NOTE 16 – 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 that may be used to measure fair value. 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 22 – Fair Value Measurements to the Consolidated Financial Statements of the Corporation’s 2010 Annual Report on Form 10-K. The Corporation accounts for certain corporate loans and loan commitments, LHFS, structured reverse repurchase agreements, long-term deposits and long-term debt under the fair value option. For more information, see Note 17 – Fair Value Option.

Recurring Fair Value

     Assets and liabilities carried at fair value on a recurring basis at June 30, 2011 and December 31, 2010, including financial instruments which the Corporation accounts for under the fair value option, are summarized in the following tables.

		June 30, 2011
		Fair Value Measurements
														Netting				Assets/Liabilities
(Dollars in millions)		Level 1 (1)				Level 2 (1)				Level 3				Adjustments (2)				at Fair Value
Assets
Federal funds sold and securities borrowed or purchased under agreements to resell		$	-			$	95,115			$	-			$	-			$	95,115
Trading account assets:
U.S. government and agency securities			26,141				19,827				-				-				45,968
Corporate securities, trading loans and other			1,165				40,692				7,452				-				49,309
Equity securities			28,057				9,082				662				-				37,801
Non-U.S. sovereign debt			35,309				11,023				391				-				46,723
Mortgage trading loans and ABS			-				11,619				5,519				-				17,138
Total trading account assets			90,672				92,243				14,024				-				196,939
Derivative assets (3)			3,262				1,410,699				15,214				(1,362,577	)			66,598
AFS debt securities:
U.S. Treasury securities and agency securities			46,402				2,867				-				-				49,269
Mortgage-backed securities:
Agency			-				181,616				-				-				181,616
Agency-collateralized mortgage obligations			-				49,056				55				-				49,111
Non-agency residential			-				18,481				1,094				-				19,575
Non-agency commercial			-				6,700				18				-				6,718
Non-U.S. securities			2,114				2,158				88				-				4,360
Corporate/Agency bonds			-				4,314				224				-				4,538
Other taxable securities			20				1,629				10,374				-				12,023
Tax-exempt securities			-				2,052				1,609				-				3,661
Total AFS debt securities			48,536				268,873				13,462				-				330,871
Loans and leases			-				-				9,597				-				9,597
Mortgage servicing rights			-				-				12,372				-				12,372
Loans held-for-sale			-				11,131				4,012				-				15,143
Other assets			29,988				31,670				4,495				-				66,153
Total assets		$	172,458			$	1,909,731			$	73,176			$	(1,362,577	)		$	792,788
Liabilities
Interest-bearing deposits in U.S. offices		$	-			$	3,334			$	-			$	-			$	3,334
Federal funds purchased and securities loaned or sold under agreements to repurchase			-				42,453				-				-				42,453
Trading account liabilities:
U.S. government and agency securities			22,164				3,388				-				-				25,552
Equity securities			12,993				3,431				-				-				16,424
Non-U.S. sovereign debt			19,659				2,403				-				-				22,062
Corporate securities and other			277				10,611				63				-				10,951
Total trading account liabilities			55,093				19,833				63				-				74,989
Derivative liabilities (3)			2,445				1,388,183				9,796				(1,346,010	)			54,414
Commercial paper and other short-term borrowings			-				4,121				744				-				4,865
Accrued expenses and other liabilities			23,157				1,464				777				-				25,398
Long-term debt			-				57,413				3,324				-				60,737
Total liabilities		$	80,695			$	1,516,801			$	14,704			$	(1,346,010	)		$	266,190

(1)		Gross transfers between Level 1 and Level 2 were approximately $400 million during the six months ended June 30, 2011.
(2)		Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(3)		For further disaggregation of derivative assets and liabilities, see Note 4 – Derivatives.

