local committees within State Street are responsible for overseeing credit risk. The Credit Risk and Policy Committee is responsible for approving policies and procedures, determining risk appetite and for routine monitoring of State Street’s credit-risk portfolio. The Credit Committee, a sub-committee of the Credit Risk and Policy Committee, has primary responsibility for the largest and higher-risk extensions of credit to individual obligors, or groups of obligors. Both committees provide periodic updates to the MRAC and the Board's RCC.

Credit Limits

Central to our philosophy for managing credit risk are the approval and imposition of credit limits, which reflect our credit risk appetite relative to the borrower or counterparty, its domicile, the nature of the risk and the country of risk. The extent of our ongoing analysis, approval and monitoring of credit limits and exposure is determined by the type of

borrower or counterparty, its prevailing credit-worthiness and the nature of the risk. These processes are outlined in formal guidelines.

Credit limits on a singular and aggregated basis are regularly reassessed and periodically revised based on prevailing and anticipated market conditions, changes in counterparty, industry or country-specific characteristics and outlook and State Street's risk appetite.

Global Counterparty Review

State Street’s Global Counterparty Review, or GCR, team provides separate oversight of our counterparty credit risk management practices and provides senior management, as well as our auditors and regulators, with reporting needed to monitor and assess the effectiveness of prevailing practices. Specific activities include, but are not limited to:

Separate and objective assessments of our credit and counterparty exposures to determine the nature and extent of risk undertaken by the business units;

Periodic business unit reviews, focusing on the assessment of credit analysis, policy compliance, prudent transaction structure and underwriting standards, administration and documentation, risk-rating integrity, and relevant trends;

Identification and monitoring of developing trends to minimize risk of loss and protect capital;

Maintenance of risk-rating system integrity and assurance of counterparty risk-rating transparency through testing of ratings;

Providing resources for specialized risk assessments (on an as-needed basis);

Opining on the adequacy of the allowance for loan losses; and

Serving as liaison with auditors and banking regulators with respect to risk rating, reporting and measurement.

Ongoing active monitoring and management of credit risk is an integral part of our credit risk management activities. A surveillance and credit review process is followed by both our business units and by ERM.

Credit Risk Mitigation

Techniques used to mitigate our counterparty credit risk include collateralizing our exposures; securing our exposures with a third-party guarantee; maintaining a security interest against assets under custody; exercising our legal right of offset; or buying credit insurance to offset our risk. We primarily accept cash, equities, and government securities as collateral. While we may use one or more of the foregoing techniques as protection with respect to a

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specific counterparty, we may also have multiple credit exposures to such counterparty, and all of our credit protection techniques may not be applicable to each type of credit exposure. In certain circumstances, we have credit exposure that is not secured.

Although we do not provide credit risk protection or trade in credit default swaps, we have purchased a small number of credit default swaps for hedging purposes. Due to the immaterial notional amount of these swaps, we do not formally recognize the benefits of these credit derivatives.

Reserve for Credit Losses

We maintain an allowance for loan losses to support our on-balance sheet credit exposures. We also maintain a reserve for unfunded commitments and letters of credit to support our off-balance credit exposure. The two components together represent the reserve for credit losses. Review and evaluation of the adequacy of the reserve for credit losses is ongoing throughout the year, but occurs at least quarterly, and is based, among other factors, on our evaluation of the level of risk in the portfolio, the volume of adversely classified loans, previous loss experience, current trends, and expected economic conditions and their effect on our counterparties. Additional information about the allowance for loan losses is provided in note 4 to the consolidated financial statements included in this Form 10-Q.

Liquidity Risk Management

Liquidity risk is defined as the potential that our financial condition or overall viability could be adversely affected by an actual or perceived inability to meet cash and collateral obligations. The goal of liquidity risk management is to maintain, even in the event of stress, our ability to meet our cash and collateral obligations.

Liquidity is managed to meet our financial obligations in a timely and cost-effective manner, as well as maintain sufficient flexibility to fund strategic corporate initiatives as they arise. Our effective management of liquidity involves the assessment of the potential mismatch between the future cash needs of our clients and our available sources of cash under both normal and adverse economic and business conditions.

We generally manage our liquidity on a global, consolidated basis. We also manage liquidity on a stand-alone basis at the parent company, as well as at certain branches and subsidiaries of State Street Bank. State Street Bank generally has access to markets and funding sources limited to banks, such as the federal funds market and the Federal Reserve's discount window. Our parent company is

managed to a more conservative liquidity profile, reflecting narrower market access. Our parent company typically holds enough cash, primarily in the form of interest-bearing deposits with its banking subsidiaries, to meet its current debt maturities and cash needs, as well as those projected over the next one-year period. As of March 31, 2014, the value of the parent company's net liquid assets totaled $4.76 billion, compared with $4.42 billion as of December 31, 2013. Our parent company's liquid assets generally consist of overnight placements with its banking subsidiaries.

Based on our level of consolidated liquid assets and our ability to access the capital markets for additional funding when necessary, including our ability to issue debt and equity securities under our current universal shelf registration, management considers State Street's overall liquidity as of March 31, 2014 to be sufficient to meet its current commitments and business needs, including accommodating the transaction and cash management needs of its clients.

Governance

Global Treasury is responsible for our management of liquidity. This includes the day-to-day management of our global liquidity position, the development and monitoring of early warning indicators, key liquidity risk metrics, the creation and execution of stress tests, the evaluation and implementation of regulatory requirements, the maintenance and execution of our liquidity guidelines and contingency funding plan, and routine management reporting to ALCCO and the Board's RCC.

Global Treasury Risk Management, part of ERM, provides separate oversight over the identification, communication and management of Global Treasury’s risks in support of our business strategy. Global Treasury Risk Management reports to the CRO. Global Treasury Risk Management’s responsibilities relative to liquidity risk management include the development and review of policies and guidelines; the monitoring of limits related to adherence to the liquidity risk guidelines and associated reporting.

Liquidity Framework

Our liquidity framework contemplates areas of potential risk based on our activities, size, and other appropriate risk-related factors. In managing liquidity risk, we employ limits, maintain established metrics and early warning indicators and perform routine stress testing to identify potential liquidity needs. This process involves the evaluation of a combination of internal and external scenarios which assist us in measuring our liquidity position and in identifying

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potential increases in cash needs or decreases in available sources of cash, as well as the potential impairment of our ability to access the global capital markets.

We manage liquidity according to several principles that are equally important to our overall liquidity risk management framework:

Structural liquidity management addresses liquidity by monitoring and directing the composition of our consolidated statement of condition. Structural liquidity is measured by metrics such as the percentage of total wholesale funds to consolidated total assets, and the percentage of non-government investment securities to client deposits. In addition, on a regular basis and as described further below, our structural liquidity is evaluated under various stress scenarios.

Tactical liquidity management addresses our day-to-day funding requirements and is largely driven by changes in our primary source of funding, which is client deposits.

Fluctuations in client deposits may be supplemented with short-term borrowings, which generally include commercial paper and certificates of deposit.

Stress testing and contingent funding planning are longer-term strategic liquidity risk management practices. Regular and ad hoc liquidity stress testing are performed under various severe but plausible scenarios at the consolidated level and at significant subsidiaries, including State Street Bank. These tests contemplate severe market and State Street-specific events under various time horizons and severities. Tests contemplate the impact of material changes in key funding sources, credit ratings, additional collateral requirements, contingent uses of funding, systemic shocks to the financial markets, and operational failures based on market and State Street-specific assumptions. The stress tests evaluate the required level of funding versus available sources in an adverse environment. As stress testing contemplates potential forward-looking scenarios, results also serve as a trigger to activate specific liquidity stress levels and contingent funding actions.

Contingency Funding Plans, or “CFPs”, are designed to assist senior management with decision-making associated with any contingency funding response to a possible or actual crisis scenario. The CFPs define roles, responsibilities and management actions to be taken in the event of deterioration of our liquidity profile caused by either a State Street-

specific event or a broader disruption in the capital markets. Specific actions are linked to the level of stress indicated by these measures or by management judgment of market conditions.

Liquidity Risk Metrics

In managing our liquidity, we employ early warning indicators and metrics. Early warning indicators are intended to detect situations which may result in a liquidity stress, including changes in our common stock price and the spread on our long-term debt. Additional metrics that are critical to the management of our consolidated statement of condition and monitored as part of our routine liquidity management include measures of our fungible cash position, purchased wholesale funds, unencumbered liquid assets, deposits, and the total of investment securities and loans as a percentage of total client deposits.

Asset Liquidity

Central to the management of our liquidity is asset liquidity, which generally consists of unencumbered highly liquid securities, cash and cash equivalents carried in our consolidated statement of condition. We restrict the eligibility of securities for asset liquidity to U.S. Government and federal agency securities (including mortgage-backed securities) and selected non-U.S. Government and supranational securities, which generally are more liquid than other types of assets. The following table presents the components of our asset liquidity balance as of the dates, or for the periods, indicated:



(In millions)	March 31, 2014		December 31, 2013
Asset Liquidity:
Highly liquid short-term investments⁽¹⁾	$	75,796	$	64,257
Investment securities	21,612		22,322
Total	$	97,408	$	86,579

	Quarters Ended March 31,
(In millions)	2014		2013
Average Asset Liquidity:
Highly liquid short-term investments⁽¹⁾	$	33,410	$	30,585
Investment securities	21,457		25,794
Total	$	54,867	$	56,379

⁽¹⁾Composed of interest-bearing deposits with banks.

Due to the continued elevated level of client deposits as of March 31, 2014, we maintained cash balances in excess of regulatory requirements of approximately $61.98 billion at the Federal Reserve, the ECB and other non-U.S. central banks, compared to $51.03 billion as of December 31, 2013.

Liquid securities carried in our asset liquidity include securities pledged without corresponding

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advances from the Federal Reserve Bank of Boston, or FRB, the Federal Home Loan Bank of Boston, or FHLB, and other non-U.S. central banks. State Street Bank is a member of the FHLB. This membership allows for advances of liquidity in varying terms against high-quality collateral, which helps facilitate asset-and-liability management.

Access to primary, intra-day and contingent liquidity provided by these utilities is an important source of contingent liquidity with utilization subject to underlying conditions. As of March 31, 2014 and December 31, 2013, State Street Bank had no outstanding primary credit borrowings from the FRB discount window or any other central bank facility, and as of the same dates, no FHLB advances were outstanding.

In addition to the securities included in our asset liquidity, we have significant amounts of other high-quality investment securities. The aggregate fair value of those securities was $65.45 billion as of March 31, 2014, compared to $66.16 billion as of December 31, 2013. These securities are available sources of liquidity, although not as rapidly deployed as those included in our asset liquidity.

Uses of Liquidity

Significant uses of our liquidity could result from the following: withdrawals of client deposits; draw-downs of unfunded commitments to extend credit or to purchase securities, generally provided through lines of credit; and short-duration advance facilities. Such circumstances would generally arise under stress conditions including deterioration in credit ratings. We had unfunded commitments to extend credit with gross contractual amounts totaling $21.77 billion and $21.30 billion as of March 31, 2014 and December 31, 2013, respectively. These amounts do not reflect the value of any collateral. Approximately 77% of our unfunded commitments to extend credit expire within one year from the date of issuance. Since many of our commitments are expected to expire or renew without being drawn upon, the gross contractual amounts do not necessarily represent our future cash requirements.

Funding

Deposits:

Our Investment Servicing business provides products and services including custody, accounting, administration, daily pricing, foreign exchange services, cash management, financial asset management, securities finance and investment advisory services. As a provider of these products and services, we generate client deposits, which have generally provided a stable, low-cost source of funds. As a global custodian, clients place deposits with State Street entities in various currencies. These

client deposits are invested in a combination of investment securities and short-duration financial instruments whose mix is determined by the characteristics of the deposits.

For the past several years, we have experienced higher client deposit inflows toward the end of the quarter or the end of the year. As a result, average client deposit balances are deemed to be more reflective of ongoing funding than period-end balances. The following table presents client deposit balances as of the dates and for the periods indicated:



					Average Balance
	March 31,				Quarters Ended March 31,
(In millions)	2014		2013		2014		2013
Client deposits⁽¹⁾	$	194,648	$	150,130	$	154,086	$	138,750

⁽¹⁾Balance as of March 31, 2013 excluded term wholesale certificates of deposit, or CDs, of $4.64 billion; average balances for the quarter ended March 31, 2013 excluded average CDs of $8.43 billion.

Short-Term Funding:

Our corporate commercial paper program, under which we can issue up to $3 billion of commercial paper with original maturities of up to 270 days from the date of issuance, had $1.88 billion of commercial paper outstanding as of March 31, 2014, compared to $1.82 billion as of December 31, 2013.

Our on-balance sheet liquid assets are also an integral component of our liquidity management strategy. These assets provide liquidity through maturities of the assets, but more importantly, they provide us with the ability to raise funds by pledging the securities as collateral for borrowings or through outright sales. In addition, our access to the global capital markets gives us the ability to source incremental funding at reasonable rates of interest from wholesale investors. As discussed earlier under “Asset Liquidity,” State Street Bank's membership in the FHLB allows for advances of liquidity in varying terms against high-quality collateral.

Short-term secured funding also comes in the form of securities lent or sold under agreements to repurchase. These transactions are short-term in nature, generally overnight, and are collateralized by high-quality investment securities. The balances associated with this activity are generally stable, as they represent a collateralized cash investment option for our investment servicing clients. These balances were $8.95 billion and $7.95 billion as of March 31, 2014 and December 31, 2013, respectively.

State Street Bank currently maintains a line of credit with a financial institution of CAD $800 million, or approximately $725 million as of March 31, 2014,

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to support its Canadian securities processing operations. The line of credit has no stated termination date and is cancelable by either party with prior notice. As of March 31, 2014, there was no balance outstanding on this line of credit.

Long-Term Funding:

As of March 31, 2014, State Street Bank had Board authority to issue unsecured senior debt securities from time to time, provided that the aggregate principal amount of such unsecured senior debt outstanding at any one time does not exceed $5 billion. As of March 31, 2014, $4.1 billion was available for issuance pursuant to this authority. As of March 31, 2014, State Street Bank also had Board authority to issue up to $1.5 billion of subordinated debt, incremental to subordinated debt outstanding as of the same date. As of March 31, 2014, $500 million was available for issuance pursuant to this authority.

We maintain an effective universal shelf registration that allows for the public offering and sale of debt securities, capital securities, common stock, depositary shares and preferred stock, and warrants to purchase such securities, including any shares into which the preferred stock and depositary shares may be convertible, or any combination thereof. We have issued in the past, and we may issue in the future, securities pursuant to our shelf registration. The issuance of debt or equity securities will depend on future market conditions, funding needs and other factors.

Agency Credit Ratings

Our ability to maintain consistent access to liquidity is fostered by the maintenance of high investment-grade ratings as measured by the major independent credit rating agencies. Factors essential to maintaining high credit ratings include diverse and stable core earnings; relative market position, strong risk management; strong capital ratios; diverse liquidity sources, including the global capital markets and client deposits; strong liquidity monitoring procedures; and preparedness for current or future regulatory developments. High ratings minimize borrowing costs and enhance our liquidity by providing assurance for unsecured funding and depositors, increasing the potential market for our debt and improving our ability to offer products, serve markets, and engage in transactions in which clients value high credit ratings. A downgrade or reduction of our credit ratings could have a material adverse effect on our liquidity by restricting our ability to access the capital markets, increasing the related cost of funds, causing the sudden and large-scale withdrawal of unsecured deposits by our clients, leading to draw-downs of unfunded commitments to extend credit or triggering requirements under securities purchase

commitments, or require additional collateral or force terminations of certain trading derivative contracts.

A majority of our derivative contracts have been entered into under bilateral agreements with counterparties who may require us to post collateral or terminate the transactions based on changes in our credit ratings. We assess the impact of these arrangements by determining the collateral or termination payments that would be required assuming a downgrade by all rating agencies. The following table presents the additional collateral or termination payments related to our net derivative liabilities under these arrangements that could have been called as of the dates indicated by counterparties in the event of a one-notch and two-notch downgrade in our credit ratings. Other funding sources, such as secured financing transactions and other margin requirements, for which there are no explicit triggers, could also be adversely affected.



(In millions)	March 31, 2014		December 31, 2013
Additional collateral or termination payments for a one- or two-notch downgrade	$	3	$	7

Proposed Liquidity Framework

In October 2013, U.S. banking regulators issued a Notice of Proposed Rulemaking, or NPR, intended to implement the Basel Committee's Liquidity Coverage Ratio, or LCR, in the U.S. The LCR is intended to promote the short-term resilience of the liquidity risk profile of internationally active banking organizations, improve the banking industry's ability to absorb shocks arising from financial and economic stress, and improve the measurement and management of liquidity risk. The proposed LCR would require a covered banking organization to maintain an amount of high-quality liquid assets, or HQLA, equal to or greater than 100% of the banking organization’s total net cash outflows over a 30-calendar-day period of significant liquidity stress, as defined. The October 2013 NPR would be phased in beginning on January 1, 2015 at 80% with full implementation by January 1, 2017. As an internationally active banking organization, we expect to be subject to the LCR standard in the U.S., as well as in other jurisdictions in which we operate.

The NPR is generally consistent with the Basel Committee’s LCR. However, it includes certain more stringent requirements, including an accelerated implementation time line and modifications to the definition of high-quality liquid assets and expected outflow assumptions. We continue to analyze the proposed rules and analyze their impact as well as develop strategies for compliance. The principles of the LCR are consistent with our liquidity management framework; however, the specific calibrations of

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various elements within the final LCR rule, such as the eligibility of assets as HQLA, operational deposit requirements and net outflow requirements could have a material effect on our liquidity, funding and business activities, including the management and composition of our investment securities portfolio and our ability to extend committed contingent credit facilities to our clients.

In January 2014, the Basel Committee released a revised proposal with respect to the Net Stable Funding Ratio, or NSFR, which will establish a one-year liquidity standard representing the proportion of long-term assets funded by long-term stable funding, scheduled for global implementation in 2018. The revised NSFR has made some favorable changes regarding the treatment of operationally linked deposits and a reduction in the funding required for certain securities. However, we continue to review the specifics of the Basel Committee's release and will be evaluating the U.S. implementation of this standard to analyze the impact and develop strategies for compliance. U.S. banking regulators have not yet issued a proposal to implement the NSFR.

Operational Risk Management

We define operational risk as the risk of loss resulting from inadequate or failed internal processes and systems, human error, or from external events. At State Street, this definition encompasses legal risk and fiduciary risk. We define legal risk as the risk of loss resulting from failure to comply with laws and contractual obligations as well as prudent ethical standards, in addition to exposure to litigation from all aspects of our activities. Fiduciary risk arises if, in acting on behalf of our clients, we fail to properly exercise discretion or we do not properly monitor or control the exercise of discretion by a third party.

In the conduct of our investment servicing and investment management activities, we assume operational risk. The products and services we provide to our clients, such as custody; product- and participant-level accounting; daily pricing and administration; master trust and master custody; record-keeping; cash management; foreign exchange, and the management of financial assets using passive and active strategies, can result in execution risk, business practice risk, fiduciary risk and other types of operational risk. Because operational risk is process-oriented, compared to other risks, for example credit risk and market risk, which are transaction-oriented, our ability to influence and manage risk-taking rests at the process level, and requires a broad set of process controls.

Whereas operational risk represents the potential, an operational risk event is the actual

occurrence of the risk. An operational risk event that gives rise to a direct financial impact is referred to as an operational risk loss or gain. If there is no financial impact, the event is termed a “near-miss.”

Framework


▪	The alignment of business priorities with risk management objectives;


▪	The active management of risk and the avoidance of surprises;


▪	The clarification of responsibilities for the management of operational risk;


▪	A common understanding of operational risk management and its supporting processes; and


▪	The consistent application of policies and collection of data for risk management and measurement.

The framework is composed of two mutually reinforcing areas, foundational elements and framework components. The three foundational elements used to consistently implement the framework across the diverse groups within State Street are governance, documentation, and communication/awareness. The framework also contains five components that provide overarching structure that integrates distinct risk programs into a continuous process focused on managing and measuring operational risk in a coordinated and consistent manner. The individual components and the objectives of each component are:


▪	Identify, assess and measure risk - understand business unit strategy, risk profile and potential exposure;


▪	Monitor risk - proactively monitor the business environment and associated operational risk exposure;


▪	Evaluate and test controls - verify that internal controls are designed appropriately, are consistent with corporate and regulatory standards, and are operating effectively;


▪	Provide integrated management reporting - facilitate management's ability to maintain

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control, provide oversight and escalate issues in a timely manner; and


▪	Support risk-based decision making - make conscious risk-based decisions and understand the trade-off between risk and return.

We maintain an operational risk policy, under which we endeavor to effectively manage operational risk in order to support the achievement of our corporate objectives and fully comply with any related regulatory requirements. We achieve these policy objectives through the implementation of our operational risk framework, which describes the integrated set of processes and tools that assist us in managing and measuring operational risk.

Our operational risk policy is approved annually by the Board's RCC. The purpose of the policy is to set forth our approach to the management of operational risk, to identify the responsibilities of individuals and committees charged with overseeing the management of operational risk, and to provide a broad mandate that supports implementation of the operational risk framework.

Guidelines

As part of our operational risk framework, we have also developed operational risk guidelines which document in greater detail our practices and describe the key elements that should be present in a business unit's operational risk management program. The purpose of the guidelines is to set forth and define key operational risk terms, provide further detail on State Street's operational risk programs, and detail business unit responsibilities for the identification, assessment, measurement, monitoring and reporting of operational risk. The guidelines support the operational risk policy and document our practices used to manage and measure operational risk in an effective and consistent manner across State Street.

We have a number of operational risk tools and processes in use that are corporate-wide in application or coverage. These tools include a series of risk assessments and diagnostics, at the business unit level, across the risk spectrum aimed at the identification of risks that occur routinely through normal operations, strategic risks that may arise over a longer-term horizon and risks that occur very infrequently but which could materially affect State Street. Further, these assessments allow management to define risk mitigation strategies and set action plans for implementation.

State Street monitors the level and trend of its operational risk profile through a series of management reports, risk assessment outcomes, risk mitigation initiative processes and risk metrics. Together, this data assists us in understanding our

risk profile, as well as our progress on managing risk and changes in the environment, both internal and external, which may affect our risk profile. In addition, we use scenario analysis to provide a forward-looking assessment of large operational risk events that we may not have experienced yet.

In order for these tools and programs to meet framework objectives, we have implemented comprehensive data collection practices and consistent risk classification standards that facilitate the analysis of risks across the company. In addition, we have established standards for operational risk data for the purpose of maintaining data repositories and systems that are controlled, accurate and available on a timely basis to support operational risk management.

Governance

The roles and responsibilities with respect to the management of operational risk at State Street reflect the following four key principles:


▪	Board oversight of our operational risk framework is primarily the responsibility of the RCC, which annually reviews and approves our operational risk policy and delegates day-to-day oversight to ERM;


▪	Senior business unit managers are responsible for the management of operational risk;


▪	ERM and other corporate groups provide separate oversight, validation and verification of the management and measurement of operational risk; and


▪	Executive management provides oversight through participation on risk-management committees and direct management of risk in business activities.

The key responsibilities of these groups with respect to operational risk are described below:


▪	The RCC approves our operational risk policy, delegates the implementation and monitoring of the operational risk guidelines, framework and related programs to ERM, and reviews periodic reporting of management information related to operational risk; and


▪	Senior business unit management is responsible for the direct management of operational risk arising from our business activities, as well as operational risk oversight through representation on the MRAC, the BCRC, the TORC, and the local Operational Risk and Fiduciary Review Committees.

A number of corporate groups have responsibility for developing, implementing, and

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assessing various aspects of State Street's operational risk framework:


▪	ERM’s Corporate Operational Risk Management group is responsible for the development and implementation of State Street's operational risk guidelines, framework and supporting tools. It also reviews and analyzes operational key risk information, metrics and indicators at the business line and corporate level for purposes of reporting and escalating operational risk events;


▪	ERM’s Corporate Risk Analytics group develops and maintains operational risk capital estimation models and regularly calculates State Street's operational risk regulatory capital requirements;


▪	ERM’s Model Governance group separately validates the quantitative models used to measure operational risk; and


▪	Corporate Audit performs separate reviews of the application of operational risk management practices and methodologies utilized across State Street.

Operational risk management at State Street includes both the corporate Operational Risk Management group, led by the global head of Operational Risk, who is a member of the CRO’s executive management team, and a distributed risk management infrastructure that is aligned with our business units. The risk management groups aligned with the business units report directly to the CRO, and have operational risk managers who are responsible for the implementation of the operational risk framework at the business unit level.

Market Risk Management

Market risk is defined by U.S. banking regulators as the risk of loss that could result from broad market movements, such as changes in the general level of interest rates, credit spreads, foreign exchange rates or commodity prices. State Street is exposed to market risk in both its trading and certain of its non-trading, or asset-and-liability management, activities. The market risk management processes related to our trading activities, discussed in further detail below, apply to both on- and off-balance sheet exposures.

In the conduct of our trading activities, we assume market risk. The level of market risk that we assume is a function of our overall risk appetite, business objectives and liquidity needs, our clients' requirements and market volatility, and our execution against those factors. Market risk associated with our trading activities is discussed below under “Trading Activities.” In addition, a supplemental disclosure

providing qualitative and quantitative information with respect to market risk associated with our trading activities is provided on the “Investor Relations” section of our website.

Market risk associated with our non-trading activities, which consists primarily of interest-rate risk, is discussed under “Asset-and-Liability Management Activities.”

Trading Activities

We engage in trading activities primarily to support our clients' needs and to contribute to our overall corporate earnings and liquidity. In connection with certain of these trading activities, we enter into a variety of derivative financial instruments to support our clients' needs and to manage our interest-rate and currency risk. These activities are generally intended to generate trading services revenue and to manage potential earnings volatility. In addition, we provide services related to derivatives in our role as both a manager and a servicer of financial assets. Our clients use derivatives to manage the financial risks associated with their investment goals and business activities. With the growth of cross-border investing, our clients often enter into foreign exchange forward contracts to convert currency for international investments and to manage the currency risk in their international investment portfolios. As an active participant in the foreign exchange markets, we provide foreign exchange forward and option contracts in support of these client needs, and also act as a dealer in the currency markets.

As part of our trading activities, we assume positions in the foreign exchange and interest-rate markets by buying and selling cash instruments and entering into derivative instruments, including foreign exchange forward contracts, foreign exchange and interest-rate options and interest-rate swaps, interest-rate forward contracts, and interest-rate futures. As of March 31, 2014, the aggregate notional amount of these derivative contracts was $1.24 trillion, of which $1.23 trillion was composed of foreign exchange forward, swap and spot contracts. In the aggregate, we seek to match positions closely with the objective of minimizing related currency and interest-rate risk. All foreign exchange contracts are valued daily at current market rates. Additional information about derivative contracts entered into in connection with our trading activities is provided in note 11 to the consolidated financial statements included in this Form 10-Q.

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Governance

Our assumption of market risk in our trading activities is an integral part of our corporate risk appetite. Our Board of Directors reviews and oversees our management of market risk, including the approval of key market risk policies and the receipt and review of regular market risk reporting, as well as periodic updates on selected market risk topics.

The TMRC is a management committee that oversees all market risk-taking activities across State Street associated with trading. The TMRC, which reports to the MRAC is composed of members of ERM; our Global Markets business; and our Global Treasury group, as well as our senior executives who manage our trading businesses and other members of management who possess specialized knowledge and expertise. Under authority delegated by the MRAC, the TMRC is responsible for the formulation of guidelines, strategies and work flows with respect to the measurement, monitoring and control of our trading market risk, and also approves market risk tolerance limits and dealing authorities. The TMRC meets regularly to monitor the management of our trading market risk activities.

Our business units identify, actively manage and are responsible for the market risks inherent in their businesses. A dedicated market risk management group within ERM, and other groups within ERM, work with those business units to assist them in the identification, assessment, monitoring, management and control of market risk, and assist business unit managers with their market risk management and measurement activities. ERM provides an additional line of oversight, support and coordination designed to promote the consistent identification, measurement and management of market risk across business units, separate from those business units' discrete activities.

The ERM market risk management group is responsible for the management of corporate-wide market risk, the monitoring of key market risks and the development and maintenance of market risk management policies, guidelines, and standards aligned with our corporate risk appetite. This market risk management group also establishes and approves market risk tolerance limits and dealing authorities based on, but not limited to, notional amount measures, sensitivity measures, VaR measures and stress measures. Such limits and authorities are specified in our trading and market risk guidelines which govern our management of trading market risk.

Our risk management and our calculations of regulatory capital and economic capital are based primarily on our internal VaR models and stress-

testing analysis. As discussed in detail under “Value-at-Risk” below, VaR is measured daily by ERM.

Market risk exposure is established within our risk appetite framework. These limits define threshold levels for VaR- and stressed VaR-based measures and are applicable to all trading positions subject to regulatory capital requirements.

Covered Positions

Our trading positions are subject to regulatory market risk capital requirements if they meet the regulatory definition of a “covered position.” The identification of covered positions for inclusion in our market risk capital framework is governed by our covered positions policy. This policy outlines the standards we use to determine whether a trading position is a covered position.

Our covered positions consist primarily of those arising from the trading portfolios held by our Global Markets business. These trading portfolios include products such as spot foreign exchange, foreign exchange forwards, non-deliverable forwards, foreign exchange options, foreign exchange funding swaps, currency futures, financial futures, and interest rate futures. Covered positions also arise from certain portfolios held by our Global Treasury group. Any new activities are analyzed to determine if the positions arising from such new activities meet the definition of a covered position and conform to our covered positions policy. This documented analysis, including any decisions with respect to market risk treatments, must receive approval from the TMRC.

Value-at-Risk, Stress Testing and Stressed VaR

As noted above, we use a variety of risk measurement tools and methodologies, including VaR, which is an estimate of potential loss for a given period within a stated statistical confidence interval. We use a risk measurement methodology to measure trading-related VaR daily. We have adopted standards for measuring trading-related VaR, and we maintain regulatory capital for market risk associated with our trading activities in conformity with currently applicable bank regulatory market risk requirements.

