Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements

v3.10.0.1
Fair Value Measurements
9 Months Ended
Sep. 30, 2018
Fair Value Disclosures [Abstract]  
Fair Value Measurements
Fair Value Measurements
Under applicable accounting standards, 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 under applicable accounting standards and conducts a review of its fair value hierarchy classifications on a quarterly basis. Transfers into or out of fair value hierarchy classifications are considered to be effective as of the beginning of the quarter in which they occur. During the nine months ended September 30, 2018, there were no changes to valuation approaches or techniques that had, or are expected to have, a material impact on the Corporation’s consolidated financial position or results of operations.
For more information regarding the fair value hierarchy and how the Corporation measures fair value and valuation processes and techniques, see Note 1 – Summary of Significant Accounting Principles and Note 20 – Fair Value Measurements to the Consolidated Financial Statements of the Corporation’s 2017 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.

Recurring Fair Value
Assets and liabilities carried at fair value on a recurring basis at September 30, 2018 and December 31, 2017, including financial instruments which the Corporation accounts for under the fair value option, are summarized in the following tables.
 
 
 
 
 
 
 
 
 
 
 
September 30, 2018
 
Fair Value Measurements
 
 
 
 
(Dollars in millions)
Level 1
 
Level 2
 
Level 3
 
Netting Adjustments (1)
 
Assets/Liabilities at Fair Value
Assets
 

 
 

 
 

 
 

 
 

Time deposits placed and other short-term investments
$
1,528

 
$

 
$

 
$

 
$
1,528

Federal funds sold and securities borrowed or purchased under agreements to resell

 
52,524

 

 

 
52,524

Trading account assets:
 

 
 

 
 

 
 

 
 

U.S. Treasury and agency securities (2)
39,677

 
1,251

 

 

 
40,928

Corporate securities, trading loans and other

 
27,281

 
1,534

 

 
28,815

Equity securities
66,850

 
28,049

 
290

 

 
95,189

Non-U.S. sovereign debt
5,667

 
19,524

 
469

 

 
25,660

Mortgage trading loans, MBS and ABS:
 
 
 
 
 
 
 
 
 
U.S. government-sponsored agency guaranteed

 
18,697

 

 

 
18,697

Mortgage trading loans, ABS and other MBS

 
8,350

 
1,479

 

 
9,829

Total trading account assets (3)
112,194

 
103,152

 
3,772

 

 
219,118

Derivative assets
9,961

 
322,940

 
4,380

 
(291,664
)
 
45,617

AFS debt securities:
 

 
 

 
 

 
 

 
 

U.S. Treasury and agency securities
50,900

 
1,406

 

 

 
52,306

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

Agency

 
136,112

 

 

 
136,112

Agency-collateralized mortgage obligations

 
5,678

 

 

 
5,678

Non-agency residential

 
1,593

 
544

 

 
2,137

Commercial

 
13,510

 

 

 
13,510

Non-U.S. securities
759

 
6,317

 
3

 

 
7,079

Other taxable securities

 
3,869

 
7

 

 
3,876

Tax-exempt securities

 
18,349

 
1

 

 
18,350

Total AFS debt securities
51,659

 
186,834

 
555

 

 
239,048

Other debt securities carried at fair value:
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
Non-agency residential

 
1,400

 
296

 

 
1,696

Non-U.S. securities
9,943

 
945

 

 

 
10,888

Other taxable securities

 
3

 

 

 
3

Total other debt securities carried at fair value
9,943

 
2,348

 
296

 

 
12,587

Loans and leases

 
5,321

 
410

 

 
5,731

Loans held-for-sale

 
2,590

 
526

 

 
3,116

Other assets (4)
18,858

 
1,740

 
3,140

 

 
23,738

Total assets
$
204,143

 
$
677,449

 
$
13,079

 
$
(291,664
)
 
$
603,007

Liabilities
 

 
 

 
 

 
 

 
 

Interest-bearing deposits in U.S. offices
$

 
$
529

 
$

 
$

 
$
529

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

 
34,242

 

