Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.4.0.3
Fair Value Measurements
3 Months Ended
Mar. 31, 2016
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 2015 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 three months ended March 31, 2016, 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 March 31, 2016 and December 31, 2015, including financial instruments which the Corporation accounts for under the fair value option, are summarized in the following tables.

 
March 31, 2016
 
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
$

 
$
53,379

 
$

 
$

 
$
53,379

Trading account assets:
 
 
 
 
 
 
 
 
 
U.S. government and agency securities (2)
37,321

 
19,865

 

 

 
57,186

Corporate securities, trading loans and other
341

 
24,052

 
2,954

 

 
27,347

Equity securities
31,857

 
21,336

 
417

 

 
53,610

Non-U.S. sovereign debt
16,263

 
14,660

 
572

 

 
31,495

Mortgage trading loans and ABS

 
7,735

 
1,614

 

 
9,349

Total trading account assets (3)
85,782

 
87,648

 
5,557

 

 
178,987

Derivative assets (4)
6,447

 
848,297

 
5,459

 
(807,948
)
 
52,255

AFS debt securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
20,669

 
1,547

 

 

 
22,216

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
Agency

 
207,736

 

 

 
207,736

Agency-collateralized mortgage obligations

 
10,558

 

 

 
10,558

Non-agency residential

 
2,079

 
150

 

 
2,229

Commercial

 
10,233

 

 

 
10,233

Non-U.S. securities
2,884

 
3,196

 

 

 
6,080

Other taxable securities

 
9,741

 
739

 

 
10,480

Tax-exempt securities

 
14,026

 
562

 

 
14,588

Total AFS debt securities
23,553

 
259,116

 
1,451

 

 
284,120

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

 
6

 

 

 
6

Non-agency residential

 
3,294

 
29

 

 
3,323

Non-U.S. securities
13,406

 
1,222

 

 

 
14,628

Other taxable securities

 
256

 

 

 
256

Total other debt securities carried at fair value
13,406

 
4,778

 
29

 

 
18,213

Loans and leases (5)

 
6,515

 
1,697

 

 
8,212

Mortgage servicing rights

 

 
2,631

 

 
2,631

Loans held-for-sale

 
2,643

 
660

 

 
3,303

Other assets
11,024

 
1,894

 
375

 

 
13,293

Total assets
$
140,212

 
$
1,264,270

 
$
17,859

 
$
(807,948
)
 
$
614,393

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

 
$
1,038

 
$

 
$

 
$
1,038

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

 
24,024

 
345

 

 
24,369

Trading account liabilities:
 
 
 
 
 
 
 
 
 
U.S. government and agency securities
15,933

 
224

 

 

 
16,157

Equity securities
30,795

 
4,099

 

 

 
34,894

Non-U.S. sovereign debt
14,204

 
1,863

 

 

 
16,067

Corporate securities and other
153

 
6,704

 
28

 

 
6,885

Total trading account liabilities
61,085

 
12,890

 
28

 

 
74,003

Derivative liabilities (4)
6,374

 
838,510

 
5,774

 
(809,595
)
 
41,063

Short-term borrowings

 
1,482

 

 

 
1,482

Accrued expenses and other liabilities
10,683

 
2,184

 
9

 

 
12,876

Long-term debt

 
29,447

 
1,814

 

 
31,261

Total liabilities
$
78,142

 
$
909,575

 
$
7,970

 
$
(809,595
)
 
$
186,092


(1) 
Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(2) 
Includes $19.2 billion of GSE obligations.
(3) 
Includes securities with a fair value of $13.6 billion that were segregated in compliance with securities regulations or deposited with clearing organizations. This amount is included in the parenthetical disclosure on the Consolidated Balance Sheet.
(4) 
During the three months ended March 31, 2016, $609 million of derivative assets and $744 million of derivative liabilities were transferred from Level 1 to Level 2 and $312 million of derivative assets and $230 million of derivative liabilities were transferred from Level 2 to Level 1 based on the inputs used to measure fair value. For further disaggregation of derivative assets and liabilities, see Note 2 – Derivatives.
(5) 
Includes $765 million from CFEs that were measured using the fair value of the financial liabilities of those entities as the measurement basis.

