Bank of New York Mellon Corp (NYSE: BK) Q1 2021 earnings call dated Apr. 16, 2021.
Corporate Participants:
Magda Palczynska — Investor Relations
Thomas P. Gibbons — Chief Executive Officer
Emily Portney — Chief Financial Officer
Analysts:
Brennan Hawken — UBS — Analyst
Brian Bedell — Deutsche Bank Securities — Analyst
Betsy Graseck — Morgan Stanley — Analyst
Alex Blostein — Goldman Sachs — Analyst
Mike Mayo — Wells Fargo Securities — Analyst
Ken Usdin — Jefferies — Analyst
James Mitchell — Seaport Global — Analyst
Michael Anagnostakis — Wolfe Research — Analyst
Gerard Cassidy — RBC Capital Markets — Analyst
Robert Wildhack — Autonomous Research — Analyst
Brian Kleinhanzl — KBW — Analyst
Presentation:
Operator
Good morning, and welcome to the 2021 First Quarter Earnings Conference Call hosted by BNY Mellon. [Operator Instructions]. Later, we will conduct a question-and-answer session. Please note that this conference call and webcast will be recorded and will consist of copyrighted material. You may not record or rebroadcast these materials without BNY Mellon’s consent.
I will now turn the call over to Magda Palczynska, BNY Mellon Investor Relations. Please go ahead.
Magda Palczynska — Investor Relations
Good morning. Welcome to BNY Mellon’s first quarter 2021 earnings conference call. Today, we will reference our financial highlights presentation available on the Investor Relations page of our website at bnymellon.com. Todd Gibbons, BNY Mellon’s CEO will lead the call. Then Emily Portney, our CFO, will take you through our earnings presentation. Following Emily’s prepared remarks, there will be a Q&A session.
Before we begin, please note that our remarks include forward-looking statements and non-GAAP measures. Information about these statements and non-GAAP measures are available in the earnings press release, financial supplement and financial highlights presentation, all available on the Investor Relations page of our website. Forward-looking statements made on this call speak only as of today, April 16th, 2021, and will not be updated.
With that, I will hand over to Todd.
Thomas P. Gibbons — Chief Executive Officer
Thank you, Magda and good morning everyone. I will touch on a few financial performance highlights and some other business developments and hand it over to Emily to review the results in more detail. But first, I wanted to spend a minute discussing the environment in which we’re all operating. You know, as I reflect on the past year, the word that keeps coming to mind for me is resilience; the resilience of our business model, our global financial infrastructure, and of course our clients and our employees.
Indeed, we saw the resilience of the financial system itself due to the lessons learned from the previous financial crisis and to the quick and decisive action from the government and regulators. And now, we’re moving from a period of resilience to a period that we are all optimistic will be one of recovery and growth.
While we all remain clear-eyed about the challenges that still exist, I am one of many business leaders who see many reasons to be positive in the period ahead, when we move past the COVID cloud. The optimism stems from the confluence of several factors including the deployment of the vaccine, potential strength from consumers.
Now in the U.S., households have been saving at extraordinary levels. Currently, the savings rate is running about 14% and that’s more than twice the 30-year average. The amount held in cash and household and available for spending is around 15% of GDP, which is way above normal times. In addition, monetary stimulus and further U.S. government spending plans are likely to accelerate GDP growth. So we expect significant GDP growth going forward assuming the pandemic has managed as expected.
The strong economy is likely to keep activity and asset levels high and expectations for stronger growth is beginning to be reflected in the steepening movement. Now, I also wanted to touch on the future of work and general productivity. The pandemic has driven remarkable levels of innovation and technology adoption. The companies have now become accustomed to the new way of working. We’ve proven our ability to maintain high-quality service for our clients, adopt and deploy new technologies quickly and collaborate with one another virtually over this past year.
We’re going to take the best of what we’ve learned to continue to innovate and drive enhanced value for our clients and our employees, including assessing what our workforce and workplaces will look like. We intend to embrace hybrid working arrangements, define future work that continues to position us as employer of choice in our industry.
Now with that, let me turn to some highlights on our performance, while we see momentum across our businesses. Starting on Slide 2, we reported revenue of $3.9 billion. Fee revenue, excluding the impact of money market fee waivers increased 6% year-over-year against the prior year quarter that had exceptional pandemic related volume and volatility. Asset servicing and Pershing particularly benefited from positive client activity as well as market appreciation.
Operating margin of 29% is relatively flat year-over-year, not bad considering the significant loss interest rate revenue. We had a credit provision release of $83 million, EPS of $0.97 was down $0.08 from last year, and return on tangible common equity of 16%. Turning to our businesses now. The strength in Asset Servicing revenue reflects higher markets, robust client volumes and continued new business momentum.
Our open architecture strategy and platforms continue to gain traction with clients powered by our data and analytics solutions. In the first quarter, a large global asset manager in acquisition mode signed a multi-year agreement for Data Vault as our cloud-based platform. The Vault allows our clients to integrate acquisitions quickly and easily interactive data to gain actionable insights to help drive their business decisions.
We are proud to have been selected by Gabelli Funds to launch its new actively managed ETF, and that’s an ESG product and to have been named the ETF service provider for First Trust SkyBridge Bitcoin ETF Trust. During the first quarter, our ETF servicing platform launched a record 51 fund and our ETF assets under custody or administration has now surpassed $1 trillion.
We recently also announced the establishment of a new digital assets unit, which is building a multi-asset platform that will allow us to custody traditional as well as digital assets, including crypto currencies in an integrated way. The growing client demand for our digital assets and improved regulatory clarity presents an opportunity for us to extend our current service offerings over time in this emerging field.
Moving to Pershing and Clearing and Collateral management, Pershing benefited from continued elevated transaction volumes, equity market strength, and strong underlying fundamentals. As I mentioned last quarter, we did lose a couple of clients due to consolidation, and this together with the low rate environment will impact Pershing in 2021, and mask the underlying good organic fee growth. In Clearing and Collateral Management, clearing fees remained strong and we expect healthy activity going forward.
Within Collateral management, international fees were buoyant due to new business mix. In addition, as we announced earlier this week, we now accept Chinese bond as collateral on our tri-party platform through Hong Kong bond connect. With the Chinese fixed income market only expected to grow, demand has been mounting for such a solution which until now is not existent. This is another example of BNY Mellon’s continued innovation to drive value for our clients.
Now turning to Investment and Wealth Management, we recently announced the realignment of Mellon’s capability in fixed income, equity and multi-asset and liquidity management with Insight and Dreyfus Cash respectively. This will enhance the scale and capabilities of our specialist firms and strengthen their research platform’s operations as well as global reach.
We’ve had a year of consistent quarterly long-term inflows and investment performance across our top strategies continues to be strong. In wealth management, higher markets helped to drive client assets to a record level of almost $300 billion. We’ve implemented many positive changes in this business, including new sales team, a broader investment and banking offering and new digital capabilities for clients.