 

 
34,242

Trading account liabilities:
 

 
 

 
 

 
 

 
 
U.S. Treasury and agency securities
15,403

 
362

 

 

 
15,765

Equity securities
38,743

 
4,673

 

 

 
43,416

Non-U.S. sovereign debt
12,496

 
9,863

 

 

 
22,359

Corporate securities and other

 
8,407

 
17

 

 
8,424

Total trading account liabilities
66,642

 
23,305

 
17

 

 
89,964

Derivative liabilities
9,142

 
309,966

 
4,950

 
(287,869
)
 
36,189

Short-term borrowings

 
1,789

 

 

 
1,789

Accrued expenses and other liabilities
22,667

 
1,849

 

 

 
24,516

Long-term debt

 
27,754

 
923

 

 
28,677

Total liabilities
$
98,451

 
$
399,434

 
$
5,890

 
$
(287,869
)
 
$
215,906

(1) 
Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(2) 
Includes $19.9 billion of GSE obligations.
(3) 
Includes securities with a fair value of $14.2 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) 
Includes MSRs of $2.2 billion which are classified as Level 3 assets.
 
 
 
 
 
 
 
 
 
 
 
December 31, 2017
 
Fair Value Measurements
 
 
 
 
(Dollars in millions)
Level 1
 
Level 2
 
Level 3
 
Netting Adjustments (1)
 
Assets/Liabilities at Fair Value
Assets
 

 
 

 
 

 
 

 
 

Time deposits placed and other short-term investments
$
2,234

 
$

 
$

 
$

 
$
2,234

Federal funds sold and securities borrowed or purchased under agreements to resell

 
52,906

 

 

 
52,906

Trading account assets:
 

 
 

 
 

 
 

 
 

U.S. Treasury and agency securities (2)
38,720

 
1,922

 

 

 
40,642

Corporate securities, trading loans and other

 
28,714

 
1,864

 

 
30,578

Equity securities
60,747

 
23,958

 
235

 

 
84,940

Non-U.S. sovereign debt
6,545

 
15,839

 
556

 

 
22,940

Mortgage trading loans, MBS and ABS:
 
 
 
 
 
 
 
 
 
U.S. government-sponsored agency guaranteed

 
20,586

 

 

 
20,586

Mortgage trading loans, ABS and other MBS

 
8,174

 
1,498

 

 
9,672

Total trading account assets (3)
106,012

 
99,193

 
4,153

 

 
209,358

Derivative assets
6,305

 
341,178

 
4,067

 
(313,788
)
 
37,762

AFS debt securities:
 

 
 

 
 

 
 

 
 

U.S. Treasury and agency securities
51,915

 
1,608

 

 

 
53,523

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

Agency

 
192,929

 

 

 
192,929

Agency-collateralized mortgage obligations

 
6,804

 

 

 
6,804

Non-agency residential

 
2,669

 

 

 
2,669

Commercial

 
13,684

 

 

 
13,684

Non-U.S. securities
772

 
5,880

 
25

 

 
6,677

Other taxable securities

 
5,261

 
509

 

 
5,770

Tax-exempt securities

 
20,106

 
469

 

 
20,575

Total AFS debt securities
52,687

 
248,941

 
1,003

 

 
302,631

Other debt securities carried at fair value:
 
 
 
 
 
 
 
 
 
Mortgage-backed securities:
 
 
 
 
 
 
 
 
 
Non-agency residential

 
2,769

 

 

 
2,769

Non-U.S. securities
8,191

 
1,297

 

 

 
9,488

Other taxable securities

 
229

 

 

 
229

Total other debt securities carried at fair value
8,191

 
4,295

 

 

 
12,486

Loans and leases

 
5,139

 
571

 

 
5,710

Loans held-for-sale

 
1,466

 
690

 

 
2,156

Other assets (4)
19,367

 
789

 
2,425

 

 
22,581

Total assets
$
194,796

 
$
753,907

 
$
12,909

 
$
(313,788
)
 
