7. Derivatives and Hedging Activities

We are a party to various derivative instruments, mainly through our subsidiary, KeyBank. Derivative instruments are contracts between two or more parties that have a notional amount and an underlying variable, require a small or no net investment, and allow for the net settlement of positions. A derivative’s notional amount serves as the basis for the payment provision of the contract, and takes the form of units, such as shares or dollars. A derivative’s underlying variable is a specified interest rate, security price, commodity price, foreign exchange rate, index, or other variable. The interaction between the notional amount and the underlying variable determines the number of units to be exchanged between the parties and influences the fair value of the derivative contract.

The primary derivatives that we use are interest rate swaps, caps, floors, and futures; foreign exchange contracts; energy derivatives; credit derivatives; and equity derivatives. Generally, these instruments help us manage exposure to interest rate risk, mitigate the credit risk inherent in the loan portfolio, hedge against changes in foreign currency exchange rates, and meet client financing and hedging needs. As further discussed in this note:

interest rate risk represents the possibility that the EVE or net interest income will be adversely affected by fluctuations in interest rates;

credit risk is the risk of loss arising from an obligor’s inability or failure to meet contractual payment or performance terms; and

foreign exchange risk is the risk that an exchange rate will adversely affect the fair value of a financial instrument.

Derivative assets and liabilities are recorded at fair value on the balance sheet, after taking into account the effects of bilateral collateral and master netting agreements. These agreements allow us to settle all derivative contracts held with a single counterparty on a net basis, and to offset net derivative positions with related cash collateral, where applicable. As a result, we could have derivative contracts with negative fair values included in derivative assets on the balance sheet and contracts with positive fair values included in derivative liabilities.

At June 30, 2013, after taking into account the effects of bilateral collateral and master netting agreements, we had $115 million of derivative assets and less than $1 million of derivative liabilities that relate to contracts entered into for hedging purposes. As of the same date, after taking into account the effects of bilateral collateral and master netting agreements and a reserve for potential future losses, we had derivative assets of $346 million and derivative liabilities of $456 million that were not designated as hedging instruments.

The Dodd-Frank Act, which is currently being implemented, may limit the types of derivative activities that KeyBank and other insured depository institutions may conduct. As a result, we may not continue to use all of the types of derivatives noted above in the future.

Additional information regarding our accounting policies for derivatives is provided in Note 1 (“Summary of Significant Accounting Policies”) under the heading “Derivatives” on page 124 of our 2012 Form 10-K.

Derivatives Designated in Hedge Relationships

Net interest income and the EVE change in response to changes in the mix of assets, liabilities, and off-balance sheet instruments; associated interest rates tied to each instrument; differences in the repricing and maturity characteristics of interest-earning assets and interest-bearing liabilities; and changes in interest rates. We utilize derivatives that have been designated as part of a hedge relationship in accordance with the applicable accounting guidance to minimize the exposure and volatility of net interest income and EVE to interest rate fluctuations. The primary derivative instruments used to manage interest rate risk are interest rate swaps, which convert the contractual interest rate index of agreed-upon amounts of assets and liabilities (i.e., notional amounts) to another interest rate index.

We designate certain “receive fixed/pay variable” interest rate swaps as fair value hedges. These contracts convert certain fixed-rate long-term debt into variable-rate obligations, thereby modifying our exposure to changes in interest rates. As a result, we receive fixed-rate interest payments in exchange for making variable-rate payments over the lives of the contracts without exchanging the notional amounts.

Similarly, we designate certain “receive fixed/pay variable” interest rate swaps as cash flow hedges. These contracts effectively convert certain floating-rate loans into fixed-rate loans to reduce the potential adverse effect of interest rate decreases on future interest income. Again, we receive fixed-rate interest payments in exchange for making variable-rate payments over the lives of the contracts without exchanging the notional amounts. We also designate certain “pay fixed/receive variable” interest rate swaps as cash flow hedges. These swaps convert certain floating-rate debt into fixed-rate debt. We also use these swaps to manage the interest rate risk associated with anticipated sales of certain commercial real estate loans. The swaps protect against the possible short-term decline in the value of the loans that could result from changes in interest rates between the time they are originated and the time they are sold.