We were gratified by very high satisfaction scores in our year-end client survey with all survey categories up year-over-year. Our proprietary goals based planning tool, AdvicePath was recently named as CIO 100 Award winner. This award recognizes 100 technology team across industries that are driving growth through digital transformation. So a lot have been happening to build momentum for growth with existing and new clients. Moving beyond financial performance, I want to spend a minute on ESG, something that is top of mind for our investors, employees and our clients.
We are committed to ensuring that we use our reach, market influence and resources to address pressing ESG issues. Our goals include offering our clients, leading analytical solutions, empowering ESG investors with new investment strategies and encouraging and enabling ESG financing. Last month, we published our first report on how we’re managing the impacts of climate change on our business, prepared in accordance with the Task Force on Climate-related Financial Disclosures or TCFD guidelines.
I encourage you to read it as it includes examples of where we are — where we have initiatives in place related to climate risks and opportunities and lays down multi-year metrics and targets, including plans for enhanced disclosures around how we’re doing our part to help the environment.
Now, let me close with where I opened. The year started with continued extraordinary effort by the U.S. government and federal reserve to address the economic fallout of the pandemic through fiscal and monetary stimulus. Much uncertainty remains, but equity markets have been generally optimistic, although somewhat volatile and longer-term treasury yields have steepened. But the amount of liquidity in the system and inflows into money market funds has driven short-term rates lower, in some cases even negative.
So there are many positive factors that support our business model, but short-term rates continue to be a challenge. Our business is proving to be resilient and we’re well poised for organic growth. Moreover, we continue to bring innovative solutions to the market to help our clients and help them grow.
With that, I’ll hand it over to Emily to review our results in more detail.
Emily Portney — Chief Financial Officer
Thank you, Todd, and good morning everyone. I will walk you through the details of our results for the quarter. All comparisons will be on a year-over-year basis, unless I specify otherwise.
Beginning on Page 3 of the financial highlights document. In the first quarter of 2021, we reported revenue of $3.9 billion and EPS of $0.97. This includes the impact of the reserve release of about $0.08 per share, partially offset by a $39 million renewable energy investment impairment of about $0.04 per share.
Revenue was down 5% and EPS was down 8%. As expected, results were negatively impacted by continued low interest rate and associated money market fee waivers and the absence of share repurchase activity for most of 2020. Fee revenue excluding fee waivers grew 6%, driven by market level, good organic growth and the positive impact of the weaker U.S. dollar. While client activity was down slightly versus the exceptional COVID driven volumes and balances experienced a year ago, it was stronger than we had anticipated.
As a reminder, last quarter we guided to about 1.5% organic growth for the year, and this quarter, organic growth was greater than 2%. Beginning this quarter, we have reclassified a few revenue line items which drives cleaner and simpler reporting. Basically, we took investments and other income out of our fee revenue and created a new reporting line which includes investment in our income as well as other trading, variable interest entities and securities gains and losses.
The reclassification had no impact on total revenue and the details can be found on Page 19 and 20 of the financial supplement. Prior periods have also been reclassified. Foreign exchange revenue had a strong quarter, up 24% versus the fourth quarter primarily on the back of high volumes and was 6% lower versus an exceptional prior year.
Net interest revenue was down 20%. Expenses increased 5% year-over-year, which is a bit higher than prior guidance due to higher revenue related expenses, higher litigation costs and the appreciation of our stock price associated with equity awards. As previously disclosed, first quarter of 2020 also benefited from an accrual adjustment that was not repeated in 2021. Provisions of credit losses was a relief of $83 million, primarily reflecting an improved macro outlook and CRE Price Index.
We had net recoveries of $1 million and our portfolio remains high quality with approximately 85% of loans rated investment grade at March 31st. Pre-tax margin of 29% was relatively flat to last year, which is a strong outcome considering the impact of the low interest rate environment on fee waivers and NIR, both of which have the minimum expenses associated with them.
ROE was 8.5% and ROTCE was 16.1%. Page 4 sets out a trend analysis of the main drivers of the quarterly results and has adjusted some notable items of the fourth quarter of 2020 were indicated. Investment Services revenue was $3 billion, down 8% year-on-year. The decline was primarily a result of lower net interest revenue, fee waivers and lower FX revenue.
These headwinds map benefits from higher client volumes, liquidity balances, market levels and a weaker U.S. dollars. Investment services fee and other revenue ex-waivers was up 2%. Investment and wealth management revenue increased 10% as higher market value, modest equity investment gains compared to losses a year ago, and a weaker U.S. dollar offset the impact from fee waivers.
Money market fee waivers, net of distribution and servicing expense were $188 million in the quarter compared to the $175 million guidance that we’ve provided previously. The higher than expected waivers were driven by higher balances. Turning to Page 5, our capital and liquidity ratios remained strong and well above internal targets and regulatory minimums. Common equity Tier 1 capital totaled about $21.1 billion as of March 31st and our CET1 ratio was 12.6% under both the advanced and standardized approaches.
Tier 1 leverage was 5.8% down 50 basis points from the fourth quarter primarily due to higher deposit. We continue to monitor the impact of the liquidity in the system on our balance sheet. We will continue to support our client’s cash management needs while at the same time managing our Tier 1 leverage ratio, which is our binding constraint.
Over the last year, excess deposits have grown substantially. Taking the unprecedented environment into consideration, we are comfortable utilizing a portion of our internal buffer that we maintained for the Tier 1 leverage ratio and therefore could go below 5.5% for a period of time.
Finally, our LCR was flat compared to the fourth quarter at 110%. In terms of shareholder capital returns, we purchased $699 million of common stock in the first quarter in line with the Federal Reserve’s modified limitations that apply to all CCAR banks and continue to pay our $0.31 quarterly dividend, which totaled $277 million this past quarter.
Turning to Page 6, my comments on net interest revenue will highlight sequential changes. Q1 net interest revenue was down 3.7% with about two-thirds of the decline driven by the impact of lower interest rates and the other one-third driven by other items such as day count and hedging activity. As a reminder, although average deposits increased again this quarter, they had minimal NIR value in the current low, short-term rate environment.
Turning to Page 7, which summarizes deposits and securities trend. As mentioned, deposit balances continued to grow and on average were up $21 billion or 7% from the fourth quarter and up $70 billion or 27% from a year ago. As was the case in the fourth quarter, again in Q1 a larger driver of the growth was excess liquidity in the system driven by monetary and fiscal stimulus.
Turning to the securities portfolio, on average, the portfolio was flat in the fourth quarter and up approximately $26 billion or 20% over the prior year. Within the securities portfolio, we do continue to invest in non-HQLA securities, primarily in non-agency MBS communities and investment-grade corporate bonds as we look to improve yields while maintaining our conservative risk profile. We also continue to grow the loan portfolio opportunistically such as in 40 Act lending and other margin lending as well as capital call financing.