We utilize an internal VaR model to calculate our regulatory market risk capital requirements. We use a historical simulation model to calculate daily VaR- and stressed VaR-based measures for our covered positions in conformity with regulatory requirements. Our VaR model seeks to capture identified material risk factors associated with our covered positions, including risks arising from market movements such as changes in foreign exchange rates, interest rates and option-implied volatilities.

We have adopted standards and guidelines to value our covered positions which govern our VaR-

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and stressed VaR-based measures. Our regulatory VaR-based measure is calculated based on a one-tail, 99% confidence interval and a ten-business-day holding period, using a historical observation period of two years. We also use the same platform to calculate a one-tail, 99% confidence interval, one-business-day VaR for internal risk management purposes. A 99% one-tail confidence interval implies that daily trading losses are not expected to exceed the estimated VaR more than 1% of the time, or less than three business days out of a year.

Our market risk models, including our VaR model, are subject to change in connection with the governance, validation and back-testing processes described below. These models can change as a result of changes in our business activities, our historical experiences, market forces and events, regulations and regulatory interpretations and other factors. In addition, the models are subject to continuing regulatory review and approval. Changes in our models may result in changes in our measurements of our market risk exposures, including VaR, and related measures, including regulatory capital. These changes could result in material changes in those risk measurements and related measures as calculated and compared from period to period.

Value-at-Risk

VaR measures are based on two years of historical price movements for instruments and related risk factors to which we have exposure. The instruments in question are limited to foreign exchange spot, forward and options contracts and interest-rate contracts, including futures and interest-rate swaps.

Our VaR methodology uses a historical simulation approach based on market-observed changes in foreign exchange rates, U.S. and non-U.S. interest rates and implied volatilities, and incorporates the resulting diversification benefits provided from the mix of our trading positions. Our VaR model incorporates around 5,000 risk factors and includes correlations among currency, interest rates, and other market rates.

Stress Testing and Stressed VaR

We have a corporate-wide stress-testing program in place that incorporates an array of techniques to measure the potential loss we could suffer in a hypothetical scenario of adverse economic and financial conditions. We also monitor concentrations of risk such as concentration by branch, risk component, and currency pairs. We conduct stress testing on a daily basis based on selected historical stress events that are relevant to our positions in order to estimate the potential impact

to our current portfolio should similar market conditions recur, and we also perform stress testing as part of the Federal Reserve's annual CCAR process. Stress testing is conducted, analyzed and reported at the corporate, trading desk, division and risk-factor level (for example, exchange risk, interest-rate risk and volatility risk).

We calculate a stressed VaR-based measure using the same model we use to calculate VaR, but with model inputs calibrated to historical data from a range of continuous twelve-month periods that reflect significant financial stress. The sixty-day moving average of our stressed VaR-based measure was approximately$31 million for the twelve months endedMarch 31, 2014, compared to a sixty-day moving average of approximately $28 million for the twelve months ended December 31, 2013 and approximately $16 million for the twelve months endedMarch 31, 2013.

Stress-testing results and limits are actively monitored on a daily basis by ERM and reported to the TMRC. Limit breaches are addressed by ERM risk managers in conjunction with the business units, escalated as appropriate, and reviewed by the TMRC if material. In addition, we have established several action triggers that prompt immediate review by management and the implementation of a remediation plan.

Validation and Back-Testing

We perform daily back-testing to assess the accuracy of our VaR-based model in estimating loss at the stated confidence level. This back-testing involves the comparison of estimated VaR model outputs to actual profit-and-loss, or P&L, outcomes observed from daily market movements. We back-test our VaR model using “clean” P&L, which excludes non-trading revenue such as fees, commissions and net interest revenue, as well as estimated revenue from intra-day trading. We experienced no back-testing exceptions in the first quarter of 2014 or the first quarter of 2013.

Our market risk models are governed by our model risk governance guidelines, in conformity with our model risk governance policy, which outline the standards we use to assess the conceptual soundness and effectiveness of our models. Our market risk models are subject to regular review and validation by our Model Validation group within ERM and overseen by the MAC. The MAC, chaired by a senior executive in ERM, was established for the purpose of providing recommendations on technical modeling issues to the corporate oversight committees. The MAC includes members with expertise in modeling methodologies and has representation from the various business units

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throughout State Street. Additional information is provided under “Model Risk Management.”

Our model validation process also evaluates the integrity of our VaR models through the use of regular outcome analysis. Such outcome analysis includes back-testing, which compares the VaR model's predictions to actual outcomes using out-of-sample information. The Model Validation Group examined back-testing results for the market risk regulatory

capital model used for 2012. Consistent with regulatory guidance, the back-testing compared “clean” P&L, defined above, with the one-day VaR produced by the model. The back-testing was performed for a time period not used for model development. The number of occurrences where “clean” trading-book P&L exceeded the one-day VaR was within our expected VaR tolerance level.

The following tables present VaR associated with our trading activities for covered positions held during the first quarter ended March 31, 2014 and the first quarter ended March 31, 2013, and as of March 31, 2014 and December 31, 2013, as measured by our VaR methodology.



VaR - COVERED PORTFOLIOS (TEN-DAY VaR)	Quarter Ended March 31, 2014						Quarter Ended March 31, 2013						As of March 31, 2014		As of December 31, 2013
(In thousands)	Average		Maximum		Minimum		Average		Maximum		Minimum		VaR		VaR
Foreign exchange	$	6,321	$	12,327	$	2,273	$	7,114	$	22,835	$	1,626	$	4,664	$	5,463
Money market/Global Treasury	51		62		42		140		559		24		61		58
Total VaR	$	6,298	$	12,283	$	2,262	$	7,046	$	22,834	$	1,641	$	4,634	$	5,441



STRESSED VaR - COVERED PORTFOLIOS (TEN-DAY VaR)	Quarter Ended March 31, 2014						Quarter Ended March 31, 2013						As of March 31, 2014		As of December 31, 2013
(In thousands)	Average		Maximum		Minimum		Average		Maximum		Minimum		VaR		VaR
Foreign exchange	$	30,664	$	50,900	$	15,625	$	16,424	$	37,633	$	5,333	$	34,072	$	30,338
Money market/Global Treasury	230		572		84		310		965		56		140		280
Total Stressed VaR	$	30,610	$	50,795	$	15,495	$	16,313	$	37,445	$	5,385	$	33,930	$	30,403

The VaR-based measures presented in the preceding tables are primarily a reflection of the overall level of market volatility and our appetite for trading market risk. Overall levels of volatility have been low both on an absolute basis and relative to the historical information observed at the beginning of the period used for the calculations. Both the ten-day VaR-based measures and the stressed VaR-based measures are based on historical changes observed during rolling ten-day periods for the portfolios as of the close of business each day over the past one-year period.

The decrease in the maximum VaR measure for foreign exchange for the quarter ended March 31, 2014 compared to the quarter ended March 31, 2013 was the result of declining market volatility, particularly foreign exchange volatility. In addition, the high level of volatility that occurred in the third and fourth quarters of 2011 was no longer included in the advancing two-year window for historical price movements and related risk factors used to measure VaR. The increase in the stressed-VaR measures for the quarter ended March 31, 2014 compared to the quarter ended March 31, 2013 resulted from the

model changes, described below, that we implemented beginning on July 1, 2013. The increase in the stressed-VaR measure for foreign exchange as of March 31, 2014 compared to December 31, 2013 was due primarily to increases in our exposures to both on-shore and off-shore yield curves in foreign currency.

Beginning on July 1, 2013, we implemented two significant changes to our stressed-VAR model. The net effect of the two changes resulted in increases in our stressed VaR-based measures, calculated based on a 99% confidence interval. The changes involved the introduction of off-shore yield curves for non-deliverable forward contracts in our portfolios of covered positions and the use of absolute changes in place of relative or percentage changes for interest-rate risk factors (both base curves and spread curves).

We may in the future further modify and adjust our models and methodologies used to calculate VaR, subject to regulatory review and approval, and these modifications and adjustments may result in changes in our VaR measures, some of which may be significant.

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The following table presents VaR associated with our trading activities attributable to foreign exchange rates, interest rates and volatility as ofMarch 31, 2014 and December 31, 2013. The totals of the VaR amounts attributable to foreign exchange rates, interest rates and volatility for each VaR component exceeded the component VaR measures presented in the foregoing table as of each period-end, primarily due to the benefits of diversification across risk types.



VaR - COVERED PORTFOLIOS (TEN-DAY VaR)	As of March 31, 2014						As of December 31, 2013
(In thousands)	Foreign Exchange		Interest Rate		Volatility		Foreign Exchange		Interest Rate		Volatility
By component:
Foreign exchange/Global Markets	$	4,107	$	4,132	$	234	$	3,492	$	4,561	$	306
Money market/Global Treasury	48		25		—		46		52		—
Total VaR	$	4,070	$	4,125	$	234	$	3,457	$	4,577	$	306

Asset-and-Liability Management Activities

The primary objective of asset-and-liability management is to provide sustainable and growing net interest revenue, or NIR, under varying economic environments, while protecting the economic value of the assets and liabilities carried in our consolidated statement of condition from the adverse effects of changes in interest rates. While many market factors affect the level of NIR and the economic value of our assets and liabilities, one of the most significant factors is our exposure to movements in interest rates. Most of our NIR is earned from the investment of client deposits generated by our businesses. We invest these client deposits in assets that conform generally to the characteristics of our balance sheet liabilities, including the currency composition of our significant non-U.S. dollar denominated client liabilities, but we manage our overall interest-rate risk position in the context of current and anticipated market conditions and within internally-approved risk guidelines.

Our overall interest-rate risk position is maintained within a series of policies approved by the Board and guidelines established and monitored by ALCCO. Our Global Treasury group has responsibility for managing our day-to-day interest-rate risk. To effectively manage our consolidated statement of condition and related NIR, Global Treasury has the authority to assume a limited amount of interest-rate risk based on market conditions and its views about the direction of global interest rates over both short-term and long-term time horizons. Global Treasury manages our exposure to changes in interest rates on a consolidated basis organized into three regional treasury units, North America, Europe and Asia/Pacific, to reflect the growing, global nature of our exposures and to capture the impact of changes in regional market environments on our total risk position.

The economic value of our consolidated statement of condition is a metric designed to estimate the fair value of assets and liabilities which

Our investment activities and our use of derivative financial instruments are the primary tools used in managing interest-rate risk. We invest in financial instruments with currency, repricing, and maturity characteristics we consider appropriate to manage our overall interest-rate risk position. In addition, we use certain derivative instruments, primarily interest-rate swaps, to alter the interest-rate characteristics of specific balance sheet assets or liabilities.

Additional information about our measurement of fair value and our use of derivatives is provided in notes 2 and 11, respectively, to the consolidated financial statements included in this Form 10-Q.

Because no one individual measure can accurately assess all of our exposures to changes in interest rates, we use several quantitative measures in our assessment of current and potential future exposures to changes in interest rates and their impact on NIR and balance sheet values. NIR simulation is the primary tool used in our evaluation of the potential range of possible NIR results that could occur under a variety of interest-rate environments. We also use market valuation and duration analysis to assess changes in the economic value of balance sheet assets and liabilities caused by assumed changes in interest rates.

To measure, monitor, and report on our interest-rate risk position, we use NIR simulation, or NIR-at-risk, and economic value of equity, or EVE, sensitivity. NIR-at-risk measures the impact on NIR over the next twelve months to immediate, or “rate shock,” and gradual, or “rate ramp,” changes in market interest rates. EVE sensitivity is a total return view of interest-rate risk, which measures the impact on the present

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value of all NIR-related principal and interest cash flows of an immediate change in interest rates, and is generally used in the context of economic capital discussed under “Economic Capital” in “Financial Condition - Capital” in this Management's Discussion and Analysis. Although NIR-at-risk and EVE sensitivity measure interest-rate risk over different time horizons, both utilize consistent assumptions when modeling the positions currently held by State Street; however, NIR-at-risk also incorporates future actions planned by management over the time horizons being modeled.

In calculating our NIR-at-risk, we start with a base amount of NIR that is projected over the next twelve months, assuming our forecast yield curve over the period. Our existing balance sheet assets and liabilities are adjusted by the amount and timing of transactions that are forecast to occur over the next twelve months. That yield curve is then “shocked,” or moved immediately, +/-100 basis points in a parallel fashion, or at all points along the yield curve. Two new twelve-month NIR projections are then developed using the same balance sheet and forecast transactions, but with the new yield curves, and compared to the base scenario. We also perform the calculations using interest-rate ramps, which are +/-100-basis-point changes in interest rates that are assumed to occur gradually over the next twelve months, rather than immediately as we do with interest-rate shocks.

EVE is based on the change in the present value of all NIR-related principal and interest cash flows for changes in market rates of interest. The present value of existing cash flows with a then-current yield curve serves as the base case. We then apply an immediate parallel shock to that yield curve of ±200 basis points and recalculate the cash flows and related present values. A large shock is used to better capture the embedded option risk in our mortgage-backed securities that results from borrowers' prepayment opportunities.

Key assumptions used in the models, described in more detail below, along with changes in market conditions, are inherently uncertain. Actual results necessarily differ from model results as market conditions differ from assumptions. As such, management performs back-testing, stress testing, and model integrity analyses to validate that the modeled results produce predictive NIR-at-risk and EVE sensitivity estimates which can be used in our management of interest-rate risk. Primary factors affecting the actual results are changes in our balance sheet size and mix; the timing, magnitude and frequency of changes in interest rates, including the slope and the relationship between the interest-rate level of U.S. dollar and non-U.S. dollar yield

curves; changes in market conditions; and management actions taken in response to the preceding conditions.

Both NIR-at-risk and EVE sensitivity results are managed against ALCCO-approved limits and guidelines and are monitored regularly, along with other relevant simulations, scenario analyses and stress tests, by both Global Treasury and ALCCO. Our ALCCO-approved guidelines are, we believe, in line with industry standards and are periodically examined by the Federal Reserve.

Based on our current balance sheet composition where fixed-rate assets exceed fixed-rate liabilities, reported results of NIR-at-risk could depict an increase in NIR from a rate increase while EVE presents a loss. A change in this balance sheet profile may result in different outcomes under both NIR-at-risk and EVE. NIR-at-risk depicts the change in the nominal (undiscounted) dollar net interest flows which are generated from the forecast statement of condition over the next twelve months. As interest rates increase, the interest expense associated with our client deposit liabilities is assumed to increase at a slower pace than the investment returns derived from our current balance sheet or the associated reinvestment of our interest-earning assets, resulting in an overall increase to NIR. EVE, on the other hand, measures the present value change of both principal and interest cash flows based on the current period-end balance sheet. As a result, EVE does not contemplate reinvestment of our assets associated with a change in the interest-rate environment.

Although NIR in both NIR-at-risk and EVE sensitivity is higher in response to increased interest rates, the future principal flows from fixed-rate investments are discounted at higher rates for EVE, which results in lower asset values and a corresponding reduction or loss in EVE. As noted above, NIR-at-risk does not analyze changes in the value of principal cash flows and therefore does not experience the same reduction experienced by EVE sensitivity associated with discounting principal cash flows at higher rates.

Net Interest Revenue at Risk

NIR-at-risk is designed to measure the potential impact of changes in global market interest rates on NIR in the short term. The impact of changes in market rates on NIR is measured against a baseline NIR which encompasses management's expectations regarding the evolving balance sheet volumes and interest rates in the near-term. The goal is to achieve an acceptable level of NIR under various interest-rate environments. Assumptions regarding levels of client deposits and our ability to price these deposits under various rate environments have a significant impact

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on the results of the NIR simulations. Similarly, the timing of cash flows from our investment portfolio, especially option-embedded financial instruments like mortgage-backed securities, and our ability to replace these cash flows in line with management's expectations, can affect the results of NIR simulations.

The following table presents the estimated exposure of our NIR for the next twelve months, calculated as of the dates indicated, due to an immediate +/-100-basis-point shift to our internal forecast of global interest rates. We manage our NIR sensitivity to limit declines to 15% or less from baseline NIR. Estimated incremental exposures presented below are dependent on management's assumptions, and do not reflect any additional actions management may undertake in order to mitigate some of the adverse effects of changes in interest rates on our financial performance.



	Estimated Exposure to Net Interest Revenue
(Dollars in millions)	March 31, 2014					December 31, 2013
Rate change:	Exposure			% of Base NIR		Exposure			% of Base NIR
+100 bps shock	$	344		14.2	%	$	334		14.0	%
–100 bps shock	(291		)	(12.0	)	(261		)	(10.9	)
+100 bps ramp	128			5.3		126			5.3
–100 bps ramp	(158		)	(6.5	)	(124		)	(5.2	)

As of March 31, 2014, NIR sensitivity to an upward-100-basis-point shock in global interest rates was slightly higher compared to such sensitivity as of December 31, 2013, due to a higher level of forecast client deposits. The benefit to NIR of an upward-100-basis-point ramp is less significant than a shock, since interest rates are assumed to increase gradually.

NIR sensitivity to a downward-100-basis-point shock in global interest rates as of March 31, 2014 increased compared to such sensitivity as of December 31, 2013. Increased levels of forecast client deposits, while beneficial to baseline NIR, do not provide relief in the downward shock scenario, as they have no room to fully re-price from current levels as their pricing basis falls. A downward-100-basis-point shock in global interest rates places pressure on NIR, as deposit rates reach their implicit floors due to the exceptionally low globalinterest-rate environment, and provide little funding relief on the liability side, while assets re-price into the lower-rate environment.

Our baseline NIR incorporates an expectation that short-term interest rates will begin to rise in anticipation of central bank tightening of current

monetary policies. While this rise in rates benefits our baseline NIR, it is detrimental to our NIR sensitivity to a downward-100-basis-point shock, as rising short-term interest rates allow asset yields to re-price lower in a downward shock scenario than previously, while deposits are still priced close to natural floors.

Other important factors which affect the levels of NIR are the size and mix of assets carried in our consolidated statement of condition; interest-rate spreads; the slope and interest-rate level of U.S. and non-U.S. dollar yield curves and the relationship between them; the pace of change in global market interest rates; and management actions taken in response to the preceding conditions.

Economic Value of Equity

EVE sensitivity measures changes in the market value of equity to quantify potential losses to shareholders due to an immediate +/-200-basis-point rate shock compared to current interest-rate levels if the balance sheet were liquidated immediately. Management compares the change in EVE sensitivity against State Street's aggregate tier 1 and tier 2 risk-based capital, calculated in conformity with currently applicable regulatory requirements, to evaluate whether the magnitude of the exposure to interest rates is acceptable. Generally, a change resulting from a +/-200-basis-point rate shock that is less than 20% of aggregate tier 1 and tier 2 capital is an exposure that management deems acceptable. To the extent that we manage changes in EVE sensitivity within the 20% threshold, we would seek to take action to remain below the threshold if the magnitude of our exposure to interest rates approached that limit.

Similar to NIR-at-risk measures, the timing of cash flows affects EVE sensitivity, as changes in asset and liability values under different rate scenarios are dependent on when interest and principal payments are received. In contrast to NIR simulations, however, EVE sensitivity does not incorporate assumptions regarding reinvestment of these cash flows. In addition, our ability to price client deposits has a much smaller impact on EVE sensitivity, as EVE sensitivity does not consider the ongoing benefit of investing client deposits.

The following table presents estimated EVE exposures, calculated as of the dates indicated, assuming an immediate and prolonged shift in global interest rates, the impact of which would be spread over a number of years.

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	Estimated Sensitivity of Economic Value of Equity
(Dollars in millions)	March 31, 2014					December 31, 2013
Rate change:	Exposure			% of Tier 1/Tier 2 Capital		Exposure			% of Tier 1/Tier 2 Capital
+200 bps shock	$	(2,346	)	(13.2	)%	$	(2,359	)	(14.9	)%
–200 bps shock	1,146			6.5		1,149			7.2

Exposure to upward- and downward-200-basis-point shocks as of March 31, 2014 improved compared to December 31, 2013. A lower concentration of fixed-rate securities in the investment portfolio and related hedging activity in 2013 reduced EVE sensitivity to changes in market rates.

Model Risk Management

The use of financial models is widespread throughout the banking and financial services industry, with larger and more complex organizations employing dozens of sophisticated models on a daily basis to measure risk exposures, determine economic and regulatory capital levels, and guide investment decisions, among other things. However, even as models represent a significant advancement in financial management, the models themselves represent a new source of risk, i.e., the potential for adverse consequences or financial loss from decisions based on incorrect, misused or misinterpreted model outputs and reports.

In large banking organizations like State Street, where financial models and their outputs exert significant influence on business decisions, and where model failure could have a particularly harmful effect on our financial strength and performance, model risk is managed within an extensive and rigorous risk management framework. This framework is documented in our Model Risk Governance policy statement and accompanying Model Risk Governance guidelines.

Our model risk management program has three principal components:


▪	A model risk governance program supports risk management by defining roles and responsibilities, by providing policies and guidance that define relevant model risk management activities, and by describing procedures that implement those policies;


▪	A model development process facilitates the appropriate design and accuracy of models; the development process also includes ongoing model integrity activities designed to test for robustness and stability and to evaluate a model's limitations and assumptions; and


▪	A set of model validation processes and activities is designed to validate that models are theoretically sound, are performing as expected, and are in line with their design objectives; model validation also checks that a model's key assumptions and limitations are identified and clearly communicated to the model's end users and to senior management.

The MAC, chaired by the head of the Model Validation Group, was established to provide recommendations on technical modeling issues to the corporate oversight committees. The MAC includes members with expertise in modeling methodologies, and has representation from the various business units throughout State Street.

Business Risk Management

We define business risk as the risk of adverse changes in our earnings related to business factors, including changes in the competitive environment, changes in the operational economics of our business activities and the potential effect of strategic and reputation risks, not already captured as trading market, interest-rate, credit, operational or liquidity risks. We incorporate business risk into our assessment of our strategic plans and economic capital needs. Active management of business risk is an integral component of all aspects of our business, and responsibility for the management of business risk lies with every employee at State Street.

Separating the effects of a potential material adverse event into operational and business risk is sometimes difficult. For instance, the direct financial impact of an unfavorable event in the form of fines or penalties would be classified as an operational risk loss, while the impact on our reputation and consequently the potential loss of clients and corresponding decline in revenue would be classified as a business risk loss. An additional example of business risk is the integration of a major acquisition. Failure to successfully integrate the operations of an acquired business, and the resultant inability to retain clients and the associated revenue, would be classified as a loss due to business risk.

Business risk is managed with a long-term focus. Techniques for its assessment and management include the development of business

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plans and appropriate management oversight. The potential impact of the various elements of business risk is difficult to quantify with any degree of precision. We use a combination of historical earnings volatility, scenario analysis, stress-testing and management judgment to help assess the potential effect on State Street attributable to business risk. Management and control of business risks are generally the responsibility of the business units as part of their overall strategic planning and internal risk management processes.

Capital

The management of both our regulatory and ~~our~~ economic capital involves key metrics evaluated by management to assess whether our actual level of capital is commensurate with our risk profile, is in compliance with all applicable regulatory requirements, and is sufficient to provide us with the financial flexibility to undertake future strategic business initiatives. We assess capital based on relevant regulatory capital adequacy requirements, as well as our own internal capital targets.

Framework

Our objective with respect to management of capital is to maintain a strong capital base in order to provide financial flexibility for our business needs, including funding corporate growth and supporting clients’ cash management needs, and to provide protection against loss to depositors and creditors. We strive to maintain an appropriate level of capital, commensurate with our risk profile, on which an attractive return to shareholders is expected to be realized over both the short and long term, while protecting our obligations to depositors and creditors and complying with regulatory capital adequacy requirements. Our capital management process focuses on our risk exposures, the regulatory requirements applicable to us with respect to capital adequacy, the evaluations and resulting credit ratings of the major independent credit rating agencies, our return on capital at both the consolidated and line-of-business level, and our capital position relative to our peers.

Our evaluation of capital includes the comparison of capital sources with capital uses, as well as the consideration of the quality and quantity of the various components of capital, as two of several inputs in our overall assessment of our capital adequacy. The goals of the capital evaluation process are to determine the optimal level of capital and composition of capital instruments to satisfy all constituents of capital, with the lowest overall cost to shareholders. Other factors considered in our capital evaluation process are strategic and contingency planning, stress testing and planned capital actions.

Internal Capital Adequacy Assessment

Our primary federal banking regulator is the Federal Reserve. Both State Street and State Street Bank are subject to the minimum regulatory capital requirements established by the Federal Reserve and defined in the Federal Deposit Insurance Corporation Improvement Act of 1991, or FDICIA. State Street Bank must exceed the regulatory capital thresholds for “well capitalized” in order for our parent company to maintain its status as a financial holding company. Accordingly, our primary goal with respect to capital adequacy is to exceed all applicable minimum regulatory capital requirements and to be “well-capitalized” under the Prompt Corrective Action guidelines established by the FDIC. Our capital adequacy program includes our Internal Capital Adequacy Assessment Process, or ICAAP, and associated capital policies.

We consider capital adequacy to be a key element of our financial well-being, which affects our ability to attract and maintain client relationships; operate effectively in the global capital markets; and satisfy regulatory, security holder and shareholder needs. Capital is one of several elements that affect State Street’s debt ratings and the ratings of our principal subsidiaries.

In conformity with our capital policies, we strive to maintain adequate capital, not just at a point in time, but over time and during periods of stress, to account for changes in our strategic direction, evolving economic conditions, and financial and market volatility. We have developed and implemented a corporate-wide ICAAP to assess our overall capital and liquidity in relation to our risk profile and to provide a comprehensive strategy for maintaining appropriate capital and liquidity levels. The ICAAP considers material risks under multiple scenarios, with an emphasis on stress scenarios. The ICAAP builds on and leverages existing processes and systems used to measure our capital adequacy. Our ICAAP policy is reviewed and approved by the Board’s RCC.

Capital Contingency Planning

Contingency planning is an integral component of our capital management program. The objective of our contingency planning process is to monitor current and forecast levels of select measures that serve as preemptive indicators of a potentially adverse capital or liquidity adequacy situation. These measures are one of the inputs used to set our capital adequacy level. We review these measures annually for appropriateness and relevance in relation to our financial budget and capital plan.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

Stress Testing

We have a robust State Street-wide stress-testing program that executes multiple stress tests each year. Our stress testing program is structured around what we determine to be the key risks incurred by State Street. These key risks serve as an organizing principle for much of our risk management framework, as well as reporting, including the “risk dashboard” provided to the Board. Over the past few years, stress scenarios have included a deep recession in the U.S., a break-up of the Eurozone, and an oil shock precipitated by turmoil in the Middle East/North Africa region.

In connection with the focus on our key risks, each stress test incorporates idiosyncratic loss events tailored to State Street‘s unique risk profile. Due to the nature of our business model and our consolidated statement of condition, our risks differ from those of a traditional commercial bank.

The Federal Reserve requires bank holding companies with total consolidated assets of $50 billion or more, which includes State Street, to submit a capital plan on an annual basis. The Federal Reserve uses its annual CCAR process, which incorporates hypothetical financial and economic stress scenarios, to review those capital plans and assess whether banking organizations have capital planning processes that account for idiosyncratic risks and provide for sufficient capital to continue operations throughout times of economic and financial stress. As part of its CCAR process, the Federal Reserve assesses each organization’s capital adequacy, capital planning process, and plans to distribute capital, such as dividend payments or stock purchase programs. Management and Board risk committees review and approve CCAR results and assumptions before submission to the Federal Reserve.

Information about the Federal Reserve’s review of our capital plan for 2014, submitted in January 2014 in connection with the CCAR process, is provided under “Capital Actions” in this “Capital” section.

Governance

In order to support integrated decision making, we have identified three management elements to aid in the compatibility and coordination of our capital adequacy strategies and processes:

Risk Management - identification, measurement, monitoring and forecasting of different types of risk and their combined impact on capital adequacy;

Capital Management - determination of optimal capital and liquidity levels; and

Business Management - strategic planning, budgeting, forecasting, and performance management.

We have a hierarchical structure supporting appropriate committee review of relevant risk and capital information. The ongoing responsibility for capital management rests with our Treasurer. The Capital Planning group within Global Treasury is responsible for capital policies, development of the capital plan, the management of global capital, capital optimization, and business unit capital management.

ALCCO has oversight of our management of regulatory capital, capital adequacy with respect to regulatory requirements, internal targets and the expectations of the major independent credit rating agencies. ALCCO’s roles and responsibilities are designed to work complementary to and coordinated with the MRAC, which approves State Street’s balance sheet strategy and related activities. The Board’s RCC assists the Board in fulfilling its oversight responsibilities related to the assessment and management of risk and capital.

Regulatory Capital

Our objective with respect to regulatory capital management is to maintain a strong capital base in order to provide financial flexibility for our business needs, including funding corporate growth and supporting clients’ cash management needs, and to provide protection against loss to depositors and creditors. We strive to maintain an appropriate level of capital, commensurate with our risk profile, on which an attractive return to shareholders is expected to be realized over both the short and long term, while protecting our obligations to depositors and creditors and complying with regulatory capital adequacy requirements. Our capital management process focuses on our risk exposures, our regulatory capital requirements, the evaluations of the major independent credit rating agencies that assign ratings to our public debt and our capital position relative to our peers.

