Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.2.0.727
Fair Value Measurements
6 Months Ended
Jun. 30, 2015
Fair Value Disclosures [Abstract]  
Fair Value Measurements
NOTE 14 – Fair Value Measurements

Under applicable accounting guidance, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Corporation determines the fair values of its financial instruments based on the fair value hierarchy established under applicable accounting guidance which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. There are three levels of inputs used to measure fair value. The Corporation conducts a review of its fair value hierarchy classifications on a quarterly basis. Transfers into or out of fair value hierarchy classifications are made if the significant inputs used in the financial models measuring the fair values of the assets and liabilities became unobservable or observable, respectively, in the current marketplace. These transfers are considered to be effective as of the beginning of the quarter in which they occur. For more information regarding the fair value hierarchy and how the Corporation measures fair value, see Note 1 – Summary of Significant Accounting Principles and Note 20 – Fair Value Measurements to the Consolidated Financial Statements of the Corporation's 2014 Annual Report on Form 10-K. The Corporation accounts for certain financial instruments under the fair value option. For additional information, see Note 15 – Fair Value Option.

Valuation Processes and Techniques

The Corporation has various processes and controls in place to ensure that fair value is reasonably estimated. A model validation policy governs the use and control of valuation models used to estimate fair value. This policy requires review and approval of models by personnel who are independent of the front office, and periodic reassessments of models to ensure that they are continuing to perform as designed. In addition, detailed reviews of trading gains and losses are conducted on a daily basis by personnel who are independent of the front office. A price verification group, which is also independent of the front office, utilizes available market information including executed trades, market prices and market-observable valuation model inputs to ensure that fair values are reasonably estimated. The Corporation performs due diligence procedures over third-party pricing service providers in order to support their use in the valuation process. Where market information is not available to support internal valuations, independent reviews of the valuations are performed and any material exposures are escalated through a management review process.

While the Corporation believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.

During the six months ended June 30, 2015, there were no changes to the valuation techniques that had, or are expected to have, a material impact on the Corporation's consolidated financial position or results of operations.

Level 1, 2 and 3 Valuation Techniques

Financial instruments are considered Level 1 when the valuation is based on quoted prices in active markets for identical assets or liabilities. Level 2 financial instruments are valued using quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or models using inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies or similar techniques, and at least one significant model assumption or input is unobservable and when determination of the fair value requires significant management judgment or estimation.
Recurring Fair Value

Assets and liabilities carried at fair value on a recurring basis at June 30, 2015 and December 31, 2014, including financial instruments which the Corporation accounts for under the fair value option, are summarized in the following tables.

 
June 30, 2015
 
Fair Value Measurements
 
 
 
 
(Dollars in millions)
Level 1
 
Level 2
 
Level 3
 
Netting
Adjustments (1)
 
Assets/Liabilities
at Fair Value
Assets
 
 
 
 
 
 
 
 
 
Federal funds sold and securities borrowed or purchased under agreements to resell
$

 
$
70,791

 
$

 
$

 
$
70,791

Trading account assets:
 
 
 
 
 
 
 
 
 
U.S. government and agency securities (2)
34,155

 
16,890

 

 

 
51,045

Corporate securities, trading loans and other
286

 
28,868

 
3,326

 

 
32,480

Equity securities
40,558

 
21,789

 
386

 

 
62,733

Non-U.S. sovereign debt
17,647

 
13,302

 
468

 

 
31,417

Mortgage trading loans and ABS

 
9,272

 
2,159

 

 
11,431

Total trading account assets
92,646

 
90,121

 
6,339

 

 
189,106

Derivative assets (3)
5,190

 
710,196

 
6,489

 
(670,898
)
 
50,977

AFS debt securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
56,346

 
1,998

 

 

 
58,344

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
Agency

 
188,260

 

 

 
188,260

Agency-collateralized mortgage obligations

 
12,931

 

 

 
12,931

Non-agency residential

 
3,652

 
234

 

 
3,886

Commercial

 
5,110

 

 

 
5,110

Non-U.S. securities
3,211

 
2,925

 
9

 

 
6,145

Corporate/Agency bonds

 
257

 

 

 
257

Other taxable securities
20

 
9,706

 
677

 

 
10,403

Tax-exempt securities

 
10,217

 
584

 

 
10,801

Total AFS debt securities
59,577

 
235,056

 
1,504

 

 
296,137

Other debt securities carried at fair value:
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
Agency

 
14,885

 

 

 
14,885

Agency-collateralized mortgage obligations

 
9

 

 

 
9

Non-agency residential

 
3,753

 
34

 

 
3,787

Non-U.S. securities
15,533

 
1,665

 

 

 
17,198

Other taxable securities

 
291

 

 

 
291

Total other debt securities carried at fair value
15,533

 
20,603

 
34

 

 
36,170

Loans and leases

 
5,659

 
1,970

 

 
7,629

Mortgage servicing rights

 

 
3,521

 

 
3,521

Loans held-for-sale

 
4,264

 
660

 

 
4,924

Other assets
12,943

 
846

 
756

 

 
14,545

Total assets (4)
$
185,889

 
$
1,137,536

 
$
21,273

 
$
(670,898
)
 
$
673,800

Liabilities
 
 
 
 
 
 
 
 
 
Interest-bearing deposits in U.S. offices
$

 
$
1,215

 
$

 
$

 
$
1,215

Federal funds purchased and securities loaned or sold under agreements to repurchase

 
31,649

 
368

 

 
32,017

Trading account liabilities:
 
 
 
 
 
 
 
 
 
U.S. government and agency securities
16,863

 
148

 

 

 
17,011

Equity securities
25,494

 
2,349

 

 

 
27,843

Non-U.S. sovereign debt
17,193

 
2,120

 

 

 
19,313

Corporate securities and other
248

 
8,124

 
57

 

 
8,429

Total trading account liabilities
59,798

 
12,741

 
57

 

 
72,596

Derivative liabilities (3)
5,225

 
709,114

 
6,840

 
(677,596
)
 
43,583

Short-term borrowings

 
1,841

 

 

 
1,841

Accrued expenses and other liabilities
12,115

 
1,000

 
9

 

 
13,124

Long-term debt

 
30,204

 
2,716

 

 
32,920

Total liabilities
$
77,138

 
$
787,764

 
$
9,990

 
$
(677,596
)
 
$
197,296


(1) 
Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(2) 
Includes $16.4 billion of government-sponsored enterprise obligations.
(3) 
For further disaggregation of derivative assets and liabilities, see Note 2 – Derivatives.
(4) 
During the six months ended June 30, 2015, approximately $327 million of assets were transferred from Level 2 to Level 1 due to a restriction that was lifted for an equity investment.
 