We also use interest rate swaps to hedge the floating-rate debt that funds fixed-rate leases entered into by our Equipment Finance line of business. These swaps are designated as cash flow hedges to mitigate the interest rate mismatch between the fixed-rate lease cash flows and the floating-rate payments on the debt.

We use foreign currency swap transactions to hedge the foreign currency exposure of our net investment in various foreign Equipment Finance entities. These entities are denominated in a non-U.S. currency. These swaps are designated as net investment hedges to mitigate the exposure of measuring the net investment at the spot foreign exchange rate.

During the first quarter of 2012 and prior years, Key had outstanding issuances of medium-term notes that were denominated in foreign currencies. The notes were subject to translation risk, which represented the possibility that the fair value of the foreign-denominated debt would change based on movement of the underlying foreign currency spot rate. The derivatives used for managing foreign currency exchange risk were cross currency swaps. The hedge converted the notes to a variable-rate U.S. currency-denominated debt, which was designated as a fair value hedge of foreign currency exchange risk.

Derivatives Not Designated in Hedge Relationships

On occasion, we enter into interest rate swap contracts to manage economic risks but do not designate the instruments in hedge relationships. Excluding contracts addressing customer exposures, the amount of derivatives hedging risks on an economic basis at June 30, 2013, was not significant.

Like other financial services institutions, we originate loans and extend credit, both of which expose us to credit risk. We actively manage our overall loan portfolio and the associated credit risk in a manner consistent with asset quality objectives and concentration risk tolerances to mitigate portfolio credit risk. Purchasing credit default swaps enables us to transfer to a third party a portion of the credit risk associated with a particular extension of credit. We may also sell credit derivatives to offset our purchased credit default swap position prior to maturity. Although we use credit default swaps for risk management purposes, they are not treated as hedging instruments.

We also enter into derivative contracts for other purposes, including:

interest rate swap, cap, and floor contracts entered into generally to accommodate the needs of commercial loan clients;

energy and base metal swap and options contracts entered into to accommodate the needs of clients;

futures contracts and positions with third parties that are intended to offset or mitigate the interest rate or market risk related to client positions discussed above; and

foreign exchange forward contracts and options entered into primarily to accommodate the needs of clients.

These contracts are not designated as part of hedge relationships.

Fair Values, Volume of Activity and Gain/Loss Information Related to Derivative Instruments

The following table summarizes the fair values of our derivative instruments on a gross and net basis as of June 30, 2013, December 31, 2012, and June 30, 2012. The change in the notional amounts of these derivatives by type from December 31, 2012, to June 30, 2013, indicates the volume of our derivative transaction activity during the first half of 2013. The notional amounts are not affected by bilateral collateral and master netting agreements. The balances are presented on a gross basis, prior to the application of bilateral collateral and master netting agreements. Total derivative assets and liabilities are adjusted to take into account the impact of legally enforceable master netting agreements that allow us to settle all derivative contracts with a single counterparty on a net basis and to offset the net derivative position with the related cash collateral. Where master netting agreements do not exist or are not enforceable agreements under bankruptcy laws, those derivative assets and liabilities with counterparties are not adjusted. Securities collateral related to legally enforceable master netting agreements are not offset on the balance sheet. Our derivative instruments are included in “derivative assets” or “derivative liabilities” on the balance sheet, as indicated in the following table:


	June 30, 2013						December 31, 2012						June 30, 2012
			Fair Value						Fair Value						Fair Value
in millions	Notional Amount		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets		Derivative Liabilities

Derivatives designated as hedging instruments:
Interest rate	$	15,670	$	377	$	59	$	19,085	$	579	$	30	$	15,903	$	586	$	32
Foreign exchange		189		3		—		196		—		7		431		2		8

Total		15,859		380		59		19,281		579		37		16,334		588		40
Derivatives not designated as hedging instruments:
Interest rate		45,104		851		812		51,633		1,144		1,122		58,222		1,273		1,278
Foreign exchange		4,934		97		93		5,025		75		68		5,579		105		97
Energy and commodity		1,896		119		114		1,688		156		150		1,691		209		204
Credit		1,118		6		11		955		9		10		2,613		25		24
Equity		—		—		—		7		—		—		18		—		—