~~Additional information about our capital management process is provided under “Financial Condition—Capital” in Management’s Discussion and Analysis included in our~~ ~~2012~~ ~~Form 10-K.~~

The following ~~table presents~~tables present regulatory capital ratios, the components of tier 1, tier 2 and total capital, and the ~~related~~ components of ~~capital and~~ total risk-weighted assets, for State Street and State Street Bank as of the dates ~~indicated. As of~~ indicated:



	Currently Applicable Regulatory Guidelines				State Street				State Street Bank
	Minimum		Well Capitalized		March 31, 2014		December 31, 2013		March 31, 2014		December 31, 2013
Tier 1 risk-based capital ratio	4	%	6	%	18.3	%	17.3	%	17.3	%	16.4	%
Total risk-based capital ratio	8		10		21.0		19.7		19.6		19.0
Tier 1 leverage ratio⁽¹⁾	4		5		7.4		6.9		6.9		6.4

⁽¹⁾~~September 30, 2013~~,Regulatory guideline for “well capitalized” applies only to State Street and State Street Bank met all capital adequacy requirements to which they were subject, and regulatory capital ratios for State Street and State Street Bank exceeded the currently applicable regulatory minimum and “well capitalized” thresholds.Bank.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

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Currently Applicable Regulatory Guidelines⁽¹⁾
State Street State Street Bank
(Dollars in millions) Minimum
Well
Capitalized
September 30, 2013 December 31, 2012 September 30, 2013 December 31, 2012
Risk-based ratios:
Tier 1 capital 4 % 6 % 17.3 % 19.1 % 16.1 % 17.3 %
Total capital 8
10
19.8
20.6
18.8
19.1
Tier 1 leverage ratio 4
5
7.2
7.1
6.5
6.3
Tier 1 capital $ 13,911
$ 13,760
$ 12,419
$ 12,044
Total capital 15,919
14,829
14,515
13,306
Adjusted risk-weighted assets and market risk equivalent assets:
On-balance sheet assets 63,426
58,238
60,376
55,949
Off-balance sheet equivalent assets 15,696
13,155
15,703
13,144
Market risk equivalent assets 1,240
519
1,240
445
Total risk-weighted assets $ 80,362
$ 71,912
$ 77,319
$ 69,538
Adjusted quarterly average assets $ 193,436
$ 192,817
$ 189,935
$ 189,780



	State Street						State Street Bank
(In millions)	March 31, 2014			December 31, 2013			March 31, 2014			December 31, 2013
Tier 1 capital⁽¹⁾:
Total common shareholders' equity	$	20,040		$	19,887		$	20,024		$	19,755
Preferred stock	1,233			491			—			—
Trust preferred capital securities⁽²⁾	475			950			—			—
Goodwill and other intangible assets, net of associated deferred tax liabilities⁽³⁾	(6,122		)	(7,743		)	(5,838		)	(7,341		)
Other	(139		)	310			(63		)	304
Tier 1 capital	15,487			13,895			14,123			12,718
Tier 2 capital⁽¹⁾:
Qualifying subordinated debt	1,738			1,918			1,755			1,936
Trust preferred capital securities⁽²⁾	475			—			—			—
Allowances for on- and off-balance sheet credit exposures and other	50			48			48			45
Tier 2 capital	2,263			1,966			1,803			1,981
Deduction for investments in finance subsidiaries	—			(74		)	—			—
Total capital⁽¹⁾	$	17,750		$	15,787		$	15,926		$	14,699
Total risk-weighted assets⁽⁴⁾:
On-balance sheet assets:
Cash and interest-bearing assets	$	2,362		$	2,175		$	2,191		$	1,979
Investment securities	34,134			34,000			33,435			33,514
Loans and leases	15,754			13,201			15,807			13,257
Interest, fees and other receivables	2,746			2,951			2,111			2,332
Other assets	9,835			7,950			8,183			6,517
Total on-balance sheet assets	64,831			60,277			61,727			57,599
Off-balance sheet equivalent assets:
Guarantees and unfunded commitments to extend credit	10,989			10,125			10,989			10,125
Foreign exchange derivative contracts	4,167			5,282			4,167			5,302
Standby letters of credit and asset purchase agreements	3,011			2,995			3,011			2,995
Other	315			185			173			176
Total off-balance sheet equivalent assets	18,482			18,587			18,340			18,598
Market risk equivalent assets	1,381			1,262			1,381			1,262
Total risk-weighted assets	$	84,694		$	80,126		$	81,448		$	77,459
Adjusted quarterly average assets	$	209,021		$	202,801		$	205,409		$	199,301

⁽¹⁾The provisions of the Basel III final rule (refer to “Basel Capital Framework”) affecting the calculation of capital were effective, with related phase-in provisions, on January 1, 2014; accordingly, as of March 31, 2014, amounts for State Street and State Street Bank ~~must comply~~were calculated in conformity with the ~~regulatory guideline~~provisions of the Basel III final rule.

⁽²⁾As of March 31, 2014, amount reflected the phase-out of 50% of trust preferred capital securities from tier 1 capital and inclusion of the same amount in tier 2 capital, in conformity with the Basel III final rule.

⁽³⁾As of March 31, 2014, amounts for ~~“well capitalized”~~State Street and State Street Bank were composed of goodwill, net of associated deferred tax liabilities, and 20% of other intangible assets, net of associated deferred tax liabilities, the latter phased in ~~order for the parent company to maintain its status~~ as a ~~financial holding company, including maintaining a minimum tier 1 risk-based~~deduction from capital, ~~ratio of~~ in conformity with the Basel III final rule.

⁽⁴⁾6%~~, a minimum total risk-based capital ratio of~~ ~~10%, and a minimum tier 1 leverage ratio of~~ 5%~~. The “well capitalized” guideline requires~~Amounts for State Street ~~to maintain a minimum tier 1 risk-based capital ratio~~and State Street Bank for all periods presented were calculated in conformity with the provisions of Basel I.6% ~~and a minimum total risk-based capital ratio~~

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

As of ~~September 30, 2013~~March 31, 2014, State Street's ~~and State Street Bank's tier 1 risk-based and total risk-based~~regulatory capital ratios ~~declined~~increased compared to December 31, ~~2012~~,2013, primarily the result of ~~increases~~higher capital, partly offset by an increase in total risk-weighted assets.

The increases in State Street's tier 1 and total capital inwere the ~~same comparison increased slightly, as~~result of the first-quarter 2014 issuance of preferred stock, the impact of the phase-in provisions of the Basel III final rule related to other intangible assets and the positive effect of net income, ~~and other comprehensive income was~~ partly offset by declarations of common and preferred stock dividends and purchases by us of our common ~~stock and declarations of common stock dividends in the~~ ~~first nine months of 2013~~.stock. The increases in State Street's and State Street Bank's total capital in the same comparison were primarily the result of the May 2013 issuance of $1 billion of subordinated debt, which qualifies as tier 2 capital. The increasesincrease in total risk-weighted assets ~~for both entities as of~~ ~~September 30, 2013~~ ~~compared to~~ ~~December 31, 2012~~ ~~were~~was primarily associated with higher on-balance sheet assets, mainly due to higher levels of loans and other ~~assets, as well as an~~assets.

The increase ~~in off-balance sheet equivalent assets, mainly associated with an increase in exposure associated with our participation in principal securities finance transactions. The increases~~ in the tier 1 leverage ~~ratios for both entities as of~~ ~~September 30, 2013~~ ~~compared to~~ ~~December 31, 2012~~ratio mainly resulted from the ~~increases~~above-described increase in tier 1 capital, partly offset by ~~slight increases~~an increase in adjusted quarterly average assets asassociated with balance sheet ~~levels remained elevated~~growth during the first quarter of 2014.

As of March 31, 2014, State Street Bank's regulatory capital ratios increased compared to December 31, 2013, primarily the result of higher capital, partly offset by an increase in ~~2013.~~total risk-weighted assets.

State Street Bank's tier 1 and total capital increased, the result of the above-described phase-in provisions of the Basel III final rule related to other intangible assets and the positive effect of net income, partly offset by the payment of dividends by State Street Bank to our parent company. The increase in total risk-weighted assets was the result of the above-mentioned changes in on-balance sheet assets.

The increase in the tier 1 leverage ratio resulted from the above-described increase in tier 1 capital, partly offset by an increase in adjusted quarterly average assets associated with balance sheet growth during the first quarter of 2014.

Capital Actions

Preferred Stock

In February 2014, we issued 30 million depositary shares, each representing a 1/4,000th ownership interest in a share of State Street’s fixed-to-floating-rate non-cumulative perpetual preferred stock, Series D, without par value, with a liquidation preference of $100,000 per share (equivalent to $25 per depositary share), in a public offering. The aggregate proceeds from the offering, net of underwriting discounts, commissions and other issuance costs, were approximately $742 million.

In the first quarter of 2014, we declared aggregate dividends on our non-cumulative perpetual preferred stock, Series C (represented by depositary

shares, each representing a 1/4,000th ownership interest in a share of State Street’s non-cumulative perpetual preferred stock, Series C) of $1,313 per share, or approximately $0.33 per depositary share, totaling approximately $6 million. In the first quarter of 2013, dividends on our perpetual preferred stock, Series C, totaled approximately $7 million.

Common Stock

In March 2014, we received the ~~third quarter~~results of ~~2013, under a program approved by~~the Federal Reserve's review of our 2014 capital plan in connection with its annual CCAR process. The Federal Reserve did not object to the capital actions we proposed, and, in March 2014, our Board approved a new common stock purchase program authorizing the purchase of ~~Directors in~~ ~~March 2013~~ ~~which authorizes us to purchase~~ up to $~~2.10~~1.70 billion of our common stock through March 31, 2015. We did not purchase any of our common stock under the new program in the first quarter of 2014.

In the first quarter of 2014,, we ~~purchased~~completed the $2.10 billion program authorized by the Board in March 2013 by purchasing approximately ~~8.2~~6.1 million shares of our common stock, at an average ~~cost~~price of ~~$68.57~~$69.14 per share and an aggregate cost of approximately ~~$560 million. From April 1, 2013 through September 30, 2013, we purchased approximately~~ ~~16.7 million~~ ~~shares of our common stock under this program at an average per-share and aggregate cost of~~ ~~$67.12~~ ~~and~~ ~~$1.12 billion, respectively. As of~~ ~~September 30, 2013, approximately~~ ~~$980 million~~ ~~remained available for purchases of our common stock under the~~ ~~March 2013~~ ~~program.~~$420 million.

In each of the first quarter of ~~2013, we completed a~~ ~~$1.80 billion~~ ~~program, authorized by the Board in~~ ~~March 2012, with our purchase of~~ ~~6.5 million~~ ~~shares at an average per-share and aggregate cost of~~ ~~$54.95~~2014 and ~~approximately~~the first quarter of ~~$360 million, respectively.~~

~~In the~~ ~~first nine months of~~ 2013, ~~under the~~ ~~March 2013~~ ~~and~~ ~~March 2012~~ ~~programs, we purchased in the aggregate approximately~~ ~~23.2 million~~ ~~shares of our common stock at an average per-share cost of~~ ~~$63.69~~ ~~and an aggregate cost of approximately~~ ~~$1.48 billion~~.

~~In the~~ ~~third quarter~~ ~~of 2013,~~ we declared a quarterly common stock dividend of $$0.26 per share, totaling approximately $~~115~~112 million~~, which was paid~~ and $118 million, respectively. Our 2014 capital plan includes a proposed increase in ~~October2013. In the~~ ~~first nine months of 2013, we declared aggregate~~our second-quarter 2014 common stock ~~dividends of $0.78~~dividend to $0.30 per share, ~~totaling approximately~~ ~~$350 million, compared~~subject to ~~aggregate common stock~~consideration and approval by the Board at its scheduled meeting in May.

Federal and state banking regulations place certain restrictions on dividends of ~~$0.72~~ ~~per share, totaling approximately~~ ~~$346 million, declared~~paid by subsidiary banks to the parent holding company. In addition, banking regulators have the authority to prohibit bank holding companies from paying dividends. Information concerning limitations on dividends from our subsidiary banks is provided in “Related Stockholder Matters” included under Item 5, and in note 15 to the consolidated financial statements, included in our 2013 Form 10-K.

Basel Capital Framework

Overview

We are currently subject to the applicable minimum regulatory capital ratio requirements enforced by U.S. banking regulators, referred to as Basel I. Basel I was developed by the Basel Committee on Banking Supervision, or Basel Committee, in 1988.

In July 2013, U.S. banking regulators jointly issued a final rule implementing the Basel III framework in the ~~first nine months of 2012~~.U.S., referred to as the Basel III final

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~~Preferred Stock~~

rule. The provisions of Basel III are more fully described under “Basel III” below.

The Basel III final rule will become effective under a transition timetable which began on January 1, 2014. As of that date, our calculations of our tier 1 capital and total capital are governed by the provisions of the Basel III final rule, while our calculation of our total risk-weighted assets continues to be governed by the provisions of Basel I. The provisions of the Basel III final rule will supersede or modify corresponding elements of the Basel I- and Basel II-related capital requirements and prompt corrective action framework. The timing of application of certain provisions of the Basel III final rule is dependent on banking organizations' completion of the required qualification period.

On February 21, 2014, we were notified by the Federal Reserve that we have completed our qualification period and will be required to begin using the advanced approaches framework provided in the Basel III final rule in the determination of our risk-based capital requirements. Pursuant to this notification, we will use the advanced approaches framework to calculate and publicly disclose our risk-based capital ratios beginning with the second quarter of 2014. In 2014, under the ~~third quarter~~ of ~~2013~~,Basel III final rule, we ~~declared a quarterly dividend on our non-cumulative perpetual preferred stock, Series C, of~~ ~~$1,312.50~~ ~~per share, or approximately~~ ~~$0.33~~ per depositary share (represented by depositary shares, each representing a 1/4,000th ownership interest in a share of State Street’s non-cumulative perpetual preferred stock, Series C), totaling approximately ~~$7 million. In~~will be subject to the ~~first nine months of 2013, we declared aggregate dividends on our perpetual preferred stock, Series C, of~~ ~~$3,937.50~~ ~~per share, or approximately~~ ~~$0.98~~ ~~per depositary share, totaling approximately~~ ~~$20 million. In~~minimum risk-based capital ratios under both the ~~third quarter~~advanced approaches and ~~first nine months of 2012, dividends on our perpetual preferred stock, Series C, totaled approximately~~ ~~$8 million. In the~~ ~~third quarter~~generally applicable risk-based capital frameworks in Basel III and ~~first nine months of 2012, we declared dividends on our non-cumulative perpetual preferred stock, Series A, totaling approximately~~ ~~$7 million~~ ~~and~~ ~~$21 million, respectively. We redeemed our perpetual preferred stock, Series A, in the~~ ~~fourth quarter of 2012~~.

~~Basel Capital Framework~~

~~The currently applicable minimum regulatory capital requirements enforced by U.S. banking regulators are based on a 1988 international accord, commonly referred to as~~ Basel I, ~~which was developed by the Basel Committee on Banking Supervision, or Basel Committee.~~

~~Basel II Framework~~

In 2004, the Basel Committee released an enhanced capital adequacy framework, referred to as Basel II. Basel II requires large and internationally active banking organizations, such as State Street, which generally rely on sophisticated risk management and measurement systems, to better align the use of those systems with their determination of regulatory capital requirements. Basel II adopts a three-pillar framework for addressing capital adequacy and minimum capital requirements, which incorporates Pillar 1, the measurement of credit risk, market risk and operational risk; Pillar 2, supervisory review, which addresses the need for a banking organization to assess its capital adequacy relative to the risks underlying its business activities, rather than only with respect to its minimum regulatory capital requirements; and Pillar 3, market discipline, which imposes public disclosure requirements on a banking organization intended to allowrespectively, in the assessment of ~~key information about the organization's risk profile and its associated level of~~our capital adequacy for regulatory ~~capital.~~purposes.

In 2007, U.S. banking regulators jointly issued final rules to implement the Basel II framework in the U.S. The framework does not supersede or change the existing prompt corrective action and leverage capital requirements applicable to banking organizations in the U.S., and explicitly reserves the regulators' authority to require organizations to hold additional capital where appropriate. Prior to full implementation of the Basel II framework, State Street is required to complete a defined qualification period, during which it must demonstrate that it complies with the related regulatory requirements to the satisfaction of the Federal Reserve. State Street entered its qualification period in 2010.

~~Basel III Framework~~

In 2010, in response to the financial crisis and ongoing global financial market dynamics, the Basel Committee proposed two significant reforms to the Basel II capital framework. The first reform was composed of changes to the market risk capital framework associated with Basel I, and was referred to as Basel 2.5; the second reform was composed of comprehensive revisions and enhancements to Basel II, which became known as Basel III.

~~Market Risk Capital Rule~~

The Basel Committee introduced significant changes to the then-existing market risk capital framework, aimed at addressing certain issues in that framework highlighted by the 2008 financial crisis. U.S. banking regulators introduced their version of this so-called Basel 2.5, in the form of a proposed new market risk capital rule, in 2011, which included the concept of an incremental risk capital requirement to capture default and credit-quality migration risk for non-securitization credit products. Other revisions placed additional prudential requirements on banking organizations’ internal models for measuring market risk and required enhanced qualitative and quantitative disclosures, particularly with respect to banking organizations’ securitization activities.

In August 2012, U.S. banking regulators jointly issued a final market risk capital rule to implement the new market risk capital framework in the U.S. The new market risk capital rule, which was effective beginning on January 1, 2013, supplements Basel I and Basel II, and replaces the prior market risk capital framework under Basel I and Basel II in place since 1998, by requiring banking organizations with significant trading activities, as defined in the rule, to adjust their regulatory risk-based capital ratios to reflect the market risk inherent in their trading activities. Among other things, the final rule requires the use of internal models to calculate daily measures of Value-at-Risk, or VaR, that reflect general market risk for certain trading positions defined as “covered positions,” as well as stressed VaR-based measures to supplement the VaR-based measures.

~~Our adoption of the new market risk capital rule on January 1, 2013 did not significantly affect our or State Street Bank's~~

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~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (Continued)~~

risk-based capital ratios, although it did modestly increase our market risk equivalent assets. The disclosures required by the new rule are provided under “Financial Condition - Market Risk - Trading Activities” in this Management's Discussion and Analysis. Market risk equivalent assets are disclosed in the foregoing "Regulatory Capital" portion of this "Capital" section.

Basel III

Basel III proposed to establish more stringent regulatory capital and liquidity requirements, including higher minimum regulatory capital ratios, new capital buffers, higher risk-weighted asset calibrations, more restrictive definitions of qualifying capital, a liquidity coverage ratio and a net stable funding ratio.

In June 2012, U.S. banking regulators introduced Basel III by issuing proposed revisions to the existing Basel II framework. These proposals were intended to incorporate the above-described revisions and enhancements proposed by the Basel Committee, and implement relevant provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or Dodd-Frank Act, in order to restructure the U.S. capital rules into a harmonized, codified regulatory capital framework.

In July 2013, U.S. banking regulators jointly issued a final rule implementing the Basel III framework in the U.S. Among other things, the final rule raises the minimum tier 1 risk-based capital ratio from 4% to 6%, adds requirements for a minimum common equity tier 1 capital ratio of 4.5% and a minimum supplementary tier 1 leverage ratio of 3% for so-called "advanced approaches" banking organizations (described below), and implements a capital conservation buffer and a countercyclical capital buffer linked to a banking organization's capital levels. The Basel III final rule also incorporates the new market risk capital rule to create a single and comprehensive capital adequacy framework.

Under the Basel III final rule, a banking organization ~~would~~will be able to make capital distributions, subject to other regulatory constraints, such as the review of capital plans, and discretionary bonus payments without specified limitations as long as it maintains ~~the~~a required capital conservation buffer of 2.5% over each of the minimum tier 1 and total risk-based capital ratios and the common equity tier 1 capital ratio (plus any potentially applicable countercyclical capital buffer). Banking regulators ~~would~~will establish the minimum countercyclical capital buffer, which is initially set by banking regulators at zero, up to a maximum of 2.5% above the minimum ratios inclusive of the capital conservation buffer, under certain economic conditions.

As of January 1, 2019, the date that full implementation is required, and assuming no countercyclical buffer, the minimum Basel III capital ratios, including the capital conservation buffer, will be ~~8.5% for tier 1 risk-based capital, 10.5% for total risk-based capital, and~~ 7% for common equity tier 1 capital, 8.5% for tier 1 risk-based capital and 10.5% for total risk-based

capital, in order for ~~State Street~~us to make capital distributions and discretionary bonus payments without limitation. ~~Each~~The denominator of each of these Basel III ratios is calculated differently under the Basel III final rule than those similar ratios calculated under Basel I, and therefore these Basel III ratios are not directly comparable with the ~~Basel I~~ ratios presented in the ~~foregoing table at the beginning of this "Regulatory Capital"~~preceding “Regulatory Capital” section.

The Basel III final rule provides for two frameworks: the ~~"standardized"~~“standardized” approach, intended to replace Basel I, and the ~~"advanced"~~“advanced” approach, applicable to advanced approaches banking organizations, like State Street, as originally defined under Basel II. ~~Once phased in,~~The calculation of risk-weighted assets under the Basel III final rule will change the manner in which our regulatory capital ratios are calculated, will reduce our calculated regulatory capital, and, as noted above, will increase the minimum regulatory capital that we will be required to maintain. Under the Basel III final rule, we will be subject to the lower of our regulatory capital ratios calculated under the standardized approach ~~and those calculated under the advanced approach in the assessment of our capital adequacy under the prompt corrective action framework.~~

~~Provisions of the Basel III final rule~~ will become effective ~~under a transition timetable which begins~~ on January 1, ~~2014. These provisions will supersede or modify corresponding elements of the Basel I and Basel II risk-based and leverage capital requirements and prompt corrective action framework.~~2015. The requirement for the capital conservation buffer will be phased in beginning on January 1, 2016, with full implementation by January 1, 2019.

~~The timing of application of~~Once the provisions of the Basel III final rule ~~related to~~are fully implemented effective January 1, 2015, the ~~calculation~~more stringent of ~~risk-weighted assets~~the Basel III tier I common ratio calculated by us under the Basel III advanced approach and the standardized approach will ~~depend on State Street's completion~~apply in the assessment of ~~a required qualification period, but will in no case occur earlier than January 1, 2014. During its qualification period, State Street must demonstrate that it complies with the related~~our capital adequacy for regulatory purposes.

The provisions of Basel III ~~requirements to the satisfaction~~supersede or modify corresponding elements of the ~~Federal Reserve.~~Basel I and Basel II risk-based and leverage capital requirements and the prompt corrective action provisions of FDICIA.

Estimated Basel III Tier 1 Common Ratio

As described above, the Basel III final rule adds a requirement for a minimum common equity tier 1 capital ratio, or tier 1 common ratio. The tier 1 common ratio is ~~a measurement of capital representing~~calculated by dividing tier 1 capital, reduced by ~~the deduction of "non-common~~non-common elements" such as trust preferred capital securities and preferred stock, ~~divided~~ by total risk-weighted assets. The tier 1 common ratio is not formally required under Basel 1, although it is used by regulators and by management to monitor and assess State Street's capital position, both individually and relative to other financial institutions, and management believes it may be of interest to investors.

The following table presents ~~State Street's~~our tier 1 common ratio as of ~~September 30, 2013~~March 31, 2014, calculated using ~~Basel I standards,~~currently applicable regulatory requirements, and our estimated tier 1 common ratios as of ~~September 30, 2013~~March 31, 2014, ~~calculated in conformity with the Basel III final rule~~ under both the standardized approach and the advanced approach. These estimated Basel III tier 1 common ratios are preliminary estimates, calculated in conformity with the advanced and standardized approaches in the Basel III final rule, based on our present interpretations of the Basel III final rule. As indicated above, under the Basel III final rule, the more stringent of the Basel III tier 1 common ratios calculated by us under the standardized and advanced approaches will apply in the assessment of our capital adequacy under the prompt corrective action provisions of FDICIA as of January 1, 2015.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)


September 30, 2013	Currently Applicable Regulatory Requirements⁽¹⁾		Basel III Final Rule Standardized Approach (Estimated)⁽²⁾			Basel III Final Rule Advanced Approach (Estimated)⁽²⁾
March 31, 2014					Currently Applicable Regulatory Requirements⁽¹⁾					Basel III Final Rule Standardized Approach (Estimated)⁽²⁾			Basel III Final Rule Advanced Approach (Estimated)⁽²⁾
(Dollars in millions)		Currently Applicable Regulatory Requirements⁽¹⁾		Basel III Final Rule Standardized Approach (Estimated)⁽²⁾					Basel III Final Rule Advanced Approach (Estimated)⁽²⁾
Tier 1 capital							$	15,487							$	15,487			$	15,487
Less:
Trust preferred capital securities	950		475			475				475			475				475
Preferred stock	490		490			490				1,233			1,233				1,233
Plus:
Other	—		56			56
Plus: Other										145			145				145
Tier 1 common capital	12,471		12,290			12,290				$	13,924		$	13,924			$	13,924
Total risk-weighted assets	80,362		120,454			108,954				$	84,694		$	124,783			$	105,729
Tier 1 common ratio	15.5	%	10.2	%		11.3		%		16.4		%	11.2		%		13.2		%
Minimum tier 1 common ratio requirement, assuming full implementation on January 1, 2019			4.5	%		4.5		%					4.5				4.5
Capital conservation buffer, assuming full implementation on January 1, 2019			2.5			2.5							2.5				2.5
Minimum tier 1 common ratio requirement, including capital conservation buffer, assuming full implementation on January 1, 2019⁽³⁾			7.0			7.0							7.0				7.0

⁽¹⁾~~Using Basel I standards, the~~The tier 1 common ratio was calculated by dividing ~~(a)~~common equity tier 1 ~~risk-based~~ capital, calculated in conformity with the provisions of the Basel ~~I, less non-common elements including qualifying trust preferred capital securities and qualifying perpetual preferred stock, or tier 1 common capital,~~III final rule, by ~~(b)~~ total risk-weighted assets, calculated in conformity with the provisions of Basel I.

⁽²⁾As of ~~September 30, 2013~~March 31, 2014, for purposes of the calculations completed in conformity with the Basel III final rule, ~~capital and~~ total risk-weighted assets under both the standardized approach and the advanced approach were calculated using ~~our~~State Street's estimates, based on the provisions of ~~the~~Basel III final ~~rule expected to affect capital in 2014.~~rule. The tier 1 common ratio was calculated by dividing ~~(a)~~ tier 1 common ~~capital, as described in footnote (1), but with tier 1 risk-based~~ capital, calculated in conformity with the provisions of the Basel III final rule, by ~~(b)~~ total risk-weighted assets, calculated in conformity with the provisions of the Basel III final rule. These estimated Basel III tier 1 common ratios are preliminary, ~~reflect tier 1 common equity calculated under the Basel III final rule as applicable on its January 1, 2014 effective date,~~ and are based on our present interpretations ~~expectations and understanding of the final rule, as we currently understand the final rule's impact.~~

~~• Under both the standardized and advanced approaches, tier 1 risk-based capital decreased by~~ ~~$712 million, as a result of applying the estimated effect~~ of the Basel III final ~~rule to Basel I tier 1 risk-based capital of~~ ~~$13.911 billion~~ ~~as of~~ ~~September 30, 2013~~.rule.

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securitization exposures receive higher risk weights under both the standardized and advanced approaches in the Basel III final rule compared to Basel I.

The estimated Basel III tier 1 common ratio as of ~~September 30, 2013~~March 31, 2014 presented above, calculated under the advanced approach in conformity with the Basel III final rule, reflects calculations and determinations with respect to our capital and related matters as of ~~September 30, 2013~~March 31, 2014, based on State Street and external data, quantitative formulae, statistical models, historical correlations and assumptions, collectively referred to as “advanced systems,” in effect and used by State Street for those purposes as of the time we filed this Form 10-Q. Significant components of these advanced systems involve the exercise of judgment by us and our regulators, and our advanced systems may not accurately represent or calculate the scenarios, circumstances, outputs or other results for which they are designed or intended.

Due to the influence of changes in these advanced systems, whether resulting from changes in data inputs, regulation or regulatory supervision or

interpretation, State Street-specific or market activities or experiences or other updates or factors, we expect that our advanced systems and our capital ratios calculated in conformity with the Basel III final rule will change and may be volatile over time, and that those latter changes or volatility could be material as calculated and measured from period to period.

~~Impact of Basel III Final Rule~~

Our current assessment of the implications of the Basel III final rule indicates a potential impact which could be material to our businesses and our profitability, as well as to our regulatory capital ratios. One significant provision in the final rule would require us to apply the “Simplified Supervisory Formula Approach,” referred to as the SSFA, in the risk-weighting of asset securitization exposures, such as asset-backed securities, carried in our investment securities portfolio. The approach required by Basel II utilizes the ratings-based approach, under which external credit ratings are used to risk-weight such exposures. The Dodd-Frank Act prohibits the use of external credit ratings in the risk-weighting of asset securitization exposures. Currently, our investment portfolio contains significant holdings of mortgage- and asset-backed securities that are highly rated by credit rating agencies, but for which the SSFA would apply higher regulatory risk weights compared to the approach required by Basel I and Basel II. In contrast, certain of our securities with lower credit ratings would receive lower regulatory risk weights if the SSFA were applied.

~~Based on the composition of our investment portfolio with respect to the types of securities and related external credit ratings as of~~ ~~September 30, 2013~~, our application of the SSFA would materially increase our total regulatory risk-weighted assets relative to those calculated in conformity with Basel I, and correspondingly decrease our regulatory risk-based capital ratios relative to those calculated in conformity with Basel I; as a result, we are re-evaluating the composition of our investment portfolio in order to maintain an investment strategy appropriately aligned with our maintenance of an appropriate level of regulatory capital. Depending on future market conditions, this re-evaluation could result in the reinvestment of our portfolio securities into different types of investments, which could materially affect our consolidated results of operations by reducing our net interest revenue.

Certain of the provisions in the Basel III final rule, including the requirement to apply the SSFA, will become effective beginning on January 1, 2014, although certain provisions will be implemented, in whole or in part, in later periods. The provisions of the SSFA discussed above related to the standardized approach become effective beginning on January 1, 2015. As such, a significant number of the securities currently held in our investment portfolio that are highly rated by credit agencies are expected to mature or pay down over the intervening period, and we would currently anticipate replacing those securities pursuant to our reinvestment program in a manner that would seek to manage our risk appetite, our return objectives and our levels of regulatory capital. As a result of our balance sheet management efforts, all else being equal, we would anticipate being able, prior to January 1, 2015, to significantly offset the impact of application of the SSFA on our total regulatory risk-weighted assets and our regulatory risk-based capital ratios.

In addition, the qualification of trust preferred capital securities as tier 1 capital will be phased out over a two-year period beginning on January 1, 2014 and ending on January 1, 2016, and subsequently, the qualification of these securities as tier 2 capital will be phased out over multi-year transition period beginning on January 1, 2016. We had trust preferred capital securities of ~~$950 million~~ ~~outstanding as of~~ ~~September 30, 2013~~.

