KeyBank 2014 Annual Report Download - page 96

Factors affecting liquidity
Our liquidity could be adversely affected by both direct and indirect events. An example of a direct event would
be a downgrade in our public credit ratings by a rating agency. Examples of indirect events (events unrelated to
us) that could impair our access to liquidity would be an act of terrorism or war, natural disasters, political
events, or the default or bankruptcy of a major corporation, mutual fund or hedge fund. Similarly, market
speculation, or rumors about us or the banking industry in general, may adversely affect the cost and availability
of normal funding sources.
Our credit ratings at December 31, 2014, are shown in Figure 35. We believe these credit ratings, under normal
conditions in the capital markets, will enable the parent company or KeyBank to issue fixed income securities to
investors.
Figure 35. Credit Ratings
December 31, 2014
Short-Term
Borrowings
Senior
Long-Term
Debt
Subordinated
Long-Term
Debt
Capital
Securities
Series A
Preferred
Stock
KEYCORP (THE PARENT COMPANY)
Standard & Poor’s A-2 BBB+ BBB BB+ BB+
Moody’s P-2 Baa1 Baa2 Baa3 Ba1
Fitch F1 A- BBB+ BB+ BB
DBRS R-2(high) BBB(high) BBB BBB N/A
KEYBANK
Standard & Poor’s A-2 A- BBB+ N/A N/A
Moody’s P-2 A3 Baa1 N/A N/A
Fitch F1 A- BBB+ N/A N/A
DBRS R-1(low) A(low) BBB(high) N/A N/A
Managing liquidity risk
Most of our liquidity risk is derived from our lending activities, which inherently places funds into illiquid assets.
Liquidity risk is also derived from our deposit gathering activities and the ability of our customers to withdraw
funds that do not have a stated maturity or to withdraw funds before their contractual maturity. The assessments
of liquidity risk are measured under the assumption of normal operating conditions as well as under a stressed
environment. We manage these exposures in accordance with our risk appetite, and within Board approved
policy limits.
We regularly monitor our liquidity position and funding sources and measure our capacity to obtain funds in a
variety of hypothetical scenarios in an effort to maintain an appropriate mix of available and affordable funding.
In the normal course of business, we perform a monthly hypothetical funding erosion stress test for both
KeyCorp and KeyBank. In a “heightened monitoring mode,” we may conduct the hypothetical funding erosion
stress tests more frequently, and use assumptions to reflect the changed market environment. Our testing
incorporates estimates for loan and deposit lives based on our historical studies. Erosion stress tests analyze
potential liquidity scenarios under various funding constraints and time periods. Ultimately, they determine the
periodic effects that major direct and indirect events would have on our access to funding markets and our ability
to fund our normal operations. To compensate for the effect of these assumed liquidity pressures, we consider
alternative sources of liquidity and maturities over different time periods to project how funding needs would be
managed.
We maintain a Contingency Funding Plan that outlines the process for addressing a liquidity crisis. The plan
provides for an evaluation of funding sources under various market conditions. It also assigns specific roles and
responsibilities for managing liquidity through a problem period. As part of the plan, we maintain a liquidity
reserve through balances in our liquid asset portfolio. During a problem period, that reserve could be used as a
source of funding to provide time to develop and execute a longer-term strategy. The liquid asset portfolio at
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