Capital One 2007 Annual Report Download - page 72

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are assumed to mature consistent with business line expectations or, when available in the case of marketable securities, market
expectations. As of December 31, 2007, the Companys Asset/Liability Management Policy limited the change in projected 12-month
earnings due to instantaneous parallel rate shocks of +/-200 basis points to less than 3% of base net interest income. The measurement
of impact to current earnings includes the change in net interest income and the change in the valuation of mortgage servicing rights
driven by the change in interest rates. As of December 31, 2007 the Company estimated a 1.9% reduction in 12-month net interest
income for an immediate 200 basis point rate increase and a 1.2% increase in 12-month net interest income for an immediate 200 basis
point rate decline.
In addition to limits related to possible changes in 12-month net interest income, as of December 31, 2007 the Asset/Liability
Management Policy limited the pre-tax change in economic value of equity due to instantaneous parallel rate shocks of 200 basis
points to less than 12%. As of December 31, 2007, the estimated reduction in economic value of equity due to an adverse 200 basis
point rate shock was 4.1%.
The precision of the measures used to manage interest rate risk is limited due to the inherent uncertainty of the underlying forecast
assumptions. These measures do not consider the impact of the effects of changes in the overall level of economic activity associated
with various interest rate scenarios. In addition, the measurement of interest rate sensitivity includes assumptions on the ability of
management to take action to mitigate further exposure to changes in interest rates, including, within legal and competitive
constraints, the repricing of interest rates on outstanding credit card loans and deposits.
The Company manages and mitigates its interest rate sensitivity through several techniques, which include, but are not limited to,
changing the maturity and repricing characteristics of various balance sheet categories and by entering into interest rate derivatives.
Table 12 reflects the interest rate repricing schedule for earning assets and interest-bearing liabilities as of December 31, 2007.
Table 12: Interest Rate Sensitivity
As of December 31, 2007
Subject to Repricing
(Dollars in Millions) Within
180 Days
>180 Days-
1 Year
>1 Year-
5 Years
Over
5 Years
Earning assets:
Federal funds sold and resale agreements $ 1,767 $  $  $ 
Interest-bearing deposits at other banks 677   
Securities available for sale 3,633 2,387 10,839 2,923
Mortgage loans held for sale 267 5 31 13
Other 2,098   
Loans held for investment 35,615 13,490 37,630 15,070
Total earning assets 44,057 15,882 48,500 18,006
Interest-bearing Liabilities:
Interest-bearing deposits 40,541 7,773 20,478 3,152
Senior and subordinated notes 2,374 716 2,902 4,721
Other borrowings 22,765 1,588 2,231 
Total interest-bearing Liabilities 65,680 10,077 25,611 7,873
Non-rate related net items 1,767 (425) (4,047) (8,928)
Interest sensitivity gap (19,856) 5,380 18,842 1,205
Impact of swaps 17,303 (4,235) (11,775) (1,293)
Impact of consumer loan securitizations (9,126) 486 (123) 9,578
Interest sensitivity gap adjusted for impact of securitizations and
swaps (11,679) 1,631 6,944 9,490
Adjusted gap as a percentage of managed assets (5.86)% 0.82% 3.48% 4.76%
Adjusted cumulative gap (11,679) (10,048) (3,104) 6,386
Adjusted cumulative gap as a percentage of managed assets (5.86)% (5.04)% (1.56)% 3.20%
Foreign Exchange Risk
The Company is exposed to changes in foreign exchange rates which may impact translated income and expense associated with
foreign operations. In order to limit earnings exposure to foreign exchange risk, the Companys Asset/Liability Management Policy
requires that material foreign currency denominated transactions be hedged. As of December 31, 2007, the estimated reduction in 12-