There remains considerable uncertainty with respect to multiple provisions of the Basel III final rule, and the timing and manner in which they will be applied to us. In particular, the timing under which we will complete our required qualification period, as determined by the Federal Reserve, and our transition to the calculation of risk-based capital ratios that incorporate the advanced approach, remain uncertain. Models implemented under the Basel III final rule, particularly those implementing

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the advanced approach, remain subject to regulatory review and approval. The full effects of the Basel III final rule on State Street and State Street Bank are therefore subject to further evaluation and also to further regulatory guidance, action or rule-making. In general, we expect to be held to the most stringent of the various provisions in the Basel III final rule; however, we anticipate that we will be able to comply with the relevant Basel III regulatory capital and liquidity requirements when and as applied to us.

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~~Supplementary Leverage Ratio~~Risk Management

General

credit and counterparty risk;

liquidity risk, funding and management;

operational risk, including execution, technology, business practice and fiduciary risks;

model risk; and

business risk, including reputational risk.

Our risk management is based on the following major principles:

A culture of risk awareness that extends across all of our business activities;

The identification, classification and quantification of State Street's material risks;

The establishment of our risk appetite and associated limits and policies, and our compliance with these limits;

The establishment of a risk management structure at the “top of the house” that enables the control and coordination of risk-taking across the business lines;

The implementation of stress testing practices and a dynamic risk-assessment capability; and

The overall flexibility to adapt to the ever-changing business and market conditions.

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provided under “Capital” in this Management’s Discussion and Analysis.

The following table provides a reference to the disclosures about our management of significant risks provided herein.



	Form 10-Q Page Number
Risk Governance and Structure	33
Credit Risk Management	36
Liquidity Risk Management	38
Operational Risk Management	42
Market Risk Management	44

Risk Governance and Structure

Corporate Audit, which assesses the effectiveness of the first two lines of defense.

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Model Assessment Committee

Basel ICAAP Oversight Committee

CCAR Steering Committee⁽¹⁾

⁽¹⁾Oversees the submission of capital plans in connection with the Federal Reserve's annual Comprehensive Capital Analysis and Review, or CCAR, process.

The Chief Risk Officer, or CRO, who is responsible for State Street’s risk management globally, leads ERM and has a dual reporting line to State Street’s Chief Executive Officer and the Board’s

RCC. ERM discharges its responsibilities globally through a three-dimensional organization structure:


▪	“Vertical” business unit-aligned risk groups that assist business managers with risk management, measurement and monitoring activities;


▪	“Horizontal” risk groups that monitor the risks that cross all of our business units (for example, credit and operational risk); and


▪	Risk oversight for international activities, which adds important regional and legal entity perspectives to global vertical and horizontal risk management.

Sitting on top of this three-dimensional organization structure is a centralized group responsible for the aggregation of risk exposures across the vertical, horizontal and regional

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dimensions, for consolidated reporting, for setting the enterprise-level risk appetite framework and associated limits and policies, and for dynamic risk assessment across State Street.

The review of our risk appetite framework and top-level risk limits and policies;

The monitoring and assessment of our capital adequacy based on regulatory requirements and internal policies; and

The review of business performance in the context of risk and capital allocation.

The Business Conduct Review Committee, or BCRC, provides additional risk governance and leadership, by overseeing State Street's business practices and reinforcing our commitment to the

Risk Committees

The following other risk committees have focused responsibilities for oversight of specific areas of risk management:

The Credit Risk and Policy Committee is responsible for cross-business unit review and oversight of credit and counterparty risk;


▪	The Country Risk Committee oversees the identification, assessment, monitoring, reporting and mitigation, where necessary, of country risks;


▪	The Trading and Markets Risk Committee, or TMRC, reviews the effectiveness of, and approves, the market risk framework at least annually; it is the most senior oversight and decision making committee for risk management within State Street Global Markets and the trading-and-clearing business of State Street Global Exchange;


▪	The Securities Finance Risk Management Committee provides oversight of the risks in our securities finance business, including collateral and margin policies;


▪	The Model Assessment Committee, or MAC, provides recommendations concerning technical modeling issues and validates

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financial models utilized by our business units;


▪	The Basel / ICAAP Oversight Committee, or BIOC, reviews and assesses compliance with regulatory capital rules, and oversees initiatives related to the development and enhancement of relevant reporting capabilities;


▪	The CCAR Steering Committee provides primary supervision of the stress tests performed in conformity with CCAR and the Dodd-Frank Act, and is responsible for the overall management, review, and approval of all material assumptions, methodologies, and results of each stress scenario;


▪	The Recovery and Resolution Planning Executive Steering Group oversees the development of recovery and resolution plans as required by banking regulators;


▪	The New Business and Product Committee provides oversight of the evaluation of the risk inherent in proposed new products or services and new business, as well as divestitures, restructurings and outsourcing arrangements; evaluations include economic justification, material risk, compliance, regulatory and legal considerations, and capital and liquidity analyses;

The Compliance and Ethics Committee provides review and oversight of State Street's compliance programs, including its culture of compliance and high standards of ethical behavior;


▪	The Fiduciary Review Committee reviews and assesses the risk management programs of those units in which State Street serves in a fiduciary capacity;


▪	The Operational Risk Committee provides cross-business oversight of operational risk to identify, measure, manage and control operational risk in an effective and consistent manner across State Street; and


▪	The Technology Risk Governance Committee provides regular reporting to the TORC and escalates technology risk issues to the TORC, as appropriate.

Credit Risk Management

Core Policies and Principles

We distinguish between three kinds of credit and counterparty risk:


▪	Default risk is the risk that a counterparty fails to meet its contractual payment obligations;


▪	Country risk is the risk that we may suffer a loss, in any given country, due to any of the following reasons: deterioration of economic conditions, political and social upheaval, nationalization and appropriation of assets, government repudiation of indebtedness, exchange controls, and disruptive currency depreciation or devaluation; and


▪	Settlement risk is the risk that the settlement or clearance of transactions will fail, and arises whenever the exchange of cash, securities and/or other assets is not simultaneous.


▪	All credit risks to each counterparty, or group of counterparties, are measured and consolidated in accordance with a ‘one obligor’ principle that aggregates all risks types across all business areas;


▪	We seek to avoid or minimize undue concentrations of risk; counterparty (or groups of counterparties), industry, country and product-specific concentrations of risk are subject to frequent review and approval in accordance with State Street’s prevailing risk appetite;


▪	All extensions of credit, or material changes to extensions of credit (such as its tenor, collateral structure or covenants), are approved by ERM in conformity with assigned credit-approval authorities;


▪	We assign credit approval authorities to individuals according to their qualifications, experience and training, and review these authorities periodically; our largest exposures require approval by the Credit Committee, a sub-committee of the Credit Risk and Policy

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Committee; for certain small and low-risk extensions of credit, for certain counterparty types, approval authority has been granted to individuals outside of ERM;


▪	The creditworthiness of all counterparties is determined by way of a detailed risk assessment, including the use of comprehensive internal rating methodologies; all rating methodologies in use at State Street are authorized for use within the advanced internal-ratings-based approach under applicable Basel requirements; and


▪	A review of the creditworthiness of all counterparties, as well as all extensions of credit, is undertaken at least annually; the nature and extent of these reviews is determined by the size, nature and tenor of the extensions of credit, as well as the creditworthiness of the counterparty.

All core policies and principles are subject to annual review, as an integral part of State Street’s periodic assessment of its risk appetite.

Governance

Credit Limits

borrower or counterparty, its prevailing credit-worthiness and the nature of the risk. These processes are outlined in formal guidelines.

Global Counterparty Review

Separate and objective assessments of our credit and counterparty exposures to determine the nature and extent of risk undertaken by the business units;

Identification and monitoring of developing trends to minimize risk of loss and protect capital;

Maintenance of risk-rating system integrity and assurance of counterparty risk-rating transparency through testing of ratings;

Providing resources for specialized risk assessments (on an as-needed basis);

Opining on the adequacy of the allowance for loan losses; and

Serving as liaison with auditors and banking regulators with respect to risk rating, reporting and measurement.

Credit Risk Mitigation

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Reserve for Credit Losses

Liquidity Risk Management

Governance

Liquidity Framework

Our liquidity framework contemplates areas of potential risk based on our activities, size, and other appropriate risk-related factors. In ~~July~~managing liquidity risk, we employ limits, maintain established metrics and early warning indicators and perform routine stress testing to identify potential liquidity needs. This process involves the evaluation of a combination of internal and external scenarios which assist us in measuring our liquidity position and in identifying

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potential increases in cash needs or decreases in available sources of cash, as well as the potential impairment of our ability to access the global capital markets.

We manage liquidity according to several principles that are equally important to our overall liquidity risk management framework:

Tactical liquidity management addresses our day-to-day funding requirements and is largely driven by changes in our primary source of funding, which is client deposits.

Fluctuations in client deposits may be supplemented with short-term borrowings, which generally include commercial paper and certificates of deposit.

specific event or a broader disruption in the capital markets. Specific actions are linked to the level of stress indicated by these measures or by management judgment of market conditions.

Liquidity Risk Metrics

Asset Liquidity



(In millions)	March 31, 2014		December 31, 2013
Asset Liquidity:
Highly liquid short-term investments⁽¹⁾	$	75,796	$	64,257
Investment securities	21,612		22,322
Total	$	97,408	$	86,579

	Quarters Ended March 31,
(In millions)	2014		2013
Average Asset Liquidity:
Highly liquid short-term investments⁽¹⁾	$	33,410	$	30,585
Investment securities	21,457		25,794
Total	$	54,867	$	56,379

⁽¹⁾Composed of interest-bearing deposits with banks.

Liquid securities carried in our asset liquidity include securities pledged without corresponding

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Uses of Liquidity

Funding

Deposits:

client deposits are invested in a combination of investment securities and short-duration financial instruments whose mix is determined by the characteristics of the deposits.



					Average Balance
	March 31,				Quarters Ended March 31,
(In millions)	2014		2013		2014		2013
Client deposits⁽¹⁾	$	194,648	$	150,130	$	154,086	$	138,750

Short-Term Funding:

State Street Bank currently maintains a line of credit with a financial institution of CAD $800 million, or approximately $725 million as of March 31, 2014,

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Long-Term Funding:

Agency Credit Ratings

commitments, or require additional collateral or force terminations of certain trading derivative contracts.



(In millions)	March 31, 2014		December 31, 2013
Additional collateral or termination payments for a one- or two-notch downgrade	$	3	$	7

Proposed Liquidity Framework

In October 2013, U.S. banking regulators ~~jointly~~ issued a Notice of Proposed Rulemaking, or NPR, which proposes to enhance leverage ratio standards for the largest, most systemically significant U.S. banking organizations. The July 2013 NPR applies to any U.S. top-tier bank holding company with at least $700 billion in consolidated total assets or at least $10 trillion in total assets under custody, referred to as a covered bank holding company, and any insured depository institution subsidiary of such bank holding company. We expect the standards to apply to State Street and State Street Bank based on our total assets under custody.

Under Basel I, the tier 1 leverage ratio is calculated by dividing tier 1 capital by adjusted quarterly average assets. While Basel II did not incorporate a leverage ratio, the Basel III final rule provides for a leverage ratio similar to Basel I, as well as a supplementary leverage ratio for advanced approaches banking organizations. This supplementary leverage ratio adds certain off-balance sheet exposures, such as those related to derivative contracts and unfunded lending commitments, to the denominator of the ratio calculation.

Under the July 2013 NPR, covered bank holding companies would be required to maintain a supplementary tier 1 leverage ratio of at least 5%, which is 2% above the similar minimum Basel III supplementary tier 1 leverage ratio of 3%. Failure to exceed the 5% supplementary tier 1 leverage ratio would subject covered bank holding companies to restrictions on capital distributions and discretionary bonus payments. In addition to the leverage buffer for covered bank holding companies, the July 2013 NPR would require insured depository institution subsidiaries of covered bank holding companies, like State Street Bank, to maintain a 6% supplementary tier 1 leverage ratio to be considered "well capitalized." State Street is among the eight largest, most systemically significant U.S. banking organizations to which the July 2013 NPR would apply, if finalized as currently proposed. The July 2013 NPR would not apply to all banking organizations with which we compete. If finalized as currently proposed, the new supplementary tier 1 leverage ratio requirements will be effective beginning on January 1, 2018. The July 2013 NPR is a proposed rule, and remains subject to interpretation, regulatory guidance, industry and other comment and issuance in the form of a final rule.

~~Liquidity Coverage and Net Stable Funding Ratios~~

~~In October 2013, U.S. banking regulators issued an NPR~~ intended to implement ~~in the U.S.~~ the Basel Committee's Liquidity Coverage Ratio, or ~~LCR.~~LCR, in the U.S. The ~~proposed~~ LCR ~~standard~~ is intended to promote the short-term resilience of the liquidity risk profile of internationally active banking organizations, ~~improving~~improve the banking industry's ability to absorb shocks arising from financial and economic stress, and ~~improving~~improve the measurement and management of liquidity risk. ~~Among other things, the~~The proposed LCR ~~standard~~ would require a covered banking organization to maintain an amount of high-quality liquid assets, or HQLA, equal to or greater than 100% of the banking organization’s total net cash outflows over a 30-calendar-day period of significant liquidity stress, as defined. The October 2013 NPR would be phased in beginning on January 1, 2015 at 80% with full implementation by January 1, 2017. As an internationally active banking organization, ~~State Street expects~~we expect to be subject to the LCR ~~standard.~~standard in the U.S., as well as in other jurisdictions in which we operate.

The ~~October 2013~~ NPR is agenerally consistent with the Basel Committee’s LCR. However, it includes certain more stringent requirements, including an accelerated implementation time line and modifications to the definition of high-quality liquid assets and expected outflow assumptions. We continue to analyze the proposed ~~rule~~rules and ~~remains subject to interpretation, regulatory guidance, industry and other comment and issuance in the form of a final rule.~~analyze their impact as well as develop strategies for compliance. The ~~specification of the various elements~~principles of the LCR inare consistent with our liquidity management framework; however, the specific calibrations of

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various elements within the final LCR rule, such as the eligibility of assets as HQLA, ~~the calculation of~~operational deposit requirements and net ~~outflows and the timing of indeterminate maturities,~~outflow requirements could have a material effect on our liquidity, funding and business activities, including the management and composition of our investment securities portfolio and our ability to extend committed contingent credit facilities to our clients.

~~The~~In January 2014, the Basel Committee ~~has also proposed~~released a revised proposal with respect to the Net Stable Funding Ratio, or NSFR, which will establish a one-year liquidity standard representing the proportion of long-term assets funded by long-term stable funding, scheduled for global implementation in 2018. The revised NSFR has made some favorable changes regarding the treatment of operationally linked deposits and a reduction in the funding required for certain securities. However, we continue to review the specifics of the Basel Committee's release and will be evaluating the U.S. implementation of this standard to analyze the impact and develop strategies for compliance. U.S. banking regulators have not yet issued a proposal to implement the NSFR.

~~Systemically Important Banks~~Operational Risk Management

In the conduct of our investment servicing and investment management activities, we assume operational risk. The products and services we provide to our clients, such as custody; product- and participant-level accounting; daily pricing and administration; master trust and master custody; record-keeping; cash management; foreign exchange, and the management of financial assets using passive and active strategies, can result in execution risk, business practice risk, fiduciary risk and other types of operational risk. Because operational risk is process-oriented, compared to other risks, for example credit risk and market risk, which are ~~designated as~~transaction-oriented, our ability to influence and manage risk-taking rests at the process level, and requires a ~~large bank holding company subject~~broad set of process controls.

Whereas operational risk represents the potential, an operational risk event is the actual

occurrence of the risk. An operational risk event that gives rise to ~~enhanced supervision and prudential standards, commonly~~a direct financial impact is referred to as an operational risk loss or gain. If there is no financial impact, the event is termed a ~~“systemically important financial institution,~~“near-miss.”

Framework

We have developed a comprehensive approach to operational risk management that is consistently applied across State Street. This approach, referred to as our operational risk framework, takes a holistic view and integrates the different methods and tools used to manage operational risk. The framework, which was developed by our Operational Risk Management group and utilizes aspects of the framework of the Committee of Sponsoring Organizations of the Treadway Commission, or ~~SIFI,~~the COSO framework, and ~~we are one among a group of 28 institutions worldwide that have been identified by the Financial Stability Board, or FSB, and the~~industry/peer leading practices, is designed to comply with Basel ~~Committee as “global systemically important banks,” or G-SIBs.~~requirements. Our ~~designation as a G-SIB will require us~~operational risk framework seeks to ~~maintain an additional capital buffer, ranging between 1% and 2.5%, above the Basel III minimum common equity tier 1 capital ratio of 4.5%, based on~~provide a number of ~~factors, as evaluated by banking regulators. Factors~~important benefits, including:


▪	The alignment of business priorities with risk management objectives;


▪	The active management of risk and the avoidance of surprises;


▪	The clarification of responsibilities for the management of operational risk;


▪	A common understanding of operational risk management and its supporting processes; and


▪	The consistent application of policies and collection of data for risk management and measurement.

The framework is composed of two mutually reinforcing areas, foundational elements and framework components. The three foundational elements used to consistently implement the framework across the diverse groups within State Street are governance, documentation, and communication/awareness. The framework also contains five components that provide overarching structure that integrates distinct risk programs into a continuous process focused on managing and measuring operational risk in ~~this evaluation will include our size, interconnectedness, substitutability, complexity~~a coordinated and ~~cross-jurisdictional activities. In November 2012,~~consistent manner. The individual components and the ~~FSB designated us as a category-1 organization, with a~~objectives of each component are:


▪	Identify, assess and measure risk - understand business unit strategy, risk profile and potential exposure;


▪	Monitor risk - proactively monitor the business environment and associated operational risk exposure;


▪	Evaluate and test controls - verify that internal controls are designed appropriately, are consistent with corporate and regulatory standards, and are operating effectively;


▪	Provide integrated management reporting - facilitate management's ability to maintain

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~~capital surcharge~~

control, provide oversight and escalate issues in a timely manner; and


▪	Support risk-based decision making - make conscious risk-based decisions and understand the trade-off between risk and return.

We maintain an operational risk policy, under which we endeavor to effectively manage operational risk in order to support the achievement of ~~1%, although this designation~~our corporate objectives and fully comply with any related regulatory requirements. We achieve these policy objectives through the ~~associated additional capital buffer are subject to change. U.S. banking regulators have not yet issued a proposal to implement~~implementation of our operational risk framework, which describes the ~~G-SIB capital surcharge.~~integrated set of processes and tools that assist us in managing and measuring operational risk.

~~We expect these additional capital requirements for G-SIBsto be phased in beginning on January 1, 2016, with full implementation~~Our operational risk policy is approved annually by ~~January 1, 2019. Assuming completion~~the Board's RCC. The purpose of the ~~phase-in period~~policy is to set forth our approach to the management of operational risk, to identify the responsibilities of individuals and committees charged with overseeing the management of operational risk, and to provide a broad mandate that supports implementation of the operational risk framework.

Guidelines

As part of our operational risk framework, we have also developed operational risk guidelines which document in greater detail our practices and describe the key elements that should be present in a business unit's operational risk management program. The purpose of the guidelines is to set forth and define key operational risk terms, provide further detail on State Street's operational risk programs, and detail business unit responsibilities for the ~~capital conservation buffer,~~identification, assessment, measurement, monitoring and ~~no countercyclical buffer,~~reporting of operational risk. The guidelines support the ~~minimum capital ratios as~~operational risk policy and document our practices used to manage and measure operational risk in an effective and consistent manner across State Street.

We have a number of ~~January 1, 2019, including~~operational risk tools and processes in use that are corporate-wide in application or coverage. These tools include a series of risk assessments and diagnostics, at the ~~capital conservation buffer~~business unit level, across the risk spectrum aimed at the identification of risks that occur routinely through normal operations, strategic risks that may arise over a longer-term horizon and ~~G-SIB capital surcharge, would be 9.5%~~risks that occur very infrequently but which could materially affect State Street. Further, these assessments allow management to define risk mitigation strategies and set action plans for ~~tier 1 risk-based capital, 11.5% for total risk-based capital, and 8% for common equity tier 1 capital, in order for~~ implementation.

State Street ~~to make capital distributions~~monitors the level and ~~discretionary bonus payments without limitation. Not all~~trend of ~~our competitors have similarly been designated as systemically important, and therefore some~~its operational risk profile through a series of ~~our competitors may not be subject to the same additional capital requirements.~~

~~Economic Capital~~

We define economic capital as the capital required to protect holders of our senior debt, and obligations higher in priority, against unexpected economic losses over a one-year period at a level consistent with the solvency of a firm with our target “Aa3/AA-” senior bank debt rating. Economic capital requirements are one of several important measures used by management ~~and our Board to assess the adequacy of our capital levels in relation to State Street's~~reports, risk profile. Due to the evolving nature of quantification techniques, we expect to periodically refine the methodologies, assumptions, and information used to estimate our economic capital requirements, which could result in a different amount of capital needed to support our business activities.

We measure returns on economic capital and economic profit (defined by us as net income available to common shareholders after deduction of State Street's cost of equity capital) by line of business. This economic profit will be used by management and the Board to gauge risk-adjusted performance over time. Accordingly, the measurement and evaluation of risk-adjusted performance have become integral parts of our internal process for allocating resources (for example, capital and information technology spending) by line of business. In addition, return on economic capital and economic profit are two of several measures used in our evaluation of the viability of a new business or productassessment outcomes, risk mitigation initiative ~~and for merger-and-acquisition analysis.~~

~~We quantify economic capital requirements for the risks inherent in our business activities and group them into categories that we broadly define for these purposes as follows:~~

~~Market risk: the risk of adverse financial impact due to fluctuations in market prices, primarily as they relate to our trading activities;~~

Interest-rate risk: the risk of loss in non-trading asset-and-liability management positions, primarily the impact of adverse movements in interest rates on the repricing mismatches that exist between the assets and liabilities carried in our consolidated statement of condition;

~~Credit risk: the risk of loss that may result from the default or downgrade of a borrower or counterparty;~~

~~Operational risk: the risk of loss from inadequate or failed internal~~ processes and ~~systems, human error, or from external events, which is generally consistent with the Basel II definition;~~risk metrics. Together, this data assists us in understanding our

risk profile, as well as our progress on managing risk and

~~Business risk: the risk of negative earnings resulting from adverse changes in business factors, including~~ changes in the ~~competitive~~ environment, ~~changes in~~both internal and external, which may affect our risk profile. In addition, we use scenario analysis to provide a forward-looking assessment of large operational risk events that we may not have experienced yet.

In order for these tools and programs to meet framework objectives, we have implemented comprehensive data collection practices and consistent risk classification standards that facilitate the analysis of risks across the company. In addition, we have established standards for operational ~~economics~~risk data for the purpose of ~~our business activities,~~maintaining data repositories and systems that are controlled, accurate and available on a timely basis to support operational risk management.

Governance

The roles and responsibilities with respect to the ~~effect~~management of ~~strategic and reputational risks.~~operational risk at State Street reflect the following four key principles:


▪	Board oversight of our operational risk framework is primarily the responsibility of the RCC, which annually reviews and approves our operational risk policy and delegates day-to-day oversight to ERM;


▪	Senior business unit managers are responsible for the management of operational risk;


▪	ERM and other corporate groups provide separate oversight, validation and verification of the management and measurement of operational risk; and


▪	Executive management provides oversight through participation on risk-management committees and direct management of risk in business activities.

~~Economic capital for each~~The key responsibilities of these ~~five categories is estimated on a stand-alone basis using scenario analysis~~groups with respect to operational risk are described below:


▪	The RCC approves our operational risk policy, delegates the implementation and monitoring of the operational risk guidelines, framework and related programs to ERM, and reviews periodic reporting of management information related to operational risk; and


▪	Senior business unit management is responsible for the direct management of operational risk arising from our business activities, as well as operational risk oversight through representation on the MRAC, the BCRC, the TORC, and the local Operational Risk and Fiduciary Review Committees.

A number of corporate groups have responsibility for developing, implementing, and ~~statistical modeling techniques applied to internally-generated and, in some cases, external information. These individual results are then aggregated at the State Street consolidated level.~~

~~Liquidity~~

The objective of liquidity management is to provide for the ability to meet our financial obligations in a timely and cost-effective manner, and maintain sufficient flexibility to fund strategic corporate initiatives as they arise. Effective management of liquidity involves assessing the potential mismatch between the future cash needs of our clients and our available sources of cash under both normal and adverse economic and business conditions. Significant uses of liquidity, described more fully below, consist primarily of funding client deposit withdrawals and outstanding commitments to extend credit or commitments to purchase securities as they are drawn upon. Liquidity is provided by the maintenance of broad access to the global capital markets and by the asset structure in our consolidated statement of condition. Additional information about our liquidity is provided under “Financial Condition - Liquidity” in Management's Discussion and Analysis included in our 2012 Form 10-K.

We generally manage our liquidity on a global, consolidated basis. We also manage liquidity on a stand-alone basis at the parent company, as well as at certain branches and subsidiaries of State Street Bank. State Street Bank generally has broader access to funding products and markets limited to banks, specifically the federal funds market and the Federal Reserve's

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~~discount window. The parent company is managed to a more conservative liquidity profile, reflecting narrower market access. The parent company typically holds enough cash, primarily in~~

assessing various aspects of State Street's operational risk framework:


▪	ERM’s Corporate Operational Risk Management group is responsible for the development and implementation of State Street's operational risk guidelines, framework and supporting tools. It also reviews and analyzes operational key risk information, metrics and indicators at the business line and corporate level for purposes of reporting and escalating operational risk events;


▪	ERM’s Corporate Risk Analytics group develops and maintains operational risk capital estimation models and regularly calculates State Street's operational risk regulatory capital requirements;


▪	ERM’s Model Governance group separately validates the quantitative models used to measure operational risk; and


▪	Corporate Audit performs separate reviews of the application of operational risk management practices and methodologies utilized across State Street.

Operational risk management at State Street includes both the ~~form of interest-bearing deposits with its banking subsidiaries, to meet its current debt maturities and cash needs, as well as those projected over the next one-year period.~~

~~The sources of our liquidity consist primarily of (1) access to~~corporate Operational Risk Management group, led by the global ~~capital markets and (2) liquid assets carried in our consolidated statement~~head of condition. Our ability to source incremental funding at reasonable rates of interest from wholesale investors in the capital markets is the first source of liquidity we would access to accommodate our uses of liquidity described below. Our on-balance sheet liquid assets are also an integral component of our liquidity management strategy. These assets provide liquidity through maturities of the assets, but more importantly, they provide us with the ability to raise funds by pledging the securities as collateral for borrowings or through outright sales.

~~In addition, State Street Bank~~Operational Risk, who is a member of the ~~Federal Home Loan Bank~~CRO’s executive management team, and a distributed risk management infrastructure that is aligned with our business units. The risk management groups aligned with the business units report directly to the CRO, and have operational risk managers who are responsible for the implementation of ~~Boston. This membership allows for advances~~the operational risk framework at the business unit level.

Market Risk Management

Market risk is defined by U.S. banking regulators as the risk of ~~liquidity~~loss that could result from broad market movements, such as changes in ~~varying terms against high-quality collateral, which helps facilitate~~the general level of interest rates, credit spreads, foreign exchange rates or commodity prices. State Street is exposed to market risk in both its trading and certain of its non-trading, or asset-and-liability management, ~~of depository institutions. No Federal Home Loan Bank advances were outstanding as of~~ ~~September 30, 2013~~ or ~~December 31, 2012~~.activities. The market risk management processes related to our trading activities, discussed in further detail below, apply to both on- and off-balance sheet exposures.

~~Each of~~In the ~~above-described sources of liquidity is used in our management of daily cash needs and is available in a crisis scenario should we need to accommodate potential large, unexpected demand for funds.~~

~~Significant uses~~conduct of our trading activities, we assume market risk. The level of market risk that we assume is a function of our overall risk appetite, business objectives and liquidity generally result from the following: withdrawals of unsecured client deposits; draw-downs of unfunded commitments to extend credit or to purchase securities, generally provided through lines of credit;needs, our clients' requirements and ~~short-duration advance facilities. Client deposits are generated mainly from~~market volatility, and our ~~investment servicing~~execution against those factors. Market risk associated with our trading activities ~~and are invested in a combination of investment securities and short-duration financial instruments whose mix~~ is determined by the characteristics of the deposits. Most of the client deposits are payable on demand or are short-term in nature, which characteristics mean that withdrawals can potentially occur quickly and in significant amounts. Similarly, clients can request disbursement of fundsdiscussed below under ~~commitments to extend credit, or can overdraw their deposit accounts rapidly and in significant volumes.~~“Trading Activities.” In addition, a ~~sizeable volume~~supplemental disclosure

providing qualitative and quantitative information with respect to market risk associated with our trading activities is provided on the “Investor Relations” section of ~~unanticipated funding requirements, such~~our website.

Market risk associated with our non-trading activities, which consists primarily of interest-rate risk, is discussed under “Asset-and-Liability Management Activities.”

Trading Activities

We engage in trading activities primarily to support our clients' needs and to contribute to our overall corporate earnings and liquidity. In connection with certain of these trading activities, we enter into a variety of derivative financial instruments to support our clients' needs and to manage our interest-rate and currency risk. These activities are generally intended to generate trading services revenue and to manage potential earnings volatility. In addition, we provide services related to derivatives in our role as ~~significant draw-downs~~both a manager and a servicer of ~~existing lines~~financial assets. Our clients use derivatives to manage the financial risks associated with their investment goals and business activities. With the growth of ~~credit, could require additional liquidity. These demands on liquidity can be more substantial during periods of market disruption or uncertainty.~~

~~Material risks~~cross-border investing, our clients often enter into foreign exchange forward contracts to ~~sources of short-term liquidity could include, among other things, adverse changes~~convert currency for international investments and to manage the currency risk in their international investment portfolios. As an active participant in the ~~perception~~foreign exchange markets, we provide foreign exchange forward and option contracts in support of these client needs, and also act as a dealer in the ~~financial markets~~currency markets.