December 31, 2014
 
Fair Value Measurements
 
 
 
 
(Dollars in millions)
Level 1
 
Level 2
 
Level 3
 
Netting
Adjustments (1)
 
Assets/Liabilities
at Fair Value
Assets
 
 
 
 
 
 
 
 
 
Federal funds sold and securities borrowed or purchased under agreements to resell
$

 
$
62,182

 
$

 
$

 
$
62,182

Trading account assets:
 
 
 
 
 
 
 
 
 
U.S. government and agency securities (2)
33,470

 
17,549

 

 

 
51,019

Corporate securities, trading loans and other
243

 
31,699

 
3,270

 

 
35,212

Equity securities
33,518

 
22,488

 
352

 

 
56,358

Non-U.S. sovereign debt
20,348

 
15,332

 
574

 

 
36,254

Mortgage trading loans and ABS

 
10,879

 
2,063

 

 
12,942

Total trading account assets
87,579

 
97,947

 
6,259

 

 
191,785

Derivative assets (3)
4,957

 
972,977

 
6,851

 
(932,103
)
 
52,682

AFS debt securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
67,413

 
2,182

 

 

 
69,595

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
Agency

 
165,039

 

 

 
165,039

Agency-collateralized mortgage obligations

 
14,248

 

 

 
14,248

Non-agency residential

 
4,175

 
279

 

 
4,454

Commercial

 
4,000

 

 

 
4,000

Non-U.S. securities
3,191

 
3,029

 
10

 

 
6,230

Corporate/Agency bonds

 
368

 

 

 
368

Other taxable securities
20

 
9,104

 
1,667

 

 
10,791

Tax-exempt securities

 
8,950

 
599

 

 
9,549

Total AFS debt securities
70,624

 
211,095

 
2,555

 

 
284,274

Other debt securities carried at fair value:
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
1,541

 

 

 

 
1,541

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
Agency

 
15,704

 

 

 
15,704

Non-agency residential

 
3,745

 

 

 
3,745

Non-U.S. securities
13,270

 
1,862

 

 

 
15,132

Other taxable securities

 
299

 

 

 
299

Total other debt securities carried at fair value
14,811

 
21,610

 

 

 
36,421

Loans and leases

 
6,698

 
1,983

 

 
8,681

Mortgage servicing rights

 

 
3,530

 

 
3,530

Loans held-for-sale

 
6,628

 
173

 

 
6,801

Other assets
11,581

 
1,381

 
911

 

 
13,873

Total assets (4)
$
189,552

 
$
1,380,518

 
$
22,262

 
$
(932,103
)
 
$
660,229

Liabilities
 
 
 
 
 
 
 
 
 
Interest-bearing deposits in U.S. offices
$

 
$
1,469

 
$

 
$

 
$
1,469

Federal funds purchased and securities loaned or sold under agreements to repurchase

 
35,357

 

 

 
35,357

Trading account liabilities:
 
 
 
 
 
 
 
 
 
U.S. government and agency securities
18,514

 
446

 

 

 
18,960

Equity securities
24,679

 
3,670

 

 

 
28,349

Non-U.S. sovereign debt
16,089

 
3,625

 

 

 
19,714

Corporate securities and other
189

 
6,944

 
36

 

 
7,169

Total trading account liabilities
59,471

 
14,685

 
36

 

 
74,192

Derivative liabilities (3)
4,493

 
969,502

 
7,771

 
(934,857
)
 
46,909

Short-term borrowings

 
2,697

 

 

 
2,697

Accrued expenses and other liabilities
10,795

 
1,250

 
10

 

 
12,055

Long-term debt

 
34,042

 
2,362

 

 
36,404

Total liabilities (4)
$
74,759

 
$
1,059,002

 
$
10,179

 
$
(934,857
)
 
$
209,083


(1) 
Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(2) 
Includes $17.2 billion of government-sponsored enterprise obligations.
(3) 
For further disaggregation of derivative assets and liabilities, see Note 2 – Derivatives.
(4) 
During 2014, the Corporation reclassified certain assets and liabilities within its fair value hierarchy based on a review of its inputs used to measure fair value. Accordingly, approximately $4.1 billion of assets related to U.S. government and agency securities, non-U.S. government securities and equity derivatives, and $570 million of liabilities related to equity derivatives were transferred from Level 1 to Level 2.
The following tables present a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and six months ended June 30, 2015 and 2014, including net realized and unrealized gains (losses) included in earnings and accumulated OCI.

Level 3 – Fair Value Measurements (1)
 
Three Months Ended June 30, 2015
 
 
 
 
Gross
 
 
 
(Dollars in millions)
Balance
April 1
2015
Gains
(Losses) in
Earnings
Gains
(Losses) in
OCI (2)
Purchases
Sales
Issuances
Settlements
Gross
Transfers
into
Level 3
Gross
Transfers
out of
Level 3
Balance June 30
2015
Trading account assets:
 
 
 
 
 
 
 
 
 
 
Corporate securities, trading loans and other
$
2,760

$
55

$

$
338

$
(343
)
$

$
(214
)
$
812

$
(82
)
$
3,326

Equity securities
340

11


16

(2
)


22

(1
)
386

Non-U.S. sovereign debt
508

16

12

25



(66
)

(27
)
468

Mortgage trading loans and ABS
2,106

101


490

(378
)

(161
)
1


2,159

Total trading account assets
5,714

183

12

869

(723
)

(441
)
835

(110
)
6,339

Net derivative assets (3)
(1,081
)
610


57

(217
)

196

(14
)
98

(351
)
AFS debt securities:
 
 
 
 
 
 
 
 
 
 
Non-agency residential MBS
402

7

9

41



(225
)


234

Non-U.S. securities
9









9

Other taxable securities
690


2

6



(21
)


677

Tax-exempt securities
583


2




(1
)


584

Total AFS debt securities
1,684

7

13

47



(247
)


1,504

Other debt securities carried at fair value – Non-agency residential MBS

1


33






34

Loans and leases (4, 5)
1,954

(10
)


(1
)

(77
)
112

(8
)
1,970

Mortgage servicing rights (5)
3,394

458



(312
)
204

(223
)


3,521

Loans held-for-sale (4)
543

22


85

(13
)
12


39

(28
)
660

Other assets (6)
847

(14
)

