US Bank 2015 Annual Report Download - page 166

LIQUIDITY RISK
If the Company does not effectively manage its liquidity,
its business could suffer The Company’s liquidity is
essential for the operation of its business. Market conditions,
unforeseen outflows of funds or other events could negatively
affect the Company’s level or cost of funding, affecting its
ongoing ability to accommodate liability maturities and deposit
withdrawals, meet contractual obligations, and fund asset
growth and new business transactions at a reasonable cost
and in a timely manner. If the Company’s access to stable
and low-cost sources of funding, such as customer deposits,
are reduced, the Company might need to use alternative
funding, which could be more expensive or of limited
availability. Any substantial, unexpected or prolonged
changes in the level or cost of liquidity could adversely affect
the Company’s business.
Loss of customer deposits could increase the
Company’s funding costs The Company relies on bank
deposits to be a low-cost and stable source of funding. The
Company competes with banks and other financial services
companies for deposits. If the Company’s competitors raise
the rates they pay on deposits, the Company’s funding costs
may increase, either because the Company raises its rates to
avoid losing deposits or because the Company loses deposits
and must rely on more expensive sources of funding. Higher
funding costs reduce the Company’s net interest margin and
net interest income. Checking and savings account balances
and other forms of customer deposits may decrease when
customers perceive alternative investments, such as the stock
market, as providing a better risk/return tradeoff. When
customers move money out of bank deposits and into other
investments, the Company may lose a relatively low-cost
source of funds, increasing the Company’s funding costs and
reducing the Company’s net interest income.
A downgrade in the Company’s credit ratings could
have a material adverse effect on its liquidity, funding
costs and access to capital markets The Company’s
credit ratings are important to its liquidity. A reduction in one
or more of the Company’s credit ratings could adversely
affect its liquidity, increase its funding costs or limit its access
to the capital markets. Further, a downgrade could decrease
the number of investors and counterparties willing or able,
contractually or otherwise, to do business or lend to the
Company, thereby adversely affecting the Company’s
competitive position. The Company’s credit ratings and credit
rating agencies’ outlooks are subject to ongoing review by the
rating agencies, which consider a number of factors, including
the Company’s own financial strength, performance,
prospects and operations, as well as factors not within the
control of the Company, including conditions affecting the
financial services industry generally. There can be no
assurance that the Company will maintain its current ratings
and outlooks.
The Company relies on dividends from its subsidiaries
for its liquidity needs and the payment of those
dividends could be limited by laws and regulations The
Company is a separate and distinct legal entity from its bank
and non-bank subsidiaries. The Company receives a
significant portion of its cash from dividends paid by its
subsidiaries. These dividends are the principal source of funds
to pay dividends on the Company’s stock and interest and
principal on its debt. Various federal and state laws and
regulations limit the amount of dividends that its bank and
certain of its non-bank subsidiaries may pay to the Company
without regulatory approval. Also, the Company’s right to
participate in a distribution of assets upon a subsidiary’s
liquidation or reorganization is subject to prior claims of the
subsidiary’s creditors, except to the extent that any of the
Company’s claims as a creditor of that subsidiary may be
recognized.
COMPETITIVE AND STRATEGIC RISK
The financial services industry is highly competitive,
and competitive pressures could intensify and
adversely affect the Company’s financial results The
Company operates in a highly competitive industry that could
become even more competitive as a result of legislative,
regulatory and technological changes, as well as continued
industry consolidation, which may increase in connection with
current economic and market conditions. This consolidation
may produce larger, better-capitalized and more
geographically diverse companies that are capable of offering
a wider array of financial products and services at more
competitive prices. The Company competes with other
commercial banks, savings and loan associations, mutual
savings banks, finance companies, mortgage banking
companies, credit unions, investment companies, credit card
companies, and a variety of other financial services and
advisory companies. In addition, technology has lowered
barriers to entry and made it possible for non-banks to offer
products and services that traditionally were banking
products, and for financial institutions to compete with
technology companies in providing electronic and internet-
based financial solutions. Many of the Company’s
competitors have fewer regulatory constraints, and some
have lower cost structures. Also, the potential need to adapt
to industry changes in information technology systems, on
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