Page 8 provides an overview on expenses which we largely covered earlier. Turning to Page 9, as mentioned earlier, total investment services revenue year-on-year declined by 8% due to the impact of low interest rates on NIR and fee waivers and lower FX compared to the strong year ago quarter. NIR was down 20%. Fee and other revenue ex-waivers was up 2%. FX revenue and Investment Services had a strong quarter, up 18% from the fourth quarter and down 15% year-over-year and higher client volumes partially offset normalization of spreads and volatility.
Assets under custody and/or administration increased 18% year-over-year to $41.7 trillion on the back of higher market values and client inflows, the favorable impact of a weaker US dollar and net new business. As I move to the business line discussion, I’m going to focus my comments on fees. Asset servicing fees were up slightly excluding fee waivers, primarily reflecting higher client activity and higher market levels, partially offset by lower FX revenue through a comparably high period last year. The pipeline remained strong and win/loss ratios continued to improve.
Pershing had another strong quarter despite the impact of fee waivers. While fees were down, they would have been up excluding fee waivers. Year-over-year clearing accounts were up 5%, mutual fund assets were up 24% and we saw continued strong net new asset growth of $28 billion in the quarter. Transactional activity remained robust with average daily clearing revenue up about 30% from the fourth quarter, although we do expect this to normalize as we move through 2021.
Issuer Services fees decreased mostly driven by fee waivers and COVID related dividend fee impact in DR. Treasury services fees were up modestly ex-waivers on the back of higher payment volumes and higher money market fund balances and a continued shift to higher margin products. Clearance and Collateral Management fees were down slightly, primarily due to elevated volumes in the year ago quarter. Continued organic growth in our non-US business for tri-party balances and clearing fee increase was offset by slight declines in U.S. volumes and lower intraday financing fees.
Page 10 summarizes the key drivers that affect the year-over-year revenue comparisons for each of our Investment Services business. Turning to Investments and Wealth Management on Page 11. As noted earlier, total Investment and Wealth Management revenue in the quarter increased 10%. Overall assets under management held steady compared to the fourth quarter’s record $2.2 trillion and were up 23% year-over-year primarily due to higher market value, the positive impact of a weaker U.S. dollar and net inflows.
Investment management revenues was 13% despite over 700 basis point negative impact from fee waivers as a benefit of higher market levels, equity investment gains in the current quarter compared to losses a year ago, and a weaker dollar more than offset lower performance fees against a strong year-ago quarter.
In the first quarter, we had net inflows of $36 billion, including our fourth straight quarter of long-term inflows of $17 billion, driven by strong inflows in LDI and fixed income as well as index funds. Investment performance remained strong with more than 80% of our top 30 strategies having peer rankings ranked in the top two quartiles on a three-year basis up from 73% a year ago.
Wealth management revenues were up 5% on the back of higher market. Client assets grew to a record $292 billion and were up 24% year-over-year primarily due to high market values and inflows. Non-mortgage loans and client deposits are also up. Now turning to the other segment on Page 12. The year-over-year revenue comparison was primarily impacted by the impairment of one renewable energy investment as noted earlier. The expense increase primarily reflected incentive comp accrual reversal in the year ago quarter.
A few comments about the outlook. As we think about the balance of 2021, for NIR our full year guidance remains unchanged. This implies NIR on a full-year basis will be down around 11% to 12% compared to 2020. With regard to waivers, using the forward curve to project just like we do for NIR, we expect waivers net of distribution and servicing expense to be around $220 million for the second quarter. This will have a modest negative impact to revenues of approximately $20 million due to lower rates, partially offset by higher balances. So for the second half of the year, we do expect to be more in line with the first quarter.
With regards to fees, ex-waivers, the growth rate in the first quarter was significantly higher than previous full year guidance to the higher volume, while we expect those volumes to moderate going forward. Regarding expenses, we previously guided to be up about 1.5% excluding notable items. Given the higher expense this quarter, we now expect them to be up about 2%. As a reminder, on a constant currency basis, we guided that we would be flat year-on-year and that will now be up about 50 basis points.
Finally, in terms of our effective tax rate, we still expect to be approximately 19% in 2021. However, we are monitoring the latest federal tax proposals closely. In terms of shareholder capital return, we will continue to pay our quarterly dividend and will once again make open market share repurchases in compliance with the Federal Reserves modified limitations, which will allow us to repurchase approximately $600 million of common stock in the second quarter.
Looking beyond the second quarter, the Federal Reserves’ latest communications with CCAR banks indicated that they will likely implement the SCB framework for capital management in the third quarter. So we are following that guidance closely. We look forward to receiving the results of the [Indecipherable] stress test and operating under the stress capital buffer framework, which will allow for more flexibility and should mean that we can return more than 100% of earnings to shareholders starting in the third quarter.
With that, operator, can you please open up the line for questions?
Questions and Answers:
Operator
Of course, thank you. [Operator Instructions]. And our first question comes from the line of Brennan Hawken with UBS. Please go ahead.
Brennan Hawken — UBS — Analyst
Good morning. Thanks for taking my question. I was hoping to ask actually Emily about some of those comments on capital and Fed, returning to the SCB approach whilst [Phonetic] capital returns. The Tier 1 leverage ratio is now inside your guided band with the buffer of 5.5 to 6, I believe. You all have referenced that you have some levers to pull which might help on that front. So could you maybe walk through some of those dynamics?
And then also, how rigid is that buffer that you’ve applied? It seems to be a bit above peers. And so, would you — or are you in a position where you could allow yourselves to go underneath that buffer for a period of time given the unusual growth in deposit?
Emily Portney — Chief Financial Officer
Sure. Thanks for the question. So we are — we are very — managing our deposits very closely. Having said that, we will absolutely continue to support our clients with their balance sheet and we’re comfortable with where deposits are now. But of course, it goes without staying, and over the course of the last 12 months, there have been a lot of additional reserves in the system, liquidity in the system.
And so, we’ve seen a surge in those deposits, a large portion of that surge is excess. So it’s not operational. We’ve been very successfully working with our clients to basically explore and move some of those non-operational deposits to off-balance sheet vehicles. Thankfully, we have a good platform and liquidity direct that has lots of alternatives. It’s an open platform. So that has been very, very effective.
You are correct in pointing out, as I did — as I did mention in my prepared remarks that, given the unprecedented liquidity in the system, we would feel comfortable dipping into our Tier 1 leverage buffer. We do hold a very significant buffer in excess of 150 basis points over Reg minimums. We size that very carefully, it’s basically to both absorb any impact to OCI given rate changes, as well as also the — any surge in balances.
And given that’s really what we’ve seen and the buffer is really there for this particular kind of unprecedented environment, ultimately, we would feel comfortable dipping below the 5.5% for a period of time, of course, running certainly above the regulatory minimum.
