Wells Fargo 2010 Annual Report Download - page 180

Note 15: Derivatives (continued)
Credit-Risk Contingent Features
Certain of our derivative contracts contain provisions whereby if
the credit rating of our debt, based on certain major credit rating
agencies indicated in the relevant contracts, were to fall below
investment grade, the counterparty could demand additional
collateral or require termination or replacement of derivative
instruments in a net liability position. The aggregate fair value of
all derivative instruments with such credit-risk-related
contingent features that are in a net liability position was
$12.6 billion and $7.5 billion at December 31, 2010 and 2009,
respectively, for which we had posted $12.0 billion and
$7.1 billion, respectively, in collateral in the normal course of
business. If the credit-risk-related contingent features
underlying these agreements had been triggered on
December 31, 2010 or 2009, we would have been required to
post additional collateral of $1.0 billion, or potentially settle the
contract in an amount equal to its fair value.
Counterparty Credit Risk
By using derivatives, we are exposed to counterparty credit risk
if counterparties to the derivative contracts do not perform as
expected. If a counterparty fails to perform, our counterparty
credit risk is equal to the amount reported as a derivative asset
on our balance sheet. The amounts reported as a derivative asset
are derivative contracts in a gain position, and to the extent
subject to master netting arrangements, net of derivatives in a
loss position with the same counterparty and cash collateral
received. We minimize counterparty credit risk through credit
approvals, limits, monitoring procedures, executing master
netting arrangements and obtaining collateral, where
appropriate. To the extent the master netting arrangements and
other criteria meet the applicable requirements, derivatives
balances and related cash collateral amounts are shown net in
the balance sheet. Counterparty credit risk related to derivatives
is considered in determining fair value and our assessment of
hedge effectiveness.
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