9

(87
)

(6
)
8

(1
)
756

Federal funds purchased and securities loaned or sold under agreements to repurchase (4)

(14
)



(28
)

(326
)

(368
)
Trading account liabilities – Corporate securities and other
(41
)
2


31

(49
)




(57
)
Short-term borrowings (4)
(15
)







15


Accrued expenses and other liabilities
(10
)
1








(9
)
Long-term debt (4)
(2,806
)
66


45


(49
)
63

(403
)
368

(2,716
)
(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Includes unrealized gains (losses) on AFS debt securities and foreign currency translation adjustments.
(3) 
Net derivatives include derivative assets of $6.5 billion and derivative liabilities of $6.8 billion.
(4) 
Amounts represent instruments that are accounted for under the fair value option.
(5) 
Issuances represent loan originations and mortgage servicing rights retained following securitizations or whole-loan sales.
(6) 
Other assets is primarily comprised of certain long-term fixed-rate margin loans and private equity investments that are accounted for under the fair value option.

During the three months ended June 30, 2015, the transfers into Level 3 included $835 million of trading account assets, $112 million of loans and leases, $326 million of federal funds purchased and securities loaned or sold under agreements to repurchase and $403 million of long-term debt. Transfers into Level 3 for trading account assets were primarily the result of decreased availability of third-party prices for certain corporate debt securities. Transfers into Level 3 for loans and leases were primarily due to decreased price observability. Transfers into Level 3 for federal funds purchased and securities loaned or sold under agreements to repurchase were due to decreased price availability for certain structured secured financing agreements. Transfers into Level 3 for long-term debt were primarily due to changes in the impact of unobservable inputs on the value of certain structured liabilities. Transfers occur on a regular basis for these long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole.

During the three months ended June 30, 2015, the transfers out of Level 3 included $110 million of trading account assets and $368 million of long-term debt. Transfers out of Level 3 for trading account assets were primarily the result of increased market liquidity and price observability for certain corporate debt securities. Transfers out of Level 3 for long-term debt were primarily due to changes in the impact of unobservable inputs on the value of certain structured liabilities.
Level 3 – Fair Value Measurements (1)
 
Three Months Ended June 30, 2014
 
 
 
 
Gross
 
 
 
(Dollars in millions)
Balance
April 1
2014
Gains
(Losses) in
Earnings
Gains
(Losses) in
OCI
Purchases
Sales
Issuances
Settlements
Gross
Transfers
into
Level 3
Gross
Transfers
out of
Level 3
Balance June 30
2014
Trading account assets:
 
 
 
 
 
 
 
 
 
 
Corporate securities, trading loans and other
$
2,617

$
41

$

$
392

$
(87
)
$

$
(271
)
$
249

$
(169
)
$
2,772

Equity securities
343

(7
)

16

(4
)


9

(1
)
356

Non-U.S. sovereign debt
533

32


76





(1
)
640

Mortgage trading loans and ABS
4,287

123


453

(262
)

(237
)

(53
)
4,311

Total trading account assets
7,780

189


937

(353
)

(508
)
258

(224
)
8,079

Net derivative assets (2)
(839
)
(177
)

189

(366
)

(145
)
29

274

(1,035
)
AFS debt securities:
 
 
 
 
 
 
 
 
 
 
Other taxable securities
3,437


(3
)
86



(254
)


3,266

Tax-exempt securities
783

2

3




(54
)
1


735

Total AFS debt securities
4,220

2


86



(308
)
1


4,001

Loans and leases (3, 4)
3,053

27





(58
)
7

(11
)
3,018

Mortgage servicing rights (4)
4,765

(249
)


(26
)
113

(235
)


4,368

Loans held-for-sale (3)
736

59


24

(711
)

(11
)
14

(1
)
110

Other assets (5)
1,132

(26
)


(112
)

(22
)


972

Trading account liabilities – Corporate securities and other
(36
)


9






(27
)
Accrued expenses and other liabilities
(8
)








(8
)
Long-term debt (3)
(1,841
)
(52
)

57


(42
)
117

(676
)
21

(2,416
)
(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Net derivatives include derivative assets of $7.1 billion and derivative liabilities of $8.2 billion.
(3) 
Amounts represent instruments that are accounted for under the fair value option.
(4) 
Issuances represent loan originations and mortgage servicing rights retained following securitizations or whole-loan sales.
(5) 
Other assets is primarily comprised of certain long-term fixed-rate margin loans and private equity investments that are accounted for under the fair value option.

During the three months ended June 30, 2014, the transfers into Level 3 included $258 million of trading account assets and $676 million of long-term debt. Transfers into Level 3 for trading account assets were primarily the result of decreased availability of third-party prices for certain corporate loans and securities. Transfers into Level 3 for long-term debt were primarily due to changes in the impact of unobservable inputs on the value of certain structured liabilities. Transfers occur on a regular basis for these long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole.

During the three months ended June 30, 2014, the transfers out of Level 3 included $224 million of trading account assets and $274 million of net derivative assets. Transfers out of Level 3 for trading account assets were primarily the result of increased market liquidity and availability of third-party prices for certain corporate loans and securities. Transfers out of Level 3 for net derivative assets were primarily due to increased price observability for certain equity derivatives.
Level 3 – Fair Value Measurements (1)
 
Six Months Ended June 30, 2015
 
 
 
 
Gross
 
 
 
(Dollars in millions)
Balance
January 1
2015
Gains
(Losses) in
Earnings
Gains
(Losses) in
OCI (2)
Purchases
Sales
Issuances
Settlements
Gross
Transfers
into
Level 3
Gross
Transfers
out of
Level 3
Balance June 30
2015
Trading account assets:
 
 
 
 
 
 
 
 
 
 
Corporate securities, trading loans and other
$
3,270

$
34

$

$
477

$
(438
)
$

$
(649
)
$
983

$
(351
)
$
3,326

Equity securities
352

14


16

(3
)

(5
)
31

(19
)
386

Non-U.S. sovereign debt
574

82

(78
)
27



(110
)

(27
)
468

Mortgage trading loans and ABS
2,063

161


809

(627
)

(244
)
10

(13
)
2,159

Total trading account assets
6,259

291

(78
)
1,329

(1,068
)

(1,008
)
1,024

(410
)
6,339

Net derivative assets (3)
(920
)
566


113

(393
)

221

(60
)
122

(351
)
AFS debt securities:
 
 
 
 
 
 
 
 
 
