TCF Bank 2012 Annual Report Download - page 71

Liquidity Risk
Liquidity risk is defined as the risk to earnings or capital
arising from the Company’s inability to meet its obligations
when they come due without incurring unacceptable losses.
ALCO and the Finance Committee of the Board of
Directors have adopted a Holding Company Investment
and Liquidity Management Policy, which establishes a
minimum target amount of cash or liquid investments TCF
Financial will hold. TCF Financial’s primary source of cash
flow is capital distributions from TCF Bank. TCF Bank may
require regulatory approval to make any such distributions
in the future and such distributions may be restricted by its
regulatory authorities. TCF Bank’s ability to make any such
distributions will also depend on its earnings and ability to
meet minimum regulatory capital requirements in effect
during future periods (see Note 15 of Notes to Consolidated
Financial Statements for further information).
ALCO and the Finance Committee of the Board of
Directors have adopted a Liquidity Management Policy to
direct management of the Company’s liquidity risk. The
objective of the Liquidity Management Policy is to ensure
that TCF meets its cash and collateral obligations promptly,
in a cost-effective manner and with the highest degree of
reliability. The maintenance of adequate levels of asset and
liability liquidity will provide TCF with the ability to meet
both expected and unexpected cash flows and collateral
needs. Key liquidity ratios, asset liquidity levels and the
amount available from funding sources are reported to
ALCO on a monthly basis. TCF’s Liquidity Management Policy
establishes asset liquidity target ranges that are deemed
appropriate for its risk profile.
TCF’s asset liquidity may be held in the form of
on-balance sheet cash invested with the Federal Reserve
or through the use of overnight Federal Funds sold to highly
rated counterparties or short-term U.S. Treasury Bills or
Notes. Other asset liquidity can be provided by unpledged,
highly-rated securities which could be sold or pledged
to various counterparties under established TCF lines. At
December 31, 2012, TCF had asset liquidity of $1.4 billion.
Deposits are TCF’s primary source of funding. TCF also
maintains secured sources of funding, which primarily
include $2.6 billion of borrowing capacity at the Federal
Home Loan Bank (“FHLB”) of Des Moines, as well as access
to the Federal Reserve Discount Window. Collateral pledged
by TCF to the FHLB and the Federal Reserve consists primarily
of consumer and commercial real estate loans. The FHLB
relies upon its own internal credit analysis of TCF’s financial
results when determining TCF’s secured borrowing capacity.
In addition to the above, TCF maintains other sources of
unsecured and uncommitted borrowing capacity, including
overnight federal funds purchased lines, access to brokered
deposits, and access to the capital markets. TCF has
developed and maintains a contingency funding plan should
certain liquidity needs arise.
Foreign Currency Risk
The Company is also exposed to foreign currency risk
as changes in foreign exchange rates may impact the
Company’s investment in TCF Commercial Finance Canada,
Inc. or results of other transactions in countries outside
of the United States. Beginning in 2011, TCF entered into
forward foreign exchange contracts in order to minimize the
risk of changes in foreign exchange rates on its investment
in and loans to TCF Commercial Finance Canada, Inc. and
on certain other foreign lease transactions. The values
of forward foreign exchange contracts vary over their
contractual lives as the related currency exchange rates
fluctuate. TCF may also experience realized and unrealized
gains or losses on forward foreign exchange contracts as a
result of changes in foreign exchange rates.
{ 2012 Form 10K } { 55 }