As part of our ~~financial condition or our liquidity needs,~~trading activities, we assume positions in the foreign exchange and ~~downgrades~~interest-rate markets by ~~major independent credit rating agencies of our deposits~~buying and ~~our debt securities. Such changes in perception, or downgrades of our deposits or our debt securities, could restrict our ability to access the capital markets~~selling cash instruments and ~~could lead to withdrawals of unsecured deposits by our clients.~~

~~In managing our liquidity, from time to time we issue term wholesale certificates of deposit, or CDs,~~entering into derivative instruments, including foreign exchange forward contracts, foreign exchange and ~~invest those funds in short-duration financial instruments, which are carried in our consolidated statement of condition~~interest-rate options and ~~which would be available to meet our cash needs.~~interest-rate swaps, interest-rate forward contracts, and interest-rate futures. As of ~~September 30, 2013, no CDs were outstanding, compared to~~ ~~$13.56 billion~~ ~~as of~~ ~~December~~March 31, ~~2012, as client deposits remained stable.~~

While maintenance of our high investment-grade credit rating is of primary importance to our liquidity management program, our on-balance sheet liquid assets represent significant liquidity that we can directly control, and provide a source of cash in the form of principal maturities and the ability to borrow from the capital markets using our securities as collateral. Our net liquid assets consist primarily of cash balances at central banks in excess of regulatory requirements and other short-duration liquid assets, such as interest-bearing deposits with banks, which are multi-currency instruments invested with major multi-national banks, and high-quality, marketable investment securities not already pledged, which generally are more liquid than other types of assets and can be sold or borrowed against to generate cash quickly.

~~As of~~ ~~September 30, 2013~~2014, the ~~value~~aggregate notional amount of ~~our consolidated net liquid assets, as we define them, totaled~~these derivative contracts was $~~127.81 billion~~1.24 trillion, ~~compared~~of which $1.23 trillion was composed of foreign exchange forward, swap and spot contracts. In the aggregate, we seek to match positions closely with the objective of minimizing related currency and interest-rate risk. All foreign exchange contracts are valued daily at current market rates. Additional information about derivative contracts entered into in connection with our trading activities is provided in note ~~$149.02 billion~~11 ~~as of~~ ~~December 31, 2012. For the~~ ~~third quarter and first nine months of2013, consolidated average net liquid assets were~~ ~~$108.48 billion~~ ~~and~~ ~~$113.57 billion, respectively, compared to~~ ~~$117.02 billion~~ ~~and~~ ~~$114.06 billion~~ ~~for the~~ ~~third quarter and first nine months of~~ ~~2012, respectively. Due~~ to the ~~unusual size and volatile nature of client deposits as of quarter-end, we maintained cash balances~~consolidated financial statements included in ~~excess of regulatory requirements of approximately~~ ~~$30.39 billion~~ ~~at the Federal Reserve, the ECB and other non-U.S. central banks as of~~ ~~September 30, 2013, compared to~~ ~~$41.11 billion~~ ~~as of~~ ~~December 31, 2012. As of~~ ~~September 30, 2013, the value of the parent company's net liquid assets totaled~~ ~~$2.98 billion, compared with~~ ~~$3.80 billion~~ ~~as of~~ ~~December 31, 2012. The parent company's liquid assets consisted primarily of overnight placements with its banking subsidiaries.~~this Form 10-Q.

~~Aggregate investment securities carried at~~ ~~$48.28 billion~~ ~~as of~~ ~~September 30, 2013, compared to~~ ~~$46.66 billion~~ ~~as of~~ ~~December 31, 2012~~, were designated as pledged for public and trust deposits, borrowed funds and for other purposes as provided by law, and are excluded from the liquid assets calculation, unless pledged internally between State Street affiliates. Liquid assets included securities pledged to the Federal Reserve Bank of Boston to secure State Street Bank's ability to borrow

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~~from their discount window should the need arise. This access to primary credit~~

Governance

Our assumption of market risk in our trading activities is an ~~important source~~integral part of ~~back-up liquidity for~~our corporate risk appetite. Our Board of Directors reviews and oversees our management of market risk, including the approval of key market risk policies and the receipt and review of regular market risk reporting, as well as periodic updates on selected market risk topics.

The TMRC is a management committee that oversees all market risk-taking activities across State Street ~~Bank.~~associated with trading. The TMRC, which reports to the MRAC is composed of members of ERM; our Global Markets business; and our Global Treasury group, as well as our senior executives who manage our trading businesses and other members of management who possess specialized knowledge and expertise. Under authority delegated by the MRAC, the TMRC is responsible for the formulation of guidelines, strategies and work flows with respect to the measurement, monitoring and control of our trading market risk, and also approves market risk tolerance limits and dealing authorities. The TMRC meets regularly to monitor the management of our trading market risk activities.

Our risk management and our calculations of regulatory capital and economic capital are based primarily on our internal VaR models and stress-

testing analysis. As discussed in detail under “Value-at-Risk” below, VaR is measured daily by ERM.

Covered Positions

Our covered positions consist primarily of those arising from the ~~discount window.~~trading portfolios held by our Global Markets business. These trading portfolios include products such as spot foreign exchange, foreign exchange forwards, non-deliverable forwards, foreign exchange options, foreign exchange funding swaps, currency futures, financial futures, and interest rate futures. Covered positions also arise from certain portfolios held by our Global Treasury group. Any new activities are analyzed to determine if the positions arising from such new activities meet the definition of a covered position and conform to our covered positions policy. This documented analysis, including any decisions with respect to market risk treatments, must receive approval from the TMRC.

Value-at-Risk, Stress Testing and Stressed VaR

~~Based on~~As noted above, we use a variety of risk measurement tools and methodologies, including VaR, which is an estimate of potential loss for a given period within a stated statistical confidence interval. We use a risk measurement methodology to measure trading-related VaR daily. We have adopted standards for measuring trading-related VaR, and we maintain regulatory capital for market risk associated with our level of consolidated liquid assets and our ability to access the capital markets for additional funding when necessary, including our ability to issue debt and equity securities under our current universal shelf registration, management considers State Street's overall liquidity as of ~~September 30, 2013~~ ~~to be sufficient to meet its current commitments and business needs, including accommodating the transaction and cash management needs of its clients.~~trading activities in conformity with currently applicable bank regulatory market risk requirements.

We ~~maintain~~utilize an ~~effective universal shelf registration~~internal VaR model to calculate our regulatory market risk capital requirements. We use a historical simulation model to calculate daily VaR- and stressed VaR-based measures for our covered positions in conformity with regulatory requirements. Our VaR model seeks to capture identified material risk factors associated with our covered positions, including risks arising from market movements such as changes in foreign exchange rates, interest rates and option-implied volatilities.

We have adopted standards and guidelines to value our covered positions which govern our VaR-

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and stressed VaR-based measures. Our regulatory VaR-based measure is calculated based on a one-tail, 99% confidence interval and a ten-business-day holding period, using a historical observation period of two years. We also use the same platform to calculate a one-tail, 99% confidence interval, one-business-day VaR for internal risk management purposes. A 99% one-tail confidence interval implies that ~~allows~~daily trading losses are not expected to exceed the estimated VaR more than 1% of the time, or less than three business days out of a year.

Value-at-Risk

Stress Testing and Stressed VaR

We calculate a stressed VaR-based measure using the same model we use to calculate VaR, but with model inputs calibrated to historical data from a range of continuous twelve-month periods that reflect significant financial stress. The sixty-day moving average of our stressed VaR-based measure was approximately$31 million for the ~~public offering~~twelve months endedMarch 31, 2014, compared to a sixty-day moving average of approximately $28 million for the twelve months ended December 31, 2013 and ~~sale~~approximately $16 million for the twelve months endedMarch 31, 2013.

Validation and Back-Testing

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throughout State Street. Additional information is provided under “Model Risk Management.”

capital ~~securities, common stock, depositary shares~~model used for 2012. Consistent with regulatory guidance, the back-testing compared “clean” P&L, defined above, with the one-day VaR produced by the model. The back-testing was performed for a time period not used for model development. The number of occurrences where “clean” trading-book P&L exceeded the one-day VaR was within our expected VaR tolerance level.

The following tables present VaR associated with our trading activities for covered positions held during the first quarter ended March 31, 2014 and ~~preferred stock,~~the first quarter ended March 31, 2013, and ~~warrants~~as of March 31, 2014 and December 31, 2013, as measured by our VaR methodology.



VaR - COVERED PORTFOLIOS (TEN-DAY VaR)	Quarter Ended March 31, 2014						Quarter Ended March 31, 2013						As of March 31, 2014		As of December 31, 2013
(In thousands)	Average		Maximum		Minimum		Average		Maximum		Minimum		VaR		VaR
Foreign exchange	$	6,321	$	12,327	$	2,273	$	7,114	$	22,835	$	1,626	$	4,664	$	5,463
Money market/Global Treasury	51		62		42		140		559		24		61		58
Total VaR	$	6,298	$	12,283	$	2,262	$	7,046	$	22,834	$	1,641	$	4,634	$	5,441



STRESSED VaR - COVERED PORTFOLIOS (TEN-DAY VaR)	Quarter Ended March 31, 2014						Quarter Ended March 31, 2013						As of March 31, 2014		As of December 31, 2013
(In thousands)	Average		Maximum		Minimum		Average		Maximum		Minimum		VaR		VaR
Foreign exchange	$	30,664	$	50,900	$	15,625	$	16,424	$	37,633	$	5,333	$	34,072	$	30,338
Money market/Global Treasury	230		572		84		310		965		56		140		280
Total Stressed VaR	$	30,610	$	50,795	$	15,495	$	16,313	$	37,445	$	5,385	$	33,930	$	30,403

The VaR-based measures presented in the preceding tables are primarily a reflection of the overall level of market volatility and our appetite for trading market risk. Overall levels of volatility have been low both on an absolute basis and relative to ~~purchase such securities, including any shares into~~the historical information observed at the beginning of the period used for the calculations. Both the ten-day VaR-based measures and the stressed VaR-based measures are based on historical changes observed during rolling ten-day periods for the portfolios as of the close of business each day over the past one-year period.

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VaR - COVERED PORTFOLIOS (TEN-DAY VaR)	As of March 31, 2014						As of December 31, 2013
(In thousands)	Foreign Exchange		Interest Rate		Volatility		Foreign Exchange		Interest Rate		Volatility
By component:
Foreign exchange/Global Markets	$	4,107	$	4,132	$	234	$	3,492	$	4,561	$	306
Money market/Global Treasury	48		25		—		46		52		—
Total VaR	$	4,070	$	4,125	$	234	$	3,457	$	4,577	$	306

Asset-and-Liability Management Activities

The primary objective of asset-and-liability management is to provide sustainable and growing net interest revenue, or ~~any combination thereof.~~NIR, under varying economic environments, while protecting the economic value of the assets and liabilities carried in our consolidated statement of condition from the adverse effects of changes in interest rates. While many market factors affect the level of NIR and the economic value of our assets and liabilities, one of the most significant factors is our exposure to movements in interest rates. Most of our NIR is earned from the investment of client deposits generated by our businesses. We invest these client deposits in assets that conform generally to the characteristics of our balance sheet liabilities, including the currency composition of our significant non-U.S. dollar denominated client liabilities, but we manage our overall interest-rate risk position in the context of current and anticipated market conditions and within internally-approved risk guidelines.

The economic value of our consolidated statement of condition is a metric designed to estimate the fair value of assets and liabilities which

Additional information about our measurement of fair value and our use of derivatives is provided in notes ~~May 2013, we issued an aggregate of~~ ~~$1.50 billion~~ ~~of long-term debt, composed of~~ ~~$500 million~~ of ~~1.35%~~ ~~senior notes due~~ ~~May 15, 2018~~2 and ~~$1.0 billion~~11 of ~~3.1%~~ ~~subordinated notes due~~ ~~May 15, 2023. Additional information about this issuance is provided in note~~ 7, respectively, to the consolidated financial statements included in this Form 10-Q.

Because no one individual measure can accurately assess all of our exposures to changes in interest rates, we use several quantitative measures in our assessment of current and potential future exposures to changes in interest rates and their impact on NIR and balance sheet values. NIR simulation is the primary tool used in our evaluation of the potential range of possible NIR results that could occur under a variety of interest-rate environments. We ~~have issued~~also use market valuation and duration analysis to assess changes in the ~~past,~~economic value of balance sheet assets and liabilities caused by assumed changes in interest rates.

To measure, monitor, and report on our interest-rate risk position, we ~~may issue~~use NIR simulation, or NIR-at-risk, and economic value of equity, or EVE, sensitivity. NIR-at-risk measures the impact on NIR over the next twelve months to immediate, or “rate shock,” and gradual, or “rate ramp,” changes in market interest rates. EVE sensitivity is a total return view of interest-rate risk, which measures the impact on the present

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EVE is based on the change in the present value of all NIR-related principal and interest cash flows for changes in market rates of interest. The present value of existing cash flows with a then-current yield curve serves as the base case. We then apply an immediate parallel shock to that yield curve of ±200 basis points and recalculate the cash flows and related present values. A large shock is used to better capture the embedded option risk in our mortgage-backed securities ~~pursuant~~that results from borrowers' prepayment opportunities.

curves; changes in market conditions; and management actions taken in response to the preceding conditions.

Net Interest Revenue at Risk

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The following table presents the estimated exposure of our NIR for the next twelve months, calculated as of the dates indicated, due to an immediate +/-100-basis-point shift to our ~~shelf registration. The issuance~~internal forecast of ~~debt~~global interest rates. We manage our NIR sensitivity to limit declines to 15% or ~~equity securities will depend~~less from baseline NIR. Estimated incremental exposures presented below are dependent on ~~future market conditions, funding needs~~management's assumptions, and ~~other factors.~~do not reflect any additional actions management may undertake in order to mitigate some of the adverse effects of changes in interest rates on our financial performance.



	Estimated Exposure to Net Interest Revenue
(Dollars in millions)	March 31, 2014					December 31, 2013
Rate change:	Exposure			% of Base NIR		Exposure			% of Base NIR
+100 bps shock	$	344		14.2	%	$	334		14.0	%
–100 bps shock	(291		)	(12.0	)	(261		)	(10.9	)
+100 bps ramp	128			5.3		126			5.3
–100 bps ramp	(158		)	(6.5	)	(124		)	(5.2	)

~~We currently maintain a corporate commercial paper program, under which we are able to issue up to $3 billion of commercial paper with original maturities of up to 270 days from the date of issuance.~~ As of ~~September 30, 2013~~March 31, 2014, ~~we had~~ ~~$1.26 billion~~ ~~of commercial paper outstanding under this corporate program,~~NIR sensitivity to an upward-100-basis-point shock in global interest rates was slightly higher compared to ~~$2.32 billion~~such sensitivity as of December 31, ~~2012~~2013, due to a higher level of forecast client deposits. The benefit to NIR of an upward-100-basis-point ramp is less significant than a shock, since interest rates are assumed to increase gradually.

Our baseline NIR incorporates an expectation that short-term interest rates will begin to rise in anticipation of central bank tightening of current

Economic Value of Equity

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	Estimated Sensitivity of Economic Value of Equity
(Dollars in millions)	March 31, 2014					December 31, 2013
Rate change:	Exposure			% of Tier 1/Tier 2 Capital		Exposure			% of Tier 1/Tier 2 Capital
+200 bps shock	$	(2,346	)	(13.2	)%	$	(2,359	)	(14.9	)%
–200 bps shock	1,146			6.5		1,149			7.2

Model Risk Management

Our model risk management program has three principal components:


▪	A model risk governance program supports risk management by defining roles and responsibilities, by providing policies and guidance that define relevant model risk management activities, and by describing procedures that implement those policies;


▪	A model development process facilitates the appropriate design and accuracy of models; the development process also includes ongoing model integrity activities designed to test for robustness and stability and to evaluate a model's limitations and assumptions; and


▪	A set of model validation processes and activities is designed to validate that models are theoretically sound, are performing as expected, and are in line with their design objectives; model validation also checks that a model's key assumptions and limitations are identified and clearly communicated to the model's end users and to senior management.

Business Risk Management

Business risk is managed with a long-term focus. Techniques for its assessment and management include the development of business

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Capital

The management of both our regulatory and economic capital involves key metrics evaluated by management to assess whether our actual level of capital is commensurate with our risk profile, is in compliance with all applicable regulatory requirements, and is sufficient to provide us with the financial flexibility to undertake future strategic business initiatives. We assess capital based on relevant regulatory capital adequacy requirements, as well as our own internal capital targets.

Framework

Internal Capital Adequacy Assessment

Capital Contingency Planning

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Stress Testing

Governance

In order to support integrated decision making, we have identified three management elements to aid in the compatibility and coordination of our capital adequacy strategies and processes:

Risk Management - identification, measurement, monitoring and forecasting of different types of risk and their combined impact on capital adequacy;

Capital Management - determination of optimal capital and liquidity levels; and

Business Management - strategic planning, budgeting, forecasting, and performance management.

Regulatory Capital

The following tables present regulatory capital ratios, the components of tier 1, tier 2 and total capital, and the components of total risk-weighted assets, for State Street and State Street Bank as of the dates indicated:



	Currently Applicable Regulatory Guidelines				State Street				State Street Bank
	Minimum		Well Capitalized		March 31, 2014		December 31, 2013		March 31, 2014		December 31, 2013
Tier 1 risk-based capital ratio	4	%	6	%	18.3	%	17.3	%	17.3	%	16.4	%
Total risk-based capital ratio	8		10		21.0		19.7		19.6		19.0
Tier 1 leverage ratio⁽¹⁾	4		5		7.4		6.9		6.9		6.4

⁽¹⁾Regulatory guideline for “well capitalized” applies only to State Street Bank.

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	State Street						State Street Bank
(In millions)	March 31, 2014			December 31, 2013			March 31, 2014			December 31, 2013
Tier 1 capital⁽¹⁾:
Total common shareholders' equity	$	20,040		$	19,887		$	20,024		$	19,755
Preferred stock	1,233			491			—			—
Trust preferred capital securities⁽²⁾	475			950			—			—
Goodwill and other intangible assets, net of associated deferred tax liabilities⁽³⁾	(6,122		)	(7,743		)	(5,838		)	(7,341		)
Other	(139		)	310			(63		)	304
Tier 1 capital	15,487			13,895			14,123			12,718
Tier 2 capital⁽¹⁾:
Qualifying subordinated debt	1,738			1,918			1,755			1,936
Trust preferred capital securities⁽²⁾	475			—			—			—
Allowances for on- and off-balance sheet credit exposures and other	50			48			48			45
Tier 2 capital	2,263			1,966			1,803			1,981
Deduction for investments in finance subsidiaries	—			(74		)	—			—
Total capital⁽¹⁾	$	17,750		$	15,787		$	15,926		$	14,699
Total risk-weighted assets⁽⁴⁾:
On-balance sheet assets:
Cash and interest-bearing assets	$	2,362		$	2,175		$	2,191		$	1,979
Investment securities	34,134			34,000			33,435			33,514
Loans and leases	15,754			13,201			15,807			13,257
Interest, fees and other receivables	2,746			2,951			2,111			2,332
Other assets	9,835			7,950			8,183			6,517
Total on-balance sheet assets	64,831			60,277			61,727			57,599
Off-balance sheet equivalent assets:
Guarantees and unfunded commitments to extend credit	10,989			10,125			10,989			10,125
Foreign exchange derivative contracts	4,167			5,282			4,167			5,302
Standby letters of credit and asset purchase agreements	3,011			2,995			3,011			2,995
Other	315			185			173			176
Total off-balance sheet equivalent assets	18,482			18,587			18,340			18,598
Market risk equivalent assets	1,381			1,262			1,381			1,262
Total risk-weighted assets	$	84,694		$	80,126		$	81,448		$	77,459
Adjusted quarterly average assets	$	209,021		$	202,801		$	205,409		$	199,301

⁽¹⁾The provisions of the Basel III final rule (refer to “Basel Capital Framework”) affecting the calculation of capital were effective, with related phase-in provisions, on January 1, 2014; accordingly, as of March 31, 2014, amounts for State Street and State Street Bank were calculated in conformity with the provisions of the Basel III final rule.

⁽³⁾As of March 31, 2014, amounts for State Street and State Street Bank were composed of goodwill, net of associated deferred tax liabilities, and 20% of other intangible assets, net of associated deferred tax liabilities, the latter phased in as a deduction from capital, in conformity with the Basel III final rule.

⁽⁴⁾Amounts for State Street and State Street Bank for all periods presented were calculated in conformity with the provisions of Basel I.

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As of March 31, 2014, State Street's regulatory capital ratios increased compared to December 31, 2013, primarily the result of higher capital, partly offset by an increase in total risk-weighted assets.

The increases in State Street's tier 1 and total capital were the result of the first-quarter 2014 issuance of preferred stock, the impact of the phase-in provisions of the Basel III final rule related to other intangible assets and the positive effect of net income, partly offset by declarations of common and preferred stock dividends and purchases by us of our common stock. The increase in total risk-weighted assets was primarily associated with higher on-balance sheet assets, mainly due to higher levels of loans and other assets.

The increase in the tier 1 leverage ratio mainly resulted from the above-described increase in tier 1 capital, partly offset by an increase in adjusted quarterly average assets associated with balance sheet growth during the first quarter of 2014.

As of ~~September 30, 2013~~March 31, 2014, State Street ~~Bank had Board authority~~Bank's regulatory capital ratios increased compared to ~~issue unsecured senior debt securities from time to time, provided that the aggregate principal amount of such unsecured senior debt outstanding at any one time does not exceed~~ ~~$5 billion. As of the same date,~~ ~~$4 billion~~ ~~was available for issuance pursuant to this authority. As of~~ ~~September 30,~~December 31, 2013, primarily the result of higher capital, partly offset by an increase in total risk-weighted assets.

State Street Bank's tier 1 and total capital increased, the result of the above-described phase-in provisions of the Basel III final rule related to other intangible assets and the positive effect of net income, partly offset by the payment of dividends by State Street Bank ~~had~~to our parent company. The increase in total risk-weighted assets was the result of the above-mentioned changes in on-balance sheet assets.

Capital Actions

Preferred Stock

In the first quarter of 2014, we declared aggregate dividends on our non-cumulative perpetual preferred stock, Series C (represented by depositary

Common Stock

In March 2014, we received the results of the Federal Reserve's review of our 2014 capital plan in connection with its annual CCAR process. The Federal Reserve did not object to the capital actions we proposed, and, in March 2014, our Board ~~authority to issue~~approved a new common stock purchase program authorizing the purchase of up to $~~1.5~~1.70 billion of ~~subordinated debt.~~our common stock through March 31, 2015. We did not purchase any of our common stock under the new program in the first quarter of 2014.

In the first quarter of 2014, we completed the $2.10 billion program authorized by the Board in March 2013 by purchasing approximately 6.1 million shares of our common stock, at an average price of $69.14 per share and an aggregate cost of approximately $420 million.

In each of the first quarter of 2014 and the first quarter of 2013, we declared a quarterly common stock dividend of $0.26 per share, totaling approximately $112 million and $118 million, respectively. Our 2014 capital plan includes a proposed increase in our second-quarter 2014 common stock dividend to $0.30 per share, subject to consideration and approval by the Board at its scheduled meeting in May.

Federal and state banking regulations place certain restrictions on dividends paid by subsidiary banks to the parent holding company. In addition, banking regulators have the authority to prohibit bank holding companies from paying dividends. Information concerning limitations on dividends from our subsidiary banks is provided in “Related Stockholder Matters” included under Item 5, and in note 15 to the consolidated financial statements, included in our 2013 Form 10-K.

Basel Capital Framework

Overview

In July 2013, U.S. banking regulators jointly issued a final rule implementing the Basel III framework in the U.S., referred to as the Basel III final

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rule. The provisions of Basel III are more fully described under “Basel III” below.

The Basel III final rule will become effective under a transition timetable which began on January 1, 2014. As of that date, our calculations of our tier 1 capital and total capital are governed by the ~~same~~provisions of the Basel III final rule, while our calculation of our total risk-weighted assets continues to be governed by the provisions of Basel I. The provisions of the Basel III final rule will supersede or modify corresponding elements of the Basel I- and Basel II-related capital requirements and prompt corrective action framework. The timing of application of certain provisions of the Basel III final rule is dependent on banking organizations' completion of the required qualification period.

Basel III

Under the Basel III final rule, a banking organization will be able to make capital distributions, subject to other regulatory constraints, such as the review of capital plans, and discretionary bonus payments without specified limitations as long as it maintains a required capital conservation buffer of 2.5% over each of the minimum tier 1 and total risk-based capital ratios and the common equity tier 1 capital ratio (plus any potentially applicable countercyclical capital buffer). Banking regulators will establish the minimum countercyclical capital buffer, which is initially set by banking regulators at zero, up to a maximum of 2.5% above the minimum ratios inclusive of the capital conservation buffer, under certain economic conditions.

As of January 1, 2019, the date that full implementation is required, and assuming no countercyclical buffer, the minimum Basel III capital ratios, including the capital conservation buffer, will be 7% for common equity tier 1 capital, 8.5% for tier 1 risk-based capital and 10.5% for total risk-based

capital, in order for us to make capital distributions and discretionary bonus payments without limitation. The denominator of each of these Basel III ratios is calculated differently under the Basel III final rule than those similar ratios calculated under Basel I, and therefore these Basel III ratios are not directly comparable with the ratios presented in the preceding “Regulatory Capital” section.

The Basel III final rule provides for two frameworks: the “standardized” approach, intended to replace Basel I, and the “advanced” approach, applicable to advanced approaches banking organizations, like State Street, as originally defined under Basel II. The calculation of risk-weighted assets under the Basel III standardized approach will become effective on January 1, 2015. The requirement for the capital conservation buffer will be phased in beginning on January 1, 2016, with full implementation by January 1, 2019.

Once the provisions of the Basel III final rule are fully implemented effective January 1, 2015, the more stringent of the Basel III tier I common ratio calculated by us under the Basel III advanced approach and the standardized approach will apply in the assessment of our capital adequacy for regulatory purposes.

The provisions of Basel III supersede or modify corresponding elements of the Basel I and Basel II risk-based and leverage capital requirements and the prompt corrective action provisions of FDICIA.

Estimated Basel III Tier 1 Common Ratio

As described above, the Basel III final rule adds a requirement for a minimum common equity tier 1 capital ratio, or tier 1 common ratio. The tier 1 common ratio is calculated by dividing tier 1 capital, reduced by non-common elements such as trust preferred capital securities and preferred stock, by total risk-weighted assets.

The following table presents our tier 1 common ratio as of March 31, 2014, calculated using currently applicable regulatory requirements, and our estimated tier 1 common ratios as of March 31, 2014, under both the standardized approach and the advanced approach. These estimated Basel III tier 1 common ratios are preliminary estimates, calculated in conformity with the advanced and standardized approaches in the Basel III final rule, based on our present interpretations of the Basel III final rule. As indicated above, under the Basel III final rule, the more stringent of the Basel III tier 1 common ratios calculated by us under the standardized and advanced approaches will apply in the assessment of our capital adequacy under the prompt corrective action provisions of FDICIA as of January 1, 2015.

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March 31, 2014	Currently Applicable Regulatory Requirements⁽¹⁾			Basel III Final Rule Standardized Approach (Estimated)⁽²⁾			Basel III Final Rule Advanced Approach (Estimated)⁽²⁾
(Dollars in millions)	Currently Applicable Regulatory Requirements⁽¹⁾			Basel III Final Rule Standardized Approach (Estimated)⁽²⁾			Basel III Final Rule Advanced Approach (Estimated)⁽²⁾
Tier 1 capital	$	15,487		$	15,487		$	15,487
Less:
Trust preferred capital securities	475			475			475
Preferred stock	1,233			1,233			1,233
Plus: Other	145			145			145
Tier 1 common capital	$	13,924		$	13,924		$	13,924
Total risk-weighted assets	$	84,694		$	124,783		$	105,729
Tier 1 common ratio	16.4		%	11.2		%	13.2		%
Minimum tier 1 common ratio requirement, assuming full implementation on January 1, 2019				4.5			4.5
Capital conservation buffer, assuming full implementation on January 1, 2019				2.5			2.5
Minimum tier 1 common ratio requirement, including capital conservation buffer, assuming full implementation on January 1, 2019⁽³⁾				7.0			7.0

⁽¹⁾The tier 1 common ratio was calculated by dividing common equity tier 1 capital, calculated in conformity with the provisions of the Basel III final rule, by total risk-weighted assets, calculated in conformity with the provisions of Basel I.

⁽²⁾As of March 31, 2014, for purposes of the calculations completed in conformity with the Basel III final rule, total risk-weighted assets under both the standardized approach and the advanced approach were calculated using State Street's estimates, based on the provisions of Basel III final rule. The tier 1 common ratio was calculated by dividing tier 1 common capital, calculated in conformity with the provisions of the Basel III final rule, by total risk-weighted assets, calculated in conformity with the provisions of the Basel III final rule. These estimated Basel III tier 1 common ratios are preliminary, and are based on our present interpretations of the Basel III final rule.

Under the standardized approach, total risk-weighted assets used in the calculation of the estimated tier 1 common ratio increased by $~~500 million~~40.09 billion ~~was available~~as a result of applying the provisions of the Basel III final rule to Basel I total risk-weighted assets of $84.69 billion as of March 31, 2014. Under the advanced approach, total risk-weighted assets used in the calculation of the estimated tier 1 common ratio increased by $21.04 billion as a result of applying the provisions of the final rule to Basel I total risk-weighted assets of $84.69 billion as of March 31, 2014.

The primary differences between total risk-weighted assets under Basel I and total risk-weighted assets under the Basel III final rule include the following: under Basel I, credit risk is quantified using pre-determined risk weights and asset classes, and in part, uses external credit ratings, while the Basel III final rule, specifically the standardized and advanced approaches, introduces a broader range of pre-determined risk weights and asset classes, uses certain alternatives to external credit ratings, includes additional adjustments for ~~issuance pursuant~~operational risk (under the advanced approach) and counterparty credit risk, and revises the treatment of equity exposures. In particular, securitization exposures receive higher risk weights under both the standardized and advanced approaches in the Basel III final rule compared to ~~this authority.~~Basel I.

⁽³⁾The minimum tier 1 common ratio requirement does not reflect the countercyclical capital buffer under the Basel III final rule, or the capital buffer for global systemically important banks prescribed by the Basel Committee (refer to “Systemically Important Banks”); such countercyclical capital buffer, which is initially set at zero, would be established by banking regulators under certain economic conditions, and U.S. banking regulators have not yet issued a proposal to implement the prescribed capital buffer for systemically important financial institutions.