 
Non-agency residential MBS
279

(12
)
7

62



(234
)
132


234

Non-U.S. securities
10






(1
)


9

Other taxable securities
1,667



6



(63
)

(933
)
677

Tax-exempt securities
599


(1
)



(14
)


584

Total AFS debt securities
2,555

(12
)
6

68



(312
)
132

(933
)
1,504

Other debt securities carried at fair value – Non-agency residential MBS

1


33






34

Loans and leases (4, 5)
1,983

5



(2
)

(120
)
118

(14
)
1,970

Mortgage servicing rights (5)
3,530

373



(312
)
383

(453
)


3,521

Loans held-for-sale (4)
173

(48
)

491

(95
)
33

(6
)
177

(65
)
660

Other assets (6)
911

(4
)

9

(118
)

(15
)
8

(35
)
756

Federal funds purchased and securities loaned or sold under agreements to repurchase (4)

(14
)



(28
)

(326
)

(368
)
Trading account liabilities – Corporate securities and other
(36
)
3


33

(57
)




(57
)
Short-term borrowings (4)

5




(21
)
1

(4
)
19


Accrued expenses and other liabilities
(10
)
1








(9
)
Long-term debt (4)
(2,362
)
70


177


(139
)
160

(1,116
)
494

(2,716
)

(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Includes unrealized gains (losses) on AFS debt securities and foreign currency translation adjustments.
(3) 
Net derivatives include derivative assets of $6.5 billion and derivative liabilities of $6.8 billion.
(4) 
Amounts represent instruments that are accounted for under the fair value option.
(5) 
Issuances represent loan originations and mortgage servicing rights retained following securitizations or whole-loan sales.
(6) 
Other assets is primarily comprised of certain long-term fixed-rate margin loans and private equity investments that are accounted for under the fair value option.

During the six months ended June 30, 2015, the transfers into Level 3 included $1.0 billion of trading account assets, $132 million of AFS debt securities, $118 million of loans and leases, $177 million of LHFS, $326 million of federal funds purchased and securities loaned or sold under agreements to repurchase and $1.1 billion of long-term debt. Transfers into Level 3 for trading account assets were primarily the result of decreased availability of third-party prices for certain corporate debt securities. Transfers into Level 3 for AFS debt securities were primarily due to decreased price observability on certain CLOs. Transfers into Level 3 for loans and leases were primarily due to decreased price observability. Transfers into Level 3 for LHFS were primarily due to decreased price observability due to a decline in trading activity. Transfers into Level 3 for federal funds purchased and securities loaned or sold under agreements to repurchase were due to decreased price availability for certain structured secured financing agreements. Transfers into Level 3 for long-term debt were primarily due to changes in the impact of unobservable inputs on the value of certain structured liabilities. Transfers occur on a regular basis for these long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole.

During the six months ended June 30, 2015, the transfers out of Level 3 included $410 million of trading account assets, $122 million of net derivative assets, $933 million of AFS debt securities and $494 million of long-term debt. Transfers out of Level 3 for trading account assets were primarily the result of increased market liquidity and price observability for certain corporate debt securities. Transfers out of Level 3 for net derivative assets were primarily due to increased price observability related to certain equity derivatives. Transfers out of Level 3 for AFS debt securities were primarily due to increased price observability for certain corporate debt securities. Transfers out of Level 3 for long-term debt were primarily due to changes in the impact of unobservable inputs on the value of certain structured liabilities.

Level 3 – Fair Value Measurements (1)
 
Six Months Ended June 30, 2014
 
 
 
 
Gross
 
 
 
(Dollars in millions)
Balance
January 1
2014
Gains
(Losses) in
Earnings
Gains
(Losses) in
OCI
Purchases
Sales
Issuances
Settlements
Gross
Transfers
into
Level 3
Gross
Transfers
out of
Level 3
Balance June 30
2014
Trading account assets:
 
 
 
 
 
 
 
 
 
 
Corporate securities, trading loans and other
$
3,559

$
163

$

$
678

$
(441
)
$

$
(509
)
$
397

$
(1,075
)
$
2,772

Equity securities
386

12


46

(33
)


16

(71
)
356

Non-U.S. sovereign debt
468

87


99

(6
)

(6
)

(2
)
640

Mortgage trading loans and ABS
4,631

201


819

(814
)

(461
)

(65
)
4,311

Total trading account assets
9,044

463


1,642

(1,294
)

(976
)
413

(1,213
)
8,079

Net derivative assets (2)
(224
)
(163
)

314

(1,057
)

(246
)
41

300

(1,035
)
AFS debt securities:
 
 
 
 
 
 
 
 
 
 
Non-U.S. securities
107






(107
)



Other taxable securities
3,847

8

(5
)
133



(717
)


3,266

Tax-exempt securities
806

3

4




(79
)
1


735

Total AFS debt securities
4,760

11

(1
)
133



(903
)
1


4,001

Loans and leases (3, 4)
3,057

59



(3
)
689

(781
)
13

(16
)
3,018

Mortgage servicing rights (4)
5,042

(539
)


(46
)
378

(467
)


4,368

Loans held-for-sale (3)
929

71


24

(714
)

(212
)
14

(2
)
110

Other assets (5)
1,669

(86
)


(381
)

(230
)


972

Trading account liabilities – Corporate securities and other
(35
)
1


12

(7
)



2

(27
)
Accrued expenses and other liabilities
(10
)
1







1

(8
)
Long-term debt (3)
(1,990
)
(119
)

103


(51
)
236

(820
)
225

(2,416
)

(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Net derivatives include derivative assets of $7.1 billion and derivative liabilities of $8.2 billion.
(3) 
Amounts represent instruments that are accounted for under the fair value option.
(4) 
Issuances represent loan originations and mortgage servicing rights retained following securitizations or whole-loan sales.
(5) 
Other assets is primarily comprised of certain long-term fixed-rate margin loans and private equity investments that are accounted for under the fair value option.

During the six months ended June 30, 2014, the transfers into Level 3 included $413 million of trading account assets and $820 million of long-term debt. Transfers into Level 3 for trading account assets were primarily the result of decreased availability of third-party prices for certain corporate loans and securities, primarily municipal bonds. Transfers into Level 3 for long-term debt were primarily due to changes in the impact of unobservable inputs on the value of certain structured liabilities. Transfers occur on a regular basis for these long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole.

