STI 2018 Annual Report

Notes to Consolidated Financial Statements, continued 148 Credit Derivative Instruments As part of theCompany's trading businesses, theCompany enters into contracts that are, in form or substance, written guarantees; specifically, CDS, risk participations, and TRS. The Company accounts for these contracts as derivatives, and accordingly, records these contracts at fair value, with changes in fair value recognized in Trading income in the Consolidated Statements of Income. At December 31, 2018, there were no purchased CDS contracts designated as trading instruments. At December 31, 2017, the gross notional amount of purchased CDS contracts designated as trading instruments was $5 million. The fair value of purchased CDS was immaterial at December 31, 2017. The Company has also entered into TRS contracts on loans. The Company’s TRS business consists of matched trades, such that when theCompany pays depreciation on oneTRS, it receives the same amount on the matched TRS. To mitigate its credit risk, the Company typically receives initial cash collateral from the counterparty upon entering into the TRS and is entitled to additional collateral if the fair value of the underlying reference assets deteriorates. There were $2.0 billion and $1.7 billion of outstanding TRS notional balances at December 31, 2018 and 2017, respectively. The fair values of these TRS assets and liabilities at December 31, 2018 were $97 million and $94 million, respectively, and related cash collateral held at December 31, 2018 was $601million. The fair values of the TRS assets and liabilities at December 31, 2017 were $15 million and $13 million, respectively, and related cash collateral held at December 31, 2017 was $368 million. For additional information on the Company's TRS contracts, see Note 12, "Certain Transfers of Financial Assets and Variable Interest Entities," as well as Note 20, "Fair Value Election and Measurement." The Company writes risk participations, which are credit derivatives, whereby the Company has guaranteed payment to a dealer counterparty in the event the counterparty experiences a loss on a derivative, such as an interest rate swap, due to a failure to pay by the counterparty’s customer (the “obligor”) on that derivative. The Company manages its payment risk on its risk participations by monitoring the creditworthiness of the obligors, which are all corporations or partnerships, through the normal credit review process that the Company would have performed had it entered into a derivative directly with the obligors. To date, no material losses have been incurred related to the Company’s written risk participations. At December 31, 2018, the remaining terms on these risk participations generally ranged from less than one year to 10 years, with a weighted average term on the maximum estimated exposure of 5.9 years. At December 31, 2017, the remaining terms on these risk participations generally ranged from less than one year to nine years, with a weighted average term on the maximum estimated exposure of 5.5 years. The Company’s maximum estimated exposure towritten risk participations, asmeasured by projecting amaximumvalue of the guaranteed derivative instruments based on interest rate curve simulations and assuming 100% default by all obligors on the maximum values, was approximately $217 million and $55 million at December 31, 2018 and 2017, respectively. The fair values of the written risk participations were immaterial at both December 31, 2018 and 2017.