Total		53,052		1,073		1,030		59,308		1,384		1,350		68,123		1,612		1,603
Netting adjustments ^(a)		—		(992)		(633)		—		(1,270)		(803)		—		(1,382)		(880)

Net derivatives in the balance sheet		68,911		461		456		78,589		693		584		84,457		818		763
Other collateral ^(b)		—		(87)		(316)		—		(163)		(475)		—		(207)		(538)

Net derivative amounts	$	68,911	$	374	$	140	$	78,589	$	530	$	109	$	84,457	$	611	$	225

(a)	Netting adjustments represent the amounts recorded to convert our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance.

(b)

Other collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The other collateral consists of securities and is exchanged under bilateral collateral and master netting agreements that allow us to offset the net derivative position with the related collateral. The application of the other collateral cannot reduce the net derivative position below zero. Therefore, any excess other collateral is not reflected above.

Fair value hedges. Instruments designated as fair value hedges are recorded at fair value and included in “derivative assets” or “derivative liabilities” on the balance sheet. The effective portion of a change in the fair value of an instrument designated as a fair value hedge is recorded in earnings at the same time as a change in fair value of the hedged item, resulting in no effect on net income. The ineffective portion of a change in the fair value of such a hedging instrument is recorded in “other income” on the income statement with no corresponding offset. During the six-month period ended June 30, 2013, we did not exclude any portion of these hedging instruments from the assessment of hedge effectiveness. While there is some immaterial ineffectiveness in our hedging relationships, all of our fair value hedges remained “highly effective” as of June 30, 2013.

The following table summarizes the pre-tax net gains (losses) on our fair value hedges for the six-month periods ended June 30, 2013, and 2012, and where they are recorded on the income statement.

Six months ended June 30, 2013

in millions

Income Statement Location of
Net Gains (Losses) on Derivative

Net Gains
(Losses) on
Derivative

Hedged Item

Income Statement Location of
Net Gains (Losses) on Hedged Item

Net Gains
(Losses) on
Hedged Item

Interest rate

Other income

(156)

Long-term debt

Other income

155

^(a)

Interest rate

Interest expense – Long-term debt

Total

(90)

155

Six months ended June 30, 2012

in millions

Income Statement Location of
Net Gains (Losses) on Derivative

Net Gains
(Losses) on
Derivative

Hedged Item

Income Statement Location of
Net Gains (Losses) on Hedged Item

Net Gains
(Losses) on
Hedged Item

Interest rate

Other income

(13)

Long-term debt

Other income

^(a)

Interest rate

Interest expense – Long-term debt

Foreign exchange

Other income

Long-term debt

Other income

(6)

^(a)

Foreign exchange

Interest expense – Long-term debt

Long-term debt

Interest expense – Long-term debt

(1)

^(b)

Total

(a)	Net gains (losses) on hedged items represent the change in fair value caused by fluctuations in interest rates.

(b)	Net gains (losses) on hedged items represent the change in fair value caused by fluctuations in foreign currency exchange rates.

Cash flow hedges. Instruments designated as cash flow hedges are recorded at fair value and included in “derivative assets” or “derivative liabilities” on the balance sheet. Initially, the effective portion of a gain or loss on a cash flow hedge is recorded as a component of AOCI on the balance sheet and is subsequently reclassified into income when the hedged transaction affects earnings (e.g., when we pay variable-rate interest on debt, receive variable-rate interest on commercial loans, or sell commercial real estate loans). The ineffective portion of cash flow hedging transactions is included in “other income” on the income statement. During the six-month period ended June 30, 2013, we did not exclude any portion of these hedging instruments from the assessment of hedge effectiveness. While there is some immaterial ineffectiveness in our hedging relationships, all of our cash flow hedges remained “highly effective” as of June 30, 2013.