 
December 31, 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
$

 
$
55,143

 
$

 
$

 
$
55,143

Trading account assets:
 
 
 
 
 
 
 
 
 
U.S. government and agency securities (2)
33,034

 
15,501

 

 

 
48,535

Corporate securities, trading loans and other
325

 
22,738

 
2,838

 

 
25,901

Equity securities
41,735

 
20,887

 
407

 

 
63,029

Non-U.S. sovereign debt
15,651

 
12,915

 
521

 

 
29,087

Mortgage trading loans and ABS

 
8,107

 
1,868

 

 
9,975

Total trading account assets (3)
90,745

 
80,148

 
5,634

 

 
176,527

Derivative assets (4)
5,149

 
679,458

 
5,134

 
(639,751
)
 
49,990

AFS debt securities:
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
23,374

 
1,903

 

 

 
25,277

Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
Agency

 
228,947

 

 

 
228,947

Agency-collateralized mortgage obligations

 
10,985

 

 

 
10,985

Non-agency residential

 
3,073

 
106

 

 
3,179

Commercial

 
7,165

 

 

 
7,165

Non-U.S. securities
2,768

 
2,999

 

 

 
5,767

Other taxable securities

 
9,688

 
757

 

 
10,445

Tax-exempt securities

 
13,439

 
569

 

 
14,008

Total AFS debt securities
26,142

 
278,199

 
1,432

 

 
305,773

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

 
7

 

 

 
7

Non-agency residential

 
3,460

 
30

 

 
3,490

Non-U.S. securities
11,691

 
1,152

 

 

 
12,843

Other taxable securities

 
267

 

 

 
267

Total other debt securities carried at fair value
11,691

 
4,886

 
30

 

 
16,607

Loans and leases

 
5,318

 
1,620

 

 
6,938

Mortgage servicing rights

 

 
3,087

 

 
3,087

Loans held-for-sale

 
4,031

 
787

 

 
4,818

Other assets (5)
11,923

 
2,023

 
374

 

 
14,320

Total assets
$
145,650

 
$
1,109,206

 
$
18,098

 
$
(639,751
)
 
$
633,203

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

 
$
1,116

 
$

 
$

 
$
1,116

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

 
24,239

 
335

 

 
24,574

Trading account liabilities:
 
 
 
 
 
 
 
 
 
U.S. government and agency securities
14,803

 
169

 

 

 
14,972

Equity securities
27,898

 
2,392

 

 

 
30,290

Non-U.S. sovereign debt
13,589

 
1,951

 

 

 
15,540

Corporate securities and other
193

 
5,947

 
21

 

 
6,161

Total trading account liabilities
56,483

 
10,459

 
21

 

 
66,963

Derivative liabilities (4)
4,941

 
671,613

 
5,575

 
(643,679
)
 
38,450

Short-term borrowings

 
1,295

 
30

 

 
1,325

Accrued expenses and other liabilities
11,656

 
2,234

 
9

 

 
13,899

Long-term debt

 
28,584

 
1,513

 

 
30,097

Total liabilities
$
73,080

 
$
739,540

 
$
7,483

 
$
(643,679
)
 
$
176,424


(1) 
Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(2) 
Includes $14.8 billion of GSE obligations.
(3) 
Includes securities with a fair value of $16.4 billion that were segregated in compliance with securities regulations or deposited with clearing organizations. This amount is included in the parenthetical disclosure on the Consolidated Balance Sheet.
(4) 
During 2015, $6.6 billion of derivative assets and $6.7 billion of derivative liabilities were transferred from Level 1 to Level 2 based on inputs used to measure fair value. Additionally, $6.4 billion of derivative assets and $6.2 billion of derivative liabilities were transferred from Level 2 to Level 1 due to additional information related to certain options. For further disaggregation of derivative assets and liabilities, see Note 2 – Derivatives.
(5) 
During 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.
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 months ended March 31, 2016 and 2015, including net realized and unrealized gains (losses) included in earnings and accumulated OCI.

