Capital One 2011 Annual Report Download - page 142

Table 40: Interest Rate Sensitivity Analysis
December 31, 2011
Excluding ING
Direct Swaps(1)
Including ING
Direct Swaps
December 31,
2010
Impact on adjusted projected base-line net interest income:
+ 200 basis points ..................................... 1.2% 13.7% (0.7)%
- 50 basis points ...................................... (0.5) (3.9) (0.2)
Impact on economic value of equity:
+ 200 basis points ..................................... (1.0) 3.2 (3.8)
- 50 basis points ...................................... (0.4) (1.5) 0.1
(1) Calculated excluding the impact of the interest-rate swap transactions of approximately $24.8 billion entered into to
mitigate some of the interest rate risk related to the ING Direct acquisition.
Because of the large but temporary impact of the ING Direct-related swap transactions on our standard interest
rate risk reporting measures, we expanded our standard interest rate sensitivity analysis to present our interest
rate risk measures with and without the impact of the $24.8 billion of interest rate swaps described above. This
presentation highlights changes in our core interest rate risk profile and the incremental impact of the ING
Direct-related swaps on our core profile over the time period that the swaps will remain outstanding. Excluding
the $24.8 billion swap transactions, our interest rate sensitivity measures reflect that we became more asset
sensitive between December 31, 2010 and December 31, 2011. Our asset sensitivity position is larger when
factoring in the effect of the $24.8 billion of swaps, given their net pay-fixed structure and non-designation for
hedge accounting in accordance with GAAP. Our projected net interest income and economic value of equity
sensitivity measures, both including and excluding the impact of the ING Direct related swap transactions, were
within our prescribed asset/liability policy limits as of December 31, 2011 and 2010. As noted above, in
conjunction with our close of the ING Direct acquisition on February 17, 2012, we terminated the ING Direct
related swap transactions in February 2012.
The interest rate risk models that we use in deriving these measures incorporate contractual information,
internally-developed assumptions and proprietary modeling methodologies, which project borrower and deposit
behavior patterns in certain interest rate environments. Other market inputs, such as interest rates, market prices
and interest rate volatility, are also critical components of our interest rate risk measures. We regularly evaluate,
update and enhance these assumptions, models and analytical tools as we believe appropriate to reflect our best
assessment of the market environment and the expected behavior patterns of our existing assets and liabilities.
Limitations of Market Risk Measures
There are inherent limitations in any methodology used to estimate the exposure to changes in market interest
rates. The above sensitivity analyses contemplate only certain movements in interest rates and are performed at a
particular point in time based on the existing balance sheet, and do not incorporate other factors that may have a
significant effect, most notably future business activities and strategic actions that management may take to
manage interest rate risk. Actual earnings and economic value of equity could differ from the above sensitivity
analyses.
ACCOUNTING CHANGES AND DEVELOPMENTS
See “Note 1—Summary of Significant Accounting Policies” for information concerning recently issued
accounting pronouncements, including those that we have not yet adopted and that will likely affect our
consolidated financial statements.
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