SunTrust 2013 Annual Report Download - page 85

69
date. Where observable market prices from transactions for identical assets or liabilities are not available, we identify what
we believe to be similar assets or liabilities. If observable market prices are unavailable or impracticable to obtain for any
such similar assets or liabilities, we look to other techniques by obtaining third party quotes or using modeling techniques,
such as discounted cash flows, while attempting to utilize market observable assumptions to the extent available. Absent
current market activity in that specific instrument or a similar instrument, the resulting valuation approach may require making
a number of significant judgments in the estimation of fair value. Market conditions during the credit crisis led to limited or
nonexistent trading in certain of the financial asset classes that we have owned. Although market conditions have improved
and we have seen the return of liquidity in certain markets, we continue to experience a low level of activity in a number of
markets and also hold a limited amount of instruments that do not have an active market, which creates additional challenges
when estimating the fair value of these financial instruments.
Generally, the assets and liabilities most affected by the lack of liquidity or observable market are those required to be classified
as level 3 in the fair value hierarchy. As a result, various processes and controls have been adopted to determine that appropriate
methodologies, techniques and assumptions are used in the development of fair value estimates, particularly related to those
instruments that require the use of significant, unobservable inputs. We continue to maintain a cross-functional approach when
estimating the fair value of these difficult to value financial instruments. This includes input from not only the related line of
business, but also from risk management and finance, to ultimately arrive at a consensus estimate of the instrument's fair value
after evaluating all available information pertaining to fair value. This process involves the gathering of multiple sources of
information, including broker quotes, values provided by pricing services, trading activity in other similar instruments, market
indices, and pricing matrices along with employing various modeling techniques, such as discounted cash flow analyses, in
arriving at the best estimate of fair value. Modeling techniques incorporate our assessments regarding assumptions that market
participants would use in pricing the asset or the liability, including market-based assumptions, such as interest rates, as well
as assumptions about the risks inherent in a particular valuation technique, the effect of a restriction on the sale or use of an
asset, market liquidity, and the risk of nonperformance. In certain cases, our assessments with respect to assumptions that
market participants would make may be inherently difficult to determine, and the use of different assumptions could result
in material changes to these fair value measurements. We used significant unobservable inputs to fair value, on a recurring
basis, for certain trading assets, securities AFS, portfolio loans accounted for at fair value, IRLCs, LHFS, MSRs, and certain
derivatives. Overall, the financial impact of the level 3 financial instruments did not have a material impact on our liquidity
or capital. Our exposure to level 3 financial instruments continues to decline due to paydowns, sales and settlements of these
instruments, and the fact that we have made minimal purchases. The following table discloses assets and liabilities carried at
fair value on a recurring basis that have been impacted by level 3 fair value determinations.