Level 3 – Fair Value Measurements (1)
 
Three Months Ended March 31, 2016
 
 
 
 
Gross
 
 
 
(Dollars in millions)
Balance
January 1
2016
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 March 31
2016
Trading account assets:
 
 
 
 
 
 
 
 
 
 
Corporate securities, trading loans and other
$
2,838

$
50

$
1

$
227

$
(147
)
$

$
(148
)
$
158

$
(25
)
$
2,954

Equity securities
407

60


10

(2
)

(62
)
4


417

Non-U.S. sovereign debt
521

42

49

3

(1
)

(42
)


572

Mortgage trading loans and ABS
1,868

28

(2
)
194

(404
)

(73
)
31

(28
)
1,614

Total trading account assets
5,634

180

48

434

(554
)

(325
)
193

(53
)
5,557

Net derivative assets (3)
(441
)
403


89

(175
)

12

(116
)
(87
)
(315
)
AFS debt securities:
 
 
 
 
 
 
 
 
 
 
Non-agency residential MBS
106


5

135

(92
)

(4
)


150

Other taxable securities
757

1

(3
)



(16
)


739

Tax-exempt securities
569


(7
)
1



(1
)


562

Total AFS debt securities
1,432

1

(5
)
136

(92
)

(21
)


1,451

Other debt securities carried at fair value – Non-agency residential MBS
30

(1
)







29

Loans and leases (4, 5)
1,620

43


69


25

(35
)
5

(30
)
1,697

Mortgage servicing rights (5)
3,087

(380
)


(1
)
136

(211
)


2,631

Loans held-for-sale (4)
787

73

27

20

(163
)

(34
)
13

(63
)
660

Other assets
374

(25
)

34



(10
)
2


375

Federal funds purchased and securities loaned or sold under agreements to repurchase (4)
(335
)
(3
)



(14
)
7



(345
)
Trading account liabilities – Corporate securities and other
(21
)
1



(8
)




(28
)
Short-term borrowings (4)
(30
)
1





29




Accrued expenses and other liabilities
(9
)








(9
)
Long-term debt (4)
(1,513
)
(91
)
(7
)
9


(169
)
56

(186
)
87

(1,814
)
(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, foreign currency translation adjustments and the impact on structured liabilities of changes in the Corporation's credit spreads. For more information, see Note 1 – Summary of Significant Accounting Principles.
(3) 
Net derivatives include derivative assets of $5.5 billion and derivative liabilities of $5.8 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.

Significant transfers into Level 3, primarily due to decreased price observability, during the three months ended March 31, 2016 included:
$193 million of trading account assets
$116 million of net derivative assets
$186 million of long-term debt. 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.

There were no significant transfers out of Level 3 during the three months ended March 31, 2016.
Level 3 – Fair Value Measurements (1)
 
Three Months Ended March 31, 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 March 31
2015
Trading account assets:
 
 
 
 
 
 
 
 
 
 
Corporate securities, trading loans and other
$
3,270

$
(21
)
$

$
139

$
(95
)
$

$
(435
)
$
171

$
(269
)
$
2,760

Equity securities
352

3



(1
)

(5
)
9

(18
)
340

Non-U.S. sovereign debt
574

66

(90
)
2



(44
)


508

Mortgage trading loans and ABS
2,063

60


319

(249
)

(83
)
9

(13
)
2,106

Total trading account assets
6,259

108

(90
)
460

(345
)

(567
)
189

(300
)
5,714

Net derivative assets (3)
(920
)
(44
)

56

(176
)

25

(46
)
24

(1,081
)
AFS debt securities:
 
 
 
 
 
 
 
 
 
 
Non-agency residential MBS
279

(19
)
(2
)
21



(9
)
132


402

Non-U.S. securities
10






(1
)


9

Other taxable securities
1,667


(2
)



(42
)

(933
)
690

Tax-exempt securities
599


(3
)



(13
)


583

Total AFS debt securities
2,555

(19
)
(7
)
21



(65
)
132

(933
)
1,684

Loans and leases (4, 5)
1,983

15



(1
)

(43
)
6

(6
)
1,954

Mortgage servicing rights (5)
3,530

(85
)



179

(230
)


3,394

Loans held-for-sale (4)
173

(70
)