During the six months ended June 30, 2014, the transfers out of Level 3 included $1.2 billion of trading account assets, $300 million of net derivative assets and $225 million of long-term debt. Transfers out of Level 3 for trading account assets were primarily the result of increased market liquidity and availability of third-party prices for certain corporate loans and securities. Transfers out of Level 3 for net derivative assets were primarily due to increased price observability for certain equity derivatives. Transfers out of Level 3 for long-term debt were primarily due to changes in the impact of unobservable inputs on the value of certain structured liabilities.
The following tables summarize gains (losses) due to changes in fair value, including both realized and unrealized gains (losses), recorded in earnings for Level 3 assets and liabilities during the three and six months ended June 30, 2015 and 2014. These amounts include gains (losses) on loans, LHFS, loan commitments and structured liabilities that are accounted for under the fair value option.

Level 3 – Total Realized and Unrealized Gains (Losses) Included in Earnings
 
Three Months Ended June 30, 2015
(Dollars in millions)
Trading
Account
Profits
(Losses)
 
Mortgage
Banking
Income
(Loss) (1)
 
Other
 
Total
Trading account assets:
 
 
 
 
 
 
 
Corporate securities, trading loans and other
$
55

 
$

 
$

 
$
55

Equity securities
11

 

 

 
11

Non-U.S. sovereign debt
16

 

 

 
16

Mortgage trading loans and ABS
101

 

 

 
101

Total trading account assets
183

 

 

 
183

Net derivative assets
416

 
196

 
(2
)
 
610

AFS debt securities – Non-agency residential MBS

 

 
7

 
7

Other debt securities carried at fair value – Non-agency residential MBS

 

 
1

 
1

Loans and leases (2)
(9
)
 

 
(1
)
 
(10
)
Mortgage servicing rights
4

 
454

 

 
458

Loans held-for-sale (2)
15

 

 
7

 
22

Other assets

 
(3
)
 
(11
)
 
(14
)
Federal funds purchased and securities loaned or sold under agreements to repurchase (2)
(14
)
 

 

 
(14
)
Trading account liabilities – Corporate securities and other
2

 

 

 
2

Accrued expenses and other liabilities

 

 
1

 
1

Long-term debt (2)
41

 

 
25

 
66

Total
$
638

 
$
647

 
$
27

 
$
1,312

 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2014
Trading account assets:
 
 
 
 
 
 
 
Corporate securities, trading loans and other
$
41

 
$

 
$

 
$
41

Equity securities
(7
)
 

 

 
(7
)
Non-U.S. sovereign debt
32

 

 

 
32

Mortgage trading loans and ABS
123

 

 

 
123

Total trading account assets
189

 

 

 
189

Net derivative assets
(427
)
 
225

 
25

 
(177
)
AFS debt securities – Tax-exempt securities

 

 
2

 
2

Loans and leases (2)

 

 
27

 
27

Mortgage servicing rights
17

 
(266
)
 

 
(249
)
Loans held-for-sale (2)

 

 
59

 
59

Other assets

 
(29
)
 
3

 
(26
)
Long-term debt (2)
(11
)
 

 
(41
)
 
(52
)
Total
$
(232
)
 
$
(70
)
 
$
75

 
$
(227
)
(1) 
Mortgage banking income (loss) does not reflect the impact of Level 1 and Level 2 hedges on MSRs.
(2) 
Amounts represent instruments that are accounted for under the fair value option.
Level 3 – Total Realized and Unrealized Gains (Losses) Included in Earnings
 
Six Months Ended June 30, 2015
(Dollars in millions)
Trading
Account
Profits
(Losses)
 
Mortgage
Banking
Income
(Loss) (1)
 
Other
 
Total
Trading account assets:
 
 
 
 
 
 
 
Corporate securities, trading loans and other
$
34

 
$

 
$

 
$
34

Equity securities
14

 

 

 
14

Non-U.S. sovereign debt
82

 

 

 
82

Mortgage trading loans and ABS
161

 

 

 
161

Total trading account assets
291

 

 

 
291

Net derivative assets
65

 
478

 
23

 
566

AFS debt securities – Non-agency residential MBS

 

 
(12
)
 
(12
)
Other debt securities carried at fair value – Non-agency residential MBS

 

 
1

 
1

Loans and leases (2)
(6
)
 

 
11

 
5

Mortgage servicing rights
(11
)
 
384

 

 
373

Loans held-for-sale (2)
(54
)
 

 
6

 
(48
)
Other assets

 
(24
)
 
20

 
(4
)
Federal funds purchased and securities loaned or sold under agreements to repurchase (2)
(14
)
 

 

 
(14
)
Trading account liabilities – Corporate securities and other
3

 

 

 
3

Short-term borrowings (2)
5

 

 

 
5

Accrued expenses and other liabilities

 

 
1

 
1

Long-term debt (2)
99

 

 
(29
)
 
70

Total
$
378

 
$
838

 
$
21

 
$
1,237

 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2014
Trading account assets:
 
 
 
 
 
 
 
Corporate securities, trading loans and other
$
163

 
$

 
$

 
$
163

Equity securities
12

 

 

 
12

Non-U.S. sovereign debt
87

 

 

 
87

Mortgage trading loans and ABS
201

 

 

 
201

Total trading account assets
463

 

 

 
463

Net derivative assets
(595
)
 
398

 
34

 
(163
)
AFS debt securities:
 
 
 
 
 
 
 
Other taxable securities

 

 
8

 
8

Tax-exempt securities

 

 
3

 
3

Total AFS debt securities

 

 
11

 
11

Loans and leases (2)

 

 
59

 
59

Mortgage servicing rights
12

 
(551
)
 

 
(539
)
Loans held-for-sale (2)

 

 
71

 
71

Other assets

 
(65
)
 
(21
)
 
(86
)
Trading account liabilities – Corporate securities and other
1

 

 

 
1

Accrued expenses and other liabilities

 

 
1

 
1

Long-term debt (2)
(64
)
 

 
(55
)
 
(119
)
Total
$
(183
)
 
$
(218
)
 
$
100

 
$
(301
)

(1) 
Mortgage banking income (loss) does not reflect the impact of Level 1 and Level 2 hedges on MSRs.
(2) 
Amounts represent instruments that are accounted for under the fair value option.
The following tables summarize changes in unrealized gains (losses) recorded in earnings during the three and six months ended June 30, 2015 and 2014 for Level 3 assets and liabilities that were still held at June 30, 2015 and 2014. These amounts include changes in fair value on loans, LHFS, loan commitments and structured liabilities that are accounted for under the fair value option.