$
647,824

Liabilities
 

 
 

 
 

 
 

 
 

Interest-bearing deposits in U.S. offices
$

 
$
449

 
$

 
$

 
$
449

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

 
36,182

 

 

 
36,182

Trading account liabilities:
 

 
 

 
 

 
 

 
 
U.S. Treasury and agency securities
17,266

 
734

 

 

 
18,000

Equity securities
33,019

 
3,885

 

 

 
36,904

Non-U.S. sovereign debt
11,976

 
7,382

 

 

 
19,358

Corporate securities and other

 
6,901

 
24

 

 
6,925

Total trading account liabilities
62,261

 
18,902

 
24

 

 
81,187

Derivative liabilities
6,029

 
334,261

 
5,781

 
(311,771
)
 
34,300

Short-term borrowings

 
1,494

 

 

 
1,494

Accrued expenses and other liabilities
21,887

 
945

 
8

 

 
22,840

Long-term debt

 
29,923

 
1,863

 

 
31,786

Total liabilities
$
90,177

 
$
422,156

 
$
7,676

 
$
(311,771
)
 
$
208,238


(1) 
Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(2) 
Includes $21.3 billion of GSE obligations.
(3) 
Includes securities with a fair value of $16.8 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) 
Includes MSRs of $2.3 billion which are classified as Level 3 assets.
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 nine months ended September 30, 2018 and 2017, including net realized and unrealized gains (losses) included in earnings and accumulated OCI.
 
 
 
 
 
 
 
 
 
 
 
 
Level 3 – Fair Value Measurements for the Three Months Ended September 30, 2018 (1)
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance
July 1
2018
Total Realized/Unrealized Gains (Losses) (2)
Gains
(Losses)
in OCI
(3)
Gross
Gross
Transfers
into
Level 3 
Gross
Transfers
out of
Level 3 
Balance
September 30
2018
Change in Unrealized Gains (Losses) Related to Financial Instruments Still Held (2)
(Dollars in millions)
Purchases
Sales
Issuances
Settlements
Trading account assets:
 

 

 

 

 
 
 
 

 

 

 
Corporate securities, trading loans and other
$
1,638

$
14

$

$
54

$
(87
)
$

$
(175
)
$
269

$
(179
)
$
1,534

$
(14
)
Equity securities
228

8


21




43

(10
)
290

8

Non-U.S. sovereign debt
368

10

(13
)




109

(5
)
469

11

Mortgage trading loans, ABS and other MBS
1,523

16

(1
)
75

(184
)

(29
)
191

(112
)
1,479

8

Total trading account assets
3,757

48

(14
)
150

(271
)

(204
)
612

(306
)
3,772

13

Net derivative assets (4)
(1,588
)
(53
)

23

(66
)

111

20

983

(570
)
(51
)
AFS debt securities:
 

 

 

 

 

 

 

 

 

 

 
Non-agency residential MBS
453

31

(28
)

(72
)


235

(75
)
544


Non-U.S. securities
3









3


Other taxable securities
99

(1
)
(3
)

(22
)



(66
)
7


Tax-exempt securities
1









1


Total AFS debt securities
556

30

(31
)

(94
)


235

(141
)
555


Other debt securities carried at fair value – Non-agency residential MBS
287

(23
)





60

(28
)
296

(10
)
Loans and leases (5, 6)
493




(62
)

(21
)


410

(1
)
Loans held-for-sale (5)
577

12

(4
)
39



(82
)
12

(28
)
526

9

Other assets (6, 7)
3,184

121



(22
)
31

(174
)


3,140

55

Trading account liabilities – Corporate securities and other
(35
)
9


9






(17
)
(6
)
Long-term debt (5)
(1,225
)
11

(1
)