406

(82
)
21

(6
)
138

(37
)
543

Other assets
911

10



(31
)

(9
)

(34
)
847

Trading account liabilities – Corporate securities and other
(36
)
1


2

(8
)




(41
)
Short-term borrowings (4)

5




(21
)
1

(4
)
4

(15
)
Accrued expenses and other liabilities
(10
)








(10
)
Long-term debt (4)
(2,362
)
4


132


(90
)
97

(713
)
126

(2,806
)
(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, foreign currency translation adjustments and the impact on structured liabilities of changes in the Corporation's credit spreads. For more information, see Note 1 – Summary of Significant Accounting Principles.
(3) 
Net derivatives include derivative assets of $7.5 billion and derivative liabilities of $8.5 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.

Significant transfers into Level 3, primarily due to decreased price observability, during the three months ended March 31, 2015 included:
$189 million of trading account assets
$132 million of AFS debt securities
$138 million of LHFS
$713 million of long-term debt. 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.

Significant transfers out of Level 3, primarily due to increased price observability unless otherwise noted, during the three months ended March 31, 2015 included:
$300 million of trading account assets, primarily the result of increased market liquidity
$933 million of AFS debt securities
$126 million of long-term debt

 
 
 
 
 
 
 
 
 
 
 


 
 
 
 
 
 
 
 
 
 
 
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 months ended March 31, 2016 and 2015. These amounts include gains (losses) on financial instruments that are accounted for under the fair value option.

Level 3 – Total Realized and Unrealized Gains (Losses) Included in Earnings
 
Three Months Ended March 31, 2016
(Dollars in millions)
Trading
Account
Profits
(Losses)
 
Mortgage
Banking
Income
(Loss) (1)
 
Other
 
Total
Trading account assets:
 
 
 
 
 
 
 
Corporate securities, trading loans and other
$
50

 
$

 
$

 
$
50

Equity securities
60

 

 

 
60

Non-U.S. sovereign debt
42

 

 

 
42

Mortgage trading loans and ABS
28

 

 

 
28

Total trading account assets
180

 

 

 
180

Net derivative assets
237

 
151

 
15

 
403

AFS debt securities – Other taxable securities

 

 
1

 
1

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

 

 
(1
)
 
(1
)
Loans and leases (2)
8

 

 
35

 
43

Mortgage servicing rights
34

 
(414
)
 

 
(380
)
Loans held-for-sale (2)
10

 

 
63

 
73

Other assets

 
(23
)
 
(2
)
 
(25
)
Federal funds purchased and securities loaned or sold under agreements to repurchase (2)
(3
)
 

 

 
(3
)
Trading account liabilities – Corporate securities and other
1

 

 

 
1

Short-term borrowings (2)
1

 

 

 
1

Long-term debt (2)
(92
)
 

 
1

 
(91
)
Total
$
376

 
$
(286
)
 
$
112

 
$
202

 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2015
Trading account assets:
 
 
 
 
 
 
 
Corporate securities, trading loans and other
$
(21
)
 
$

 
$

 
$
(21
)
Equity securities
3

 

 

 
3

Non-U.S. sovereign debt
66

 

 

 
66

Mortgage trading loans and ABS
60

 

 

 
60

Total trading account assets
108

 

 

 
108

Net derivative assets
(351
)
 
282

 
25

 
(44
)
AFS debt securities – Non-agency residential MBS

 

 
(19
)
 
(19
)
Loans and leases (2)
3

 

 
12

 
15

Mortgage servicing rights
(15
)
 
(70
)
 

 
(85
)
Loans held-for-sale (2)
(69
)
 

 
(1
)
 
(70
)
Other assets

 
(21
)
 
31

 
10

Trading account liabilities – Corporate securities and other
1

 

 

 
1

Short-term borrowings (2)
5

 

 

 
5

Long-term debt (2)
58

 

 
(54
)
 
4

Total
$
(260
)
 
$
191

 
$
(6
)
 
$
(75
)
(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 months ended March 31, 2016 and 2015 for Level 3 assets and liabilities that were still held at March 31, 2016 and 2015. These amounts include changes in fair value on financial 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
 