Brennan Hawken — UBS — Analyst
Right. Okay. That helps. That’s great to hear. And then one other question on the balance sheet. It seemed as though the interest earning asset growth lagged deposit growth this quarter on an average basis, right, just looking at the average balance sheet. Was that because some of those deposits may be temporary? Maybe you all were in the process of encouraging some folks to consider off balance sheet options like you referenced, and therefore, the — when we gauge balance sheet growth here this quarter, we should more pay attention, which one should we pay attention to more? Which one is more effective? Is it the interest earning asset growth or is it deposit growth and — or is it just that you’ll be putting more money to work and therefore the interest earning asset growth will catch up? I just wondered, it seemed a big gap. So I wasn’t sure about that. Thank you.
Emily Portney — Chief Financial Officer
Sure, yeah. I mean — sure. So certainly, and I think I just mentioned, so a significant portion of the deposit growth that we’ve seen, we do think is excess, and so, non-operational. So it’s very hard to really redeploy that into the securities portfolio or the loan portfolio for any real duration. So as a result, a lot of that is just sitting as a Fed earning, 10 basis points, which obviously is dilutive to NIM, but of course it is overall accretive to — to NIR, just obviously marginally so. So when we think about just NIR, in general, we really just use the forward curve to project.
And despite, of course, the steepening of the long end of the curve, we did see the short end grind lower. And also the duration of the curve where we invest is more in the two to five year mark and that didn’t go up as much as the long end. But of course, to the extent the curve does continue to steepen and/or shift upwards, that will be extraordinarily helpful.
Brennan Hawken — UBS — Analyst
Thanks for the color.
Operator
And we’ll take our next question from the line of Brian Bedell with Deutsche Bank. Please go ahead.
Brian Bedell — Deutsche Bank Securities — Analyst
Great. Thanks. Good morning folks. Can you hear me?
Thomas P. Gibbons — Chief Executive Officer
Yes, Brian. We can hear you.
Brian Bedell — Deutsche Bank Securities — Analyst
Great to hear you. Thanks. Just one more on the rate considering the net interest revenue and fee waivers. Just the cadence of the [Indecipherable] to the year really into the second quarter and back a little bit to that deposit strategy will be excess deposits. Is there an ability to put a little bit more on the securities portfolio as we move into the second quarter? So what I’m trying to get at is, are we — given your full year guidance are we at sort of stability as you see it coming into the second quarter on NIR, is it — maybe another decline [Phonetic] before we go up.
And then similar to that, on the fee waivers, I think you said, $220 million for the second quarter, but then, I’m not sure if I got this correct that you thought that was going to improve in the back half and that was based on balances. Can you clarify that?
Emily Portney — Chief Financial Officer
Sure. So, in terms of NIR, if — we don’t really give ultimately quarter by quarter balances as so much of it is dependent upon — or quarter by quarter projections and so much of it is dependent upon obviously the rate curve, deposit levels and MBS prepayment and other factors, all of which are baked into our projections. And what I would say as I just reconfirmed is that, our full year projection for NIR is still the same as the original guidance given, which is 11% or 12% down year-on-year. So that hasn’t changed fully.
In terms of waivers, so waivers are a function of two things, basically short-term rates, specifically, three months and six months tepo [Phonetic] as well as repo rates, also a function of money market fund balances. And actually what we saw this quarter is actually both rates grind lower, balances go higher, as a result, waivers overall were a bit higher than originally anticipated at $188 million. They were — the total impact however was slightly positive to revenues.
And again, just we used the forward curve to also project waivers. Looking at the forward curve, also the historical relationship between rates and money market balances, etc, we think that waivers — the size of waivers overall will peak in the second quarter in about $220 million. And then, by the way, that would be probably at the fees we’re talking about, that most CEOs [Phonetic] are talking about probably slightly negative to revenues. But then we would expect the second half of the year to be more in line with the first quarter.
And look, I always like to remind people, albeit, it’s probably not till latter half of 2022 or 2023, but if — when Fed funds eventually hits 25, it is when the Fed moves, we will recover in excess of 50% of those waivers and hit the 1%, it’s very close to a 100% of those waivers.
Brian Bedell — Deutsche Bank Securities — Analyst
Definitely, that’s a good figure. And then the second question is on organic growth, you said that it did tick up at 2% this quarter. Maybe if you could just talk about the drivers of that. And then Todd, you mentioned very good demand for data analytics with the Data Vault. It sounds like that contract not in — at the beginning you mentioned is not in the run-rate yet, but maybe if you could just talk about that momentum in the organic growth rate and the drivers of that.
Thomas P. Gibbons — Chief Executive Officer
Sure. So thanks for the question, Brian. So the first quarter, we got the benefit obviously of the lot of the activity. It’s hard to project exactly where that activity is going to go, but the guidance, I think at the end we provided to you is probably not sustainable at this level. But we did get some nice new wins which is reflected in that.
Pershing volumes were particularly high, very good flows in a number of our accounts. So we’re seeing a lot of good growth on — with existing clients as well with balances there. We do expect them as I said to moderate somewhat. And I also did point out that on the previous call that we had some loss business in Pershing that will impact us later this year.
So Pershing has got pretty strong underlying organic growth, two of it is going to be masked a bit by both the interest rates as well as the — as well as that loss business that will impact in the second — in the second half. But we are seeing sustained momentum across just about all of our businesses, strong pipelines. And so as we’ve taken — as we’ve converted the pipeline to sales, we continue to build the pipeline, we had another pretty big quarter for sales. A higher win/loss ratios are improving and retention has continued to be good.
I mentioned the Data Vault and we have a number of clients in beta. We’ve now signed a very significant one and building deeper relationship with that client. A lot of interest in our — some of our analytics and applications that we’ve described to you before. We’re actually seeing recovery in payment flows to Treasury Services, which is largely commercial payments, and a lot of it’s global. We’re seeing good recovery back on economic recovery. And we’re also picking up some market share.
We’ve got some pretty interesting opportunities there, as we look forward, we’re pretty excited what we might be able to do in the real time payments space there. Asset wealth management had positive flows. We’re seeing meaningful improvement in wealth. And we’ve been talking about the investments that we’re making across the businesses both in just even in the core custody, our middle office functions, the payment system, clearing and collateral management, even. It was off of an extraordinary good quarter last year. But we continue to pick up global assets.
The fact that we’ve built up this Bond Connect capability in China is an exciting, innovative service that we’re providing to clients and we’re confident that that’s going to continue to grow. So good underlying momentum, helped by very strong activity in the first quarter.
Brian Bedell — Deutsche Bank Securities — Analyst
That’s great. Thank you.
Thomas P. Gibbons — Chief Executive Officer
Thanks, Brian.