(11
)
106

(106
)
303

(923
)
13

(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly trading account profits; Net derivative assets - primarily trading account profits and other income; Other debt securities carried at fair value - other income; Loans and leases - other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - trading account profits. For MSRs, the amounts reflect the changes in modeled MSR fair value due to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve, and periodic adjustments to the valuation model to reflect changes in the modeled relationships between inputs and projected cash flows, as well as changes in cash flow assumptions including cost to service.
(3) 
Includes unrealized gains (losses) in OCI on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. For additional information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K.
(4) 
Net derivative assets include derivative assets of $4.4 billion and derivative liabilities of $5.0 billion.
(5) 
Amounts represent instruments that are accounted for under the fair value option.
(6) 
Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales.
(7) 
Settlements primarily represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time.
Transfers into Level 3, primarily due to decreased price observability, during the three months ended September 30, 2018 included $612 million of trading account assets, $235 million of AFS debt securities, $60 million of other debt securities carried at fair value and $106 million of long-term debt. Transfers occur on a regular basis for 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.
Transfers out of Level 3, primarily due to increased price observability, during the three months ended September 30, 2018 included $306 million of trading account assets, $983 million of net derivative assets, $141 million of AFS debt securities and $303 million of long-term debt.
 
 
 
 
 
 
 
 
 
 
 
 
Level 3 – Fair Value Measurements for the Three Months Ended September 30, 2017 (1)
 
 
 
 
Balance
July 1
2017
Total Realized/Unrealized Gains (Losses) (2)
Gains
(Losses)
in OCI
(3)
Gross
Gross
Transfers
into
Level 3 
Gross
Transfers
out of
Level 3 
Balance
September 30
2017
Change in Unrealized Gains (Losses) Related to Financial Instruments Still Held (2)
(Dollars in millions)
Purchases
Sales
Issuances
Settlements
Trading account assets:
 

 

 

 
 
 
 

 
 

 

 
Corporate securities, trading loans and other
$
1,777

$
77

$

$
35

$
(79
)
$
5

$
(208
)
$
288

$
(153
)
$
1,742

$
35

Equity securities
229

8


3

(3
)


17

(10
)
244

10

Non-U.S. sovereign debt
506

33

18




(5
)


552

33

Mortgage trading loans, ABS and other MBS
1,232

10

(1
)
150

(157
)

(46
)
83

(19
)
1,252

(2
)
Total trading account assets
3,744

128

17

188

(239
)
5

(259
)
388

(182
)
3,790

76

Net derivative assets (4)
(1,803
)
(252
)

150

(367
)

278

7

(36
)
(2,023
)
(283
)
AFS debt securities:
 

 

 

 
 
 
 

 

 

 

 
Non-U.S. securities
139

1

4

7



(115
)


36


Other taxable securities
483


1




(1
)


483


Tax-exempt securities
518


1




(7
)

(45
)
467


Total AFS debt securities
1,140

1

6

7



(123
)

(45
)
986


Other debt securities carried at fair value – Non-agency residential MBS
23






(1
)


22


Loans and leases (5, 6)
667

2


2

(24
)

(29
)


618

2

Loans held-for-sale (5)
766

38

10


(4
)

(93
)
58


775

27

Other assets (6, 7)
2,795

124

(43
)

(80
)
69

(191
)


2,674

8

Federal funds purchased and securities loaned or sold under agreements to repurchase (5)
(135
)





135





Trading account liabilities – Corporate securities and other
(22
)
1



(3
)
(1
)



(25
)

Accrued expenses and other liabilities (5)
(9
)








(9
)

Long-term debt (5)
(1,646
)
(87
)
(7
)
63


(129
)
115

(244
)
45

(1,890
)
(87
)
(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly trading account profits; Net derivative assets - primarily trading account profits and other income; Loans and leases - other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - trading account profits. For MSRs, the amounts reflect the changes in modeled MSR fair value due to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve, and periodic adjustments to the valuation model to reflect changes in the modeled relationships between inputs and projected cash flows, as well as changes in cash flow assumptions including cost to service.
(3) 
Includes unrealized gains (losses) in OCI on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. For additional information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K.
(4) 
Net derivative assets include derivative assets of $3.9 billion and derivative liabilities of $5.9 billion.
(5) 
Amounts represent instruments that are accounted for under the fair value option.
(6) 
Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales.
(7) 
Settlements primarily represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time.
Transfers into Level 3, primarily due to decreased price observability, during the three months ended September 30, 2017 included $388 million of trading account assets and $244 million of long-term debt. Transfers occur on a regular basis for 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.
Transfers out of Level 3, primarily due to increased price observability, during the three months ended September 30, 2017 included $182 million of trading account assets.
 
