KeyBank 2014 Annual Report Download - page 95

liquidity risk exposures. Specifically, we manage interest rate risk positions by purchasing securities, issuing
term debt with floating or fixed interest rates, and using derivatives — predominantly in the form of interest rate
swaps, which modify the interest rate characteristics of certain assets and liabilities.
Figure 34 shows all swap positions that we hold for A/LM purposes. These positions are used to convert the
contractual interest rate index of agreed-upon amounts of assets and liabilities (i.e., notional amounts) to another
interest rate index. For example, fixed-rate debt is converted to a floating rate through a “receive fixed/pay
variable” interest rate swap. The volume, maturity and mix of portfolio swaps change frequently as we adjust our
broader A/LM objectives and the balance sheet positions to be hedged. For more information about how we use
interest rate swaps to manage our risk profile, see Note 8 (“Derivatives and Hedging Activities”).
Figure 34. Portfolio Swaps by Interest Rate Risk Management Strategy
December 31, 2014
Weighted-Average December 31, 2013
dollars in millions
Notional
Amount
Fair
Value
Maturity
(Years)
Receive
Rate
Pay
Rate
Notional
Amount
Fair
Value
Receive fixed/pay variable — conventional A/LM (a) $ 9,700 $ (4) 1.8 .8 % .2 % $ 9,300 $ 6
Receive fixed/pay variable — conventional debt 5,124 209 3.8 2.4 .2 5,074 201
Pay fixed/receive variable — conventional debt 50 (7) 13.5 .2 3.6 105 —
Total portfolio swaps $ 14,874 $ 198 (b) 2.5 1.3 % .2 % $ 14,479 $ 207 (b)
(a) Portfolio swaps designated as A/LM are used to manage interest rate risk tied to both assets and liabilities.
(b) Excludes accrued interest of $49 million and $61 million for December 31, 2014, and December 31, 2013, respectively.
Liquidity risk management
Liquidity risk, which is inherent in the banking industry, is measured by our ability to accommodate liability
maturities and deposit withdrawals, meet contractual obligations, and fund new business opportunities at a
reasonable cost, in a timely manner and without adverse consequences. Liquidity management involves
maintaining sufficient and diverse sources of funding to accommodate planned, as well as unanticipated, changes
in assets and liabilities under both normal and adverse conditions.
Governance structure
We manage liquidity for all of our affiliates on an integrated basis. This approach considers the unique funding
sources available to each entity, as well as each entity’s capacity to manage through adverse conditions. The
approach also recognizes that adverse market conditions or other events that could negatively affect the
availability or cost of liquidity will affect the access of all affiliates to sufficient wholesale funding.
The management of consolidated liquidity risk is centralized within Corporate Treasury. Oversight and
governance is provided by the Board of Directors, the ERM Committee, the ALCO, and the Chief Risk Officer.
The Asset Liability Management Policy provides the framework for the oversight and management of liquidity
risk and is administered by the ALCO. The Market Risk Management group, as the second line of defense,
provides additional oversight. Our current liquidity risk management practices are in compliance with the Federal
Reserve Board’s Enhanced Prudential Standards.
These committees regularly review liquidity and funding summaries, liquidity trends, peer comparisons, variance
analyses, liquidity projections, hypothetical funding erosion stress tests and goal tracking reports. The reviews
generate a discussion of positions, trends and directives on liquidity risk and shape a number of our decisions.
When liquidity pressure is elevated, positions are monitored more closely and reporting is more intensive. To
ensure that emerging issues are identified, we also communicate with individuals inside and outside of the
company on a daily basis.
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