Operator
Our next question comes from the line of Betsy Graseck with Morgan Stanley. Please go ahead.
Betsy Graseck — Morgan Stanley — Analyst
Hi, good morning.
Thomas P. Gibbons — Chief Executive Officer
Hi Betsy.
Emily Portney — Chief Financial Officer
Good morning.
Betsy Graseck — Morgan Stanley — Analyst
Okay. A couple of questions. A little bit on the technical side on the build out that you’re doing around the digital asset, the cryptocurrencies and that kind of thing. Could you remind us the kind of pace that you’re anticipating, being able to roll this out and are you going to be — are you going to be custodying the physicals? Just wanted to understand what the — how wide the aperture is on this opportunity side.
Thomas P. Gibbons — Chief Executive Officer
Okay. Sure Betsy. I’ll take it. It’s Todd. So when we talk about our digital asset, efforts, what we’re talking about is digitizing traditional securities so that they’re more easily mobilized. Things like you can digitize, you can digitize a money market fund to make it an eligible asset to put into repo which we couldn’t do in the past and you can make it much, much more efficient.
We think there’s going to be quite a bit of that activity as well as smart contracts and what that might be able to do for the Corporate Trust and other businesses. So that’s one element of it. The other thing that we’re going to see is we think there’ll be digitization of fee up currencies. We’re already involved in a consortium with finality which is a central bank currency, which could trade 24/7 in digital form, and is really just developing regulatory approvals for it now.
So we do think there’ll be — and they’re already existing, the digital currencies fee up currencies. And where everything — the thing that gets the high is really around the cryptocurrencies, but we would be digitizing — excuse me, we would be customizing those as well. So we have — we have been working on a prototype, and we expect to be offering capabilities across all three of those by the end of the year as we’re building things out with clients that have shown institutional interest.
So yes, we would actually have the wallet, if you will, or be the custodian for the underlying cryptocurrency or any one of those particular digitized assets.
Betsy Graseck — Morgan Stanley — Analyst
Okay. So you would actually be custodying the physical you’re not going to be sub-custodying that out to somebody else?
Thomas P. Gibbons — Chief Executive Officer
No. That is not our intent at this point.
Betsy Graseck — Morgan Stanley — Analyst
And then, what’s the timeframe for getting to market? Is that a 2021 or ’22 timeframe?
Thomas P. Gibbons — Chief Executive Officer
We expect that you’ll be hearing some things to out — toward the end of 2021, but it may be a little bit earlier for some elements of it.
Betsy Graseck — Morgan Stanley — Analyst
Okay. And then the other thing theme I wanted to just touch base on was around the climate comment that you had in your prepared remarks, Todd. I mean, part of it is asking the question, what can you do is this about your own footprint, or is this also about working with your clients and if it’s working with your clients, how do you anticipate you will help them get more climate friendly, so to speak?
Thomas P. Gibbons — Chief Executive Officer
Yeah. So there is really two elements to it, Betsy. One is what we’re doing as an enterprise, our own carbon footprint for example. And we’ve been very — we’ve been very active. We published recently in February, we published a considering climate of BNY Mellon report which gave very specific examples of what we’ve done around carbon waste and other environmental-related activities.
And we are carbon-neutral. We have them for an extended period of time. And we’ve been named as by the CDP really one of five financial institutions that have been given an A rating on climate. And we’ve been — we’re the only financial institution that have gotten that rating over the past eight years.
So that’s — that’s what we’re doing as a firm and managing paper and our carbon footprint. In terms of — what we’re also doing is, we’re providing services to clients. For example, we’re the largest trustee on green bonds and we can certainly help clients establish the trustee function that goes along with that.
But in addition in the Asset Servicing space, one of the things that have come out of our data and analytics capability is a very interesting application on ESG and allowing our clients to customize reviews in their own portfolios. And we use a crowd sourcing technique that’s unique and we offer a cloud-based solution. We — the client basically brings the license from what data providers — we’re connected to over 100 data providers. We’ve got 2.5 million securities in that application.
And there is kind of a constant feedback loop to the data providers, so that constantly enhancing the amount of information I think might have on a particular security. So we’re excited about that. We have quite a few clients on it now and we’re just contracting them as for permanent usage. And in addition to that in our Investment Management space, we’re building quite a few ESG products and in the servicing space, we were just awarded an attractive ETF that was based on the ESG. So it really goes in those two forms. One is the commercial element that we can help our businesses and number two is just doing the right thing for our own Company.
Betsy Graseck — Morgan Stanley — Analyst
Okay, thank you. Appreciate that color.
Thomas P. Gibbons — Chief Executive Officer
Thanks Betsy.
Operator
Our next question comes from the line of Alex Blostein with Goldman Sachs. Please go ahead.
Alex Blostein — Goldman Sachs — Analyst
Hey, good morning Todd and Emily. Hope you guys are doing well. Maybe another question around capitals. I heard you guys obviously targeting over 100% payout. That’s something that you guys have targeted for a little while as well. Can you help us kind of calibrate that against the significant buyback you have authorized currently. Obviously, there could be some probably technical restrictions [Indecipherable] you could ultimately get done in the third quarter given just the volume threshold.
But maybe help us think through that relative to your comments and your willingness to kind of go below the 5.5% Tier 1 leverage. So just kind of trying to think through how much you can ultimately get that.
Emily Portney — Chief Financial Officer
Sure. So ultimately, you’re correct in mentioning that we had approval — just to remind folks, the Board approval was given in the fourth quarter of last year to do buybacks up to $4.4 billion through the third quarter of this year. Given the Fed’s limitations on the buybacks actually through the second quarter, it’s probably going to be pretty unlikely that we could execute the entirety of the $4.4 billion just literally in terms of ADV, etc. But we will do as much as we are allowed. And assuming that the Fed does return to or implement, I should say the SCB framework which does allow for much more flexibility, we would intend to certainly execute in excess of 100% of return, I should say in excess of 100% of earnings in the third quarter as much as we could do. And anything that we couldn’t do we would hope to catch up in the fourth quarter in that program.
Alex Blostein — Goldman Sachs — Analyst
Got it. That’s helpful. And then maybe we can unpack some of the NIR dynamics a little bit more. So two questions there, I guess one deposit cost, I think were roughly flattish, I guess sequentially just in terms of what you guys are targeting. Is there room for that to grind a little bit lower as you’re trying to optimize the balance sheet, or there’s not a whole lot you guys could do in terms of pushing pricing on deposits to clients?
And then, I wanted to clarify your comments around premium amortization. I don’t know if I missed it, but what was it in the quarter and your full year NIR guidance, what does it assume for premium am for the rest of the year?