 
 
 
 
 
 
 
 
 
 
 
Level 3 – Fair Value Measurements for the Nine Months Ended September 30, 2018 (1)
 
 
 
(Dollars in millions)
Balance
January 1
2018
Total Realized/Unrealized Gains (Losses) (2)
Gains
(Losses)
in OCI
(3)
Gross
Gross
Transfers
into
Level 3 
Gross
Transfers
out of
Level 3 
Balance
September 30
2018
Change in Unrealized Gains (Losses) Related to Financial Instruments Still Held (2)
Purchases
Sales
Issuances
Settlements
Trading account assets:
 

 

 

 

 
 
 
 

 

 

 
Corporate securities, trading loans and other
$
1,864

$
(14
)
$
(1
)
$
328

$
(298
)
$

$
(388
)
$
517

$
(474
)
$
1,534

$
(88
)
Equity securities
235

17


29

(11
)

(4
)
73

(49
)
290

17

Non-U.S. sovereign debt
556

39

(55
)
7

(50
)

(8
)
117

(137
)
469

40

Mortgage trading loans, ABS and other MBS
1,498

157

2

392

(760
)

(136
)
541

(215
)
1,479

92

Total trading account assets
4,153

199

(54
)
756

(1,119
)

(536
)
1,248

(875
)
3,772

61

Net derivative assets (4)
(1,714
)
203


371

(919
)

488

87

914

(570
)
(138
)
AFS debt securities:
 

 

 

 

 

 

 

 

 

 

 
Non-agency residential MBS

39

(42
)

(72
)


694

(75
)
544


Non-U.S. securities
25


(1
)

(10
)

(14
)
3


3


Other taxable securities
509

1

(5
)

(22
)

(10
)
60

(526
)
7


Tax-exempt securities
469







1

(469
)
1


Total AFS debt securities (5)
1,003

40

(48
)

(104
)

(24
)
758

(1,070
)
555


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

(27
)


(7
)


358

(28
)
296

(5
)
Loans and leases (6, 7)
571

(20
)


(71
)

(70
)


410

(17
)
Loans held-for-sale (6)
690

24

(31
)
51



(160
)
12

(60
)
526

18

Other assets (5, 7, 8)
2,425

389


2

(68
)
83

(585
)
929

(35
)
3,140

188

Trading account liabilities – Corporate securities and other
(24
)
11


9

(11
)
(2
)



(17
)
(7
)
Accrued expenses and other liabilities (6)
(8
)





8





Long-term debt (6)
(1,863
)
97

2

9


(131
)
429

(253
)
787

(923
)
87

(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly trading account profits; Net derivative assets - primarily trading account profits and other income; Other debt securities carried at fair value - other income; Loans and leases - other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - trading account profits. For MSRs, the amounts reflect the changes in modeled MSR fair value due to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve, and periodic adjustments to the valuation model to reflect changes in the modeled relationships between inputs and projected cash flows, as well as changes in cash flow assumptions including cost to service.
(3) 
Includes unrealized gains (losses) in OCI on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. For additional information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K.
(4) 
Net derivative assets include derivative assets of $4.4 billion and derivative liabilities of $5.0 billion.
(5) 
Transfer primarily relates to the reclassification of certain securities.
(6) 
Amounts represent instruments that are accounted for under the fair value option.
(7) 
Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales.
(8) 
Settlements primarily represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time.
Transfers into Level 3, primarily due to decreased price observability, during the nine months ended September 30, 2018 included $1.2 billion of trading account assets, $758 million of AFS debt securities, $358 million of other debt securities carried at fair value and $253 million of long-term debt. Transfers occur on a regular basis for 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.
Transfers out of Level 3, primarily due to increased price observability, during the nine months ended September 30, 2018 included $875 million of trading account assets, $914 million of net derivatives assets and $787 million of long-term debt.
 
