Huntington National Bank 2011 Annual Report Download - page 85

securities owned by our broker-dealer subsidiaries, foreign exchange positions, equity investments, investments
in mortgage-backed securities, and marketable equity securities held by our insurance subsidiaries. We have
established loss limits on the trading portfolio, the amount of foreign exchange exposure that can be maintained,
and the amount of marketable equity securities that can be held by the insurance subsidiaries.
Liquidity Risk
Liquidity risk is the risk of loss due to the possibility that funds may not be available to satisfy current or
future commitments resulting from external macro market issues, investor and customer perception of financial
strength, and events unrelated to us, such as war, terrorism, or financial institution market specific issues. In
addition, the mix and maturity structure of Huntington’s balance sheet, amount of on-hand cash and
unencumbered securities and the availability of contingent sources of funding, can have an impact on
Huntington’s ability to satisfy current or future funding commitments. We manage liquidity risk at both the Bank
and the parent company.
The overall objective of liquidity risk management is to ensure that we can obtain cost-effective funding to
meet current and future obligations, and can maintain sufficient levels of on-hand liquidity, under both normal
business as usual and unanticipated stressed circumstances. The ALCO was appointed by our Board Risk
Oversight Committee to oversee liquidity risk management and establish policies and limits based upon analyses
of the ratio of loans to deposits, liquid asset coverage ratios, the percentage of assets funded with noncore or
wholesale funding, net cash capital, liquid assets, and emergency borrowing capacity. In addition, operating
guidelines are established to ensure that bank loans included in the business segments are funded with core
deposits. These operating guidelines also ensure diversification of noncore funding by type, source, and maturity
and provide sufficient liquidity to cover 100% of wholesale funds maturing within a six-month period. A
contingency funding plan is in place, which includes forecasted sources and uses of funds under various
scenarios in order to prepare for unexpected liquidity shortages, including the implications of any credit rating
changes and / or other trigger events related to financial ratios, deposit fluctuations, debt issuance capacity, stock
performance, or negative news related to us or the banking industry. Liquidity risk is reviewed monthly for the
Bank and the parent company, as well as its subsidiaries. In addition, liquidity working groups meet regularly to
identify and monitor liquidity positions, provide policy guidance, review funding strategies, and oversee the
adherence to, and maintenance of, the contingency funding plans. A Contingency Funding Working Group
monitors daily cash flow trends, branch activity, unfunded commitments, significant transactions, and parent
company subsidiary sources and uses of funds in order to identify areas of concern and establish specific funding
strategies. This group works closely with the ALCO and our communication team in order to identify issues that
may require a more proactive communication plan to shareholders, employees, and customers regarding specific
events or issues that could have an impact on our liquidity position.
In the normal course of business, in order to better manage liquidity risk, we perform stress tests to
determine the effect that a potential downgrade in our credit ratings or other market disruptions could have on
liquidity over various time periods. These credit ratings have a direct impact on our cost of funds and ability to
raise funds under normal, as well as adverse, circumstances. The results of these stress tests indicate that at
December 31, 2011, sufficient sources of funds were available to meet our financial obligations and fund our
operations for 2012. The stress test scenarios include testing to determine the impact of an interruption to our
access to the national markets for funding, a significant run-off in core deposits and liquidity triggers inherent in
other financial agreements. To compensate for the effect of these assumed liquidity pressures, we consider
alternative sources of liquidity over different time periods to project how funding needs would be managed. The
specific alternatives for enhancing liquidity include generating client deposits, securitizing or selling loans,
selling or maturing of securities, and extending the level or maturity of wholesale borrowings. Liquidity stress
testing was also an important component of the fourth quarter annual capital planning process.
71