Emily Portney — Chief Financial Officer
Sure. So, just talking about first deposit. You are right that deposit rates are relatively flat, and remember, that’s an average across non-U.S. dollar, as well as U.S. dollar. We are charging in for example Euros and for Japanese Yen, we’re not of course charging for the U.S. in the U.S. I mean, look, there — I don’t know if this is a trough, but this is probably pretty much close to ultimately I guess with the rate that we get to, of course if rates actually went negative in the U.S., we could start charging for deposits. We certainly don’t feel or haven’t felt that, that is necessary. And ironically, if we do start charging for deposits, then you start to earn money, earn more in NIR. So that isn’t the intention at the moment.
In terms of your… [Speech Overlap]
Thomas P. Gibbons — Chief Executive Officer
Let me just add something to that. So I think in the Fed guidance Alex that they provided, they really have talked about being mean for them to limit any possibility of negative rates for any sustainable time, and we’ve seen repo rates go negative a little — a little bit. So we do think that there are probably policy actions if that were to dip down. But as we go through the — as we scrub through the nature of the deposits that we’ve gotten and obviously there is very limited value to them, now we’ve got a whole capital against them now. We are winding them down, but there’s not a whole lot more to grind down.
Alex Blostein — Goldman Sachs — Analyst
Yeah, and then.. [Speech Overlap]
Emily Portney — Chief Financial Officer
Sure. On the MBS prepayment fees, just in our NIR projections, we’ve already taken into account a trajectory of MBS prepayment slowing down just based upon the rise in rates. So just to think about it in terms of sizing, we would expect the MBS prepayment fees to slow down by about probably 15% to 20% by year-end.
Alex Blostein — Goldman Sachs — Analyst
Great. Thank you very much.
Thomas P. Gibbons — Chief Executive Officer
Thanks, Alex.
Operator
Our next question is coming from the line of Mike Mayo with Wells Fargo Securities. Please go ahead.
Mike Mayo — Wells Fargo Securities — Analyst
Hi. You’ve had some good fee growth in servicing, that you talked about obviously the volumes that should moderate. Is that kind of expectations around Pershing and what are you seeing Pershing or retail behavior, you have a window into that world like that?
Thomas P. Gibbons — Chief Executive Officer
Yeah, Mike, I’ll take that. So it’s a — I think it’s a combination of things. So we’ve seen a lot of activity in the trading space. We’ve seen a — we have seen retail activity that was very high. As you know in Pershing, Pershing does see some of that. But it’s been — but it’s been on the institutional side as well as the retail side, and we would expect that to subside somewhat from the elevated levels that we saw in the first quarter.
What was interesting is the institutional business is probably a little more active in March and the retail business is probably a little more active in January and February.
Mike Mayo — Wells Fargo Securities — Analyst
Okay. So you’re seeing a slowdown in retail trading as the quarter went on, I mean as the people returned back to work, do you think they trade less or anything related to that?
Thomas P. Gibbons — Chief Executive Officer
We think their supervisors keep an eye on what they’re doing at their desks a little bit more. I’m not — I’m not sure, [Indecipherable] that. But it’s very hard to say Mike, because what you got to remember is there is a massive amount of cash sloshing around the system, and it’s got to go somewhere.
One of the things that I pointed out, the savings rate doubled the national average. We’ve got 15%, in household, they are holding 15% of GDP in cash. They’re either going to spend it, invest it or just let it lose value sitting in cash. So, our guess is that we’re probably going to see lower activity, but it’s — my guess is as good as yours.
Mike Mayo — Wells Fargo Securities — Analyst
Okay. And then just one last question on the fee waivers. I mean, your customers must love you. I mean — this is $220 million of fee waivers in the second quarter coming up. I mean hopefully you’re building some long-term goodwill, but shareholders don’t benefit from that. So I mean, you said you are not going to charge for deposits, or I mean what — any other options there or just you have to eat it and help you get long term goodwill?
Thomas P. Gibbons — Chief Executive Officer
[Speech Overlap] Let me start it Emily and you can follow up on it. So, a lot of the excess balances is ending up in cash or even ending up in money market funds. So we considered — we continue to see this cash build. So even though it’s $220 million of fee waivers, it’s — a lot of that’s just driven by excess balances that we don’t think are going to be there when interest rates recover.
Just like we think the excess reserves in the system will obviously contract. That being said, we do think it provides a lot of upside when the market turns around which we’ve reflected the last time we went through this cycle. And we can earn a little bit on it still. And a little bit of good news is that the Fed speak recently has been pointing to the possibility to firm things up on the short end of the curve.
We’ve actually seen the forward rates kind of improve a little bit recently. So we’re making the assumption that using the forward curve from a few days ago, when we gave that guidance that fee waivers will be acted by like they did during the first quarter. That being said, it is a significant hit to earnings.
We think we’ll recover it. We still ran a 29% operating margin, even with that environment. And the other thing that we’ve done is between NIR and fee waivers, we think we are now at or very close to the trough. I mean, it could obviously worsen if interest rates even got a little bit lower. But we think we are close to the trough. And so the business model is now going to start to grow off of this level.
Mike Mayo — Wells Fargo Securities — Analyst
Great. Thank you.
Emily Portney — Chief Financial Officer
The only thing I’d just — Mike, the only thing I just might to add to that is, just remember that a large portion of those waivers are really just funds that we distribute. So it’s where the kind of the recipient of just lower fees versus competitive waivers that we’re actually offering in Asset Management.
Mike Mayo — Wells Fargo Securities — Analyst
Great. Thank you for that.
Operator
And our next question then comes from the line of Ken Usdin with Jefferies. Please go ahead.
Ken Usdin — Jefferies — Analyst
Thanks. Good morning. Just had a follow up on the Asset Services fee line. It was nice to see the 5% improvement sequentially. And I just wondered, last quarter you had mentioned some of that bulkier repricing and kind of onetime things. This quarter, you mentioned that there’s a little bit of elevated activity. Just wondering from an outlook perspective, anything we should know, just about — kind of the trajectory of onboarding new wins and we kind of — do we have a clear line of sight on any expected meaningful repricing this year? Thanks.
Thomas P. Gibbons — Chief Executive Officer
Emily, you want to take it?
Emily Portney — Chief Financial Officer
Sure. So, we did see a nice uptick in terms of asset servicing fees. They were up 5%, actually sequentially. And just, 50% of that is due to asset base — asset levels and the remaining 50% is based on transaction volumes. And transaction volumes across asset servicing — all of our businesses and asset servicing was up significantly double-digit in some cases quarter-on-quarter.
As Todd alluded to, we do expect that volumes to moderate a bit in the second half.
Having said that, we also feel that there’s very strong fundamentals across the business. Our pipeline is strong, the average size deals in the pipeline are bigger. Retention stats are very strong, and we’re also making significant investments in the business that are resonating with clients. In terms of the repricing. There’s nothing really structural that that we observed repricing. The repricing that we did experienced last quarter that was a bit lumpy was really — totally tied to just a few large clients that happened to be going RFP at the same time.