Level 3 – Changes in Unrealized Gains (Losses) Relating to Assets and Liabilities Still Held at Reporting Date
 
Three Months Ended June 30, 2015
(Dollars in millions)
Trading
Account
Profits
(Losses)
 
Mortgage
Banking
Income
(Loss) (1)
 
Other
 
Total
Trading account assets:
 
 
 
 
 
 
 
Corporate securities, trading loans and other
$
(7
)
 
$

 
$

 
$
(7
)
Equity securities
7

 

 

 
7

Non-U.S. sovereign debt
16

 

 

 
16

Mortgage trading loans and ABS
4

 

 

 
4

Total trading account assets
20

 

 

 
20

Net derivative assets
317

 
52

 
(2
)
 
367

Loans and leases (2)
(9
)
 

 
(2
)
 
(11
)
Mortgage servicing rights
4

 
373

 

 
377

Loans held-for-sale (2)
15

 

 
6

 
21

Other assets

 
4

 
23

 
27

Federal funds purchased and securities loaned or sold under agreements to repurchase (2)
(14
)
 

 

 
(14
)
Trading account liabilities – Corporate securities and other
1

 

 

 
1

Long-term debt (2)
15

 

 
25

 
40

Total
$
349

 
$
429

 
$
50

 
$
828

 
 
 
 
 
 
 
 
 
Three Months Ended June 30, 2014
Trading account assets:
 
 
 
 
 
 
 
Corporate securities, trading loans and other
$
(20
)
 
$

 
$

 
$
(20
)
Equity securities
(8
)
 

 

 
(8
)
Non-U.S. sovereign debt
32

 

 

 
32

Mortgage trading loans and ABS
92

 

 

 
92

Total trading account assets
96

 

 

 
96

Net derivative assets
(520
)
 
74

 
25

 
(421
)
Loans and leases (2)

 

 
37

 
37

Mortgage servicing rights
17

 
(408
)
 

 
(391
)
Loans held-for-sale (2)

 

 
9

 
9

Other assets

 
(23
)
 
4

 
(19
)
Long-term debt (2)
(11
)
 

 
(41
)
 
(52
)
Total
$
(418
)
 
$
(357
)
 
$
34

 
$
(741
)
(1) 
Mortgage banking income (loss) does not reflect the impact of Level 1 and Level 2 hedges on MSRs.
(2) 
Amounts represent instruments that are accounted for under the fair value option.
Level 3 – Changes in Unrealized Gains (Losses) Relating to Assets and Liabilities Still Held at Reporting Date
 
Six Months Ended June 30, 2015
(Dollars in millions)
Trading
Account
Profits
(Losses)
 
Mortgage
Banking
Income
(Loss) (1)
 
Other
 
Total
Trading account assets:
 
 
 
 
 
 
 
Corporate securities, trading loans and other
$
(101
)
 
$

 
$

 
$
(101
)
Equity securities
9

 

 

 
9

Non-U.S. sovereign debt
69

 

 

 
69

Mortgage trading loans and ABS
(26
)
 

 

 
(26
)
Total trading account assets
(49
)
 

 

 
(49
)
Net derivative assets
19

 
54

 
23

 
96

Loans and leases (2)
(1
)
 

 
23

 
22

Mortgage servicing rights
(11
)
 
200

 

 
189

Loans held-for-sale (2)
(38
)
 

 
(1
)
 
(39
)
Other assets

 
(12
)
 
77

 
65

Federal funds purchased and securities loaned or sold under agreements to repurchase (2)
(14
)
 

 

 
(14
)
Trading account liabilities – Corporate securities and other
1

 

 

 
1

Long-term debt (2)
52

 

 
(29
)
 
23

Total
$
(41
)
 
$
242

 
$
93

 
$
294

 
 
 
 
 
 
 
 
 
Six Months Ended June 30, 2014
Trading account assets:
 
 
 
 
 
 
 
Corporate securities, trading loans and other
$
105

 
$

 
$

 
$
105

Equity securities
2

 

 

 
2

Non-U.S. sovereign debt
51

 

 

 
51

Mortgage trading loans and ABS
77

 

 

 
77

Total trading account assets
235

 

 

 
235

Net derivative assets
(509
)
 
75

 
34

 
(400
)
Loans and leases (2)

 

 
64

 
64

Mortgage servicing rights
12

 
(876
)
 

 
(864
)
Loans held-for-sale (2)

 

 
14

 
14

Other assets

 
(51
)
 
30

 
(21
)
Trading account liabilities – Corporate securities and other
1

 

 

 
1

Long-term debt (2)
(50
)
 

 
(63
)
 
(113
)
Total
$
(311
)
 
$
(852
)
 
$
79

 
$
(1,084
)

(1) 
Mortgage banking income (loss) does not reflect the impact of Level 1 and Level 2 hedges on MSRs.
(2) 
Amounts represent instruments that are accounted for under the fair value option.
The following tables present information about significant unobservable inputs related to the Corporation's material categories of Level 3 financial assets and liabilities at June 30, 2015 and December 31, 2014.

Quantitative Information about Level 3 Fair Value Measurements at June 30, 2015
 
(Dollars in millions)
 
 
Inputs
Financial Instrument
Fair Value
Valuation
Technique
Significant Unobservable
Inputs
Ranges of
Inputs
Weighted Average
Loans and Securities (1)
 
 
 
 
 
Instruments backed by residential real estate assets
$
2,180

Discounted cash flow, Market comparables
Yield
0% to 25%
5
 %
Trading account assets – Mortgage trading loans and ABS
35

Prepayment speed
0% to 33% CPR
12
 %
Loans and leases
1,485

Default rate
0% to 14% CDR
6
 %
Loans held-for-sale
660

Loss severity
0% to 80%
40
 %
Commercial loans, debt securities and other
$
6,205

Discounted cash flow, Market comparables
Yield
0% to 29%
10
 %
Trading account assets – Corporate securities, trading loans and other
2,959

Prepayment speed
5% to 30%
15
 %
Trading account assets – Non-U.S. sovereign debt
468

Default rate
1% to 5%
4
 %
Trading account assets – Mortgage trading loans and ABS
2,124

Loss severity
25% to 50%
38
 %
AFS debt securities – Other taxable securities
169

Duration
0 to 4 years
3 years

Loans and leases
485

Price
$0 to $138
$66
Auction rate securities
$
1,459

Discounted cash flow, Market comparables
Price
$44 to $105
$98
Trading account assets – Corporate securities, trading loans and other
367

 
 
 
AFS debt securities – Other taxable securities
508

 
 
 
AFS debt securities – Tax-exempt securities
584

 
 