Considering the interest rates, yield curves, and notional amounts as of June 30, 2013, we would expect to reclassify an estimated $26 million of net losses on derivative instruments from AOCI to income during the next twelve months for our cash flow hedges. In addition, we expect to reclassify approximately $6 million of net gains related to terminated cash flow hedges from AOCI to income during the next twelve months. The maximum length of time over which we hedge forecasted transactions is 15 years.

Net investment hedges. In May 2012, we began entering into foreign currency forward contracts to hedge our exposure to changes in the carrying value of our investments as a result of changes in the related foreign exchange rates. Instruments designated as net investment hedges are recorded at fair value and included in “derivative assets” or “derivative liabilities” on the balance sheet. Initially, the effective portion of a gain or loss on a net investment hedge is recorded as a component of AOCI on the balance sheet when the terms of the derivative match the notional and currency risk being hedged. The effective portion is subsequently reclassified into income when the hedged transaction affects earnings (e.g., when we dispose of a foreign subsidiary). At June 30, 2013, AOCI reflected unrecognized after-tax gains totaling $1 million related to cumulative changes in the fair value of our net investment hedge, which offset the unrecognized after-tax losses on net investment balances. The ineffective portion of net investment hedging transactions is included in “other income” on the income statement. However, there was no net investment hedge ineffectiveness as of June 30, 2013. We did not exclude any portion of our hedging instruments from the assessment of hedge effectiveness while these hedges were outstanding during the six-month period ended June 30, 2013.

The following table summarizes the pre-tax net gains (losses) on our cash flow and net investment hedges for the six-month periods ended June 30, 2013 and 2012, and where they are recorded on the income statement. The table includes the effective portion of net gains (losses) recognized in OCI during the period, the effective portion of net gains (losses) reclassified from OCI into income during the current period, and the portion of net gains (losses) recognized directly in income, representing the amount of hedge ineffectiveness.

Six months ended June 30, 2013

Net Gains

Income Statement Location

Net Gains

Net Gains (Losses)

(Losses) Reclassified

of Net Gains (Losses)

(Losses) Recognized

Recognized in OCI

Income Statement Location of Net Gains (Losses)

From OCI Into Income

Recognized in Income

in Income

in millions

(Effective Portion)

Reclassified From OCI Into Income (Effective Portion)

(Effective Portion)

(Ineffective Portion)

Cash Flow Hedges

Interest rate

(62)

Interest income – Loans

Other income

—

Interest rate

Interest expense – Long-term debt

(4)

Other income

—

Interest rate

Investment banking and debt placement fees

—

Other income

—

Net Investment Hedges

Foreign exchange contracts

Other Income

(3)

Other income

—

Total

(34)

—

Six months ended June 30, 2012

Net Gains

Income Statement Location

Net Gains

Net Gains (Losses)

(Losses) Reclassified

of Net Gains (Losses)

(Losses) Recognized

Recognized in OCI

Income Statement Location of Net Gains (Losses)

From OCI Into Income

Recognized in Income

in Income

in millions

(Effective Portion)

Reclassified From OCI Into Income (Effective Portion)

(Effective Portion)

(Ineffective Portion)

Cash Flow Hedges

Interest rate

Interest income – Loans

Other income

—

Interest rate

(7)

Interest expense – Long-term debt

(5)

Other income

—

Interest rate

—

Investment banking and debt placement fees

—

Other income

—

Net Investment Hedges

Foreign exchange contracts

(6)

Other Income

—

Other income

—

Total

—

The after-tax change in AOCI resulting from cash flow and net investment hedges is as follows:

Reclassification

December 31,

2013

of Gains to

June 30,

in millions

2012

Hedging Activity

Net Income

2013

AOCI resulting from cash flow and net investment hedges

(22)

(17)

(21)

Nonhedging instruments. Our derivatives that are not designated as hedging instruments are recorded at fair value in “derivative assets” and “derivative liabilities” on the balance sheet. Adjustments to the fair values of these instruments, as well as any premium paid or received, are included in “corporate services income” and “other income” on the income statement.

The following table summarizes the pre-tax net gains (losses) on our derivatives that are not designated as hedging instruments for the six month periods ended June 30, 2013, and 2012, and where they are recorded on the income statement.