It’s always been a pretty modest headwind for the business that we’ve been able to offset with new business retention, growth with our existing clients and further efficiency.
Ken Usdin — Jefferies — Analyst
Got it. Thanks for that, Emily. And then just one more balance sheet question. In terms of Fed accommodation, the incremental deposits that flowed in and certainly seem to land on your balance sheet, how are you just anticipating changes as we go forward with potential ends to QE? And how do you think your balance sheet would act versus the more traditional regional banks in terms of the retention of the deposits that have flowed in? Thank you.
Thomas P. Gibbons — Chief Executive Officer
You want to take that, Emily?
Emily Portney — Chief Financial Officer
Sure. So, ultimately, we think when — we basically — as the Fed increases reserves, we think roughly about 2% or so ends up on our balance sheet. It’s actually hard to tell and depends very much on the economic backdrop.
As I did mention, we do think, a large portion of the deposits which — that we’ve seen, and the growth in those deposits, especially in the last two quarters is excess or non-operating. And we do think that that would recede pretty quickly when interest rates start to normalize, and monetary policy starts to normalize. I don’t know, Todd, if you have anything to add to that.
Thomas P. Gibbons — Chief Executive Officer
Yeah. I think if you go back to pre the COVID event, which really led to the spike, we’ve seen something close to $100 million of balance increases. Some of that was intentional, as we built relationships and comes naturally with the growth in our businesses. But a significant amount of that was what we call fit into that excess definition.
So we had imagined probably, somewhere between $25 billion to $50 billion of that $100 billion increase would roll off.
Ken Usdin — Jefferies — Analyst
Got it? Okay. Thank you.
Thomas P. Gibbons — Chief Executive Officer
Thanks Ken.
Operator
Our next question comes from the line of Jim Mitchell from Seaport Global Securities. Please go ahead.
James Mitchell — Seaport Global — Analyst
Hey, good morning. Maybe just — if I think about your guidance on NII, it does seem like your — the implication is that NII sort of stabilizing here. And I assume, that implies sort of securities yields are going to kind of hold in at current levels. So if we kind of assume a static balance sheet going forward, and I know that’s not necessarily. But when I think about it, but if we assumed try to isolate what could be the inflection point? What level of rates — I mean, I think you’ve indicated the two to five-year is important. You’re not going to go further out than that.
We’ve had the five-year now at 83 basis points moving higher. Do we need to see that translate into the two year to three-year? I mean, what level of rate structure should we start to see maybe yields going the other way?
Thomas P. Gibbons — Chief Executive Officer
Why don’t I start Emily and then you can add? So I think there are really two key elements to it, Jim. Number one is the short end of the curve. So we’ve got a significant number of assets that are pricing off of LIBOR or short-term indices. And once again, in this quarter, we saw for example, one-month LIBOR was down 3 basis points from its average in the fourth quarter and 2 basis points for three-months LIBOR.
So we got a — that offset the benefit of the move on the longer part of the curve. But the steepening up to five years, we keep a duration of around 2.5 years. So that would mean there’s going to be significant assets out there that roll off and get reinvestment. It’s helpful, and it will slowly come into it. But it’s basically been offset — that benefit has been offset by what we saw on the short end of the curve.
James Mitchell — Seaport Global — Analyst
That makes sense. I was just trying to think through, assuming short rates are pretty stable from here. What kind it gets — what at the longer end really starts to help you?
Thomas P. Gibbons — Chief Executive Officer
Yeah. I mean five and ten years, because what that does is it extends the duration of the mortgage-backed securities. So their yields pick up because the amortization of premium declines, and stuff. And we’re constantly reinvesting and stuff gets reinvested to maintain the duration that currently exists in the portfolio. It would go into higher level. So it would be helpful here.
Emily Portney — Chief Financial Officer
And we — and Jim, we disclosed in the Q, just some sensitivities that might be helpful as well for you to size that.
James Mitchell — Seaport Global — Analyst
No. I got it. I just trying to get a sense of what level of rates in the middle of the curve would be helpful, but we can talk about that offline. Thanks.
Thomas P. Gibbons — Chief Executive Officer
Thanks, Jim.
Operator
And our next question then comes from the line of Steven Chubak from Wolfe Research. Please go ahead.
Michael Anagnostakis — Wolfe Research — Analyst
Hey, good morning. This is Michael Anagnostakis on for Steven. Just following up on the NII guide. And you gave some detail around where you’re deploying some of that excess liquidity from here. And I appreciate the color on premium am as well. Maybe you can just provide some color around how much of that deployment is contemplated in the NII guide for the securities portfolio?
Thomas P. Gibbons — Chief Executive Officer
Emily, you want to take that?
Emily Portney — Chief Financial Officer
Sure. So, I mean our securities portfolio is basically flat to last quarter, and we are marginally increasing our non-HQLA within the quarter. But, when I talked about the NIR guidance for the full year, still being about 11% to 12%, where the rate curve — it’s just based on the forward curve, deposits basically remaining pretty much where they are, if not coming down a bit and MBS prepayment speeds slowing down. So those are the key assumptions.
Michael Anagnostakis — Wolfe Research — Analyst
Thank you for taking my questions.
Thomas P. Gibbons — Chief Executive Officer
Thanks, Steven.
Operator
Our next question then comes from the line of Gerard Cassidy with RBC. Please go ahead.
Gerard Cassidy — RBC Capital Markets — Analyst
Good morning, Todd. Good morning, Emily.
Emily Portney — Chief Financial Officer
Good morning.
Thomas P. Gibbons — Chief Executive Officer
Good morning, Gerard.
Gerard Cassidy — RBC Capital Markets — Analyst
Todd, can you frame out for us when you think about your years back in New York, the number of new products that Bank of New York has introduced over the years? I think of like custody of non-traditional assets as one. When you think about the opportunities for this digital digitalization and the cryptocurrencies that you guys are working on, that you’ve already talked about, how big can this be? And again, comparing it to other new ventures that you’ve been involved with over the years at Bank of New York if you can compare that?
Thomas P. Gibbons — Chief Executive Officer
Yeah. I think it’s early to tell. I mean, if you think of all the noise that Bitcoin got, so it’s still only about 10% of gold and gold is a custodized asset, it’s not that important, frankly, right? So it’s getting a lot of hype. I do think decentralized finance is coming. I do think fintechs are going to be important players. And I do think that we can position ourselves well and work with fintechs to build opportunities.
I think you’re going to see it in payments. I think you’re going to see it — you are going to see it in custody. It’s hard for me to say just how big of an opportunity that is at this point. It will grow. I think the more important thing is that we need to give investors choice. And so, if they do want to mobilize assets faster, we need to be able to help them to do that. If they do want to be able to hold to non-traditional assets, just as they went into alternatives and other things, we need to be able to help them to do that, in a way that it eliminates a lot of the counterparty risk that currently exists, which is high.
