Wells Fargo 2012 Annual Report Download - page 201

Credit-Risk Contingent Features
Certain of our derivative contracts contain provisions whereby if
the credit rating of our debt were to be downgraded by certain
major credit rating agencies, 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
$16.2 billion at December 31, 2012, and $17.1 billion at
December 31, 2011, respectively, for which we posted
$14.3 billion and$15.0 billion, respectively, in collateral in the
normal course of business. If the credit rating of our debt had
been downgraded below investment grade, which is the credit-
risk-related contingent feature that if triggered requires the
maximum amount of collateral to be posted, on
December 31, 2012, or December 31, 2011, we would have been
required to post additional collateral of $1.9 billion or
$2.1 billion, respectively, 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 legally enforceable 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, including determining the legal enforceability of
the arrangement, it is our policy to present derivatives balances
and related cash collateral amounts 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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