	Six months ended June 30, 2013						Six months ended June 30, 2012
	Corporate						Corporate
	Services		Other				Services		Other
in millions	Income		Income		Total		Income		Income		Total

NET GAINS (LOSSES)
Interest rate	$	8		—	$	8	$	12	$	(2)	$	10
Foreign exchange		21		—		21		19		—		19
Energy and commodity		3		—		3		6		—		6
Credit		1	$	(7)		(6)		—		(9)		(9)

Total net gains (losses)	$	33	$	(7)	$	26	$	37	$	(11)	$	26

Counterparty Credit Risk

Like other financial instruments, derivatives contain an element of credit risk. This risk is measured as the expected positive replacement value of the contracts. We use several means to mitigate and manage exposure to credit risk on derivative contracts. We generally enter into bilateral collateral and master netting agreements that provide for the net settlement of all contracts with a single counterparty in the event of default. Additionally, we monitor counterparty credit risk exposure on each contract to determine appropriate limits on our total credit exposure across all product types. We review our collateral positions on a daily basis and exchange collateral with our counterparties in accordance with ISDA and other related agreements. We generally hold collateral in the form of cash and highly rated securities issued by the U.S. Treasury, government-sponsored enterprises or GNMA. The cash collateral netted against derivative assets on the balance sheet totaled $368 million at June 30, 2013, $494 million at December 31, 2012, and $513 million at June 30, 2012. The cash collateral netted against derivative liabilities totaled $9 million at June 30, 2013, $27 million at December 31, 2012, and $11 million at June 30, 2012. At June 30, 2013, we held less than $1 million and posted $1 million of cash collateral with clearing organizations that we are unable to net against the gross exposures because the relevant clearing agreements are not considered to be qualified master netting agreements. This additional cash collateral is included in “accrued income and other assets” and “accrued expense and other liabilities” on the balance sheet.

The following table summarizes our largest exposure to an individual counterparty at the dates indicated.


in millions	June 30, 2013		December 31, 2012		June 30, 2012

Largest gross exposure (derivative asset) to an individual counterparty	$	136	$	182	$	196
Collateral posted by this counterparty		48		66		70
Derivative liability with this counterparty		132		191		217
Collateral pledged to this counterparty		52		82		93
Net exposure after netting adjustments and collateral		8		7		2

The following table summarizes the fair value of our derivative assets by type. These assets represent our gross exposure to potential loss after taking into account the effects of bilateral collateral and master netting agreements and other means used to mitigate risk.


in millions	June 30, 2013		December 31, 2012		June 30, 2012

Interest rate	$	775	$	1,114	$	1,221
Foreign exchange		24		23		22
Energy and commodity		28		47		82
Credit		2		3		6

Derivative assets before collateral		829		1,187		1,331
Less: Related collateral		368		494		513

Total derivative assets	$	461	$	693	$	818

We enter into derivative transactions with two primary groups: broker-dealers and banks, and clients. Since these groups have different economic characteristics, we have different methods for managing counterparty credit exposure and credit risk.

We enter into transactions with broker-dealers and banks for various risk management purposes. These types of transactions generally are high dollar volume. We generally enter into bilateral collateral and master netting agreements with these counterparties. At June 30, 2013, for derivatives that have associated bilateral collateral and master netting agreements, we had gross exposure of $626 million to broker-dealers and banks. We had net exposure of $119 million after the application of master netting agreements and cash collateral; our net exposure to broker-dealers and banks at June 30, 2013, was an excess collateral position of $3 million after considering $122 million of additional collateral held in the form of securities.

We enter into transactions with clients to accommodate their business needs. These types of transactions generally are low dollar volume. We generally enter into master netting agreements with these counterparties. In addition, we mitigate our overall portfolio exposure and market risk by buying and selling U.S. Treasuries and Eurodollar futures, and entering into offsetting positions and other derivative contracts. Due to the smaller size and magnitude of the individual contracts with clients, collateral generally is not exchanged in connection with these derivative transactions. To address the risk of default associated with the uncollateralized contracts, we have established a default reserve (included in “derivative assets”) in the amount of $16 million at June 30, 2013, which we estimate to be the potential future losses on amounts due from client counterparties in the event of default. At December 31, 2012, the default reserve was $19 million. At June 30, 2013, for derivatives that have associated master netting agreements, we had gross exposure of $385 million to client counterparties. We had net exposure of $342 million on our derivatives with clients after the application of master netting agreements, collateral and the related reserve.

