Discover 2015 Annual Report Download - page 48

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experienced in the capital and credit markets during the financial crisis of 2007, may limit our ability-to-repay or
replace maturing liabilities in a timely manner. As such, we may be forced to delay raising funding or be forced to issue
or raise funding at undesirable terms and/or costs, which could decrease profitability and significantly reduce financial
flexibility. Regulations such as the liquidity coverage ratio, which requires firms to hold a minimum level of high- quality
assets, may increase the cost of funding and impact funding availability and are described more fully in
"Management's Discussion and Analysis of Financial Condition and Results of Operations — Regulatory Environment
and Developments." Further, in disorderly financial markets or for other reasons, it may be difficult or impossible to
liquidate some of our investments to meet our liquidity needs.
There can be no assurance that significant disruption and volatility in the financial markets will not occur in the
future. Likewise, adverse developments with respect to financial institutions and other third parties with whom we
maintain important financial relationships could negatively impact our funding and liquidity. If we are unable to
continue to fund our assets through deposits or access capital markets on favorable terms, or if we experience an
increase in our borrowing costs or otherwise fail to manage our liquidity effectively, our liquidity, operating results,
financial results and condition may be materially adversely affected.
An inability to accept or maintain deposits in the future could materially adversely affect our liquidity position and
our ability to fund our business.
We obtain deposits from consumers either directly or through affinity relationships and through third-party
securities brokerage firms that offer our deposits to their customers. We had $30.9 billion in deposits acquired directly
or through affinity relationships and $16.7 billion in deposits originated through securities brokerage firms as of
December 31, 2015, compared to $28.8 billion and $17.3 billion, respectively, as of December 31, 2014. Competition
from other financial services firms that use deposit funding, the rates and services we offer on our deposit products, and
our ability to maintain a high level of customer experience may affect deposit renewal rates, costs or availability.
Changes we make to the rates offered on our deposit products may affect our profitability (through funding costs) and
our liquidity (through volumes raised). In addition, our ability to maintain existing or obtain additional deposits may be
impacted by factors, including factors beyond our control, such as: perceptions about our financial strength or quality
of deposit servicing or online banking generally, which could reduce the number of consumers choosing to make
deposits with us; third parties continuing or entering into affinity relationships with us; disruptions in technology services
or the internet, generally; or third-party securities brokerage firms continuing to offer our deposit products.
Our ability to obtain deposit funding and offer competitive interest rates on deposits is also dependent on capital
levels of our bank subsidiaries. The FDIA in certain circumstances prohibits insured banks, such as our subsidiary
Discover Bank, from accepting brokered deposits (as defined in the FDIA) and applies other restrictions, such as a cap
on interest rates we may pay. See “Business — Supervision and Regulation” and Note 18: Capital Adequacy to our
consolidated financial statements for more information. While Discover Bank met the FDIC's definition of “well-
capitalized” as of December 31, 2015, and has no restrictions regarding acceptance of brokered deposits or setting of
interest rates, there can be no assurance that it will continue to meet this definition. Additionally, our regulators can
adjust the requirements to be "well-capitalized" at any time and have authority to place limitations on our deposit
businesses, including the interest rate we pay on deposits.
If we are unable to securitize our receivables, it may have a material adverse effect on our liquidity, cost of funds
and overall financial condition.
We use the securitization of credit card receivables, which involves the transfer of receivables to a trust and the
issuance by the trust of beneficial interests to third-party investors, as a significant source of funding as well as for
contingent liquidity. Our average level of credit card securitized borrowings from third parties was $15.7 billion and
$15.1 billion for the years ended December 31, 2015 and 2014, respectively. Although the securitization market for
credit cards has been re-established since the financial crisis, there can be no assurance that there will not be future
disruptions in the market. Our ability to raise funding through the securitization market also depends, in part, on the
credit ratings of the securities we issue from our securitization trusts. If we are not able to satisfy rating agency
requirements to maintain the ratings of asset-backed securities issued by our trusts, it could limit our ability to access the
securitization markets. Additional factors affecting the extent to which we may securitize our credit card receivables in
the future include the overall credit quality of our receivables, the costs of securitizing our receivables, the demand for
credit card asset-backed securities, and the legal, regulatory, accounting and tax requirements governing securitization
transactions and asset-backed securities, generally. For example, in December 2014, the Basel Committee on Banking
Supervision published a revised securitization framework for banks’ calculation of credit risk capital requirements for
exposures to securitization transactions. These changes, which, according to the Basel publication, must be implemented