Capital One 2014 Annual Report Download - page 226

collateralization on such derivatives instruments in a net liability position. We posted $87 million and $371 million
of cash collateral as of December 31, 2014 and 2013, respectively. If our debt credit rating had fallen below
investment grade, we would have been required to post an additional variation margin, which represents the impact
of daily position mark-to-market calculations, of less than $1 million as of both December 31, 2014 and 2013. In
addition, we would have been required to post independent margin of $65 million and $58 million as of December 31,
2014 and 2013, respectively, in compliance with the terms of certain of our swap agreements. The fair value of
derivatives instruments with credit-risk-related contingent features in a net liability position was less than $1 million
and $1 million as of December 31, 2014 and 2013, respectively.
Derivatives Counterparty Credit Risk
Derivatives instruments contain an element of credit risk that arises from the potential failure of a counterparty to
perform according to the contractual terms of the contract. Our exposure to derivatives counterparty credit risk, at
any point in time, is represented by the fair value of derivatives in a gain position, or derivatives assets, assuming
no recoveries of underlying collateral. To mitigate the risk of counterparty default, we enter into legally enforceable
master netting agreements and maintain collateral agreements with certain derivative counterparties. These
agreements typically provide for the right to offset exposures and require both parties to maintain collateral in the
event the fair values of derivative financial instruments exceed established thresholds. We received cash collateral
from derivatives counterparties totaling $695 million and $397 million as of December 31, 2014 and 2013,
respectively. We also received securities from derivatives counterparties totaling $91 million and $53 million as of
December 31, 2014 and 2013, respectively, which we have the ability to re-pledge.
We record counterparty credit risk valuation adjustments on our derivative assets to properly reflect the credit quality
of the counterparty. We consider collateral and legally enforceable master netting agreements that mitigate our credit
exposure to each counterparty in determining the counterparty credit risk valuation adjustment, which may be
adjusted in future periods due to changes in the fair value of the derivatives contracts, collateral and creditworthiness
of the counterparty. The cumulative counterparty credit risk valuation adjustment recorded on our consolidated
balance sheets as a reduction in the derivatives asset balance was $5 million and $7 million as of December 31,
2014 and 2013, respectively. We also adjust the fair value of our derivatives liabilities to reflect the impact of our
own credit quality. We calculate this adjustment by comparing the spreads on our credit default swaps to the discount
benchmark curve. The cumulative credit risk valuation adjustment related to our credit quality recorded on our
consolidated balance sheets as a reduction in the derivative liability balance was $1 million and $6 million as of
December 31, 2014 and 2013, respectively.
Income Statement Presentation and AOCI
The following tables summarize the impact of derivatives and the related hedged items in our consolidated statements
of income and AOCI.
204
CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Capital One Financial Corporation (COF)