Three Months Ended March 31, 2016
(Dollars in millions)
Trading
Account
Profits
(Losses)
 
Mortgage
Banking
Income
(Loss) (1)
 
Other
 
Total
Trading account assets:
 
 
 
 
 
 
 
Corporate securities, trading loans and other
$
33

 
$

 
$

 
$
33

Equity securities
7

 

 

 
7

Non-U.S. sovereign debt
41

 

 

 
41

Mortgage trading loans and ABS
4

 

 

 
4

Total trading account assets
85

 

 

 
85

Net derivative assets
189

 
53

 
15

 
257

Loans and leases (2)
8

 

 
40

 
48

Mortgage servicing rights
34

 
(471
)
 

 
(437
)
Loans held-for-sale (2)
(2
)
 

 
60

 
58

Other assets

 
(18
)
 
(4
)
 
(22
)
Federal funds purchased and securities loaned or sold under agreements to repurchase (2)
(9
)
 

 

 
(9
)
Trading account liabilities – Corporate securities and other
1

 

 

 
1

Long-term debt (2)
(93
)
 

 

 
(93
)
Total
$
213

 
$
(436
)
 
$
111

 
$
(112
)
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2015
Trading account assets:
 
 
 
 
 
 
 
Corporate securities, trading loans and other
$
(58
)
 
$

 
$

 
$
(58
)
Equity securities
(2
)
 

 

 
(2
)
Non-U.S. sovereign debt
63

 

 

 
63

Mortgage trading loans and ABS
(9
)
 

 

 
(9
)
Total trading account assets
(6
)
 

 

 
(6
)
Net derivative assets
(363
)
 
101

 
25

 
(237
)
Loans and leases (2)
3

 

 
26

 
29

Mortgage servicing rights
(15
)
 
(173
)
 

 
(188
)
Loans held-for-sale (2)
(64
)
 

 
(1
)
 
(65
)
Other assets

 
(16
)
 
54

 
38

Trading account liabilities – Corporate securities and other
1

 

 

 
1

Short-term borrowings (2)
5

 

 

 
5

Long-term debt (2)
50

 

 
(54
)
 
(4
)
Total
$
(389
)
 
$
(88
)
 
$
50

 
$
(427
)
(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 March 31, 2016 and December 31, 2015.

Quantitative Information about Level 3 Fair Value Measurements at March 31, 2016
 
(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
$
2,080

Discounted cash flow, Market comparables
Yield
0% to 25%
6
%
Trading account assets – Mortgage trading loans and ABS
411

Prepayment speed
0% to 44% CPR
15
%
Loans and leases
1,588

Default rate
0% to 10% CDR
4
%
Loans held-for-sale
81

Loss severity
0% to 90%
42
%
Instruments backed by commercial real estate assets
$
502

Discounted cash flow, Market comparables
Yield
0% to 25%
10
%
Trading account assets – Mortgage trading loans and ABS
145

Price
$0 to $106
$81
Loans held-for-sale
357

 
 
 
Commercial loans, debt securities and other
$
4,730

Discounted cash flow, Market comparables
Yield
0% to 37%
15
%
Trading account assets – Corporate securities, trading loans and other
2,641

Prepayment speed
5% to 20%
15
%
Trading account assets – Non-U.S. sovereign debt
572

Default rate
2% to 5%
4
%
Trading account assets – Mortgage trading loans and ABS
1,058

Loss severity
25% to 50%
38
%
AFS debt securities – Other taxable securities
128

Duration
1 to 5 years
3 years

Loans and leases
109

Price
$0 to $305
$66
Loans held-for-sale
222

 
 
 
Auction rate securities
$
1,486

Discounted cash flow, Market comparables
Price
$10 to $100
$94
Trading account assets – Corporate securities, trading loans and other
313

 
 
 
AFS debt securities – Other taxable securities
611

 
 
 
AFS debt securities – Tax-exempt securities
562

 
 
 
Structured liabilities
 
 
 
 
 
Long-term debt
$
(1,814
)
Industry standard derivative pricing (2)
Equity correlation
12% to 98%
69
%
 