		December 31, 2010
		Fair Value Measurements
														Netting				Assets/Liabilities
(Dollars in millions)		Level 1 (1)				Level 2 (1)				Level 3				Adjustments (2)				at Fair Value
Assets
Federal funds sold and securities borrowed or purchased under agreements to resell		$	-			$	78,599			$	-			$	-			$	78,599
Trading account assets:
U.S. government and agency securities (3)			28,237				32,574				-				-				60,811
Corporate securities, trading loans and other			732				40,869				7,751				-				49,352
Equity securities			23,249				8,257				623				-				32,129
Non-U.S. sovereign debt			24,934				8,346				243				-				33,523
Mortgage trading loans and ABS			-				11,948				6,908				-				18,856
Total trading account assets			77,152				101,994				15,525				-				194,671
Derivative assets (4)			2,627				1,516,244				18,773				(1,464,644	)			73,000
AFS debt securities:
U.S. Treasury securities and agency securities			46,003				3,102				-				-				49,105
Mortgage-backed securities:
Agency			-				191,213				4				-				191,217
Agency-collateralized mortgage obligations			-				37,017				-				-				37,017
Non-agency residential			-				21,649				1,468				-				23,117
Non-agency commercial			-				6,833				19				-				6,852
Non-U.S. securities			1,440				2,696				3				-				4,139
Corporate/Agency bonds			-				5,154				137				-				5,291
Other taxable securities			20				2,354				13,018				-				15,392
Tax-exempt securities			-				4,273				1,224				-				5,497
Total AFS debt securities			47,463				274,291				15,873				-				337,627
Loans and leases			-				-				3,321				-				3,321
Mortgage servicing rights			-				-				14,900				-				14,900
Loans held-for-sale			-				21,802				4,140				-				25,942
Other assets			32,624				31,051				6,856				-				70,531
Total assets		$	159,866			$	2,023,981			$	79,388			$	(1,464,644	)		$	798,591
Liabilities
Interest-bearing deposits in U.S. offices		$	-			$	2,732			$	-			$	-			$	2,732
Federal funds purchased and securities loaned or sold under agreements to repurchase			-				37,424				-				-				37,424
Trading account liabilities:
U.S. government and agency securities			23,357				5,983				-				-				29,340
Equity securities			14,568				914				-				-				15,482
Non-U.S. sovereign debt			14,748				1,065				-				-				15,813
Corporate securities and other			224				11,119				7				-				11,350
Total trading account liabilities			52,897				19,081				7				-				71,985
Derivative liabilities (4)			1,799				1,492,963				11,028				(1,449,876	)			55,914
Commercial paper and other short-term borrowings			-				6,472				706				-				7,178
Accrued expenses and other liabilities			31,470				931				828				-				33,229
Long-term debt			-				47,998				2,986				-				50,984
Total liabilities		$	86,166			$	1,607,601			$	15,555			$	(1,449,876	)		$	259,446

(1)		Gross transfers between Level 1 and Level 2 were approximately $1.3 billion during the year ended December 31, 2010.
(2)		Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(3)		Certain prior period amounts have been reclassified to conform to current period presentation.
(4)		For further disaggregation of derivative assets and liabilities, see Note 4 – Derivatives.

     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, 2011 and 2010, including net realized and unrealized gains (losses) included in earnings and accumulated OCI.

