KeyBank 2014 Annual Report Download - page 92

Figure 32. Stressed VaR for Significant Portfolios of Covered Positions
2014 2013
Three months ended December 31, Three months ended December 31,
in millions High Low Mean December 31, High Low Mean December 31,
Trading
account
assets:
Fixed income $ 1.6 $ .8 $ 1.2 $ 1.2 $ 3.7 $ 1.4 $ 2.4 $ 1.7
Derivatives:
Interest rate $ .8$ .1$ .2$ .2$ 1.5 $ .5 $ 1.0 $ .5
Credit 1.0 .4 .7 .9 1.2 .4 .8 .4
Internal capital adequacy assessment. Market risk is a component of our internal capital adequacy assessment.
Our risk-weighted assets include a market risk-equivalent asset position, which consists of a VaR component,
stressed VaR component, a de minimis exposure amount, and a specific risk add-on, which are added together to
arrive at total market risk equivalent assets. Specific risk is the price risk of individual financial instruments,
which is not accounted for by changes in broad market risk factors and is measured through a standardized
approach. Specific risk calculations are run quarterly by MRM, and approved by the Chief Market Risk Officer.
Nontrading market risk
Most of our nontrading market risk is derived from interest rate fluctuations and its impacts on our traditional
loan and deposit products, as well as investments, hedging relationships, long-term debt, and certain short-term
borrowings. Interest rate risk, which is inherent in the banking industry, is measured by the potential for
fluctuations in net interest income and the EVE. Such fluctuations may result from changes in interest rates and
differences in the repricing and maturity characteristics of interest-earning assets and interest-bearing liabilities.
We manage the exposure to changes in net interest income and the EVE in accordance with our risk appetite and
within Board approved policy limits.
Interest rate risk positions are influenced by a number of factors including the balance sheet positioning that
arises out of consumer preferences for loan and deposit products, economic conditions, the competitive
environment within our markets, and changes in market interest rates that affect client activity and our hedging,
investing, funding and capital positions. The primary components of interest rate risk exposure consist of gap
risk, basis risk, yield curve risk and option risk.
The management of nontrading market risk is centralized within Corporate Treasury. Oversight and governance
is provided by the Risk Committee of our Board, the ERM Committee and the ALCO. These committees
review reports on the components of interest rate risk described above as well as sensitivity analyses of these
exposures. These committees have various responsibilities related to managing nontrading market risk, including
recommending, approving, and monitoring strategies that maintain risk positions within approved tolerance
ranges. The Asset Liability Management policy provides the framework for the oversight and management of
interest rate risk and is administered by the ALCO. Internal and external emerging issues are monitored on a
daily basis. The Market Risk Management Group, as the second line of defense, provides additional oversight.
/“Gap risk”is the exposure to changes in interest rates and occurs when the volume of interest-bearing
liabilities and the volume of interest-earning assets they fund (for example, deposits used to fund loans) do
not mature or reprice at the same time.
/“Basis risk” is the exposure to asymmetrical changes in interest rate indexes and occurs when floating-rate
assets and floating-rate liabilities reprice at the same time, but in response to different market factors or
indexes.
/“Yield curve risk” is the exposure to non-parallel changes in the slope of the yield curve (where the yield
curve depicts the relationship between the yield on a particular type of security and its term to maturity) and
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