 
Long-dated equity volatilities
4% to 105%
27
%
Net derivative assets
 
 
 
 
 
Credit derivatives
$
(67
)
Discounted cash flow, Stochastic recovery correlation model
Yield
7% to 25%
17
%
 
 
Upfront points
1 to 100 points
65 points

 
 
Credit spreads
13 bps to 996 bps
326 bps

 
 
Credit correlation
23% to 97%
37
%
 
 
Prepayment speed
10% to 20% CPR
19
%
 
 
Default rate
1% to 4% CDR
3
%
 
 
Loss severity
35% to 40%
35
%
Equity derivatives
$
(741
)
Industry standard derivative pricing (2)
Equity correlation
12% to 98%
69
%
 
 
Long-dated equity volatilities
4% to 105%
27
%
Commodity derivatives
$
4

Discounted cash flow, Industry standard derivative pricing (2)
Natural gas forward price
$1/MMBtu to $6/MMBtu
$4/MMBtu

 
 
Correlation
66% to 93%
84
%
 
 
Volatilities
19% to 125%
46
%
Interest rate derivatives
$
489

Industry standard derivative pricing (3)
Correlation (IR/IR)
15% to 99%
60
%
 
 
Correlation (FX/IR)
-2% to 40%
33
%
 
 
Long-dated inflation rates
0% to 7%
3
%
 
 
Long-dated inflation volatilities
0% to 2%
1
%
Total net derivative assets
$
(315
)
 
 
 
 

(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 181: Trading account assets – Corporate securities, trading loans and other of $3.0 billion, Trading account assets – Non-U.S. sovereign debt of $572 million, Trading account assets – Mortgage trading loans and ABS of $1.6 billion, AFS debt securities – Other taxable securities of $739 million, AFS debt securities – Tax-exempt securities of $562 million, Loans and leases of $1.7 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

Quantitative Information about Level 3 Fair Value Measurements at December 31, 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
$
2,017

Discounted cash flow, Market comparables
Yield
0% to 25%
6
 %
Trading account assets – Mortgage trading loans and ABS
400

Prepayment speed
0% to 27% CPR
11
 %
Loans and leases
1,520

Default rate
0% to 10% CDR
4
 %
Loans held-for-sale
97

Loss severity
0% to 90%
40
 %
Instruments backed by commercial real estate assets
$
852

Discounted cash flow, Market comparables
Yield
0% to 25%
8
 %
Trading account assets – Mortgage trading loans and ABS
162

Price
$0 to $100
$73
Loans held-for-sale
690

 
 
 
Commercial loans, debt securities and other
$
4,558

Discounted cash flow, Market comparables
Yield
0% to 37%
13
 %
Trading account assets – Corporate securities, trading loans and other
2,503

Prepayment speed
5% to 20%
16
 %
Trading account assets – Non-U.S. sovereign debt
521

Default rate
2% to 5%
4
 %
Trading account assets – Mortgage trading loans and ABS
1,306

Loss severity
25% to 50%
37
 %
AFS debt securities – Other taxable securities
128

Duration
0 to 5 years
3 years

Loans and leases
100

Price
$0 to $258
$64
Auction rate securities
$
1,533

Discounted cash flow, Market comparables
Price
$10 to $100
$94
Trading account assets – Corporate securities, trading loans and other
335

 
 
 
AFS debt securities – Other taxable securities
629

 
 
 
AFS debt securities – Tax-exempt securities
569

 
 
 
Structured liabilities
 
 
 
 
 
Long-term debt 
$
(1,513
)
Industry standard derivative pricing (2, 3)
Equity correlation
25% to 100%
67
 %
 
 
Long-dated equity volatilities
4% to 101%
28
 %
Net derivative assets
 
 
 
 
 
Credit derivatives
$
(75
)
Discounted cash flow, Stochastic recovery correlation model
Yield
6% to 25%
16
 %
 
 
Upfront points
0 to 100 points
60 points

 
 
Credit spreads
0 bps to 447 bps
111 bps

 
 
Credit correlation
31% to 99%
38
 %
 
 
Prepayment speed
10% to 20% CPR
19
 %
 
 
Default rate
1% to 4% CDR
3