Discover 2010 Annual Report Download - page 96

At November 30, 2010, our liquidity investment portfolio was $10.1 billion, which was $4.4 billion lower than the
balance at November 30, 2009 due to funding of maturities of primarily asset-backed securities in the first half 2010.
Our undrawn credit facility capacity has increased since November 30, 2009 by $3.7 billion, primarily due to the net
addition of $1.8 billion of private securitization capacity and through a $1.9 billion increase in collateral pledged to the
Federal Reserve discount window.
November 30,
2010
November 30,
2009
(dollars in billions)
Liquidity investment portfolio
Cash and cash equivalents(1) ................................................................................................................................ $ 4.7 $12.7
Other short term investments................................................................................................................................ 0.4 —
Investment securities ........................................................................................................................................... 5.0 1.8
Total liquidity investment portfolio...................................................................................................................... 10.1 14.5
Undrawn credit facilities
Private asset-backed securitizations....................................................................................................................... 3.3 1.5
Committed unsecured credit facility....................................................................................................................... 2.4 2.4
Federal Reserve discount window(2) ....................................................................................................................... 6.7 4.8
Total undrawn credit facilities ........................................................................................................................... 12.4 8.7
Total liquidity investment portfolio and undrawn credit facilities ................................................................................. $22.5 $23.2
(1) Cash-in-process is excluded from cash and cash equivalents for liquidity purposes.
(2) Excludes $1.5 billion of investments pledged to the Federal Reserve, which is included within the liquidity investment portfolio.
Capital
Our primary sources of capital are from the earnings generated by our businesses and issuances in the capital
markets. We seek to manage capital to a level and composition sufficient to support the risks of our businesses, meet
regulatory requirements, adhere to rating agency guidelines and support future business growth. Within these constraints,
we are focused on deploying capital in a manner that provides attractive returns to our stockholders. The level,
composition and utilization of capital are influenced by changes in the economic environment, strategic initiatives, and
legislative and regulatory developments. See “ – Legislative and Regulatory Developments – International Initiatives
Related to Capital and Liquidity” for a discussion of recent initiatives related to capital matters.
Under regulatory capital requirements adopted by the FDIC, the Federal Reserve and other bank regulatory agencies,
we, along with Discover Bank, must maintain minimum levels of capital. Failure to meet minimum capital requirements
can result in the initiation of certain mandatory and possibly additional discretionary actions by regulators that, if
undertaken, could limit our business activities and have a direct material effect on our financial position and results. We
must meet specific capital guidelines that involve quantitative measures of assets and liabilities as calculated under
regulatory accounting practices. Capital amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings and other factors.
Our capital adequacy assessment also includes tax and accounting considerations in accordance with regulatory
guidance. We maintain a substantial deferred tax asset on our balance sheet, and we include this asset when calculating
our regulatory capital levels. However, for regulatory capital purposes, deferred tax assets that are dependent on future
taxable income are currently limited to the lesser of: (i) the amount of deferred tax assets we expect to realize within one
year of the calendar quarter-end date, based on our projected future taxable income for that year; or (ii) 10% of the
amount of our Tier 1 capital. At November 30, 2010, no portion of our deferred tax asset was disallowed for regulatory
capital purposes.
At November 30, 2010, Discover Financial Services and Discover Bank met the requirements for well-capitalized
status, exceeding the regulatory minimums to which they were subject. See Note 19: Capital Adequacy to our
consolidated financial statements for quantitative disclosures of our capital ratios and levels. Recent regulatory initiatives
may subject us to increased capital requirements in the future. See “ – Legislative and Regulatory Developments –
International Initiatives Related to Capital and Liquidity.”
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