 
Structured liabilities
 
 
 
 
 
Long-term debt
$
(2,716
)
Industry standard derivative pricing (2, 3)
Equity correlation
20% to 98%
65
 %
 
 
Long-dated equity volatilities
4% to 91%
23
 %
 
 
Long-dated volatilities (IR)
1%
n/a

Net derivative assets
 
 
 
 
 
Credit derivatives
$
(265
)
Discounted cash flow, Stochastic recovery correlation model
Yield
0% to 26%
15
 %
 
 
Upfront points
0 to 100 points
75 points

 
 
Credit correlation
26% to 99%
51
 %
 
 
Prepayment speed
3% to 20% CPR
17
 %
 
 
Default rate
1% to 4% CDR
3
 %
 
 
Loss severity
20% to 40%
35
 %
Equity derivatives
$
(1,209
)
Industry standard derivative pricing (2)
Equity correlation
20% to 98%
65
%
 
 
Long-dated equity volatilities
4% to 91%
23
%
Commodity derivatives
$
151

Discounted cash flow, Industry standard derivative pricing (2)
Natural gas forward price
$2/MMBtu to $7/MMBtu
$5/MMBtu

 
 
Correlation
66% to 93%
84
 %
 
 
Volatilities
17% to 131%
40
 %
Interest rate derivatives
$
972

Industry standard derivative pricing (3)
Correlation (IR/IR)
21% to 99%
46
 %
 
 
Correlation (FX/IR)
-25% to 40%
-8
 %
 
 
Long-dated inflation rates
0% to 4%
2
 %
 
 
Long-dated inflation volatilities
0% to 2%
1
 %
Total net derivative assets
$
(351
)
 
 
 
 

(1) 
The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page 211: Trading account assets – Corporate securities, trading loans and other of $3.3 billion, Trading account assets – Non-U.S. sovereign debt of $468 million, Trading account assets – Mortgage trading loans and ABS of $2.2 billion, AFS debt securities – Other taxable securities of $677 million, AFS debt securities – Tax-exempt securities of $584 million, Loans and leases of $2.0 billion and LHFS of $660 million.
(2) 
Includes models such as Monte Carlo simulation and Black-Scholes.
(3) 
Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates.
CPR = Constant Prepayment Rate
CDR = Constant Default Rate
MMBtu = Million British thermal units
IR = Interest Rate
FX = Foreign Exchange
n/a = not applicable

Quantitative Information about Level 3 Fair Value Measurements at December 31, 2014
 
(Dollars in millions)
 
 
Inputs
Financial Instrument
Fair Value
Valuation
Technique
Significant Unobservable
Inputs
Ranges of
Inputs
Weighted Average
Loans and Securities (1)
 
 
 
 
 
Instruments backed by residential real estate assets
$
2,030

Discounted cash flow, Market comparables
Yield
0% to 25%

6
 %
Trading account assets – Mortgage trading loans and ABS
483

Prepayment speed
0% to 35% CPR

14
 %
Loans and leases
1,374

Default rate
2% to 15% CDR

7
 %
Loans held-for-sale
173

Loss severity
26% to 100%

34
 %
Commercial loans, debt securities and other
$
7,203

Discounted cash flow, Market comparables
Yield
0% to 40%

9
 %
Trading account assets – Corporate securities, trading loans and other
3,224

Enterprise value/EBITDA multiple
0x to 30x

6x

Trading account assets – Non-U.S. sovereign debt
574

Prepayment speed
1% to 30%

12
 %
Trading account assets – Mortgage trading loans and ABS
1,580

Default rate
1% to 5%

4
 %
AFS debt securities – Other taxable securities
1,216

Loss severity
25% to 40%

38
 %
Loans and leases
609

Duration
0 to 5 years

3 years

 
 
Price
$0 to $107

$76
Auction rate securities
$
1,096

Discounted cash flow, Market comparables
Price
$60 to $100

$95
Trading account assets – Corporate securities, trading loans and other
46

 
 
 
AFS debt securities – Other taxable securities
451

 
 
 
AFS debt securities – Tax-exempt securities
599

 
 
 
Structured liabilities
 
 
 
 
 
Long-term debt 
$
(2,362
)
Industry standard derivative pricing (2, 3)
Equity correlation
20% to 98%

65
 %
 
 
Long-dated equity volatilities
6% to 69%

24
 %
 
 
Long-dated volatilities (IR)
0% to 2%

1
 %
Net derivative assets
 
 
 
 
 
Credit derivatives
$
22

Discounted cash flow, Stochastic recovery correlation model
Yield
0% to 25%

14
 %
 
 
Upfront points
0 to 100 points

65 points

 
 
Spread to index
25 bps to 450 bps

119 bps

 
 
Credit correlation
24% to 99%

51
 %
 
 
Prepayment speed
3% to 20% CPR

11
 %
 
 
Default rate
4% CDR

n/a

 
 
Loss severity
35
%
n/a

Equity derivatives
$
(1,560
)
Industry standard derivative pricing (2)
Equity correlation
20% to 98%

65
 %
 
 
Long-dated equity volatilities
6% to 69%

24
 %
Commodity derivatives
$
141

Discounted cash flow, Industry standard derivative pricing (2)
Natural gas forward price
$2/MMBtu to $7/MMBtu

$5/MMBtu

 
 
Correlation
82% to 93%

90
 %
 
 
Volatilities
16% to 98%

35
 %
Interest rate derivatives
$
477

Industry standard derivative pricing (3)
Correlation (IR/IR)
11% to 99%

55
 %
 
 
Correlation (FX/IR)
-48% to 40%

-5
 %
 
 
Long-dated inflation rates
0% to 3%

1
 %
 
 
Long-dated inflation volatilities
0% to 2%

1
 %
Total net derivative assets
$
(920
)
 
 
 
 

(1)
The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page 212: Trading account assets – Corporate securities, trading loans and other of $3.3 billion, Trading account assets – Non-U.S. sovereign debt of $574 million, Trading account assets – Mortgage trading loans and ABS of $2.1 billion, AFS debt securities – Other taxable securities of $1.7 billion, AFS debt securities – Tax-exempt securities of $599 million, Loans and leases of $2.0 billion and LHFS of $173 million.
(2) 
Includes models such as Monte Carlo simulation and Black-Scholes.
(3) 
Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates.
CPR = Constant Prepayment Rate
CDR = Constant Default Rate
EBITDA = Earnings before interest, taxes, depreciation and amortization
MMBtu = Million British thermal units
IR = Interest Rate
FX = Foreign Exchange
n/a = not applicable


In the tables above, instruments backed by residential real estate assets include RMBS, whole loans and mortgage CDOs. Commercial loans, debt securities and other include corporate CLOs and CDOs, commercial loans and bonds, and securities backed by non-real estate assets. Structured liabilities primarily include equity-linked notes that are accounted for under the fair value option.