 
 
 
 
 
 
 
 
 
 
 
Level 3 – Fair Value Measurements for the Nine Months Ended September 30, 2017 (1)
 
 
 
 
Balance
January 1
2017
Total Realized/Unrealized Gains (Losses) (2)
Gains
(Losses)
in OCI
(3)
Gross
Gross
Transfers
into
Level 3 
Gross
Transfers
out of
Level 3 
Balance
September 30
2017
Change in Unrealized Gains (Losses) Related to Financial Instruments Still Held (2)
(Dollars in millions)
Purchases
Sales
Issuances
Settlements
Trading account assets:
 

 

 

 
 
 
 

 
 

 

 
Corporate securities, trading loans and other
$
2,777

$
225

$

$
353

$
(679
)
$
5

$
(443
)
$
506

$
(1,002
)
$
1,742

$
72

Equity securities
281

23


45

(67
)

(10
)
119

(147
)
244

11

Non-U.S. sovereign debt
510

64

12

26

(59
)

(73
)
72


552

60

Mortgage trading loans, ABS and other MBS
1,211

195

(2
)
747

(846
)

(169
)
187

(71
)
1,252

107

Total trading account assets
4,779

507

10

1,171

(1,651
)
5

(695
)
884

(1,220
)
3,790

250

Net derivative assets (4)
(1,313
)
(1,098
)

558

(843
)

722

36

(85
)
(2,023
)
(561
)
AFS debt securities:
 

 

 

 
 
 
 

 

 

 

 
Non-U.S. securities
229

2

16

49



(260
)


36


Other taxable securities
594

3

6

5



(31
)

(94
)
483


Tax-exempt securities
542


1


(56
)

(10
)
35

(45
)
467


Total AFS debt securities
1,365

5

23

54

(56
)

(301
)
35

(139
)
986


Other debt securities carried at fair value – Non-agency residential MBS
25

(1
)




(2
)


22


Loans and leases (5, 6)
720

20


2

(24
)

(93
)

(7
)
618

18

Loans held-for-sale (5)
656

109

7

2

(159
)

(281
)
473

(32
)
775

60

Other assets (6, 7)
2,986

93

(31
)
2

(74
)
207

(573
)
64


2,674

(181
)
Federal funds purchased and securities loaned or sold under agreements to repurchase (5)
(359
)
(5
)



(12
)
171

(58
)
263


(5
)
Trading account liabilities – Corporate securities and other
(27
)
13


4

(13
)
(2
)



(25
)
(1
)
Accrued expenses and other liabilities (5)
(9
)








(9
)

Long-term debt (5)
(1,514
)
(160
)
(18
)
81


(279
)
398

(530
)
132

(1,890
)
(158
)
(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly trading account profits; Net derivative assets - primarily trading account profits and other income; Other debt securities carried at fair value - other income; Loans and leases - other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - trading account profits. For MSRs, the amounts reflect the changes in modeled MSR fair value due to observed changes in interest rates, volatility, spreads and the shape of the forward swap curve, and periodic adjustments to the valuation model to reflect changes in the modeled relationships between inputs and projected cash flows, as well as changes in cash flow assumptions including cost to service.  
(3) 
Includes unrealized gains (losses) in OCI on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. For additional information, see Note 1 – Summary of Significant Accounting Principles to the Consolidated Financial Statements of the Corporation’s 2017 Annual Report on Form 10-K.
(4) 
Net derivative assets include derivative assets of $3.9 billion and derivative liabilities of $5.9 billion.
(5) 
Amounts represent instruments that are accounted for under the fair value option.
(6) 
Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales.
(7) 
Settlements primarily represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time.
Transfers into Level 3, primarily due to decreased price observability, during the nine months ended September 30, 2017 included $884 million of trading account assets, $473 million of LHFS and $530 million of long-term debt. Transfers occur on a regular basis for 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.
Transfers out of Level 3, primarily due to increased price observability, during the nine months ended September 30, 2017 included $1.2 billion of trading account assets, $139 million of AFS debt securities, $263 million of federal funds purchased and securities loaned or sold under agreements to repurchase and $132 million of long-term debt.
The following tables present information about significant unobservable inputs related to the Corporation’s material categories of Level 3 financial assets and liabilities at September 30, 2018 and December 31, 2017.
 
