Ally Bank 2012 Annual Report Download - page 74

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Fair Value Sensitivity Analysis
The following table and subsequent discussion presents a fair value sensitivity analysis of our assets and liabilities using isolated
hypothetical movements in specific market rates. The analysis assumes adverse instantaneous, parallel shifts in market-exchange rates,
interest rate yield curves, and equity prices. Additionally, since only adverse fair value impacts are included, the natural offset between asset
and liability rate sensitivities that arise within a diversified balance sheet, such as ours, is not considered.
2012 2011
December 31, ($ in millions)Nontrading Trading Nontrading Trading
Financial instruments exposed to changes in:
Interest rates
Estimated fair value (a) $ — (a) $ 549
Effect of 10% adverse change in rates (a) — (a) (2)
Foreign-currency exchange rates
Estimated fair value $ 2,791 $ — $ 6,724 $ —
Effect of 10% adverse change in rates (279) — (672) —
Equity prices
Estimated fair value $ 1,152 $ — $ 1,059 $ —
Effect of 10% decrease in prices (115) — (106) —
(a) Refer to the next section titled Net Interest Income Sensitivity Analysis for information on the interest rate sensitivity of our nontrading financial
instruments.
The fair value of our foreign-currency exchange-rate sensitive financial instruments decreased during the year ended December 31,
2012, compared to 2011, due to decreases in finance receivables and loans that were reclassified to discontinued operations partially offset by
a decrease in foreign-denominated short-term borrowings and foreign-denominated long-term debt that were also reclassified to discontinued
operations. The net decrease consequently drove the decrease in the fair value estimate and associated adverse 10% change in rates impact.
The increase in the fair value of our equity sensitive financial instruments was due to a slightly higher equity investment balance compared to
prior year. This change in equity exposure drove our increased sensitivity to a 10% decrease in equity prices.
Net Interest Income Sensitivity Analysis
We use net interest income sensitivity analysis as our primary metric to measure and manage the interest rate sensitivities of our
nontrading financial instruments. Interest rate risk represents the most significant market risk to the nontrading exposures. We actively
monitor the level of exposure so that movements in interest rates do not adversely affect future earnings.
We prepare forward-looking forecasts of net interest income, which take into consideration anticipated future business growth, asset/
liability positioning, and interest rates based on the implied forward curve. Simulations are used to assess changes in net interest income in
multiple interest rates scenarios relative to the baseline forecast. The changes in net interest income relative to the baseline are defined as the
sensitivity. The net interest income sensitivity tests measure the potential change in our pretax net interest income over the following twelve
months. A number of alternative rate scenarios are tested including immediate parallel shocks to the forward yield curve, nonparallel shocks
to the forward yield curve, and stresses to certain term points on the yield curve in isolation to capture and monitor a number of risk types.
Included in our forward-looking forecast is the planned sale of our international and Canadian operations. These instruments were moved
to discontinued operations at year end 2012 based on their expected sale in 2013. Consequently, the interest income and expense from these
instruments is not included in net interest income and their interest sensitivity is managed using a fair value approach. Therefore, we no
longer include the interest sensitivity of these financial instruments in our net interest income simulations.
Our twelve-month pretax net interest income sensitivity based on the forward-curve was as follows.
Year ended December 31, ($ in millions)2012 2011
Parallel rate shifts
-100 basis points $ (7) $ 73
+100 basis points (46) (84)
+200 basis points 48 88
The adverse change in net interest income in the -100 basis point scenario in the 2012 analysis is mainly due to the low interest rate
environment as further declines in deposit and short funding rates are limited. The positive change in net interest income in the +200 basis point
scenario is mainly due to income on certain commercial loans that have rate index floors. Interest income on these loans increases significantly
as interest rates and the related rate index rises above the level of the floor.
Table of Contents
Management's Discussion and Analysis
Ally Financial Inc. • Form 10-K