Level 3 – Fair Value Measurements
		Three Months Ended June 30, 2011
										Gains				Gains																				Gross				Gross
		Balance								(Losses)				(Losses)																				Transfers				Transfers				Balance
		April 1				Consolidation				Included in				Included in				Gross																into				out of				June 30
(Dollars in millions)		2011 (1)				of VIEs				Earnings				OCI				Purchases				Sales				Issuances				Settlements				Level 3 (1)				Level 3 (1)				2011 (1)
Trading account assets:
Corporate securities, trading loans and other		$	7,578			$	-			$	181			$	-			$	2,030			$	(2,187	)		$	-			$	(338	)		$	246			$	(58	)		$	7,452
Equity securities			734				-				24				-				75				(136	)			-				(115	)			81				(1	)			662
Non-U.S. sovereign debt			252				-				80				-				74				(11	)			-				(3	)			3				(4	)			391
Mortgage trading loans and ABS			6,697				-				80				-				1,066				(2,160	)			-				(164	)			-				-				5,519
Total trading account assets			15,261				-				365				-				3,245				(4,494	)			-				(620	)			330				(63	)			14,024
Net derivative assets (2)			6,419				-				1,807				-				384				(512	)			-				(2,390	)			33				(323	)			5,418
AFS debt securities:
Mortgage-backed securities:
Agency-collateralized mortgage obligations			56				-				-				-				-				-				-				(1	)			-				-				55
Non-agency residential			1,203				-				(29	)			(6	)			2				(53	)			-				(27	)			4				-				1,094
Non-agency commercial			19				-				-				-				-				-				-				(1	)			-				-				18
Non-U.S. securities			-				-				-				-				-				-				-				-				88				-				88
Corporate/Agency bonds			133				-				-				(2	)			86				-				-				-				7				-				224
Other taxable securities			11,024				-				23				5				898				(1	)			-				(1,573	)			-				(2	)			10,374
Tax-exempt securities			1,146				-				9				(39	)			683				(23	)			-				(205	)			38				-				1,609
Total AFS debt securities			13,581				-				3				(42	)			1,669				(77	)			-				(1,807	)			137				(2	)			13,462
Loans and leases (3, 4)			3,619				5,194				37				-				21				(267	)			1,821				(828	)			-				-				9,597
Mortgage servicing rights (4)			15,282				-				(2,447	)			-				-				(234	)			410				(639	)			-				-				12,372
Loans held-for-sale (3)			4,259				-				7				-				92				(70	)			-				(469	)			219				(26	)			4,012
Other assets (5)			4,193				-				180				-				95				(243	)			-				(105	)			375				-				4,495
Trading account liabilities – Corporate securities and other			(102	)			-				-				-				69				(30	)			-				-				-				-				(63	)
Commercial paper and other short-term borrowings (3)			(726	)			-				(36	)			-				-				-				-				18				-				-				(744	)
Accrued expenses and other liabilities (3)			(689	)			-				(79	)			-				-				-				(9	)			-				-				-				(777	)
Long-term debt (3)			(3,138	)			-				5				-				131				(55	)			(206	)			149				(393	)			183				(3,324	)

(1)		Assets (liabilities). For assets, increase / (decrease) to Level 3 and for liabilities, (increase) / decrease to Level 3.
(2)		Net derivatives at June 30, 2011 include derivative assets of $15.2 billion and derivative liabilities of $9.8 billion.
(3)		Amounts represent items which 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 AFS marketable equity securities.

     During the three months ended June 30, 2011, there were no significant transfers into or out of Level 3.

