KeyBank 2014 Annual Report Download - page 182

The following table summarizes the fair value of our derivative assets by type at the dates indicated. These assets
represent our gross exposure to potential loss after taking into account the effects of bilateral collateral and
master netting agreements and other means used to mitigate risk.
December 31,
in millions 2014 2013
Interest rate $ 607 $ 633
Foreign exchange 41 23
Commodity 478 58
Credit 11
Derivative assets before collateral 1,127 715
Less: Related collateral 518 308
Total derivative assets $ 609 $ 407
We enter into derivative transactions with two primary groups: broker-dealers and banks, and clients. Since these
groups have different economic characteristics, we have different methods for managing counterparty credit
exposure and credit risk.
We enter into transactions with broker-dealers and banks for various risk management purposes. These types of
transactions generally are high dollar volume. We generally enter into bilateral collateral and master netting
agreements with these counterparties. We began clearing certain types of derivative transactions with these
counterparties in June 2013, whereby the central clearing organizations become our counterparties subsequent to
novation of the original derivative contracts. In addition, we began entering into derivative contracts through
swap execution facilities during the quarter ended March 31, 2014. The swap clearing and swap trade execution
requirements were mandated by the Dodd-Frank Act for the purpose of reducing counterparty credit risk and
increasing transparency in the derivative market. At December 31, 2014, we had gross exposure of $955 million
to broker-dealers and banks. We had net exposure of $204 million after the application of master netting
agreements and cash collateral, where such qualifying agreements exist. We had net exposure of $23 million
after considering $181 million of additional collateral held in the form of securities.
We enter into transactions with clients to accommodate their business needs. These types of transactions
generally are low dollar volume. We generally enter into master netting agreements with these counterparties. In
addition, we mitigate our overall portfolio exposure and market risk by buying and selling U.S. Treasuries and
Eurodollar futures, and entering into offsetting positions and other derivative contracts, sometimes with entities
other than broker-dealers and banks. Due to the smaller size and magnitude of the individual contracts with
clients, we generally do not exchange collateral in connection with these derivative transactions. To address the
risk of default associated with the uncollateralized contracts, we have established a credit valuation adjustment
(included in “derivative assets”) in the amount of $9 million at December 31, 2014, which we estimate to be the
potential future losses on amounts due from client counterparties in the event of default. At December 31, 2013,
the credit valuation adjustment was $14 million. For the derivative counterparties that are not broker-dealers,
banks, or clients, we generally exchange collateral. At December 31, 2014, we had gross exposure of $471
million to client counterparties and other entities that are not broker-dealers or banks for derivatives that have
associated master netting agreements. We had net exposure of $405 million on our derivatives with these
counterparties after the application of master netting agreements, collateral, and the related reserve. In addition,
the derivatives for one counterparty were guaranteed by a third party with a letter of credit totaling $30 million.
Credit Derivatives
We are both a buyer and seller of credit protection through the credit derivative market. We purchase credit
derivatives to manage the credit risk associated with specific commercial lending and swap obligations as well as
exposures to debt securities. We may also sell credit derivatives, mainly single-name credit default swaps, to
offset our purchased credit default swap position prior to maturity.
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