KeyBank 2013 Annual Report Download - page 35

our debt. Federal banking law and regulations limit the amount of dividends that KeyBank (KeyCorp’s largest
subsidiary) can pay. For further information on the regulatory restrictions on the payment of dividends by
KeyBank, see “Supervision and Regulation” in Item 1 of this report.
In the event KeyBank is unable to pay dividends to us, we may not be able to service debt, pay obligations or pay
dividends on our equity securities. In addition, our right to participate in a distribution of assets upon a
subsidiary’s liquidation or reorganization is subject to the prior claims of the subsidiary’s creditors.
We are subject to liquidity risk, which could negatively affect our funding levels.
Market conditions or other events could negatively affect the level or cost of funding, affecting our ongoing
ability to accommodate liability maturities and deposit withdrawals, meet contractual obligations, and fund asset
growth and new business transactions at a reasonable cost, in a timely manner and without adverse consequences.
Although we have implemented strategies to maintain sufficient and diverse sources of funding to accommodate
planned as well as unanticipated changes in assets and liabilities under both normal and adverse conditions
(including by reducing our reliance on wholesale funding sources), a substantial, unexpected or prolonged
change in the level or cost of liquidity could have a material adverse effect on us. Certain credit markets that we
participate in and rely upon as sources of funding experienced significant disruption and volatility during the
2008 financial crisis. While these disrupted markets have shown signs of recovery, if the cost effectiveness or the
availability of supply in these credit markets is reduced for a prolonged period of time, our funding needs may
require us to access funding and manage liquidity by other means. These alternatives may include generating
client deposits, securitizing or selling loans, extending the maturity of wholesale borrowings, purchasing deposits
from other banks, borrowing under certain secured wholesale facilities, using relationships developed with a
variety of fixed income investors, and further managing loan growth and investment opportunities. These
alternative means of funding may not be available under stressed conditions similar to those experienced in the
liquidity crisis of 2007-2009.
Our credit ratings affect our liquidity position.
Our rating agencies regularly evaluate the securities of KeyCorp and KeyBank, and their ratings of our long-term
debt and other securities are based on a number of factors, including our financial strength, ability to generate
earnings, and other factors. Some of these factors are not entirely within our control, such as conditions affecting
the financial services industry and the economy and changes in rating methodologies as a result of the Dodd-
Frank Act. There can be no assurance that we will maintain our current credit ratings. A downgrade of the
securities of KeyCorp or KeyBank could adversely affect our access to liquidity and could significantly increase
our cost of funds, trigger additional collateral or funding requirements, and decrease the number of investors and
counterparties willing to lend to us, reducing our ability to generate income.
IV. Operational Risk
Our information systems may experience an interruption or breach in security.
We rely heavily on communications, information systems (both internal and provided by third parties) and the
internet to conduct our business. Our business is dependent on our ability to process and monitor large numbers
of daily transactions in compliance with legal, regulatory and internal standards and specifications. In addition, a
significant portion of our operations relies heavily on the secure processing, storage and transmission of personal
and confidential information, such as the personal information of our customers and clients. These risks may
increase in the future as we continue to increase mobile payments and other internet-based product offerings and
expand our internal usage of web-based products and applications.
In the event of a failure, interruption or breach of our information systems, we may be unable to avoid impact to
our customers. Other U.S. financial service institutions and companies have reported breaches in the security of
22