And also enables them to get reporting on a consolidated basis, and valuations and so forth, which is also critically important. And so, there are a number of ETFs coming out, that are crypto-related. There is obviously good underlying growth on a very, very small base. We think it’s an important part of the full product capability. How big it ultimately comes, I think they become, I think it’s just little early for me to really speculate.
Gerard Cassidy — RBC Capital Markets — Analyst
I see. Okay, thank you. And then second you guys touched [Speech Overlap] go ahead, Emily.
Emily Portney — Chief Financial Officer
Yeah. I was just going to add one little thing, which has much about retention as it also is about new business. Our clients are demanding integrated capabilities across digital assets, as well as traditional securities and currencies.
Gerard Cassidy — RBC Capital Markets — Analyst
Got it. Thank you. You guys have always told us and you talked about it again today, the leverage ratio is the binding constraint, not the CET1 ratio. You pointed out Emily that they may dip down below 5.5%, but still well above the regulatory minimums, we understand that.
At what point would the leverage ratio actually come into play where you would have to back away from your buybacks? Even though you have the CET1 ratio, not a problem. But at what point, do you say, we’ve got to slow it down, because the leverage ratio is falling too far down?
And then as part of that, is the leverage ratio really linked to the QE, meaning that deposit growth? And should we get a tapering, then we should get some relief on your balance sheet growth, which maybe would help a leverage ratio as well?
Thomas P. Gibbons — Chief Executive Officer
So yeah, let me start Emily, and then you can add. If you think about it, we put a buffer on the leverage ratio for business as usual. Now this isn’t for stress testing [Phonetic] but for business as usual. And that buffer really reflects the potential for a spike in interest — excuse me, a spike in deposits or a decline due to other comprehensive interest income based on the mark-to-market in the securities portfolio?
And so, frankly, Gerard, we’ve seen the spike in deposits, and could it go up a little bit higher? Yeah, it may. But our view now is, part of the reason for the buffer has already taken place. And as I indicated on one of the earlier questions, we probably, when things start to normalize, we probably have $50 billion of runoff in deposits. So that’s an enormous amount, enormous impact on that ratio.
And also the coverage from the OCI that has to be that high. So given the fact that we’ve already made this spike, it makes sense for us to go ahead and dip into our buffers. And Emily said, you’re going to a 5% probably is not an unreasonable thing in this environment.
If we are in an environment where we were a year ago, I’m not sure, I would say that.
Emily Portney — Chief Financial Officer
The only thing I might add is just, I mean, even if we were going in — like Todd just said, we’d be comfortable going towards 5%. But even there, you would need a considerable increase in deposits there from where we are today. We’ve got plenty of room.
Gerard Cassidy — RBC Capital Markets — Analyst
Very good. Thank you.
Thomas P. Gibbons — Chief Executive Officer
Thanks Gerard.
Operator
[Operator Instructions]. And our next question comes from the line of Robert Wildhack from Autonomous Research. Please go ahead.
Robert Wildhack — Autonomous Research — Analyst
Good morning, guys. If we could go back to the cryptocurrency and digital asset space for a second. You’re clearly taking a few steps forward there with the announcements you made this quarter. Is that because we think we’ve hit some kind of inflection point in that part of the market? Or is it just more of a natural evolution of your service?
Thomas P. Gibbons — Chief Executive Officer
You know, Rob, I would say it’s more of a natural evolution. We’re having deep discussions working with clients in the institutional side. And we started to see this toward the end of last year and the beginning of this year. The institutional side was getting more and more interested in digital assets. And so, we started working with them for solutions across a broad part of our business.
Robert Wildhack — Autonomous Research — Analyst
Okay, thanks.
Thomas P. Gibbons — Chief Executive Officer
Okay, Rob. Thank you.
Operator
And our final question comes from the line of Brian Kleinhanzl with KBW. Please go ahead.
Brian Kleinhanzl — KBW — Analyst
Yeah, thanks. Two questions here. One on the asset servicing here actually bit on how the underlying pricing is with 50% for asset levels and 50% for transaction volume. Where do you want to take those percentages longer term? You got the mix that you’re at, and this would be steady state from here? Are you trying to get more transaction volume basis as we think how pricing turns them off here?
Emily Portney — Chief Financial Officer
Do you want me to take that, Todd?
Thomas P. Gibbons — Chief Executive Officer
Sure, Emily. Yeah.
Emily Portney — Chief Financial Officer
So I mean, the 50-50 split is just the nature of the beast [Phonetic] and the nature of the business. So it’s not like we are trying to move that in any direction. And for pretty much years, that’s just really the dynamics of how we’re priced and asset servicing. About 50% of the revenue stream is based on asset levels, and about 50% or so is based on transaction costs. So it’s pretty much the norm.
Brian Kleinhanzl — KBW — Analyst
Okay. And second question, I mean, you looked at issuer services and clearing services and the revenue drivers both been impacted by interest rates above and beyond. The money market fee waivers, is there any way to allocate what part of those revenues are kind of driven by interest rates as we think about asset sensitivity on a go forward basis? Thanks.
Thomas P. Gibbons — Chief Executive Officer
Sure. So both of those businesses are significant deposit-taking businesses, or either we take into the — on balance sheet or off balance sheet through sweeps into money market funds. And so the interest rate impact, it’s a meaningful contribution to both of them. I don’t think we break — we’ve broken out exactly what the split is. But it’s a — and it’s a meaningful contribution to the obviously to the operating margins because there is no expense associated with the NIR.
What we’ve seen in Treasury Services is an intentional build in deposits over the past year as we built out those relationships and it’s very much related to the activity and the accounts still, because it needs to be cash and accounts to make payments and there are some frictional cash that tends to come, that tends to come with that.
Money market fee waiver is a little less important there, but if you think about the Corporate Trust business what issuers will do is, they’ll put cash a day or two in advance of payments that need to be made on the issues that we’re the trustee and the paying agent. And typically that’s value that where we get a little of that value or we sweep it into a money market fund.
And so that’s a meaningful contributor to that business. And that’s where they’re — we’re now seeing the kind of the late stages impact of fee waivers and that’s why the Issuer Services business was down sequentially and year-over-year.
Brian Kleinhanzl — KBW — Analyst
Thanks.
Thomas P. Gibbons — Chief Executive Officer
But we don’t break out very specific numbers, Brian. Okay, thank you for the questions. Yeah, Operator, go ahead.
Operator
That does conclude our question-and-answer session for today. I would now like to hand the call back over to Todd with any additional or closing remarks.
Thomas P. Gibbons — Chief Executive Officer
No, thanks. Thanks for all of your interest and of course any follow-up questions, you may reach out to Magda and our Investor Relations team and look forward to talking to you all soon. Take care.
Emily Portney — Chief Financial Officer
Thank you.
Operator
[Operator Instructions].