Credit Derivatives

We are both a buyer and seller of credit protection through the credit derivative market. We purchase credit derivatives to manage the credit risk associated with specific commercial lending and swap obligations. We may also sell credit derivatives, mainly single name credit default swaps, to offset our purchased credit default swap position prior to maturity. We previously sold index credit default swaps to diversify the concentration risk within our loan portfolio.

The following table summarizes the fair value of our credit derivatives purchased and sold by type as of June 30, 2013, December 31, 2012 and June 30, 2012. The fair value of credit derivatives presented below does not take into account the effects of bilateral collateral or master netting agreements.


	June 30, 2013						December 31, 2012						June 30, 2012
in millions	Purchased		Sold		Net		Purchased		Sold		Net		Purchased		Sold		Net

Single name credit default swaps	$	(4)	$	1	$	(3)	$	(1)	$	1		—	$	(4)	$	1	$	(3)
Traded credit default swap indices		(1)		—		(1)		—		—		—		—		3		3
Other		—		—		—		—		(1)	$	(1)		1		(1)		—

Total credit derivatives	$	(5)	$	1	$	(4)	$	(1)		—	$	(1)	$	(3)	$	3		—

Single name credit default swaps are bilateral contracts whereby the seller agrees, for a premium, to provide protection against the credit risk of a specific entity (the “reference entity”) in connection with a specific debt obligation. The protected credit risk is related to adverse credit events, such as bankruptcy, failure to make payments, and acceleration or restructuring of obligations, identified in the credit derivative contract. As the seller of a single name credit derivative, we would be required to pay the purchaser the difference between the par value and the market price of the debt obligation (cash settlement) or receive the specified referenced asset in exchange for payment of the par value (physical settlement) if the underlying reference entity experiences a predefined credit event. For a single name credit derivative, the notional amount represents the maximum amount that a seller could be required to pay. If we effect a physical settlement and receive our portion of the related debt obligation, we will join other creditors in the liquidation process, which may enable us to recover a portion of the amount paid under the credit default swap contract. We also may purchase offsetting credit derivatives for the same reference entity from third parties that will permit us to recover the amount we pay should a credit event occur.

A traded credit default swap index represents a position on a basket or portfolio of reference entities. As a seller of protection on a credit default swap index, we would be required to pay the purchaser if one or more of the entities in the index had a credit event. For a credit default swap index, the notional amount represents the maximum amount that a seller could be required to pay. Upon a credit event, the amount payable is based on the percentage of the notional amount allocated to the specific defaulting entity. During 2012, we suspended trading in traded credit default swap indices for purposes of diversifying concentration risk within our loan portfolio.

The majority of transactions represented by the “other” category shown in the above table are risk participation agreements. In these transactions, the lead participant has a swap agreement with a customer. The lead participant (purchaser of protection) then enters into a risk participation agreement with a counterparty (seller of protection), under which the counterparty receives a fee to accept a portion of the lead participant’s credit risk. If the customer defaults on the swap contract, the counterparty to the risk participation agreement must reimburse the lead participant for the counterparty’s percentage of the positive fair value of the customer swap as of the default date. If the customer swap has a negative fair value, the counterparty has no reimbursement requirements. If the customer defaults on the swap contract and the seller fulfills its payment obligations under the risk participation agreement, the seller is entitled to a pro rata share of the lead participant’s claims against the customer under the terms of the swap agreement.

The following table provides information on the types of credit derivatives sold by us and held on the balance sheet at June 30, 2013, December 31, 2012, and June 30, 2012. The notional amount represents the maximum amount that the seller could be required to pay. The payment/performance risk assessment is based on the default probabilities for the underlying reference entities’ debt obligations using a Moody’s credit ratings matrix known as Moody’s “Idealized” Cumulative Default Rates. The payment/performance risk shown in the table represents a weighted-average of the default probabilities for all reference entities in the respective portfolios. These default probabilities are directly correlated to the probability that we will have to make a payment under the credit derivative contracts.