The estimated Basel III tier 1 common ratio as of March 31, 2014 presented above, calculated under the advanced approach in conformity with the Basel III final rule, reflects calculations and determinations with respect to our capital and related matters as of March 31, 2014, based on State Street and external data, quantitative formulae, statistical models, historical correlations and assumptions, collectively referred to as “advanced systems,” in effect and used by State Street for those purposes as of the time we filed this Form 10-Q. Significant components of these advanced systems involve the exercise of judgment by us and our regulators, and our advanced systems may not accurately represent or calculate the scenarios, circumstances, outputs or other results for which they are designed or intended.

Due to the influence of changes in these advanced systems, whether resulting from changes in data inputs, regulation or regulatory supervision or

Models implemented under the Basel III final rule, particularly those implementing the advanced approach, remain subject to regulatory review and approval. The full effects of the Basel III final rule on State Street and State Street Bank ~~currently maintains a line~~are therefore subject to further evaluation and also to further regulatory guidance, action or rule-making. In general, we expect to be held to the most stringent of ~~credit~~the various provisions in the Basel III final rule; however, we anticipate that we will be able to comply with ~~a financial institution~~the relevant Basel III regulatory capital and liquidity requirements when and as applied to us.

Table of ~~CAD~~ ~~$800 million, or approximately~~ ~~$778 million~~ ~~as of~~ ~~September 30, 2013, to support its Canadian securities processing operations. The line of credit has no stated termination date and is cancelable by either party with prior notice. As of~~ ~~September 30, 2013, no balance was outstanding on this line of credit.~~Contents

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AND RESULTS OF OPERATIONS (Continued)

Risk Management

General

credit and counterparty risk;

liquidity risk, funding and management;

operational risk, including execution, technology, business practice and fiduciary risks;

model risk; and

business risk, including reputational risk.

The ~~global~~ scope of our business ~~activities~~ requires that we balance ~~what we perceive to be the primary~~these risks ~~in our businesses~~ with a comprehensive and well-integrated risk management function. The identification, assessment, monitoring, mitigation and reporting of risks are essential to ~~the~~our financial performance and successful management of our businesses. These risks, if not effectively managed, can result in current losses to State Street as well as erosion of our capital and damage to our reputation. Our systematic approach allows for an assessment of risks within a framework for evaluating opportunities for the prudent use of capital that appropriately balances risk and return.

WeOur objective is to optimize our return and to operate at a prudent level of risk. In support of this objective, we have instituted a ~~disciplined approach to~~risk appetite framework that aligns our business strategy and financial objectives with the level of risk that ~~involves~~we are willing to incur.

Our risk management is based on the following major principles:

A culture of risk awareness that extends across all ~~levels of management. The Board, through its Risk and Capital Committee, provides oversight and review~~ of our ~~overall risk management programs, including the approval of key risk management policies~~business activities;

The identification, classification and ~~the periodic review~~quantification of State Street's ~~“Risk Appetite Statement,” which is an integral part~~material risks;

The establishment of our risk appetite and associated limits and policies, and our compliance with these limits;

The establishment of a risk management structure at the “top of the house” that enables the control and coordination of risk-taking across the business lines;

The implementation of stress testing practices and a dynamic risk-assessment capability; and

The overall ~~Internal Capital Adequacy Assessment Process, or ICAAP. The~~flexibility to adapt to the ever-changing business and market conditions.

Our Risk Appetite Statement outlines the quantitative limits and qualitative goals that define ~~and constrain~~ our risk appetite, ~~and defines~~as well as the responsibilities for measuring and monitoring risk against limits, ~~which are reported regularly to~~and for reporting, escalating, approving and addressing exceptions. The Risk Appetite Statement is established by management with the ~~Board. In addition, State Street utilizes a variety~~guidance of ~~key risk indicators to monitor risk on a more granular level.~~Enterprise Risk Management, or ERM, a corporate risk oversight group, in conjunction with our Board of Directors. The Board formally reviews and approves our Risk Appetite Statement annually.

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provided under “Capital” in this Management’s Discussion and Analysis.

The following table provides a reference to the disclosures about our management of significant risks provided herein.



	Form 10-Q Page Number
Risk Governance and Structure	33
Credit Risk Management	36
Liquidity Risk Management	38
Operational Risk Management	42
Market Risk Management	44

Risk Governance and Structure

Corporate Audit, which assesses the effectiveness of the first two lines of defense.

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RISK GOVERNANCE COMMITTEE STRUCTURE

Board Oversight

Risk and Capital Committee of the Board of Directors (RCC)

Examining & Audit Committee of the Board of Directors (E&A)

Senior Management Oversight

Management Risk and Capital Committee (MRAC)

Business Conduct Review Committee

(BCRC)

Technology and Operational Risk Committee (TORC)

Risk Committees

Asset, Liability and Capital Committee (ALCCO)

Credit Risk and Policy Committee

Country Risk Committee

Trading and Markets Risk Committee (TMRC)

Securities Finance Risk Management Committee

Model Assessment Committee

(MAC)

Basel ICAAP Oversight Committee

(BIOC)

Mandate

Oversight of interest rate risk, liquidity risk and capital adequacy

Oversight of credit and counterparty risk

Oversight of country risk and international exposure

Senior risk committee governing all global markets trading activities

Oversight of Securities Finance and collateral reinvestment activities

Oversight of model deployment

Oversight of Basel II and Basel III program

CCAR Steering Committee⁽¹⁾

Recovery and Resolution Planning Executive Steering Group

New Business and Product Committee

Compliance and Ethics Committee

Fiduciary Review Committee

Operational
Risk Committee
(ORC)

Technology Risk Governance Committee

Mandate

Oversight of CCAR stress-testing program

Oversight of process for development of recovery and resolution plans

Oversight of evaluation of risk inherent in new products and services and new business

Oversight of compliance programs including employee ethics standards

Oversight of corporate-wide fiduciary risk

Oversight of corporate-wide operational risk

Oversight of corporate-wide technology risk

⁽¹⁾Oversees the submission of capital plans in connection with the Federal Reserve's annual Comprehensive Capital Analysis and Review, or CCAR, process.

The Chief Risk Officer, or CRO, ~~manages~~who is responsible for State Street’s risk management globally, leads ERM and ~~reports~~has a dual reporting line to ~~both the~~State Street’s Chief Executive Officer and the ~~Board's Risk and Capital Committee.~~Board’s

~~The execution~~

RCC. ERM discharges its responsibilities globally through a three-dimensional organization structure:


▪	“Vertical” business unit-aligned risk groups that assist business managers with risk management, measurement and monitoring activities;


▪	“Horizontal” risk groups that monitor the risks that cross all of our business units (for example, credit and operational risk); and


▪	Risk oversight for international activities, which adds important regional and legal entity perspectives to global vertical and horizontal risk management.

Sitting on top of ~~duties with respect to~~this three-dimensional organization structure is a centralized group responsible for the ~~management of people, products, business operations and processes is the responsibility of business unit managers. The function~~aggregation of risk ~~management is designing~~exposures across the vertical, horizontal and directing the implementation of risk management programs and processes consistent with corporate and regulatory standards, and providing oversight of the business-owned risks. Accordingly, risk management is a shared responsibility between ERM and the business units, and requires joint efforts in goal setting, program design and implementation, resource management, and performance evaluation between business and functional units. In addition, Corporate Audit separately assesses the effectiveness of business units and risk management in the execution of their responsibilities.regional

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~~Responsibility~~

dimensions, for consolidated reporting, for setting the enterprise-level risk appetite framework and associated limits and policies, and for dynamic risk assessment across State Street.

The Board's RCC is responsible for oversight related to our assessment and management of risk, including credit, liquidity, operational, fiduciary, market, interest-rate and business risks and related policies. In addition, the RCC provides oversight on strategic capital governance principles and controls, and monitors capital adequacy in relation to risk. The RCC is ~~overseen by a series~~also responsible for discharging certain duties and obligations of ~~management committees, as well as~~ the ~~Board's Risk~~Board under applicable Basel and ~~Capital Committee.~~ other regulatory requirements. The Chief Financial Officer, together with the CRO, attend meetings of the RCC.

The Management Risk and Capital Committee, or MRAC, ~~co-chaired by our CRO and Chief Financial Officer,~~ is the senior management decision-making body for risk and capital issues, and is responsible for ~~aligning State Street's~~ensuring that our strategy, budget, risk appetite and capital ~~adequacy.~~ adequacy are properly aligned. The main responsibilities of MRAC are as follows:

The review of our risk appetite framework and top-level risk limits and policies;

The monitoring and assessment of our capital adequacy based on regulatory requirements and internal policies; and

The review of business performance in the context of risk and capital allocation.

The Business Conduct Review Committee, or BCRC, provides additional risk governance and leadership, by overseeing State Street's business practices and reinforcing our commitment to the

Risk Committees

Our Asset, Liability and Capital Committee, or ALCCO, ~~chaired by our Treasurer,~~is a risk committee that oversees the management of our consolidated statement of condition, the management of our global liquidity and our interest-rate risk positions, our regulatory and economic capital, the determination of the framework for capital allocation and strategies for capital structure, and issuances of debt and equity ~~issuances.~~

securities. ALCCO’s roles and responsibilities are designed to work complementary to, and be coordinated with, the MRAC, which approves State ~~Street's risk management program~~Street’s balance sheet strategy and related activities. ALCCO is ~~supported by the activities of a number of corporate risk oversight committees,~~ chaired by ~~senior executives in ERM. Our Fiduciary Review Committee reviews~~our Treasurer and ~~assesses~~directly reports into the MRAC.

The following other risk ~~management programs~~committees have focused responsibilities for oversight of ~~those units in which State Street serves in a fiduciary capacity. Our~~specific areas of risk management:

The Credit Risk and Policy Committee is responsible for cross-business unit review and oversight of credit and counterparty ~~risk, as well as the review, recommendation and approval~~risk;


▪	The Country Risk Committee oversees the identification, assessment, monitoring, reporting and mitigation, where necessary, of country risks;


▪	The Trading and Markets Risk Committee, or TMRC, reviews the effectiveness of, and approves, the market risk framework at least annually; it is the most senior oversight and decision making committee for risk management within State Street Global Markets and the trading-and-clearing business of State Street Global Exchange;


▪	The Securities Finance Risk Management Committee provides oversight of the risks in our securities finance business, including collateral and margin policies;


▪	The Model Assessment Committee, or MAC, provides recommendations concerning technical modeling issues and validates

Table of material policies, procedures and guidelines governing the identification, measurement, analysis and control of material credit risk across State Street. Our Country Risk Committee oversees the identification, assessment, monitoring, reporting and mitigation, where necessary, of country risks. Our Operational Risk Committee provides cross-business oversight of operational risk to identify, measure, manage and control operational risk consistently across State Street. Our Model Assessment Committee provides support and input concerning technical modeling issues and validates Contents

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS (Continued)

financial models utilized by our business ~~units.~~units;


▪	The Basel / ICAAP Oversight Committee, or BIOC, reviews and assesses compliance with regulatory capital rules, and oversees initiatives related to the development and enhancement of relevant reporting capabilities;


▪	The CCAR Steering Committee provides primary supervision of the stress tests performed in conformity with CCAR and the Dodd-Frank Act, and is responsible for the overall management, review, and approval of all material assumptions, methodologies, and results of each stress scenario;


▪	The Recovery and Resolution Planning Executive Steering Group oversees the development of recovery and resolution plans as required by banking regulators;


▪	The New Business and Product Committee provides oversight of the evaluation of the risk inherent in proposed new products or services and new business, as well as divestitures, restructurings and outsourcing arrangements; evaluations include economic justification, material risk, compliance, regulatory and legal considerations, and capital and liquidity analyses;

The Compliance and Ethics Committee provides review and oversight of State Street's compliance programs, including its culture of compliance and high standards of ethical behavior;


▪	The Fiduciary Review Committee reviews and assesses the risk management programs of those units in which State Street serves in a fiduciary capacity;


▪	The Operational Risk Committee provides cross-business oversight of operational risk to identify, measure, manage and control operational risk in an effective and consistent manner across State Street; and


▪	The Technology Risk Governance Committee provides regular reporting to the TORC and escalates technology risk issues to the TORC, as appropriate.

Credit Risk Management

Core Policies and Principles

We distinguish between three kinds of credit and counterparty risk:


▪	Default risk is the risk that a counterparty fails to meet its contractual payment obligations;


▪	Country risk is the risk that we may suffer a loss, in any given country, due to any of the following reasons: deterioration of economic conditions, political and social upheaval, nationalization and appropriation of assets, government repudiation of indebtedness, exchange controls, and disruptive currency depreciation or devaluation; and


▪	Settlement risk is the risk that the settlement or clearance of transactions will fail, and arises whenever the exchange of cash, securities and/or other assets is not simultaneous.


▪	All credit risks to each counterparty, or group of counterparties, are measured and consolidated in accordance with a ‘one obligor’ principle that aggregates all risks types across all business areas;


▪	We seek to avoid or minimize undue concentrations of risk; counterparty (or groups of counterparties), industry, country and product-specific concentrations of risk are subject to frequent review and approval in accordance with State Street’s prevailing risk appetite;


▪	All extensions of credit, or material changes to extensions of credit (such as its tenor, collateral structure or covenants), are approved by ERM in conformity with assigned credit-approval authorities;


▪	We assign credit approval authorities to individuals according to their qualifications, experience and training, and review these authorities periodically; our largest exposures require approval by the Credit Committee, a sub-committee of the Credit Risk and Policy

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Committee; for certain small and low-risk extensions of credit, for certain counterparty types, approval authority has been granted to individuals outside of ERM;


▪	The creditworthiness of all counterparties is determined by way of a detailed risk assessment, including the use of comprehensive internal rating methodologies; all rating methodologies in use at State Street are authorized for use within the advanced internal-ratings-based approach under applicable Basel requirements; and


▪	A review of the creditworthiness of all counterparties, as well as all extensions of credit, is undertaken at least annually; the nature and extent of these reviews is determined by the size, nature and tenor of the extensions of credit, as well as the creditworthiness of the counterparty.

All core policies and principles are subject to annual review, as an integral part of State Street’s periodic assessment of its risk appetite.

Governance

Credit Limits

borrower or counterparty, its prevailing credit-worthiness and the nature of the risk. These processes are outlined in formal guidelines.

Global Counterparty Review

Separate and objective assessments of our credit and counterparty exposures to determine the nature and extent of risk undertaken by the business units;

Identification and monitoring of developing trends to minimize risk of loss and protect capital;

Maintenance of risk-rating system integrity and assurance of counterparty risk-rating transparency through testing of ratings;

Providing resources for specialized risk assessments (on an as-needed basis);

Opining on the adequacy of the allowance for loan losses; and

Serving as liaison with auditors and banking regulators with respect to risk rating, reporting and measurement.

Credit Risk Mitigation

Techniques used to mitigate our counterparty credit risk include collateralizing our exposures; securing our exposures with a third-party guarantee; maintaining a security interest against assets under custody; exercising our legal right of offset; or buying credit insurance to offset our risk. We primarily accept cash, equities, and government securities as collateral. While we ~~believe~~may use one or more of the foregoing techniques as protection with respect to a

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Reserve for Credit Losses

Liquidity Risk Management

Governance

Liquidity Framework

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potential increases in cash needs or decreases in available sources of cash, as well as the potential impairment of our ability to access the global capital markets.

We manage liquidity according to several principles that are equally important to our overall liquidity risk management framework:

Tactical liquidity management addresses our day-to-day funding requirements and is largely driven by changes in our primary source of funding, which is client deposits.

Fluctuations in client deposits may be supplemented with short-term borrowings, which generally include commercial paper and certificates of deposit.

specific event or a broader disruption in the capital markets. Specific actions are linked to the level of stress indicated by these measures or by management judgment of market conditions.

Liquidity Risk Metrics

Asset Liquidity



(In millions)	March 31, 2014		December 31, 2013
Asset Liquidity:
Highly liquid short-term investments⁽¹⁾	$	75,796	$	64,257
Investment securities	21,612		22,322
Total	$	97,408	$	86,579

	Quarters Ended March 31,
(In millions)	2014		2013
Average Asset Liquidity:
Highly liquid short-term investments⁽¹⁾	$	33,410	$	30,585
Investment securities	21,457		25,794
Total	$	54,867	$	56,379

⁽¹⁾Composed of interest-bearing deposits with banks.

Liquid securities carried in our asset liquidity include securities pledged without corresponding

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Uses of Liquidity

Funding

Deposits:

client deposits are invested in a combination of investment securities and short-duration financial instruments whose mix is determined by the characteristics of the deposits.



					Average Balance
	March 31,				Quarters Ended March 31,
(In millions)	2014		2013		2014		2013
Client deposits⁽¹⁾	$	194,648	$	150,130	$	154,086	$	138,750

Short-Term Funding:

State Street Bank currently maintains a line of credit with a financial institution of CAD $800 million, or approximately $725 million as of March 31, 2014,

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Long-Term Funding:

Agency Credit Ratings

commitments, or require additional collateral or force terminations of certain trading derivative contracts.



(In millions)	March 31, 2014		December 31, 2013
Additional collateral or termination payments for a one- or two-notch downgrade	$	3	$	7

Proposed Liquidity Framework

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Operational Risk Management

Whereas operational risk represents the potential, an operational risk event is the actual

Framework


▪	The alignment of business priorities with risk management objectives;


▪	The active management of risk and the avoidance of surprises;


▪	The clarification of responsibilities for the management of operational risk;


▪	A common understanding of operational risk management and its supporting processes; and


▪	The consistent application of policies and collection of data for risk management and measurement.


▪	Identify, assess and measure risk - understand business unit strategy, risk profile and potential exposure;


▪	Monitor risk - proactively monitor the business environment and associated operational risk exposure;


▪	Evaluate and test controls - verify that internal controls are designed appropriately, are consistent with corporate and regulatory standards, and are operating effectively;


▪	Provide integrated management reporting - facilitate management's ability to maintain

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control, provide oversight and escalate issues in a timely manner; and


▪	Support risk-based decision making - make conscious risk-based decisions and understand the trade-off between risk and return.

Our operational risk policy is approved annually by the ~~risks~~Board's RCC. The purpose of the policy is to set forth our approach to the management of operational risk, to identify the responsibilities of individuals and committees charged with overseeing the management of operational risk, and to provide a broad mandate that supports implementation of the operational risk framework.

Guidelines

As part of our operational risk framework, we have also developed operational risk guidelines which document in greater detail our ~~businesses, external factors may create~~practices and describe the key elements that should be present in a business unit's operational risk management program. The purpose of the guidelines is to set forth and define key operational risk terms, provide further detail on State Street's operational risk programs, and detail business unit responsibilities for the identification, assessment, measurement, monitoring and reporting of operational risk. The guidelines support the operational risk policy and document our practices used to manage and measure operational risk in an effective and consistent manner across State Street.

We have a number of operational risk tools and processes in use that are corporate-wide in application or coverage. These tools include a series of risk assessments and diagnostics, at the business unit level, across the risk spectrum aimed at the identification of risks that ~~cannot always be identified or anticipated.~~occur routinely through normal operations, strategic risks that may arise over a longer-term horizon and risks that occur very infrequently but which could materially affect State Street. Further, these assessments allow management to define risk mitigation strategies and set action plans for implementation.

Governance

The roles and responsibilities with respect to the management of operational risk at State Street reflect the following four key principles:


▪	Board oversight of our operational risk framework is primarily the responsibility of the RCC, which annually reviews and approves our operational risk policy and delegates day-to-day oversight to ERM;


▪	Senior business unit managers are responsible for the management of operational risk;


▪	ERM and other corporate groups provide separate oversight, validation and verification of the management and measurement of operational risk; and


▪	Executive management provides oversight through participation on risk-management committees and direct management of risk in business activities.

The key responsibilities of these groups with respect to operational risk are described below:


▪	The RCC approves our operational risk policy, delegates the implementation and monitoring of the operational risk guidelines, framework and related programs to ERM, and reviews periodic reporting of management information related to operational risk; and


▪	Senior business unit management is responsible for the direct management of operational risk arising from our business activities, as well as operational risk oversight through representation on the MRAC, the BCRC, the TORC, and the local Operational Risk and Fiduciary Review Committees.

A number of corporate groups have responsibility for developing, implementing, and

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assessing various aspects of State Street's operational risk framework:


▪	ERM’s Corporate Operational Risk Management group is responsible for the development and implementation of State Street's operational risk guidelines, framework and supporting tools. It also reviews and analyzes operational key risk information, metrics and indicators at the business line and corporate level for purposes of reporting and escalating operational risk events;


▪	ERM’s Corporate Risk Analytics group develops and maintains operational risk capital estimation models and regularly calculates State Street's operational risk regulatory capital requirements;


▪	ERM’s Model Governance group separately validates the quantitative models used to measure operational risk; and


▪	Corporate Audit performs separate reviews of the application of operational risk management practices and methodologies utilized across State Street.

Market Risk Management

Market risk is defined by U.S. banking regulators as the risk of loss that could result from broad market movements, such as changes in the general level of interest rates, credit spreads, foreign exchange rates or commodity prices. State Street is exposed to market risk in both its trading and certain of its non-trading, or asset-and-liability management, activities. The market risk management processes related to ~~these~~our trading activities, discussed in further detail below, apply to both on- and off-balance sheet exposures.

In the conduct of our trading ~~and investment~~ activities, we assume market risk. The level of market risk that we assume is a function of our overall risk appetite, business objectives and liquidity needs, our clients' requirements and market volatility, and ~~and~~ our execution against those factors. Market risk associated with our trading activities is discussed below under “Trading Activities.” In addition, a supplemental disclosure

providing qualitative and quantitative information with respect to market risk associated with our trading activities is provided on the “Investor Relations” section of our website.

Market risk associated with our non-trading activities, which consists primarily of interest-rate risk, is discussed under “Asset-and-Liability Management Activities.”

Trading Activities

As part of our trading activities, we assume positions in the foreign exchange and interest-rate markets by buying and selling cash instruments and entering into derivative instruments, including foreign exchange forward contracts, foreign exchange and interest-rate options and interest-rate swaps, interest-rate forward contracts, and interest-rate futures. As of ~~September 30, 2013~~March 31, 2014, the aggregate notional amount of these derivative contracts was $~~1.13~~1.24 trillion, of which $~~1.12~~1.23 trillion was composed of foreign exchange forward, swap and spot contracts. In the aggregate, we seek to match positions closely with the objective of minimizing related currency and interest-rate risk. All foreign exchange contracts are valued daily at current market rates. Additional information about derivative ~~instruments~~contracts entered into in connection with our trading activities is provided in note 11 to the consolidated financial statements included in this Form 10-Q.

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Governance

Our assumption of market risk in our trading activities is an integral part of our corporate risk appetite. ~~The~~Our Board of Directors reviews and oversees our management of market risk, including the approval of key market risk policies and the receipt and review of regular market risk reporting, as well as periodic updates on selected market risk topics.

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The ~~Trading and Markets Risk Committee, or~~ TMRC is a management committee that oversees all market risk-taking activities across State Street associated with trading. The TMRC, which reports to the MRAC is composed of members of ~~ERM,~~ERM; our Global Markets ~~business,~~business; and our Global Treasury group, as well as our senior executives who manage our trading businesses and other members of management who possess specialized knowledge and expertise. Under authority delegated by the MRAC, the TMRC is responsible for the formulation of guidelines, strategies and work flows with respect to the measurement, monitoring and control of our trading market risk, and also approves market risk tolerance limits and dealing authorities. The TMRC meets regularly to monitor the management of our trading market risk activities.

Corporate Audit separately assesses the design and operating effectiveness of the market risk controls within our business units and ERM. Other related responsibilities of Corporate Audit include the periodic review of compliance, by ERM and the business units, with market risk policies, guidelines, and corporate standards, as well as relevant regulatory requirements. We are subject to regular monitoring, reviews and supervisory exams of our market risk function by the Federal Reserve. In addition, we are regulated by the SEC, the Financial Industry Regulatory Authority and the U.S. Commodities Futures Trading Commission.

~~Risk Appetite~~

Our corporate market risk appetite is specified in policy statements that outline the governance, responsibilities and requirements surrounding the identification, measurement, analysis, management and communication of market risk arising from our trading activities. These policy statements also set forth the market risk control framework to monitor, support, manage and control this portion of our risk appetite. All groups involved in the management and control of market risk associated with trading activities are required to comply with the qualitative and quantitative elements of these policy statements. Our trading market risk control framework is composed of the following components:

~~A trading market risk management process led by ERM, separate from the business units' discrete activities;~~

~~Clearly defined responsibilities and authorities for the primary groups involved in trading market risk management;~~

~~A trading market risk measurement methodology that captures correlation effects and allows aggregation of market risk across risk types, markets and business lines;~~

~~Daily monitoring, analysis, and reporting of market risk exposures associated with trading activities against market risk limits;~~

~~A defined limit structure and escalation process in the event of a market risk limit excess;~~

~~Use of VaR models to measure the one-day market risk exposure of trading positions;~~

~~Use of VaR as a ten-day-based regulatory capital measure of the market risk exposure of trading positions;~~

~~Use of non-VaR-based limits and other controls;~~

Use of stressed-VaR models, stress-testing analysis and scenario analysis to support the trading market risk measurement and management process by assessing how portfolios and global business lines perform under extreme market conditions;

~~Use of back-testing as a diagnostic tool to assess the accuracy of VaR models and other risk management techniques; and~~

~~A new-product-approval process that requires market risk teams to assess trading-related market risks and apply risk tolerance limits to proposed new products and business activities.~~

State Street uses its ICAAP to assess its overall capital and liquidity in relation to its risk profile and provide a comprehensive strategy for maintaining appropriate capital and liquidity levels. With respect to market risk associated with trading activities, our risk management and our calculations of regulatory capital and economic capital are based primarily on our internal VaR models and ~~stress-testing~~stress-

testing analysis. As discussed in detail under “Value-at-Risk” below, VaR is measured daily by ERM.

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~~The TRMC oversees our market~~Market risk exposure ~~in relation to limits~~is established within our risk appetite framework. These limits define threshold levels for VaR- and stressed VaR-based measures and are applicable to all trading positions subject to regulatory capital requirements. These limits serve to prevent any undue concentration of market risk exposure, in light of the primarily non-proprietary nature of our trading activities. The risk appetite framework and associated limits are reviewed and approved by the Risk and Capital Committee of the Board.

Covered Positions

We use spot rates, forward points, yield curves and discount factors imported from third-party sources to measure the value of our covered positions, and we use such values to mark our covered positions to market on a daily basis. These values are subject to independent validation by us in order to evaluate reasonableness and consistency with market experience. The mark-to-market gain or loss on spot transactions is calculated by applying the spot rate to the foreign currency principal and comparing the resultant base currency amount to the original transaction principal. The mark-to-market gain or loss on a forward foreign exchange contract or forward cash flow contract is determined as the difference between the life-to-date (historical) value of the cash flow and the value of the cash flow at the inception of the transaction. The mark-to-market gain or loss on interest-rate swaps is determined by discounting the future cash flows from each leg of the swap transaction.

Value-at-Risk, Stress Testing and Stressed VaR

As noted above, we use a variety of risk measurement tools and methodologies, including VaR, which is an estimate of potential loss for a given period within a stated statistical confidence interval. We use a risk measurement methodology to measure trading-related VaR daily. We have adopted standards for measuring trading-related VaR, and we maintain regulatory capital for market risk associated with our trading activities in ~~accordance~~conformity with currently applicable bank regulatory market risk ~~guidelines.~~requirements.

We utilize an internal VaR model to calculate our regulatory market risk capital requirements. We use a historical simulation model to calculate daily VaR- and stressed VaR-based measures for our covered positions in conformity with regulatory ~~requirements effective beginning on January 1, 2013.~~requirements. Our VaR model seeks to capture identified material risk factors associated with our covered positions, including risks arising from market movements such as changes in foreign exchange rates, interest rates and option-implied volatilities.

We have adopted standards and guidelines to value our covered positions which govern our VaR-

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Value-at-Risk

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other available capital markets instruments. As a result, the VaR measures shown reflect our ability to rapidly adjust exposures in highly dynamic markets. For this reason, risk inventory, in the form of net open positions, across all currencies is typically limited. In addition, long and short positions in major, as well as minor, currencies provide risk offsets that limit our potential downside exposure.

Our VaR methodology uses a historical simulation approach based on market-observed changes in foreign exchange rates, U.S. and non-U.S. interest rates and implied volatilities, and incorporates the resulting diversification benefits provided from the mix of our trading positions. Our VaR model incorporates around 5,000 risk factors and ~~captures~~includes correlations among currency, interest rates, and other market rates.

~~All VaR measures are subject to limitations and must be interpreted accordingly. Some of the limitations of our VaR methodology include the following:~~

Compared to a shorter observation period, a two-year observation period is slower to reflect increases in market volatility, and temporary increases in market volatility will affect the calculation of VaR for a longer period; however, a two-year VaR would also not reflect all past periods of volatility in the markets, because such past volatility is no longer in the observation period; consequently, in periods of sudden increases in volatility or increasing volatility, in each case relative to the prior two-year period, the calculation of VaR may understate current risk;

~~The VaR-based measure is calibrated to a specified level of confidence and does not indicate the potential magnitude of losses beyond this confidence level;~~

In certain cases, VaR-based measures approximate the impact of changes in risk factors on the values of positions and portfolios; this may happen because the number of inputs included in the VaR model is necessarily limited; for example, yield curve risk factors do not exist for all future dates;

The use of historical market information may not be predictive of future events, particularly those that are extreme in nature; this “backward-looking” limitation can cause VaR to understate or overstate risk;

The effect of extreme and rare market movements is difficult to estimate; this may result from non-linear risk sensitivities as well as the potential for actual volatility and correlation levels to differ from assumptions implicit in the VaR calculations; and

~~Intra-day risk is not captured.~~

Stress Testing and Stressed VaR

We have ~~an enterprise-wide~~a corporate-wide stress-testing program in place that incorporates an array of techniques to measure the potential loss we could suffer in a hypothetical scenario of adverse economic and financial conditions. We also monitor concentrations of risk such as concentration by branch, risk component, and currency pairs. We conduct stress testing on a daily basis based on selected historical stress events that are relevant to our positions in order to estimate the potential impact

We calculate a stressed VaR-based measure using the same model we use to calculate VaR, but with model inputs calibrated to historical data from a range of continuous twelve-month periods that reflect significant financial stress. For each portfolio, the stress period is determined algorithmically by seeking the one-year time horizon that produces the largest ten-business-day VaR from within the available historical data. This historical data set includes the financial crisis of 2008, the highly volatile period surrounding the Eurozone sovereign debt crisis and the Standard & Poor's downgrade of U.S. Treasury debt in August 2011. As the historical data set used to determine the stress period expands over time, future market stress events will be automatically incorporated. The sixty-day moving average of our stressed VaR-based measure was approximately ~~$27~~$31 million ~~during~~for the twelve months ended~~September 30, 2013~~March 31, 2014, compared to a sixty-day moving average of approximately ~~$19~~$28 million ~~during the twelve months ended June 30, 2013 and a sixty-day moving average of approximately $16 million during the twelve months ended March 31, 2013. The increase in the sixty-day moving average~~ for the twelve months ended ~~September 30,~~December 31, 2013 ~~compared to~~and approximately $16 million for the twelve months ended ~~June 30, 2013 was associated with the model changes described below following the VaR and stressed-VaR tables.~~March 31, 2013.