The Corporation uses multiple market approaches in valuing certain of its Level 3 financial instruments. For example, market comparables and discounted cash flows are used together. For a given product, such as corporate debt securities, market comparables may be used to estimate some of the unobservable inputs and then these inputs are incorporated into a discounted cash flow model. Therefore, the balances disclosed encompass both of these techniques.

The level of aggregation and diversity within the products disclosed in the tables result in certain ranges of inputs being wide and unevenly distributed across asset and liability categories. At June 30, 2015 and December 31, 2014, weighted averages are disclosed for all loans, securities, structured liabilities and net derivative assets.

For more information on the inputs and techniques used in the valuation of MSRs, see Note 17 – Mortgage Servicing Rights.

Sensitivity of Fair Value Measurements to Changes in Unobservable Inputs

Loans and Securities

For instruments backed by residential real estate assets and commercial loans, debt securities and other, a significant increase in market yields, default rates, loss severities or duration would result in a significantly lower fair value for long positions. Short positions would be impacted in a directionally opposite way. The impact of changes in prepayment speeds would have differing impacts depending on the seniority of the instrument and, in the case of CLOs, whether prepayments can be reinvested.

For auction rate securities, a significant increase in price would result in a significantly higher fair value.

Structured Liabilities and Derivatives

For credit derivatives, a significant increase in market yield, including spreads to indices, upfront points (i.e., a single upfront payment made by a protection buyer at inception), default rates or loss severities would result in a significantly lower fair value for protection sellers and higher fair value for protection buyers. The impact of changes in prepayment speeds would have differing impacts depending on the seniority of the instrument and, in the case of CLOs, whether prepayments can be reinvested.

Structured credit derivatives, which include tranched portfolio CDS and derivatives with derivative product company (DPC) and monoline counterparties, are impacted by credit correlation, including default and wrong-way correlation. Default correlation is a parameter that describes the degree of dependence among credit default rates within a credit portfolio that underlies a credit derivative instrument. The sensitivity of this input on the fair value varies depending on the level of subordination of the tranche. For senior tranches that are net purchases of protection, a significant increase in default correlation would result in a significantly higher fair value. Net short protection positions would be impacted in a directionally opposite way. Wrong-way correlation is a parameter that describes the probability that as exposure to a counterparty increases, the credit quality of the counterparty decreases. A significantly higher degree of wrong-way correlation between a DPC counterparty and underlying derivative exposure would result in a significantly lower fair value.

For equity derivatives, commodity derivatives, interest rate derivatives and structured liabilities, a significant change in long-dated rates and volatilities and correlation inputs (e.g., the degree of correlation between an equity security and an index, between two different commodities, between two different interest rates, or between interest rates and foreign exchange rates) would result in a significant impact to the fair value; however, the magnitude and direction of the impact depends on whether the Corporation is long or short the exposure.
Nonrecurring Fair Value

The Corporation holds certain assets that are measured at fair value, but only in certain situations (e.g., impairment) and these measurements are referred to herein as nonrecurring. The amounts below represent assets still held as of the reporting date for which a nonrecurring fair value adjustment was recorded during the three and six months ended June 30, 2015 and 2014.

Assets Measured at Fair Value on a Nonrecurring Basis
 
 
 
June 30, 2015
 
Three Months Ended June 30, 2015
 
Six Months Ended June 30, 2015
(Dollars in millions)
Level 2
 
Level 3
 
Gains (Losses)
Assets
 
 
 
 
 
 
 
Loans held-for-sale
$
19

 
$
26

 
$
(4
)
 
$
(4
)
Loans and leases (1)
21

 
2,076

 
(371
)
 
(702
)
Foreclosed properties (2, 3)

 
188

 
(38
)
 
(50
)
Other assets
27

 

 
(4
)
 
(4
)
 
 
 
 
 
 
 
 
 
June 30, 2014
 
Three Months Ended June 30, 2014
 
Six Months Ended June 30, 2014
Assets
 
 
 
 
 
 
 
Loans held-for-sale
$
1,057

 
$
127

 
$
5

 
$
4

Loans and leases (1)
5

 
3,244

 
(318
)
 
(564
)
Foreclosed properties (2, 3)
6

 
187

 
(21
)
 
(28
)
Other assets
90

 
2

 
(16
)
 
(16
)

(1) 
Includes $106 million and $151 million of losses on loans that were written down to a collateral value of zero during the three and six months ended June 30, 2015 compared to losses of $113 million and $203 million for the same periods in 2014.
(2) 
Amounts are included in other assets on the Consolidated Balance Sheet and represent the carrying value of foreclosed properties that were written down subsequent to their initial classification as foreclosed properties. Losses on foreclosed properties include losses taken during the first 90 days after transfer of a loan to foreclosed properties.
(3) 
Excludes $1.3 billion and $1.1 billion of properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans) as of June 30, 2015 and 2014.

The table below presents information about significant unobservable inputs related to the Corporation's nonrecurring Level 3 financial assets and liabilities at June 30, 2015 and December 31, 2014.

Quantitative Information about Nonrecurring Level 3 Fair Value Measurements
 
 
June 30, 2015
(Dollars in millions)
 
 
Inputs
Financial Instrument
Fair Value
Valuation
Technique
Significant Unobservable
Inputs
Ranges of
Inputs
Weighted Average
Instruments backed by residential real estate assets
$
2,076

Market comparables
OREO discount
14% to 26%
18
%
Loans and leases
2,076

Cost to sell
7% to 16%
7
%
 
December 31, 2014
Instruments backed by residential real estate assets
$
4,636

Market comparables
OREO discount
0% to 28%
8
%
Loans and leases
4,636

Cost to sell
7% to 14%
8
%


Instruments backed by residential real estate assets represent residential mortgages where the loan has been written down to the fair value of the underlying collateral. In addition to the instruments disclosed in the table above, the Corporation holds foreclosed residential properties where the fair value is based on unadjusted third-party appraisals or broker price opinions. Appraisals are generally conducted every 90 days. Factors considered in determining the fair value include geographic sales trends, the value of comparable surrounding properties as well as the condition of the property.