Note 5—Settlement Guarantee Management

The indemnification for settlement losses that Visa provides to its financial institution clients creates settlement risk for the Company due to the difference in timing between the date of a payment transaction and the date of subsequent settlement. The exposure to settlement losses through Visa's settlement indemnification is accounted for as a settlement risk guarantee. The Company’s settlement exposure is limited to the amount of unsettled Visa payment transactions at any point in time. The Company requires certain financial institution clients that do not meet its credit standards to post collateral to offset potential loss from their estimated unsettled transactions. The Company’s estimated maximum settlement exposure was $53.2 billion at December 31, 2013, compared to $53.8 billion at September 30, 2013. Of these settlement exposure amounts, $3.0 billion at December 31, 2013 and September 30, 2013, was covered by collateral.

The Company maintained collateral as follows:



	December 31, 2013		September 30, 2013
	(in millions)
Cash equivalents	$	886	$	866
Pledged securities at market value	233		256
Letters of credit	1,210		1,191
Guarantees	1,416		1,411
Total	$	3,745	$	3,724

The total available collateral balances presented in the table above were greater than the settlement exposure covered by customer collateral held due to instances in which the available collateral exceeded the total settlement exposure for certain financial institutions at each date presented.

The fair value of the settlement risk guarantee is estimated based on a proprietary probability-weighted model and was approximately $2 million at December 31, 2013 and $1 million at September 30, 2013. These amounts are reflected in accrued liabilities on the consolidated balance sheets.