We perform scenario analysis daily based on selected historical stress events that are relevant to our positions in order to estimate the potential impact to our current portfolio should similar market conditions recur. Relevant scenarios are chosen from an inventory of historical financial stresses and applied to our current portfolio. These historical event scenarios involve spot foreign exchange, credit, equity, unforeseen geo-political events and natural disasters, and government and central bank intervention scenarios. Examples of the specific historical scenarios we incorporate in our stress testing program may include the Asian financial crisis of 1997, the September 11, 2001 terrorist attacks in the U.S., and~~the2008 financial crisis. We continue to update our inventory of historical stress scenarios as new stress conditions emerge in the financial markets.~~

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As each of the historical stress events is associated with a different time horizon, we normalize results by scaling down the longer horizon events to a ten-day horizon and keeping the shorter horizon events (i.e., events that are shorter than ten days) at their original terms. We also conduct sensitivity analysis daily to calculate the impact of a large predefined shock in a specific risk factor or a group of risk factors on our current portfolio. These predefined shocks include parallel and non-parallel yield curve shifts and foreign exchange spot and volatility surface shifts. In a parallel shift scenario, we apply a constant factor shift across all yield curve tenors. In a non-parallel shift scenario, we apply different shock levels to different tenors of a yield curve, rather than shifting the entire curve by a constant amount. Non-parallel shifts include steepening, flattening and butterflies.

Validation and Back-Testing

We perform daily back-testing to assess the accuracy of our VaR-based model in estimating loss at the stated confidence level. This back-testing involves the comparison of estimated VaR model outputs to actual profit-and-loss, or P&L, outcomes observed from daily market movements. We back-test our VaR model using “clean” P&L, which excludes non-trading revenue such as fees, commissions and net interest revenue, as well as estimated revenue from intra-day trading. ~~Back-testing is also performed at~~We experienced no back-testing exceptions in the ~~sub-portfolio level~~first quarter of 2014 or the first quarter of 2013.

Our market risk models are governed by our model risk governance guidelines, in conformity with our model risk governance policy, which outline the standards we use to ~~identify products or risk components that may lead to potential exceptions.~~

assess the conceptual soundness and effectiveness of our models. Our market risk models are subject to regular review and validation by our ~~model validation~~Model Validation group within ERM and overseen by ~~our Model Assessment Committee.~~the MAC. The ~~Model Assessment Committee,~~MAC, chaired by a senior executive in ERM, was established for the purpose of providing recommendations on technical modeling issues to the corporate oversight committees. The ~~Model Assessment Committee~~MAC includes members with expertise in modeling methodologies and has representation from the various business units

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throughout State Street. As part of its responsibilities, the Model Assessment Committee considers technical modeling issues for our market risk models, including the selection of an appropriate modeling approach, the setting of key model input assumptions, the deployment of substantive model changes, the deployment of new models as needed, and the monitoring of ongoing model performance.

Our market risk models are governed by our model risk governance guidelines, in accordance with our model risk governance policy, which outline the standards we use to assess the conceptual soundness and effectiveness of our models. Consistent with regulatory requirements, our market risk regulatory capital modelAdditional information is subject to an annual review process. The process identifies the areas of model risk for the three model components: input, processing and output. The model testing is concentrated in the areas of model risk identified by the Model Validation Group. The results of this annual review are communicated to the Model Assessment Committee, which then assigns “Pass,provided under “Model Risk Management.” ~~“Pass with Reservations,” “Recommend a Full Scope Review,” or “Fail” to the outcome.~~

~~Market Risk Reporting~~

Our ERM market risk function is responsible for market risk monitoring and reporting. We use a variety of systems and controlled market feeds from third-party services to compile data for several daily, weekly, and monthly management reports.

~~Our business units and trading market risk teams~~review daily P&L, market risk limit exceptions, open positions, interest-rate and option sensitivities and VaR reports on a daily basis. Market risk limit exceptions are also reported to and reviewed by the global head of Market Risk. We produce and review several other reports that summarize relevant market risk metrics, including VaR, on a periodic basis.

The following tables present VaR associated with our trading activities for covered positions held during the first quarter ended March 31, 2014 and the first ~~nine months of~~quarter ended March 31, 2013, and as of ~~September 30, 2013, June 30, 2013~~March 31, 2014 and ~~March~~December 31, 2013, as measured by our VaR methodology. ~~Comparative information for 2012 is not presented, as we did not measure VaR for those periods under the regulatory requirements effective beginning on January 1, 2013.~~

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VaR - COVERED PORTFOLIOS (TEN-DAY VaR)	Quarter Ended March 31, 2014						Quarter Ended March 31, 2013						As of March 31, 2014		As of December 31, 2013
(In thousands)	Average		Maximum		Minimum		Average		Maximum		Minimum		VaR		VaR
Foreign exchange	$	6,321	$	12,327	$	2,273	$	7,114	$	22,835	$	1,626	$	4,664	$	5,463
Money market/Global Treasury	51		62		42		140		559		24		61		58
Total VaR	$	6,298	$	12,283	$	2,262	$	7,046	$	22,834	$	1,641	$	4,634	$	5,441

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION~~

~~AND RESULTS OF OPERATIONS (Continued)~~



STRESSED VaR - COVERED PORTFOLIOS (TEN-DAY VaR)	Quarter Ended March 31, 2014						Quarter Ended March 31, 2013						As of March 31, 2014		As of December 31, 2013
(In thousands)	Average		Maximum		Minimum		Average		Maximum		Minimum		VaR		VaR
Foreign exchange	$	30,664	$	50,900	$	15,625	$	16,424	$	37,633	$	5,333	$	34,072	$	30,338
Money market/Global Treasury	230		572		84		310		965		56		140		280
Total Stressed VaR	$	30,610	$	50,795	$	15,495	$	16,313	$	37,445	$	5,385	$	33,930	$	30,403

VaR - COVERED PORTFOLIOS (TEN-DAY VaR) Nine Months Ended September 30, 2013 As of September 30, 2013 As of June 30, 2013 As of March 31, 2013
(In thousands) Average Maximum Minimum VaR VaR VaR
Foreign exchange $ 6,569
$ 22,835
$ 1,626
$ 11,549
$ 5,696
$ 9,283
Money market/Global Treasury 108
559
24
102
53
365
Total VaR $ 6,530
$ 22,834
$ 1,641
$ 11,496
$ 5,657
$ 9,017

STRESSED VaR - COVERED PORTFOLIOS (TEN-DAY VaR) Nine Months Ended September 30, 2013 As of September 30, 2013 As of June 30, 2013 As of March 31, 2013
(In thousands) Average Maximum Minimum VaR VaR VaR
Foreign exchange $ 21,361
$ 43,984
$ 4,933
$ 32,905
$ 15,275
$ 26,141
Money market/Global Treasury 280
1,075
56
290
186
900
Total Stressed VaR $ 21,252
$ 43,765
$ 4,889
$ 32,521
$ 15,157
$ 25,673

The VaR-based measures presented ~~above~~in the preceding tables are primarily a reflection of the overall level of market volatility and ~~State Street's~~our appetite for trading market risk. Overall levels of volatility have been low both on an absolute basis and relative to the historical information observed at the beginning of the period used for the calculations. Both the ten-day VaR-based measures and the stressed VaR-based measures are based on historical changes observed during rolling ten-day periods for the portfolios as of the close of business each day over the past one-year period.

The decrease in the maximum VaR measure for foreign exchange for the quarter ended March 31, 2014 compared to the quarter ended March 31, 2013 was the result of declining market volatility, particularly foreign exchange volatility. In addition, the high level of volatility that occurred in the third and fourth quarters of 2011 was no longer included in the advancing two-year window for historical price movements and related risk factors used to measure VaR. The increase in the ~~VaR and~~ stressed-VaR measures for the quarter ended March 31, 2014 compared to the quarter ended March 31, 2013 resulted from the

model changes, described below, that we implemented beginning on July 1, 2013. The increase in the stressed-VaR measure for foreign exchange as of ~~September 30, 2013~~March 31, 2014 compared to ~~June 30,~~December 31, 2013 ~~resulted from the model changes described below,~~was due primarily to increases in our exposures to both on-shore and ~~not from any changes~~off-shore yield curves in ~~the third quarter of 2013 in the overall composition of exposure within our portfolio of covered positions.~~foreign currency.

Beginning on July 1, 2013, we implemented two significant changes to our ~~regulatory VaR and stressed-VaR models.~~stressed-VAR model. The net effect of the two changes resulted in ~~an increase in our daily VaR-based measure and a more significant increase~~increases in our stressed VaR-based ~~measure, both~~measures, calculated based on a 99% confidence interval. The changes involved the introduction of off-shore yield curves for non-deliverable forward contracts in our portfolios of covered positions and the use of absolute changes in place of relative or percentage changes for interest-rate risk factors (both base curves and spread curves).

We may in the future further modify and adjust our models and methodologies used to calculate VaR, subject to regulatory review and approval, and these modifications and adjustments may result in changes in in our VaR measures, some of which ~~changes~~ may be significant.

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The following table presents VaR associated with our trading activities attributable to foreign exchange rates, interest rates and volatility as ofMarch 31, 2014 and ~~September 30, 2013, June 30, 2013 and March~~December 31, 2013. The totals of the VaR amounts attributable to foreign exchange rates, interest rates and volatility for each VaR component exceeded the component VaR measures presented in the foregoing table as of each period-end, primarily due to the benefits of diversification across risk types. ~~Comparative information for 2012 is not presented, as we did not measure VaR under the regulatory requirements effective beginning on January 1, 2013.~~


VaR - COVERED PORTFOLIOS (TEN-DAY VaR)	As of September 30, 2013						As of June 30, 2013						As of March 31, 2013						As of March 31, 2014						As of December 31, 2013
(In thousands)	Foreign Exchange		Interest Rate		Volatility		Foreign Exchange		Interest Rate		Volatility		Foreign Exchange		Interest Rate		Volatility		Foreign Exchange		Interest Rate		Volatility		Foreign Exchange		Interest Rate		Volatility
By component:
Foreign exchange/Global Markets	$	9,704	$	3,194	$	454	$	5,531	$	1,808	$	650	$	9,543	$	2,265	$	492	$	4,107	$	4,132	$	234	$	3,492	$	4,561	$	306
Money market/Global Treasury	49		72		—		50		33		—		376		33		—		48		25		—		46		52		—
Total VaR	$	9,648	$	3,175	$	454	$	5,483	$	1,808	$	650	$	9,288	$	2,263	$	492	$	4,070	$	4,125	$	234	$	3,457	$	4,577	$	306

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Asset-and-Liability Management Activities

Our overall interest-rate risk position is maintained within a series of policies approved by the Board and guidelines established and monitored by ALCCO. Our Global Treasury group has responsibility for managing ~~State Street's~~our day-to-day interest-rate risk. To effectively manage our consolidated statement of condition and related NIR, Global Treasury has the authority to assume a limited amount of interest-rate risk based on market conditions and its views about the direction of global interest rates over both short-term and long-term time horizons. Global Treasury manages our exposure to changes in interest rates on a consolidated basis organized into three regional treasury units, North America, Europe and Asia/Pacific, to reflect the growing, global nature of our exposures and to capture the impact of changes in regional market environments on our total risk position.

The economic value of our consolidated statement of condition is a metric designed to ~~best~~ estimate the fair value of assets and liabilities which

could be garnered if those assets and liabilities were sold today. The economic values represent discounted cash flows from all financial instruments; therefore, changes in the yield curves, which are used to discount the cash flows, affect the values of these instruments. ~~Additional information about our measurement of fair value is provided in note~~ 2 ~~to the consolidated financial statements included in this Form 10-Q.~~

Additional information about our measurement of fair value and our use of derivatives is provided in ~~note~~notes 2 and 11, respectively, to the consolidated financial statements included in this Form 10-Q.

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In calculating our NIR-at-risk, we start with a base amount of NIR that is projected over the next twelve months, assuming our ~~forecasted~~forecast yield curve over the period. Our existing balance sheet assets and liabilities are adjusted by the amount and timing of transactions that are ~~forecasted~~forecast to occur over the next twelve months. That yield curve is then “shocked,” or moved immediately, ~~±100~~+/-100 basis points in a parallel fashion, or at all points along the yield curve. Two new twelve-month NIR projections are then developed using the same balance sheet and ~~forecasted~~forecast transactions, but with the new yield curves, and compared to the base scenario. We also perform the calculations using interest-rate ramps, which are ~~±100-basis-point~~+/-100-basis-point changes in interest rates that are assumed to occur gradually over the next twelve months, rather than immediately as we do with interest-rate shocks.

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large shock is used to better capture the embedded option risk in our mortgage-backed securities that results from borrowers' prepayment opportunities.

Key assumptions used in the models, described in more detail below, along with changes in market conditions, are inherently uncertain. Actual results necessarily differ from model results as market conditions differ from assumptions. As such, management performs back-testing, stress testing, and model integrity analyses to validate that the modeled results produce predictive NIR-at-risk and EVE sensitivity estimates which can be used in ~~the~~our management of interest-rate risk. Primary factors affecting the actual results are changes in our balance sheet size and mix; the timing, magnitude and frequency of changes in interest rates, including the slope and the relationship between the interest-rate level of U.S. dollar and non-U.S. dollar yield

curves; changes in market conditions; and management actions taken in response to the preceding conditions.

Based on our current balance sheet composition where fixed-rate assets exceed fixed-rate liabilities, reported results of NIR-at-risk could depict an increase in NIR from a rate increase while EVE presents a loss. A change in this balance sheet profile may result in different outcomes under both NIR-at-risk and EVE. NIR-at-risk depicts the change in the nominal (undiscounted) dollar net interest flows which are generated from the ~~forecasted~~forecast statement of condition over the next twelve months. As interest rates increase, the interest expense associated with our client deposit liabilities is assumed to increase at a slower pace than the investment returns derived from our current balance sheet or the associated reinvestment of our interest-earning assets, resulting in an overall increase to NIR. EVE, on the other hand, measures the present value change of both principal and interest cash flows based on the current period-end balance sheet. As a result, EVE does not contemplate reinvestment of our assets associated with a change in the interest-rate environment.

~~NET INTEREST REVENUE AT RISK~~Net Interest Revenue at Risk




PART I. FINANCIAL INFORMATION
Table of Contents for Management’s Discussion and Analysis of Financial Condition and Results of Operations	3
Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Quantitative and Qualitative Disclosures About Market Risk	5660
Controls and Procedures	5660
Consolidated Statement of Income (Unaudited) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~	5761
Consolidated Statement of Comprehensive Income (Unaudited) for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~	5862
Consolidated Statement of Condition as of ~~September 30, 2013~~March 31, 2014 (Unaudited) and December 31, ~~2012~~2013	5963
Consolidated Statement of Changes in Shareholders’ Equity (Unaudited) for the ~~nine~~three months ended ~~September 30,~~March, 2014 and 2013 ~~and 2012~~	6064
Consolidated Statement of Cash Flows (Unaudited) for the ~~nine~~three months ended ~~September 30,~~March 31, 2014 and 2013 ~~and 2012~~	6165
Table of Contents for Condensed Notes to Consolidated Financial Statements (Unaudited)	6266
Condensed Notes to Consolidated Financial Statements (Unaudited)	6367
Review Report of Independent Registered Public Accounting Firm	~~114~~112
FORM 10-Q PART I CROSS-REFERENCE INDEX	~~115~~113
PART II. OTHER INFORMATION
Unregistered Sales of Equity Securities and Use of Proceeds	~~116~~113
Exhibits	~~116~~114
SIGNATURES	~~117~~115
EXHIBIT INDEX	~~118~~116



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



(In billions)
September 30, 2012	$	2,065
Net lost business	(1		)
Market appreciation⁽¹⁾	22
December 31, 2012	2,086
Net lost business	(11		)
Market appreciation⁽¹⁾	166
September 30, 2013	$	2,241


(In millions)	Employee-Related Costs		Real Estate Consolidation		Information Technology Costs			Total		Employee-Related Costs		Real Estate Consolidation		Information Technology Costs			Total
2010	$	105	$	51	$	—		$	156	$	105	$	51	$	—		$	156
2011	85		7		41			133		85		7		41			133
2012	27		20		20			67		27		20		20			67
First nine months of 2013	9		11		(1		)	19
2013										13		13		(1		)	25
First quarter of 2014										6		3		—			9
Total	$	226	$	89	$	60		$	375	$	236	$	94	$	60		$	390



(In millions)	Employee-Related Costs		Fixed-Income Trading Portfolio			Asset and Other Write-Offs		Total
2011	$	62	$	38		$	20	$	120
2012	3		(9		)	5		(1		)
Total	$	65	$	29		$	25	$	119


(In millions)	Employee- Related Costs			Real Estate Consolidation			Information Technology Costs			Fixed-Income Trading Portfolio			Asset and Other Write-Offs			Total			Employee- Related Costs			Real Estate Consolidation			Information Technology Costs			Fixed-Income Trading Portfolio			Asset and Other Write-Offs			Total
Initial accrual	$	105		$	51		$	—		$	—		$	—		$	156		$	105		$	51		$	—		$	—		$	—		$	156
Payments	(15		)	(4		)	—			—			—			(19		)	(15		)	(4		)	—			—			—			(19		)
Balance as of December 31, 2010	90			47			—			—			—			137			90			47			—			—			—			137
Additional accruals for Business Operations and Information Technology Transformation program	85			7			41			—			—			133			85			7			41			—			—			133
Accruals for 2011 expense control measures	62			—			—			38			20			120			62			—			—			38			20			120
Payments and adjustments	(75		)	(15		)	(8		)	—			(5		)	(103		)	(75		)	(15		)	(8		)	—			(5		)	(103		)
Balance as of December 31, 2011	162			39			33			38			15			287			162			39			33			38			15			287
Additional accruals for Business Operations and Information Technology Transformation program	27			20			20			—			—			67			27			20			20			—			—			67
Additional accruals for 2011 expense control measures	3			—			—			(9		)	5			(1		)	3			—			—			(9		)	5			(1		)
Accruals for 2012 expense control measures	129			—			—			—			4			133			129			—			—			—			4			133
Payments and adjustments	(126		)	(10		)	(48		)	(29		)	(11		)	(224		)	(126		)	(10		)	(48		)	(29		)	(11		)	(224		)
Balance as of December 31, 2012	195			49			5			—			13			262			195			49			5			—			13			262
Additional accruals for Business Operations and Information Technology Transformation program	9			11			(1		)	—			—			19			13			13			(1		)	—			—			25
Additional accruals for 2012 expense control measures	(2		)	—			—			—			5			3			(4		)	—			—			—			7			3
Payments and adjustments	(125		)	(11		)	(4		)	—			(8		)	(148		)	(154		)	(13		)	(4		)	—			(13		)	(184		)
Balance as of September 30, 2013	$	77		$	49		$	—		$	—		$	10		$	136
Balance as of December 31, 2013																			50			49			—			—			7			106
Additional accruals for Business Operations and Information Technology Transformation program																			6			3			—			—			—			9
Additional accruals for 2012 expense control measures																			—			—			—			—			3			3
Payments and adjustments																			(17		)	(12		)	—			—			(2		)	(31		)
Balance as of March 31, 2014																			$	39		$	40		$	—		$	—		$	8		$	87


	Quarters Ended September 30,																												Quarters Ended March 31,
	Investment Servicing								Investment Management								Other						Total						Investment Servicing								Investment Management								Other						Total
(Dollars in millions, except where otherwise noted)	2013			2012			% Change Q3 2013 vs. Q3 2012		2013			2012			% Change Q3 2013 vs. Q3 2012		2013			2012			2013			2012			2014			2013			% Change Q1 2014 vs. Q1 2013		2014			2013			% Change Q1 2014 vs. Q1 2013		2014			2013			2014			2013
Fee revenue:
Servicing fees	$	1,211		$	1,100		10	%	$	—		$	—				$	—		$	—		$	1,211		$	1,100		$	1,238		$	1,175		5	%	$	—		$	—				$	—		$	—		$	1,238		$	1,175
Management fees	—			—					276			251			10	%	—			—			276			251			—			—					292			263			11	%	—			—			292			263
Trading services	242			208			16		14			24			(42	)	—			—			256			232			227			257			(12	)	12			24			(50	)	—			—			239			281
Securities finance	69			81			(15	)	5			10			(50	)	—			—			74			91			85			78			9		—			—					—			—			85			78
Processing fees and other	60			38			58		6			7			(14	)	—			—			66			45			69			55			25		1			5					—			—			70			60
Total fee revenue	1,582			1,427			11		301			292			3		—			—			1,883			1,719			1,619			1,565			3		305			292			4		—			—			1,924			1,857
Net interest revenue	527			600			(12	)	19			19			—		—			—			546			619			538			557			(3	)	17			19			(11	)	—			—			555			576
Gains (losses) related to investment securities, net	(4		)	18					—			—					—			—			(4		)	18			6			2					—			—					—			—			6			2
Total revenue	2,105			2,045			3		320			311			3		—			—			2,425			2,356			2,163			2,124			2		322			311			4		—			—			2,485			2,435
Provision for loan losses																													2			—					—			—					—			—			2			—
Total expenses	1,496			1,459			3		191			205			(7	)	35			(249		)	1,722			1,415			1,673			1,590			5		244			222			10		111			14			2,028			1,826
Income before income tax expense	$	609		$	586		4		$	129		$	106		22		$	(35	)	$	249		$	703		$	941		$	488		$	534		(9	)	$	78		$	89		(12	)	$	(111	)	$	(14	)	$	455		$	609
Pre-tax margin	29		%	29		%			40		%	34		%									29		%	40		%	23		%	25		%			24		%	29		%									18		%	25		%
Average assets (in billions)	$	197.7		$	192.1				$	3.6		$	3.7										$	201.3		$	195.8		$	212.2		$	204.4				$	3.4		$	3.9										$	215.6		$	208.3



VaR - COVERED PORTFOLIOS (TEN-DAY VaR)	Nine Months Ended September 30, 2013						As of September 30, 2013		As of June 30, 2013		As of March 31, 2013
(In thousands)	Average		Maximum		Minimum		VaR		VaR		VaR
Foreign exchange	$	6,569	$	22,835	$	1,626	$	11,549	$	5,696	$	9,283
Money market/Global Treasury	108		559		24		102		53		365
Total VaR	$	6,530	$	22,834	$	1,641	$	11,496	$	5,657	$	9,017


	Estimated Sensitivity of Economic Value of Equity
	September 30, 2013					December 31, 2012					Estimated Sensitivity of Economic Value of Equity
(Dollars in millions)	Exposure			% of Tier 1/Tier 2 Capital		Exposure			% of Tier 1/Tier 2 Capital		March 31, 2014					December 31, 2013
Rate change:											Exposure			% of Tier 1/Tier 2 Capital		Exposure			% of Tier 1/Tier 2 Capital
+200 bps shock	$	(2,259	)	(14.1	)%	$	(2,542	)	(17.0	)%	$	(2,346	)	(13.2	)%	$	(2,359	)	(14.9	)%
–200 bps shock	873			5.5		41			0.3		1,146			6.5		1,149			7.2


													Three Months Ended March 31,
	Three Months Ended September 30,						Nine Months Ended September 30,						2014			2013
(Dollars in millions, except per share amounts)	2013			2012			2013			2012
Fee revenue:
Servicing fees	$	1,211		$	1,100		$	3,587		$	3,264		$	1,238		$	1,175
Management fees	276			251			816			733			292			263
Trading services	256			232			833			767			239			281
Securities finance	74			91			283			331			85			78
Processing fees and other	66			45			192			187			70			60
Total fee revenue	1,883			1,719			5,711			5,282			1,924			1,857
Net interest revenue:
Interest revenue	643			730			2,030			2,281			655			687
Interest expense	97			111			312			365			100			111
Net interest revenue	546			619			1,718			1,916			555			576
Gains (losses) related to investment securities, net:
Net gains (losses) from sales of available-for-sale securities	6			24			11			29			15			5
Losses from other-than-temporary impairment	(8		)	(4		)	(8		)	(50		)	(1		)	—
Losses reclassified (from) to other comprehensive income	(2		)	(2		)	(12		)	23			(8		)	(3		)
Gains (losses) related to investment securities, net	(4		)	18			(9		)	2			6			2
Total revenue	2,425			2,356			7,420			7,200			2,485			2,435
Provision for loan losses	—			—			—			(1		)	2			—
Expenses:
Compensation and employee benefits	903			916			2,855			2,922			1,157			1,035
Information systems and communications	235			211			707			610			244			237
Transaction processing services	185			170			551			523			191			180
Occupancy	113			115			343			349			114			116
Claims resolution	—			(362		)	—			(362		)
Acquisition and restructuring costs	30			28			74			86			33			14
Professional services	98			89			280			266			105			79
Amortization of other intangible assets	53			46			160			145			54			53
Other	105			202			376			483			130			112
Total expenses	1,722			1,415			5,346			5,022			2,028			1,826
Income before income tax expense	703			941			2,074			2,179			455			609
Income tax expense	163			267			491			588			92			145
Net income	$	540		$	674		$	1,583		$	1,591		$	363		$	464
Net income available to common shareholders	$	531		$	654		$	1,557		$	1,551		$	356		$	455
Earnings per common share:
Basic	$	1.20		$	1.39		$	3.46		$	3.23		$	.83		$	1.00
Diluted	1.17			1.36			3.40			3.19			.81			.98
Average common shares outstanding (in thousands):
Basic	442,860			472,355			449,742			479,536			430,621			454,315
Diluted	452,154			480,010			458,392			485,813			438,815			462,751
Cash dividends declared per common share	$	.26		$	.24		$	.78		$	.72		$	.26		$	.26


(Dollars in millions, except per share amounts, shares in thousands)	PREFERRED STOCK			COMMON STOCK				Surplus		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			TREASURY STOCK					Total			PREFERRED STOCK		COMMON STOCK				Surplus			Retained Earnings			Accumulated Other Comprehensive Income (Loss)			TREASURY STOCK					Total
				Shares		Amount										Shares		Amount								Shares		Amount											Shares		Amount
Balance as of December 31, 2011	$	500		503,966		$	504	$	9,557	$	10,176		$	(659	)	16,542		$	(680	)	$	19,398
Net income										1,591											1,591
Other comprehensive income													845								845
Commitment to redeem preferred stock	(500		)																		(500		)
Preferred stock issued	488																				488
Cash dividends declared:
Common stock—$.72 per share										(346		)									(346		)
Preferred stock										(29		)									(29		)
Common stock acquired																22,496		(960		)	(960		)
Common stock awards and options exercised, including related taxes of $(8)				(48	)			75								(3,938	)	185			260
Other								2								(9	)				2
Balance at September 30, 2012	$	488		503,918		$	504	$	9,634	$	11,392		$	186		35,091		$	(1,455	)	$	20,749
Balance as of December 31, 2012	$	489		503,900		$	504	$	9,667	$	11,751		$	360		45,238		$	(1,902	)	$	20,869		$	489	503,900		$	504	$	9,667		$	11,751		$	360		45,238		$	(1,902	)	$	20,869
Net income										1,583											1,583												464											464
Other comprehensive loss													(474		)						(474		)													(109		)						(109		)
Accretion of issuance costs	1									(1		)									—
Cash dividends declared:
Common stock—$.78 per share										(350		)									(350		)
Common stock - $.26 per share																																	(118		)									(118		)
Preferred stock										(20		)									(20		)										(7		)									(7		)
Common stock acquired																23,235		(1,480		)	(1,480		)																6,548		(360		)	(360		)
Common stock awards and options exercised, including related taxes of $42				(15	)			86								(5,874	)	216			302
Common stock awards and options exercised, including related taxes of $27																										(4	)			2									(3,475	)	128			130
Other																(12	)																						(7	)				—
Balance as of September 30, 2013	$	490		503,885		$	504	$	9,753	$	12,963		$	(114	)	62,587		$	(3,166	)	$	20,430
Balance as of March 31, 2013																								$	489	503,896		$	504	$	9,669		$	12,090		$	251		48,304		$	(2,134	)	$	20,869
Balance as of December 31, 2013																								$	491	503,883		$	504	$	9,776		$	13,395		$	(95	)	69,754		$	(3,693	)	$	20,378
Net income																																	363											363
Other comprehensive income																																				283								283
Preferred stock issued																								742																				742
Cash dividends declared:
Common stock - $.26 per share																																	(112		)									(112		)
Preferred stock																																	(6		)									(6		)
Common stock acquired																																							6,075		(420		)	(420		)
Common stock awards and options exercised, including income tax benefit of $41																										(2	)			(39		)							(2,403	)	85			46
Other																																	(1		)				14					(1		)
Balance as of March 31, 2014																								$	1,233	503,881		$	504	$	9,737		$	13,639		$	188		73,440		$	(4,028	)	$	21,273



