Quarterly report pursuant to Section 13 or 15(d)

Fair Value of Financial Instruments

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Fair Value of Financial Instruments
9 Months Ended
Sep. 30, 2011
Investments, All Other Investments [Abstract]  
Fair Value of Financial Instruments
NOTE 18 – Fair Value of Financial Instruments

The fair values of financial instruments have been derived using methodologies described in Note 22 – Fair Value Measurements to the Consolidated Financial Statements of the Corporation's 2010 Annual Report on Form 10-K. The following disclosures include financial instruments where only a portion of the ending balances at September 30, 2011 and December 31, 2010 was carried at fair value on the Corporation’s Consolidated Balance Sheet.

Short-term Financial Instruments

The carrying value of short-term financial instruments, including cash and cash equivalents, time deposits placed, federal funds sold and purchased, resale and certain repurchase agreements, commercial paper and other short-term investments and borrowings approximates the fair value of these instruments. These financial instruments generally expose the Corporation to limited credit risk and have no stated maturities or have short-term maturities and carry interest rates that approximate market. The Corporation elected to account for certain structured reverse repurchase agreements under the fair value option.

Loans

Fair values for loans were generally determined by discounting both principal and interest cash flows expected to be collected using an observable discount rate for similar instruments with adjustments that the Corporation believes a market participant would consider in determining fair value. The Corporation estimates the cash flows expected to be collected using internal credit risk, interest rate and prepayment risk models that incorporate the Corporation’s best estimate of current key assumptions, such as default rates, loss severity and prepayment speeds for the life of the loan. The carrying value of loans is presented net of the applicable allowance for loan losses and excludes leases. The Corporation elected to account for certain large corporate loans that exceeded the Corporation’s single name credit risk concentration guidelines under the fair value option.
Deposits

The fair value for certain deposits with stated maturities was determined by discounting contractual cash flows using current market rates for instruments with similar maturities. The carrying value of non-U.S. time deposits approximates fair value. For deposits with no stated maturities, the carrying value was considered to approximate fair value and does not take into account the significant value of the cost advantage and stability of the Corporation’s long-term relationships with depositors. The Corporation accounts for certain long-term fixed-rate deposits that are economically hedged with derivatives under the fair value option.

Long-term Debt

The Corporation uses quoted market prices, when available, to estimate fair value for its long-term debt. When quoted market prices are not available, fair value is estimated based on current market interest rates and credit spreads for debt with similar terms and maturities. The Corporation accounts for certain structured liabilities under the fair value option.

Fair Value of Financial Instruments

The carrying values and fair values of certain financial instruments that were not carried at fair value at September 30, 2011 and December 31, 2010 are presented in the table below.

 
September 30, 2011
 
December 31, 2010
(Dollars in millions)
Carrying
Value
 
Fair
Value
 
Carrying
 Value
 
Fair
Value
Financial assets
 
 
 
 
 
 
 
Held-to-maturity debt securities (1)
$
26,458

 
$
26,508

 
$
427

 
$
427

Loans
876,199

 
850,767

 
876,739

 
861,695

Financial liabilities
 
 
 
 
 
 
 
Deposits
1,041,353

 
1,041,840

 
1,010,430

 
1,010,460

Long-term debt
398,965

 
367,723

 
448,431

 
441,672

(1) 
For more information on held-to-maturity debt securities, see Note 5 – Securities.