US Bank 2014 Annual Report Download - page 133

the Company’s derivative contracts include offsetting rights
(referred to as netting arrangements), and depending on
expected volume, credit risk, and counterparty preference,
collateral maintenance may be required. For all derivatives
under collateral support agreements, fair value is
determined daily and, depending on the collateral
maintenance requirements, the Company and a counterparty
may receive or deliver collateral, based upon the net fair
value of all derivative positions between the Company and the
counterparty. Collateral is typically cash, but securities may
be allowed under collateral arrangements with certain
counterparties. Receivables and payables related to cash
collateral are included in other assets and other liabilities on
the Consolidated Balance Sheet, along with the related
derivative asset and liability fair values. Any securities
pledged to counterparties as collateral remain on the
Consolidated Balance Sheet. Securities received from
counterparties as collateral are not recognized on the
Consolidated Balance Sheet, unless the counterparty
defaults. In general, securities used as collateral can be sold,
repledged or otherwise used by the party in possession. No
restrictions exist on the use of cash collateral by either party.
Refer to Note 20 for further discussion of the Company’s
derivatives, including collateral arrangements.
As part of the Company’s treasury and broker-dealer
operations, the Company executes transactions that are
treated as securities sold under agreements to repurchase
or securities purchased under agreements to resell, both of
which are accounted for as collateralized financings.
Securities sold under agreements to repurchase include
repurchase agreements and securities loaned transactions.
Securities purchased under agreements to resell include
reverse repurchase agreements and securities borrowed
transactions. For securities sold under agreements to
repurchase, the Company records a liability for the cash
received, which is included in short-term borrowings on the
Consolidated Balance Sheet. For securities purchased under
agreements to resell, the Company records a receivable for
the cash paid, which is included in other assets on the
Consolidated Balance Sheet.
Securities transferred to counterparties under
repurchase agreements and securities loaned transactions
continue to be recognized on the Consolidated Balance
Sheet, are measured at fair value, and are included in
investment securities or other assets. Securities received
from counterparties under reverse repurchase agreements
and securities borrowed transactions are not recognized on
the Consolidated Balance Sheet unless the counterparty
defaults. In connection with all of these transactions, the fair
values of the securities are determined daily, and additional
cash is obtained or refunded to counterparties where
appropriate. The securities transferred under repurchase
and reverse repurchase transactions typically are U.S.
Treasury securities or agency mortgage-backed securities.
The securities loaned or borrowed typically are high-grade
corporate bonds traded by the Company’s broker-dealer. In
general, the securities transferred can be sold, repledged or
otherwise used by the party in possession. No restrictions
existontheuseofcashcollateralbyeitherparty.
The Company executes its derivative, repurchase/
reverse repurchase and securities loaned/borrowed
transactions under the respective industry standard
agreements. These agreements include master netting
arrangements that allow for multiple contracts executed with
the same counterparty to be viewed as a single arrangement.
This allows for net settlement of a single amount on a daily
basis. In the event of default, the master netting
arrangement provides for close-out netting, which allows all
of these positions with the defaulting counterparty to be
terminated and net settled with a single payment amount.
The Company has elected to offset the assets and
liabilities under netting arrangements for the balance sheet
presentation of the majority of its derivative counterparties,
excluding centrally cleared derivative contracts due to
current uncertainty about the legal enforceability of netting
arrangements with the clearinghouses. The netting occurs at
the counterparty level, and includes all assets and liabilities
related to the derivative contracts, including those associated
with cash collateral received or delivered. The Company has
not elected to offset the assets and liabilities under netting
arrangements for the balance sheet presentation of
repurchase/reverse repurchase and securities loaned/
borrowed transactions.
U.S. BANCORP The power of potential
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