Note 1. Basis of Presentation	6367

Note 2. Fair Value	6468

Note 3. Investment Securities	8081

Note 4. Loans and Leases	88

Note 5. Goodwill and Other Intangible Assets	9091

Note 6. Other Assets ~~and Other Liabilities~~	9192

Note 7. ~~Long-term Debt~~Commitments and Guarantees	92

Note 8. ~~Commitments, Guarantees and~~ Contingencies	9293

Note 9. Variable Interest Entities	96

Note 10. ~~Shareholder's~~Shareholders' Equity	97

Note 11. Derivative Financial Instruments	99

Note 12. Offsetting Arrangements	~~106~~105

Note 13. Net Interest Revenue	~~109~~108

Note 14. ~~Acquisition and Restructuring Costs~~Expenses	~~109~~108

Note 15. Earnings Per Common Share	~~111~~110

Note 16. Line of Business Information	~~111~~110

Note 17. Non-U.S. Activities	~~112~~111



	Fair-Value Measurements on a Recurring Basis
	as of September 30, 2013
(In millions)	Quoted Market Prices in Active Markets (Level 1)		Pricing Methods with Significant Observable Market Inputs (Level 2)		Pricing Methods with Significant Unobservable Market Inputs (Level 3)		Impact of Netting⁽¹⁾			Total Net Carrying Value in Consolidated Statement of Condition
Assets:
Trading account assets:
U.S. government securities	$	20								$	20
Non-U.S. government securities	392									392
Other	66		$	438						504
Total trading account assets	478		438							916
Investment securities available for sale:
U.S. Treasury and federal agencies:
Direct obligations	—		738							738
Mortgage-backed securities	—		23,834		$	741				24,575
Asset-backed securities:
Student loans	—		14,503		368					14,871
Credit cards	—		8,602		24					8,626
Sub-prime	—		1,266		—					1,266
Other	—		551		4,350					4,901
Total asset-backed securities	—		24,922		4,742					29,664
Non-U.S. debt securities:
Mortgage-backed securities	—		10,661		340					11,001
Asset-backed securities	—		4,668		799					5,467
Government securities	—		3,541		—					3,541
Other	—		4,159		441					4,600
Total non-U.S. debt securities	—		23,029		1,580					24,609
State and political subdivisions	—		9,254		44					9,298
Collateralized mortgage obligations	—		4,971		187					5,158
Other U.S. debt securities	—		5,036		9					5,045
U.S. equity securities	—		39		—					39
Non-U.S. equity securities	—		2		—					2
U.S. money-market mutual funds	—		680		—					680
Non-U.S. money-market mutual funds	—		174		—					174
Total investment securities available for sale	—		92,679		7,303					99,982
Other assets:
Derivative instruments:
Foreign exchange contracts	—		10,289		77		$	(6,060	)	4,306
Interest-rate contracts	—		58		—		(45		)	13
Other	—		1		—		—			1
Total derivative instruments	—		10,348		77		(6,105		)	4,320
Other	101		—		—		—			101
Total assets carried at fair value	$	579	$	103,465	$	7,380	$	(6,105	)	$	105,319
Liabilities:
Accrued expenses and other liabilities:
Derivative instruments:
Foreign exchange contracts			$	10,206	$	55	$	(4,211	)	$	6,050
Interest-rate contracts			307		—		(59		)	248
Other			—		9		—			9
Total derivative instruments			10,513		64		(4,270		)	6,307
Other	$	101	—		—		—			101
Total liabilities carried at fair value	$	101	$	10,513	$	64	$	(4,270	)	$	6,408


	Fair-Value Measurements on a Recurring Basis											Fair-Value Measurements on a Recurring Basis
	as of December 31, 2012											as of December 31, 2013
(In millions)	Quoted Market Prices in Active Markets (Level 1)		Pricing Methods with Significant Observable Market Inputs (Level 2)		Pricing Methods with Significant Unobservable Market Inputs (Level 3)		Impact of Netting⁽¹⁾			Total Net Carrying Value in Consolidated Statement of Condition		Quoted Market Prices in Active Markets (Level 1)		Pricing Methods with Significant Observable Market Inputs (Level 2)		Pricing Methods with Significant Unobservable Market Inputs (Level 3)		Impact of Netting⁽¹⁾			Total Net Carrying Value in Consolidated Statement of Condition
Assets:
Trading account assets:
U.S. government securities	$	20								$	20	$	20	$	—	$	—				$	20
Non-U.S. government securities	391									391		399		—		—					399
Other	71		$	155						226		67		357		—					424
Total trading account assets	482		155							637		486		357		—					843
Investment securities available for sale:
U.S. Treasury and federal agencies:
Direct obligations	3		838							841		—		709		—					709
Mortgage-backed securities	—		31,387		$	825				32,212		—		22,847		716					23,563
Asset-backed securities:
Student loans	—		15,833		588					16,421		—		14,119		423					14,542
Credit cards	—		9,919		67					9,986		—		8,186		24					8,210
Sub-prime	—		1,399		—					1,399		—		1,203		—					1,203
Other	—		683		3,994					4,677		—		532		4,532					5,064
Total asset-backed securities	—		27,834		4,649					32,483		—		24,040		4,979					29,019
Non-U.S. debt securities:
Mortgage-backed securities	—		10,850		555					11,405		—		10,654		375					11,029
Asset-backed securities	—		5,694		524					6,218		—		4,592		798					5,390
Government securities	—		3,199		—					3,199		—		3,761		—					3,761
Other	—		4,166		140					4,306		—		4,263		464					4,727
Total non-U.S. debt securities	—		23,909		1,219					25,128		—		23,270		1,637					24,907
State and political subdivisions	—		7,503		48					7,551		—		10,220		43					10,263
Collateralized mortgage obligations	—		4,837		117					4,954		—		5,107		162					5,269
Other U.S. debt securities	—		5,289		9					5,298		—		4,972		8					4,980
U.S. equity securities	—		31		—					31		—		34		—					34
Non-U.S. equity securities	—		1		—					1		—		1		—					1
U.S. money-market mutual funds	—		1,062		—					1,062		—		422		—					422
Non-U.S. money-market mutual funds	—		121		—					121		—		7		—					7
Total investment securities available for sale	3		102,812		6,867					109,682		—		91,629		7,545					99,174
Other assets:
Derivatives instruments:
Foreign exchange contracts	—		9,265		113		$	(4,981	)	4,397		—		11,892		19		$	(6,442	)	5,469
Interest-rate contracts	—		223		—		(64		)	159		—		65		—		(59		)	6
Other derivative contracts												—		1		—		—			1
Total derivative instruments	—		9,488		113		(5,045		)	4,556		—		11,958		19		(6,501		)	5,476
Other	66		2		—		—			68		97		—		—		—			97
Total assets carried at fair value	$	551	$	112,457	$	6,980	$	(5,045	)	$	114,943	$	583	$	103,944	$	7,564	$	(6,501	)	$	105,590
Liabilities:
Accrued expenses and other liabilities:
Derivative instruments:
Foreign exchange contracts			$	8,978	$	106	$	(4,052	)	$	5,032	$	—	$	11,454	$	17	$	(5,458	)	$	6,013
Interest-rate contracts			345		—		(19		)	326		—		331		—		(94		)	237
Other			—		9		—			9
Other derivative contracts												—		—		9		—			9
Total derivative instruments			9,323		115		(4,071		)	5,367		—		11,785		26		(5,552		)	6,259
Other	$	66	—		—		—			66		97		—		—		—			97
Total liabilities carried at fair value	$	66	$	9,323	$	115	$	(4,071	)	$	5,433	$	97	$	11,785	$	26	$	(5,552	)	$	6,356



	Fair-Value Measurements Using Significant Unobservable Inputs
	Three Months Ended September 30, 2013
	Fair Value as of June 30, 2013		Transfers into Level 3		Transfers out of Level 3			Total Realized and Unrealized Gains (Losses)						Purchases		Issuances	Sales			Settlements			Fair Value as of September 30, 2013		Change in Unrealized Gains (Losses) Related to Financial Instruments Held as of September 30, 2013
(In millions)								Recorded in Revenue			Recorded in Other Comprehensive Income
Assets:
Investment securities available for sale:
U.S. Treasury and federal agencies, mortgage-backed securities	$	864			$	(93	)				$	(1	)							$	(29	)	$	741
Asset-backed securities:
Student loans	380				—						(2		)							(10		)	368
Credit cards	24				—						—									—			24
Other	3,848				—			$	13		(5		)	$	793		$	(24	)	(275		)	4,350
Total asset-backed securities	4,252				—			13			(7		)	793			(24		)	(285		)	4,742
Non-U.S. debt securities:
Mortgage-backed securities	328				—			—			(1		)	—			—			13			340
Asset-backed securities	756				(104		)	1			1			164			—			(19		)	799
Other	281				—			—			(1		)	149			—			12			441
Total non-U.S. debt securities	1,365				(104		)	1			(1		)	313			—			6			1,580
State and political subdivisions	45				—			—			(1		)	—						—			44
Collateralized mortgage obligations	238		$	15	(100		)	—			(5		)	50			—			(11		)	187
Other U.S. debt securities	9		—		—			—			—			—			—			—			9
Total investment securities available for sale	6,773		15		(297		)	14			(15		)	1,156			(24		)	(319		)	7,303
Other assets:
Derivative instruments, Foreign exchange contracts	121		—		—			(21		)	—			7			—			(30		)	77		$	(16	)
Total assets carried at fair value	$	6,894	$	15	$	(297	)	$	(7	)	$	(15	)	$	1,163	—	$	(24	)	$	(349	)	$	7,380	$	(16	)



	Fair-Value Measurements Using Significant Unobservable Inputs
	Nine Months Ended September 30, 2013
	Fair Value as of December 31, 2012		Transfers into Level 3		Transfers out of Level 3			Total Realized and Unrealized Gains (Losses)					Purchases		Issuances	Sales			Settlements			Fair Value as of September 30, 2013		Change in Unrealized Gains (Losses) Related to Financial Instruments Held as of September 30, 2013
(In millions)								Recorded in Revenue		Recorded in Other Comprehensive Income
Assets:
Investment securities available for sale:
U.S. Treasury and federal agencies, mortgage-backed securities	$	825			$	(92	)			$	(1	)	$	92					$	(83	)	$	741
Asset-backed securities:
Student loans	588				(175		)	$	1	6			—			$	(26	)	(26		)	368
Credit cards	67				—			—		—			—			—			(43		)	24
Other	3,994				—			40		25			1,358			(33		)	(1,034		)	4,350
Total asset-backed securities	4,649				(175		)	41		31			1,358			(59		)	(1,103		)	4,742
Non-U.S. debt securities:
Mortgage-backed securities	555				(208		)	—		(1		)	—			—			(6		)	340
Asset-backed securities	524		$	139	(181		)	4		2			399			—			(88		)	799
Other	140		—		(40		)	—		—			328			—			13			441
Total non-U.S. debt securities	1,219		139		(429		)	4		1			727			—			(81		)	1,580
State and political subdivisions	48		—		—			—		(1		)	—			—			(3		)	44
Collateralized mortgage obligations	117		15		(100		)	1		(5		)	190			—			(31		)	187
Other U.S. debt securities	9		—		—			—		—			—			—			—			9
Total investment securities available for sale	6,867		154		(796		)	46		25			2,367			(59		)	(1,301		)	7,303
Other assets:
Derivative instruments, Foreign exchange contracts	113		—		—			119		—			25			—			(180		)	77		$	29
Total assets carried at fair value	$	6,980	$	154	$	(796	)	$	165	$	25		$	2,392	—	$	(59	)	$	(1,481	)	$	7,380	$	29



	Fair-Value Measurements Using Significant Unobservable Inputs
	Three Months Ended September 30, 2012
	Fair Value as of June 30, 2012		Transfers into Level 3		Transfers out of Level 3			Total Realized and Unrealized Gains (Losses)						Purchases		Issuances	Sales			Settlements			Fair Value as of September 30, 2012		Change in Unrealized Gains (Losses) Related to Financial Instruments Held as of September 30, 2012
(In millions)								Recorded in Revenue			Recorded in Other Comprehensive Income
Assets:
Investment securities available for sale:
U.S. Treasury and federal agencies:
Direct obligations
Mortgage-backed securities	$	933									$	3								$	(30	)	$	906
Asset-backed securities:
Student loans	484							$	1		5									(12		)	478
Credit cards	274				$	(36	)	1			(1		)							—			238
Other	3,094		$	12	(11		)	10			14			$	608					(267		)	3,460
Total asset-backed securities	3,852		12		(47		)	12			18			608						(279		)	4,176
Non-U.S. debt securities:
Mortgage-backed securities	273		—		(147		)	—			—			156						3			285
Asset-backed securities	1,362		—		(676		)	1			4			—						(14		)	677
Other	1		—		—			—			—			193						—			194
Total non-U.S. debt securities	1,636		—		(823		)	1			4			349						(11		)	1,156
State and political subdivisions	49		—		—			—			(1		)	—						—			48
Collateralized mortgage obligations	301		—		(123		)	168			1			—			$	(45	)	(178		)	124
Other U.S. debt securities	—		9		—			—			—			—			—			—			9
Total investment securities available for sale	6,771		21		(993		)	181			25			957			(45		)	(498		)	6,419
Other assets:
Derivative instruments, Foreign exchange contracts	160		—		—			(69		)	—			75			—			(67		)	99		$	(47	)
Total assets carried at fair value	$	6,931	$	21	$	(993	)	$	112		$	25		$	1,032	—	(45		)	$	(565	)	$	6,518	$	(47	)



	Fair-Value Measurements Using Significant Unobservable Inputs
	Three Months Ended March 31, 2014
	Fair Value as of December 31, 2013		Total Realized and Unrealized Gains (Losses)						Purchases		Issuances		Sales			Settlements			Transfers into Level 3		Transfers out of Level 3			Fair Value as of March 31, 2014		Change in Unrealized Gains (Losses) Related to Financial Instruments Held as of March 31, 2014
(In millions)			Recorded in Revenue			Recorded in Other Comprehensive Income
Assets:
Investment securities available for sale:
U.S. Treasury and federal agencies, mortgage-backed securities	$	716	$	—		$	—		$	—	$	—	$	—		$	(5	)	$	—	$	(611	)	$	100
Asset-backed securities:
Student loans	423		1			1			—		—		—			(13		)	—		(79		)	333
Credit cards	24		—			—			—		—		—			(24		)	—		—			—
Other	4,532		15			(4		)	6		—		—			(245		)	—		—			4,304
Total asset-backed securities	4,979		16			(3		)	6		—		—			(282		)	—		(79		)	4,637
Non-U.S. debt securities:
Mortgage-backed securities	375		—			—			—		—		—			—			—		(375		)	—
Asset-backed securities	798		2			(1		)	—		—		—			(63		)	—		(124		)	612
Other	464		—			(1		)	—		—		(1		)	—			—		—			462
Total non-U.S. debt securities	1,637		2			(2		)	—		—		(1		)	(63		)	—		(499		)	1,074
State and political subdivisions	43		—			—			—		—		—			(1		)	—		—			42
Collateralized mortgage obligations	162		—			—			80		—		(6		)	(6		)	—		(28		)	202
Other U.S. debt securities	8		—			—			—		—		—			—			—		—			8
Total investment securities available for sale	7,545		18			(5		)	86		—		(7		)	(357		)	—		(1,217		)	6,063
Other assets:
Derivative instruments:
Derivative instruments, Foreign exchange contracts	19		(11		)	—			7		—		—			(9		)	—		—			6		$	(7	)
Total derivative instruments	19		(11		)	—			7		—		—			(9		)	—		—			6		(7		)
Total assets carried at fair value	$	7,564	$	7		$	(5	)	$	93	$	—	$	(7	)	$	(366	)	$	—	$	(1,217	)	$	6,069	$	(7	)



	Fair-Value Measurements Using Significant Unobservable Inputs
	Nine Months Ended September 30, 2012
	Fair Value as of December 31, 2011		Transfers into Level 3		Transfers out of Level 3			Total Realized and Unrealized Gains (Losses)						Purchases		Issuances	Sales			Settlements			Fair Value as of September 30, 2012		Change in Unrealized Gains (Losses) Related to Financial Instruments Held as of September 30, 2012
(In millions)								Recorded in Revenue			Recorded in Other Comprehensive Income
Assets:
Investment securities available for sale:
U.S. Treasury and federal agencies:
Mortgage-backed securities	$	1,189	$	50	$	(251	)				$	3								$	(85	)	$	906
Asset-backed securities:
Student loans	860		—		(341		)	$	2		(5		)							(38		)	478
Credit cards	91		21		(36		)	4			(5		)	$	224		$	(61	)	—			238
Other	2,798		12		(11		)	31			39			1,177			(12		)	(574		)	3,460
Total asset-backed securities	3,749		33		(388		)	37			29			1,401			(73		)	(612		)	4,176
Non-U.S. debt securities:
Mortgage-backed securities	1,457		—		(1,642		)	—			3			463			—			4			285
Asset-backed securities	1,768		—		(2,243		)	1			4			1,206			—			(59		)	677
Other	71		—		(372		)	—			(3		)	500			—			(2		)	194
Total non-U.S. debt securities	3,296		—		(4,257		)	1			4			2,169			—			(57		)	1,156
State and political subdivisions	50		—		—			—			—			—						(2		)	48
Collateralized mortgage obligations	227		44		(314		)	369			1			283			(45		)	(441		)	124
Other U.S. debt securities	2		9		—			—			—			—			—			(2		)	9
Total investment securities available for sale	8,513		136		(5,210		)	407			37			3,853			(118		)	(1,199		)	6,419
Other assets:
Derivative instruments:
Foreign exchange contracts	168		—		—			(127		)	—			162			—			(104		)	99		$	(71	)
Interest-rate contracts	10		—		—			(10		)	—			—			—			—			—		—
Total derivative instruments	178		—		—			(137		)	—			162			—			(104		)	99		(71		)
Total assets carried at fair value	$	8,691	$	136	$	(5,210	)	$	270		$	37		$	4,015	—	$	(118	)	$	(1,303	)	$	6,518	$	(71	)



	Fair-Value Measurements Using Significant Unobservable Inputs
	Three Months Ended March 31, 2013
	Fair Value as of December 31, 2012		Total Realized and Unrealized (Gains) Losses				Purchases		Issuances		Sales		Settlements			Transfers into Level 3		Transfers out of Level 3		Fair Value as of March 31, 2013		Change in Unrealized (Gains) Losses Related to Financial Instruments Held as of March 31, 2013
(In millions)	Fair Value as of December 31, 2012		Recorded in Revenue		Recorded in Other Comprehensive Income		Purchases		Issuances		Sales		Settlements			Transfers into Level 3		Transfers out of Level 3		Fair Value as of March 31, 2013
Liabilities:
Accrued expenses and other liabilities:
Derivative instruments:
Foreign exchange contracts	$	106	$	61	$	—	$	—	$	50	$	—	$	(64	)	$	—	$	—	$	153	$	39
Other	9		—		—		—		—		—		—			—		—		9		—
Total derivative instruments	115		61		—		—		50		—		(64		)	—		—		162		39
Total liabilities carried at fair value	$	115	$	61	$	—	$	—	$	50	$	—	$	(64	)	$	—	$	—	$	162	$	39


	Quantitative Information about Level-3 Fair-Value Measurements										Quantitative Information about Level-3 Fair-Value Measurements
	Fair Value						Weighted-Average				Fair Value						Weighted-Average
(Dollars in millions)	As of September 30, 2013		As of December 31, 2012		Valuation Technique	Significant Unobservable Input	As of September 30, 2013		As of December 31, 2012		As of March 31, 2014		As of December 31, 2013		Valuation Technique	Significant Unobservable Input	As of March 31, 2014		As of December 31, 2013
Significant unobservable inputs readily available to State Street:
Assets:
Asset-backed securities, student loans	$	13	$	12	Discounted cash flows	Credit spread	4.4	%	6.7	%	$	14	$	13	Discounted cash flows	Credit spread	2.9	%	3.5	%
Asset-backed securities, credit cards	24		67		Discounted cash flows	Credit spread	2.1		7.1		—		24		Discounted cash flows	Credit spread	—		2.0
Asset-backed securities, other	101		103		Discounted cash flows	Credit spread	1.0		1.5		87		92		Discounted cash flows	Credit spread	1.3		1.5
State and political subdivisions	44		48		Discounted cash flows	Credit spread	2.0		1.9		42		43		Discounted cash flows	Credit spread	1.7		1.7
Derivative instruments, foreign exchange contracts	77		113		Option model	Volatility	13.3		9.8		6		19		Option model	Volatility	8.0		11.4
Total	$	259	$	343							$	149	$	191

Liabilities:
Derivative instruments, foreign exchange contracts	$	55	$	106	Option model	Volatility	13.1		9.8		$	8	$	17	Option model	Volatility	8.0		11.2
Derivative instruments, other	9		9		Discounted cash flows	Participant redemptions	7.1		6.7
Derivative instruments, other⁽¹⁾											9		9		Discounted cash flows	Participant redemptions	7.4		7.5
Total	$	64	$	115							$	17	$	26



September 30, 2013	Significant Unobservable Inputs Readily Available to State Street⁽¹⁾		Significant Unobservable Inputs Not Developed by State Street and Not Readily Available⁽²⁾		Total Assets and Liabilities with Significant Unobservable Inputs
(In millions)
Assets:
U.S. Treasury and federal agencies, mortgage-backed securities	$	—	$	741	$	741
Asset-backed securities, student loans	13		355		368
Asset-backed securities, credit cards	24		—		24
Asset-backed securities, other	101		4,249		4,350
Non-U.S. debt securities, mortgage-backed securities	—		340		340
Non-U.S. debt securities, asset-backed securities	—		799		799
Non-U.S. debt securities, other	—		441		441
State and political subdivisions	44		—		44
Collateralized mortgage obligations	—		187		187
Other U.S.debt securities	—		9		9
Derivative instruments, foreign exchange contracts	77		—		77
Total	$	259	$	7,121	$	7,380

Liabilities:
Derivative instruments, foreign exchange contracts	$	55	—		$	55
Derivative instruments, other	9		—		9
Total	$	64	—		$	64


					Fair-Value Hierarchy										Fair-Value Hierarchy
September 30, 2013	Reported Amount		Estimated Fair Value		Quoted Market Prices in Active Markets (Level 1)		Pricing Methods with Significant Observable Market Inputs (Level 2)		Pricing Methods with Significant Unobservable Market Inputs (Level 3)
March 31, 2014											Reported Amount		Estimated Fair Value		Quoted Market Prices in Active Markets (Level 1)		Pricing Methods with Significant Observable Market Inputs (Level 2)		Pricing Methods with Significant Unobservable Market Inputs (Level 3)
(In millions)
Financial Assets:
Cash and due from banks	$	3,896	$	3,896	$	3,896	$	—	$	—	$	3,877	$	3,877	$	3,877	$	—	$	—
Interest-bearing deposits with banks	38,636		38,636		—		38,636		—		75,796		75,796		—		75,796		—
Securities purchased under resale agreements	5,827		5,827		—		5,827		—		6,087		6,087		—		6,087		—
Investment securities held to maturity	16,698		16,543		—		16,543		—		18,342		18,326		—		18,326		—
Loans (excluding leases)	14,445		14,431		—		13,968		463
Net loans (excluding leases)											14,994		15,002		—		14,530		472
Financial Liabilities:
Deposits:
Noninterest-bearing	$	45,679	$	45,679	$	—	$	45,679	$	—	$	72,800	$	72,800	$	—	$	72,800	$	—
Interest-bearing - U.S.	6,575		6,575		—		6,575		—		15,327		15,327		—		15,327		—
Interest-bearing - non-U.S.	101,945		101,945		—		101,945		—		106,521		106,521		—		106,521		—
Securities sold under repurchase agreements	10,123		10,123		—		10,123		—		8,953		8,953		—		8,953		—
Federal funds purchased	94		94		—		94		—		18		18		—		18		—
Other short-term borrowings	3,657		3,657		—		3,657		—		3,811		3,811		—		3,811		—
Long-term debt	8,748		9,101		—		8,125		976		9,503		9,809		—		8,927		882



	Less than 12 months				12 months or longer				Total
September 30, 2013	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
(In millions)	Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses		Fair Value		Gross Unrealized Losses
Available for sale:
U.S. Treasury and federal agencies:
Direct obligations	$	158	$	1	$	117	$	1	$	275	$	2
Mortgage-backed securities	9,721		232		1,933		30		11,654		262
Asset-backed securities:
Student loans	2,123		19		7,463		283		9,586		302
Credit cards	3,734		46		—		—		3,734		46
Sub-prime	16		1		1,193		109		1,209		110
Other	896		5		469		14		1,365		19
Total asset-backed securities	6,769		71		9,125		406		15,894		477
Non-U.S. debt securities:
Mortgage-backed securities	1,240		3		242		10		1,482		13
Asset-backed securities	708		1		21		2		729		3
Other	1,434		14		—		—		1,434		14
Total non-U.S. debt securities	3,382		18		263		12		3,645		30
State and political subdivisions	2,436		118		1,080		62		3,516		180
Collateralized mortgage obligations	1,665		65		304		8		1,969		73
Other U.S. debt securities	1,047		27		33		6		1,080		33
Total	$	25,178	$	532	$	12,855	$	525	$	38,033	$	1,057
Held to maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	4,611	$	390	$	—	$	—	$	4,611	$	390
Asset-backed securities:
Student loans	1,234		11		—		—		1,234		11
Other	580		3		—		—		580		3
Total asset-backed securities	1,814		14		—		—		1,814		14
Non-U.S. debt securities:
Mortgage-backed securities	1,155		5		893		62		2,048		67
Asset-backed securities	717		2		—		—		717		2
Total non-U.S. debt securities	1,872		7		893		62		2,765		69
Collateralized mortgage obligations	905		27		96		4		1,001		31
Total	$	9,202	$	438	$	989	$	66	$	10,191	$	504



(In millions)	Under 1 Year		1 to 5 Years		6 to 10 Years		Over 10 Years
Available for sale:
U.S. Treasury and federal agencies:
Direct obligations	$	—	$	42	$	46	$	650
Mortgage-backed securities	103		1,847		6,188		16,437
Asset-backed securities:
Student loans	1,019		6,513		4,646		2,693
Credit cards	2,919		3,506		2,201		—
Sub-prime	26		28		2		1,210
Other	341		1,758		1,432		1,370
Total asset-backed securities	4,305		11,805		8,281		5,273
Non-U.S. debt securities:
Mortgage-backed securities	148		6,191		159		4,503
Asset-backed securities	253		4,685		378		151
Government securities	2,541		1,000		—		—
Other	1,143		2,912		545		—
Total non-U.S. debt securities	4,085		14,788		1,082		4,654
State and political subdivisions	668		3,059		3,565		2,006
Collateralized mortgage obligations	271		1,923		1,157		1,807
Other U.S. debt securities	215		4,094		703		33
Total	$	9,647	$	37,558	$	21,022	$	30,860
Held to maturity:
U.S. Treasury and federal agencies:
Direct obligations	$	—	$	—	$	5,000	$	3
Mortgage-backed securities	—		25		19		56
Asset-backed securities
Student loans	19		153		219		1,111
Credit cards	—		229		302		—
Other	—		510		302		6
Total asset-backed securities	19		892		823		1,117
Non-U.S. debt securities:
Mortgage-backed securities	—		939		164		3,006
Asset-backed securities	80		1,235		171		—
Government securities	16		—		—		—
Other	162		24		—		4
Total non-U.S. debt securities	258		2,198		335		3,010
State and political subdivisions	48		13		—		—
Collateralized mortgage obligations	102		1,174		502		1,104
Total	$	427	$	4,302	$	6,679	$	5,290



	Three Months Ended March 31,
	Average Recorded Investment				Interest Revenue Recognized
	2014		2013		2014		2013
(In millions)
With no related allowance recorded:
CRE—property development	$	130	$	195	$	2	$	4
Total CRE	$	130	$	195	$	2	$	4


⁽¹⁾	Included other real estate owned of approximately $5860 million and $6559 million, as of March 31, 2014 and December 31, 2013, respectively.



(In millions)	Revenue from indirect foreign exchange trading
2008	$	462
2009	369
2010	336
2011	331
2012	248
2013	285
Three Months Ended March 31, 2014	63



	Three Months Ended March 31, 2013
(In millions)	Net Unrealized Gains (Losses) on Cash Flow Hedges		Net Unrealized Gains (Losses) on Available-for-Sale Securities			Net Unrealized Losses on Hedges of Net Investments in Non-U.S. Subsidiaries			Other-Than-Temporary Impairment on Held-to-Maturity Securities			Net Unrealized Losses on Retirement Plans			Foreign Currency Translation			Total
Beginning balance	$	69	$	519		$	(14	)	$	(65	)	$	(283	)	$	134		$	360
Other comprehensive income (loss) before reclassifications	63		69			—			4			(2		)	(248		)	(114		)
Amounts reclassified out of AOCI	1		(3		)	—			2			5			—			5
Other comprehensive income (loss)	64		66			—			6			3			(248		)	(109		)
Ending balance	$	133	$	585		$	(14	)	$	(59	)	$	(280	)	$	(114	)	$	251



	Amount Reclassified out of AOCI						Affected Line Item in Consolidated Statement of Income
(In millions)	Three Months Ended September 30, 2013			Nine Months Ended September 30, 2013
Cash flow hedges:
Interest-rate contracts, net of related taxes of $1	$	—		$	2		Net interest revenue
Available-for-sale securities:
Net realized gains from sales of available-for-sale securities, net of related taxes of ($2) and ($4), respectively	(4		)	(7		)	Net gains (losses) from sales of available-for-sale securities
Other-than-temporary impairment on available-for-sale securities related to factors other than credit, net of related taxes of $2	—			4			Losses reclassified (from) to other comprehensive income
Held-to-maturity securities:
Other-than-temporary impairment on held-to-maturity securities related to factors other than credit, net of related taxes of $1 and $3, respectively	1			3			Losses reclassified (from) to other comprehensive income
Retirement plans:
Amortization of actuarial losses, net of related taxes of $3 and $9, respectively	5			15			Compensation and employee benefits expense
Foreign currency translation:
Sale of foreign entities, net of related taxes of $1	—			1			Processing fees and other revenue
Total reclassifications out of AOCI	$	2		$	18

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