US Bank 2015 Annual Report Download - page 44

in time deposits are largely related to those deposits managed
as an alternative to other wholesale funding sources, based
largely on funding needs and relative pricing.
Borrowings The Company utilizes both short-term and long-
term borrowings as part of its asset/liability management and
funding strategies. Short-term borrowings, which include
federal funds purchased, commercial paper, repurchase
agreements, borrowings secured by high-grade assets and
other short-term borrowings, were $27.9 billion at
December 31, 2015, compared with $29.9 billion at
December 31, 2014. The $2.0 billion (6.7 percent) decrease in
short-term borrowings was primarily due to decreases in
other short-term borrowings balances.
Long-term debt was $32.1 billion at December 31, 2015,
compared with $32.3 billion at December 31, 2014. The $182
million (0.6 percent) decrease reflected $1.4 billion of bank
note repayments, and $3.1 billion of medium-term note and
subordinated note maturities, partially offset by the issuances
of $2.4 billion of bank notes and a $1.7 billion increase in
Federal Home Loan Bank (“FHLB”) advances.
Refer to Notes 12 and 13 of the Notes to Consolidated
Financial Statements for additional information regarding
short-term borrowings and long-term debt, and the “Liquidity
Risk Management” section for discussion of liquidity
management of the Company.
CORPORATE RISK PROFILE
Overview Managing risks is an essential part of successfully
operating a financial services company. The Company’s
Board of Directors has approved a risk management
framework which establishes governance and risk
management requirements for all risk-taking activities. This
framework includes Company and business line risk appetite
statements which set boundaries for the types and amount of
risk that may be undertaken in pursuing business objectives
and initiatives. The Board of Directors, through its Risk
Management Committee, oversees performance relative to
the risk management framework, risk appetite statements,
and other policy requirements.
The Executive Risk Committee (“ERC”), which is chaired by
the Chief Risk Officer and includes the Chief Executive Officer
and other members of the executive management team,
oversees execution against the risk management framework
and risk appetite statements. The ERC focuses on current and
emerging risks, including strategic and reputational risks, by
directing timely and comprehensive actions. Senior operating
committees have also been established, each responsible for
overseeing a specified category of risk.
The Company’s most prominent risk exposures are credit,
interest rate, market, liquidity, operational, compliance,
strategic, and reputational. Credit risk is the risk of not
collecting the interest and/or the principal balance of a loan,
investment or derivative contract when it is due. Interest rate
risk is the potential reduction of net interest income or market
valuations as a result of changes in interest rates. Market risk
arises from fluctuations in interest rates, foreign exchange
rates, and security prices that may result in changes in the
values of financial instruments, such as trading and available-
for-sale securities, mortgage loans held for sale (“MLHFS”),
MSRs and derivatives that are accounted for on a fair value
basis. Liquidity risk is the possible inability to fund obligations
or new business at a reasonable cost and in a timely manner.
Operational risk is the risk of loss resulting from inadequate or
failed internal processes, people, or systems, or from external
events, including the risk of loss resulting from breaches in
data security. Operational risk can also include failures by
third parties with which the Company does business.
Compliance risk is the risk of loss arising from violations of, or
nonconformance with, laws, rules, regulations, prescribed
practices, internal policies, and procedures, or ethical
standards, potentially exposing the Company to fines, civil
money penalties, payment of damages, and the voiding of
contracts. Compliance risk also arises in situations where the
laws or rules governing certain Company products or
activities of the Company’s customers may be ambiguous or
untested. Strategic risk is the risk to earnings or capital arising
from adverse business decisions or improper implementation
of those decisions. Reputational risk is the risk to current or
anticipated earnings, capital, or franchise or enterprise value
arising from negative public opinion. This risk may impair the
Company’s competitiveness by affecting its ability to establish
new relationships or services, or continue serving existing
relationships. In addition to the risks identified above, other
risk factors exist that may impact the Company. Refer to
“Risk Factors” beginning on page 156, for a detailed
discussion of these factors.
The Company’s Board and management-level governance
committees are supported by a “three lines of defense” model
for establishing effective checks and balances. The first line of
defense, the business lines, manages risks in conformity with
established limits and policy requirements. In turn, business
leaders and their risk officers establish programs to ensure
conformity with these limits and policy requirements. The
second line of defense, which includes the Chief Risk Officer’s
organization as well as policy and oversight activities of
corporate support functions, translates risk appetite and
strategy into actionable risk limits and policies. The second
line of defense monitors first line of defense conformity with
limits and policies, and provides reporting and escalation of
emerging risks and other concerns to senior management
and the Risk Management Committee of the Board of
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