Level 3 – Fair Value Measurements
		Three Months Ended June 30, 2010
						Gains				Gains				Purchases,				Gross				Gross
		Balance				(Losses)				(Losses)				Sales,				Transfers				Transfers				Balance
		April 1				Included in				Included in				Issuances and				into				out of				June 30
(Dollars in millions)		2010 (1)				Earnings				OCI				Settlements				Level 3 (1)				Level 3 (1)				2010 (1)
Trading account assets:
Corporate securities, trading loans and other		$	10,646			$	(52	)		$	-			$	(854	)		$	715			$	(582	)		$	9,873
Equity securities			721				(39	)			-				4				41				(1	)			726
Non-U.S. sovereign debt			1,064				(73	)			-				(52	)			16				(3	)			952
Mortgage trading loans and ABS			7,832				182				-				(640	)			367				(233	)			7,508
Total trading account assets			20,263				18				-				(1,542	)			1,139				(819	)			19,059
Net derivative assets (2)			8,597				3,588				-				(2,555	)			(520	)			292				9,402
AFS debt securities:
Non-agency MBS:
Residential			5,376				(282	)			65				(3,594	)			599				(188	)			1,976
Commercial			138				-				-				-				-				(88	)			50
Non-U.S. securities			284				(3	)			(79	)			(25	)			56				-				233
Corporate/Agency bonds			639				-				14				(341	)			11				(19	)			304
Other taxable securities			16,192				28				(56	)			(2,702	)			439				(1	)			13,900
Tax-exempt securities			1,430				(48	)			(17	)			(69	)			-				(59	)			1,237
Total AFS debt securities			24,059				(305	)			(73	)			(6,731	)			1,105				(355	)			17,700
Loans and leases (3)			4,007				(256	)			-				147				-				-				3,898
Mortgage servicing rights			18,842				(3,998	)			-				(99	)			-				-				14,745
Loans held-for-sale (3)			5,984				131				-				(371	)			237				-				5,981
Other assets (4)			7,774				998				-				(1,050	)			-				(20	)			7,702
Trading account liabilities:
Non-U.S. sovereign debt			(369	)			2				-				(9	)			-				369				(7	)
Corporate securities and other			(30	)			(5	)			-				8				(46	)			-				(73	)
Total trading account liabilities			(399	)			(3	)			-				(1	)			(46	)			369				(80	)
Commercial paper and other short-term borrowings (3)			(696	)			(30	)			-				26				-				-				(700	)
Accrued expenses and other liabilities (3)			(694	)			(23	)			-				(201	)			-				-				(918	)
Long-term debt (3)			(4,560	)			586				-				188				(560	)			256				(4,090	)

(1)		Assets (liabilities). For assets, increase / (decrease) to Level 3 and for liabilities, (increase) / decrease to Level 3.
(2)		Net derivatives at June 30, 2010 include derivative assets of $22.7 billion and derivative liabilities of $13.3 billion.
(3)		Amounts represent instruments which are accounted for under the fair value option.
(4)		Other assets is primarily comprised of AFS marketable equity securities.

     During the three months ended June 30, 2010, the more significant transfers into Level 3 included $1.1 billion of trading account assets, $1.1 billion of AFS debt securities and $520 million of net derivative contracts. Transfers into Level 3 for trading account assets were driven by reduced price transparency as a result of lower levels of trading activity for certain corporate debt securities as well as a change in valuation methodology for certain ABS to a discounted cash flow model. Transfers into Level 3 for AFS debt securities were due to an increase in the number of non-agency RMBS and other taxable securities priced using a discounted cash flow model. Transfers into Level 3 for net derivative contracts primarily related to a lack of price observability for certain credit default and total return swaps.

     During the three months ended June 30, 2010, the more significant transfers out of Level 3 were $819 million of trading account assets, driven by increased price verification of certain mortgage-backed and corporate debt securities and increased price observability of index floaters based on the Bond Market Association (BMA) curve held in corporate securities, trading loans and other.

