TCF Bank 2011 Annual Report Download - page 72

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Liquidity Risk
Liquidity risk is defined as the risk to earnings or capital
arising from the Company’s inability to meet its obligations
when they come due without incurring unacceptable losses.
ALCO and the Board of Directors have adopted a
Liquidity Management Policy to direct management of
the Company’s liquidity risk. The objective of the Liquidity
Management Policy is to ensure that TCF meets its cash and
collateral obligations promptly, in a cost-effective manner
and with the highest degree of reliability. The maintenance
of adequate levels of asset and liability liquidity will
provide TCF with the ability to meet both expected and
unexpected cash flows and collateral needs. Key liquidity
ratios, asset liquidity levels and the amount available
from existing funding sources are reported to ALCO on a
monthly basis. At year end, TCF’s Liquidity Management
Policy and current operating practices established a daily
asset liquidity, in excess of the daily market risk collateral
requirement of $800 million, a maximum unsecured short-
term daily borrowing limit of $225 million and collateral
pledged at the Federal Reserve Discount Window having a
borrowing capacity of $500 million.
TCF’s asset liquidity may be held in the form of
on-balance sheet cash invested with the Federal Reserve
or through the use of overnight Federal Funds Sold to highly
rated counterparties or short-term U.S. Treasury Bills or
Notes. Other asset liquidity can be provided by unpledged,
highly rated securities which could be sold or pledged to
various counterparties under existing master repurchase
agreements. At December 31, 2011, TCF had asset liquidity
of $1.4 billion.
Deposits are TCF’s primary source of funding. In
addition, TCF maintains secured sources of funding,
which include $1.9 billion in secured borrowing capacity
at the FHLB of Des Moines and $518 million of secured
borrowing capacity at the Federal Reserve Discount
Window. TCF’s secured borrowing capacity with the FHLB
is dependent upon the maintenance by TCF of a Borrowing
Base Certificate which pledges consumer and commercial
real estate loans to the FHLB under a blanket lien. The
FHLB also relies upon its own internal credit analysis of
TCF’s financial results when determining TCF’s secured
borrowing capacity. Additionally, TCF has developed and
maintains a contingency funding plan should certain
liquidity needs arise.
Foreign Currency Risk
The Company is also exposed to foreign currency risk
as changes in foreign exchange rates may impact the
Company’s investment in TCF Commercial Finance Canada,
Inc. or results of other transactions in countries outside
of the United States. TCF has entered into forward foreign
exchange contracts in order to minimize the risk of changes
in foreign exchange rates on its investment in and
loans to TCF Commercial Finance Canada and on certain
other foreign lease transactions. The value of forward
foreign exchange contracts vary over their contractual lives
as the related currency exchange rates fluctuate. TCF may
also experience realized and unrealized gains or losses on
forward foreign exchange contracts as a result of changes
in foreign exchange rates.
54 TCF Financial Corporation and Subsidiaries