	June 30, 2013							December 31, 2012							June 30, 2012
			Average		Payment /					Average		Payment /					Average		Payment /
dollars in millions	Notional Amount		Term (Years)		Performance Risk			Notional Amount		Term (Years)		Performance Risk			Notional Amount		Term (Years)		Performance Risk

Single name credit default swaps	$	77		1.05		8.84	%	$	146		0.92		11.62	%	$	550		2.42		4.40	%
Traded credit default swap indices		—		—		—			—		—		—			478		2.76		1.87
Other		14		5.52		10.31			23		5.35		10.77			23		5.48		9.74

Total credit derivatives sold	$	91		—		—		$	169		—		—		$	1,051		—		—

Credit Risk Contingent Features

We have entered into certain derivative contracts that require us to post collateral to the counterparties when these contracts are in a net liability position. The amount of collateral to be posted is based on the amount of the net liability and thresholds generally related to our long-term senior unsecured credit ratings with Moody’s and S&P. Collateral requirements also are based on minimum transfer amounts, which are specific to each Credit Support Annex (a component of the ISDA Master Agreement) that we have signed with the counterparties. In a limited number of instances, counterparties also have the right to terminate their ISDA Master Agreements with us if our ratings fall below a certain level, usually investment-grade level (i.e., “Baa3” for Moody’s and “BBB-” for S&P). At June 30, 2013, KeyBank’s ratings with Moody’s and S&P were “A3” and “A-,” respectively, and KeyCorp’s ratings with Moody’s and S&P were “Baa1” and “BBB+,” respectively. If there were a downgrade of our ratings, we could be required to post additional collateral under those ISDA Master Agreements where we are in a net liability position. As of June 30, 2013, the aggregate fair value of all derivative contracts with credit risk contingent features (i.e., those containing collateral posting or termination provisions based on our ratings) held by KeyBank that were in a net liability position totaled $332 million, which includes $414 million in derivative assets and $746 million in derivative liabilities. We had $334 million in cash and securities collateral posted to cover those positions as of June 30, 2013. The aggregate fair value of all derivative contracts with credit risk contingent features (i.e., those containing collateral posting or termination provisions based on our ratings) as of June 30, 2013, held by KeyCorp that were in a net liability position totaled $9 million, which consists solely of $9 million in derivative liabilities. We had $7 million in cash and securities collateral posted to cover those positions as of June 30, 2013.

The following table summarizes the additional cash and securities collateral that KeyBank would have been required to deliver had the credit risk contingent features been triggered for the derivative contracts in a net liability position as of June 30, 2013, December 31, 2012, and June 30, 2012. The additional collateral amounts were calculated based on scenarios under which KeyBank’s ratings are downgraded one, two or three ratings as of June 30, 2013, and take into account all collateral already posted. A similar calculation was performed for KeyCorp and additional collateral of $3 million would have been required as of June 30, 2013, December 31, 2012, and June 30, 2012.


		June 30, 2013					December 31, 2012					June 30, 2012
in millions		Moody’s		S&P			Moody’s		S&P			Moody’s		S&P

KeyBank’s long-term senior unsecured credit ratings			A3		A-			A3		A-			A3		A-

One rating downgrade	$		6	$	6	$		6	$	6	$		6	$	6
Two rating downgrades			11		11			11		11			11		11
Three rating downgrades			12		12			11		11			17		17

KeyBank’s long-term senior unsecured credit rating currently is four ratings above noninvestment grade at Moody’s and S&P. If KeyBank’s ratings had been downgraded below investment grade as of June 30, 2013, payments of up to $13 million would have been required to either terminate the contracts or post additional collateral for those contracts in a net liability position, taking into account all collateral already posted. If KeyCorp’s ratings had been downgraded below investment grade as of June 30, 2013, payments of up to $3 million would have been required to either terminate the contracts or post additional collateral for those contracts in a net liability position, taking into account all collateral already posted.