US Bank 2010 Annual Report Download - page 53

Market Risk Management In addition to interest rate risk,
the Company is exposed to other forms of market risk,
principally related to trading activities which support
customers’ strategies to manage their own foreign currency,
interest rate risks and funding activities. The ALCO
established the Market Risk Committee (“MRC”), which
oversees market risk management. The MRC monitors and
reviews the Company’s trading positions and establishes
policies for market risk management, including exposure
limits for each portfolio. The Company also manages market
risk of non-trading business activities, including its MSRs
and loans held for sale. The Company uses a Value at Risk
(“VaR”) approach to measure general market risk.
Theoretically, VaR represents the amount the Company has
at risk of loss to adverse market movements over a 1-day
time horizon. The Company measures VaR at the ninety-
ninth percentile using distributions derived from past market
data. On average, the Company expects the one day VaR to
be exceeded two to three times per year. The Company
monitors the effectiveness of its risk program by back-testing
the performance of its VaR models, regularly updating the
historical data used by the VaR models and stress testing.
The Company’s trading VaR did not exceed $5 million
during 2010 and $4 million during 2009.
Liquidity Risk Management The ALCO establishes policies
and guidelines, as well as analyzes and manages liquidity, to
ensure adequate funds are available to meet normal
operating requirements, and unexpected customer demands
for funds, such as high levels of deposit withdrawals or loan
demand, in a timely and cost-effective manner. Liquidity
management is viewed from long-term and short-term
perspectives, including various stress scenarios, as well as
from an asset and liability perspective. Management
monitors liquidity through a regular review of maturity
profiles, funding sources, and loan and deposit forecasts to
minimize funding risk.
Since 2008, the financial markets have been challenging
for many financial institutions. As a result of these financial
market conditions, many banks experienced liquidity
constraints, substantially increased pricing to retain deposits
or utilized the Federal Reserve System discount window to
secure adequate funding. The Company’s profitable
operations, sound credit quality and strong capital position
have enabled it to develop a large and reliable base of core
deposit funding within its market areas and in domestic and
global capital markets. This has allowed the Company to
maintain a strong liquidity position, as depositors and
investors in the wholesale funding markets seek stable
financial institutions.
The ALCO reviews the Company’s ability to meet
funding requirements due to adverse business or market
events. The Company regularly projects its liquidity position
under various stress scenarios and maintains contingency
plans that reflect its access to diversified funding sources.
Historically, a significant amount of the Company’s available
liquidity has been provided by its ability, through its
subsidiaries, to borrow against its assets at various Federal
Home Loan Banks (“FHLB”) and the Federal Reserve System.
In response to recent regulatory proposals, the Company has
begun to acquire U.S. Government and agency securities as an
additional source of available liquidity. The Company expects
to continue to increase its U.S. Government and agency
securities holdings to meet these liquidity objectives. The
Company’s liquidity policies require diversification of
wholesale funding sources to avoid maturity, name and
market concentrations. The Company maintains a Grand
U.S. BANCORP 51
Table 18 DEBT RATINGS
Moody’s
Standard &
Poor’s Fitch
Dominion
Bond
Rating Service
U.S. Bancorp
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F1+ R-1 (middle)
Senior debt and medium-term notes . . . . . . . . . . . . . . . . . . . . . . . . . Aa3 A+ AA- AA
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A1 A A+ AA (low)
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A3 BBB+ A A
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P-1 A-1 F1+ R-1 (middle)
U.S. Bank National Association
Short-term time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P-1 A-1+ F1+ R-1 (high)
Long-term time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aa2 AA- AA AA (high)
Bank notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aa2/P-1 AA-/A-1+ AA-/F1+ AA (high)
Subordinated debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aa3 A+ A+ AA
Senior unsecured debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Aa2 AA- AA- AA (high)
Commercial paper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . P-1 A-1+ F1+ R-1 (high)