Green Dot 2012 Annual Report Download - page 58

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48
ITEM 7A. Quantitative and Qualitative Disclosures about Market Risk
Market risk is the potential for economic losses from changes in market factors such as foreign currency exchange
rates, credit, interest rates and equity prices. We believe that we have limited exposure to risks associated with changes
in foreign currency exchange rates, interest rates and equity prices. We have no foreign operations, and we do not
transact business in foreign currencies. We do not hold or enter into derivatives or other financial instruments for trading
or speculative purposes. We do not consider our cash and cash equivalents or our investment securities to be subject
to significant interest rate risk due to their short duration.
We do have exposure to credit and liquidity risk associated with the financial institutions that hold our cash and
cash equivalents, restricted cash, available-for-sale investment securities, settlement assets due from our retail
distributors that collect funds and fees from our customers, and amounts due from our issuing banks for fees collected
on our behalf.
We manage the credit and liquidity risk associated with our cash and cash equivalents, available-for-sale investment
securities and amounts due from issuing banks by maintaining an investment policy that restricts our correspondent
banking relationships to approved, well capitalized institutions and restricts investments to highly liquid, low credit risk
related assets. Our policy has limits related to liquidity ratios, the concentration that we may have with a single institution
or issuer and effective maturity dates as well as restrictions on the type of assets that we may invest in. The management
Asset Liability Committee is responsible for monitoring compliance with our Capital Asset Liability Management policy
and related limits on an ongoing basis, and reports regularly to the audit committee of our board of directors.
Our exposure to credit risk associated with our retail distributors is mitigated due to the short time period, currently
an average of two days that retailer settlement assets are outstanding. We perform an initial credit review and assign
a credit limit to each new retail distributor. We monitor each retail distributor’s settlement asset exposure and its
compliance with its specified contractual settlement terms on a daily basis and assess their credit limit and financial
condition on a periodic basis. Our management's Enterprise Risk Management Committee is responsible for monitoring
our retail distributor exposure and assigning credit limits and reports regularly to the audit committee of our board of
directors.