 
 
 
 
 
Quantitative Information about Level 3 Fair Value Measurements at September 30, 2018
 
 
 
 
 
 
(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
$
1,615

Discounted cash flow, Market comparables
Yield
0% to 25%
7%
Trading account assets – Mortgage trading loans, ABS and other MBS
353

Prepayment speed
0% to 19% CPR
11%
Loans and leases
410

Default rate
0% to 3% CDR
1%
Loans held-for-sale
1

Loss severity
0% to 51%
17%
AFS debt securities, primarily non-agency residential
555

Price
$0 to $141
$75
Other debt securities carried at fair value - Non-agency residential
296

 
 
 
Instruments backed by commercial real estate assets
$
361

Discounted cash flow
Yield
0% to 25%
7%
Trading account assets – Corporate securities, trading loans and other
272

Price
$0 to $102
$78
Trading account assets – Mortgage trading loans, ABS and other MBS
89

 
 
 
Commercial loans, debt securities and other
$
3,293

Discounted cash flow, Market comparables
Yield
1% to 46%
14%
Trading account assets – Corporate securities, trading loans and other
1,262

Prepayment speed
10% to 20%
14%
Trading account assets – Non-U.S. sovereign debt
469

Default rate
3% to 4%
4%
Trading account assets – Mortgage trading loans, ABS and other MBS
1,037

Loss severity
35% to 40%
38%
Loans held-for-sale
525

Price
$0 to $141
$65
Other assets, primarily auction rate securities
$
950

Discounted cash flow, Market comparables
Price
$10 to $100
$96

 
 
 
 

 
 
 
 
MSRs
$
2,190

Discounted cash flow
Weighted-average life, fixed rate (4)
0 to 14 years
6 years
 
 
Weighted-average life, variable rate (4)
0 to 10 years
3 years
 
 
Option-adjusted spread, fixed rate
9% to 14%
10%
 
 
Option-adjusted spread, variable rate
9% to 15%
12%
Structured liabilities
 
 
 
 
 
Long-term debt
$
(923
)
Discounted cash flow, Market comparables, Industry standard derivative pricing (2)
Equity correlation
9% to 100%
61%
 
 
Long-dated equity volatilities
4% to 79%
27%
 
 
Yield
7% to 46%
18%
 
 
Price
$0 to $100
$70
Net derivative assets
 
 
 
 
 
Credit derivatives
$
(304
)
Discounted cash flow, Stochastic recovery correlation model
Yield
2% to 12%
4%
 
 
Upfront points
0 points to 100 points
69 points
 
 
Credit correlation
70%
n/a
 
 
Prepayment speed
15% to 20% CPR
15%
 
 
Default rate
1% to 4% CDR
2%
 
 
Loss severity
35%
n/a
 
 
Price
$0 to $101
$77
Equity derivatives
$
(857
)
Industry standard derivative pricing (2)
Equity correlation
9% to 100%
61%
 
 
Long-dated equity volatilities
4% to 79%
27%
Commodity derivatives
$
11

Discounted cash flow, Industry standard derivative pricing (2)
Natural gas forward price
$1/MMBtu to $11/MMBtu
$3/MMBtu
 
 
Correlation
53% to 89%
78%
 
 
Volatilities