Level 3 – Fair Value Measurements
		Six Months Ended June 30, 2011
										Gains				Gains																				Gross				Gross
		Balance								(Losses)				(Losses)																				Transfers				Transfers				Balance
		January 1				Consolidation				Included in				Included in				Gross																into				out of				June 30
(Dollars in millions)		2011 (1)				of VIEs				Earnings				OCI				Purchases				Sales				Issuances				Settlements				Level 3 (1)				Level 3 (1)				2011 (1)
Trading account assets:
Corporate securities, trading loans and other		$	7,751			$	-			$	675			$	-			$	3,580			$	(4,537	)		$	-			$	(519	)		$	815			$	(313	)		$	7,452
Equity securities			623				-				67				-				175				(206	)			-				(115	)			120				(2	)			662
Non-U.S. sovereign debt			243				-				85				-				122				(15	)			-				(3	)			3				(44	)			391
Mortgage trading loans and ABS			6,908				-				642				-				1,832				(3,246	)			-				(228	)			1				(390	)			5,519
Total trading account assets			15,525				-				1,469				-				5,709				(8,004	)			-				(865	)			939				(749	)			14,024
Net derivative assets (2)			7,745				-				2,245				-				886				(1,260	)			-				(4,060	)			340				(478	)			5,418
AFS debt securities:
Mortgage-backed securities:
Agency			4				-				-				-				-				-				-				-				-				(4	)			-
Agency-collateralized mortgage obligations			-				-				-				-				56				-				-				(1	)			-				-				55
Non-agency residential			1,468				-				(45	)			(28	)			2				(290	)			-				(289	)			276				-				1,094
Non-agency commercial			19				-				-				-				-				-				-				(1	)			-				-				18
Non-U.S. securities			3				-				-				-				-				-				-				-				88				(3	)			88
Corporate/Agency bonds			137				-				2				(1	)			86				(7	)			-				-				7				-				224
Other taxable securities			13,018				-				52				62				1,450				(53	)			-				(4,155	)			2				(2	)			10,374
Tax-exempt securities			1,224				-				6				(33	)			683				(72	)			-				(237	)			38				-				1,609
Total AFS debt securities			15,873				-				15				-				2,277				(422	)			-				(4,683	)			411				(9	)			13,462
Loans and leases (3, 4)			3,321				5,194				209				-				21				(376	)			2,667				(1,444	)			5				-				9,597
Mortgage servicing rights (4)			14,900				-				(2,200	)			-				-				(234	)			1,251				(1,345	)			-				-				12,372
Loans held-for-sale (3)			4,140				-				185				-				123				(243	)			-				(592	)			441				(42	)			4,012
Other assets (5)			6,856				-				302				-				172				(1,184	)			-				(393	)			375				(1,633	)			4,495
Trading account liabilities – Corporate securities and other			(7	)			-				-				-				76				(132	)			-				-				-				-				(63	)
Commercial paper and other short-term borrowings (3)			(706	)			-				(82	)			-				-				-				-				44				-				-				(744	)
Accrued expenses and other liabilities (3)			(828	)			-				64				-				-				(4	)			(9	)			-				-				-				(777	)
Long-term debt (3)			(2,986	)			-				(143	)			-				215				(55	)			(249	)			388				(1,030	)			536				(3,324	)

(1)		Assets (liabilities). For assets, increase / (decrease) to Level 3 and for liabilities, (increase) / decrease to Level 3.
(2)		Net derivatives at June 30, 2011 include derivative assets of $15.2 billion and derivative liabilities of $9.8 billion.
(3)		Amounts represent items which 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 AFS marketable equity securities.

     During the six months ended June 30, 2011, the more significant transfers into Level 3 included $939 million of trading account assets and $1.0 billion of long-term debt accounted for under the fair value option. Transfers into Level 3 for trading account assets were primarily driven by certain CLOs which were transferred into Level 3 due to a lack of pricing transparency. Transfers into Level 3 for long-term debt were the result of an increase in unobservable inputs used in the pricing of certain equity-linked structured notes.

     During the six months ended June 30, 2011, the more significant transfers out of Level 3 included $749 million of trading account assets and $1.6 billion of other assets. Transfers out of Level 3 for trading account assets were primarily driven by increased price observability on certain RMBS and consumer ABS portfolios. Transfers out of Level 3 for other assets were the result of an initial public offering of an equity investment which occurred in the first quarter of 2011.

Level 3 – Fair Value Measurements
		Six Months Ended June 30, 2010
										Gains				Gains				Purchases,				Gross				Gross
		Balance								(Losses)				(Losses)				Sales,				Transfers				Transfers				Balance
		January 1				Consolidation				Included in				Included in				Issuances and				into				out of				June 30
(Dollars in millions)		2010 (1)				of VIEs				Earnings				OCI				Settlements				Level 3 (1)				Level 3 (1)				2010 (1)
Trading account assets:
Corporate securities, trading loans and other		$	11,080			$	117			$	354			$	-			$	(2,798	)		$	2,189			$	(1,069	)		$	9,873
Equity securities			1,084				-				(33	)			-				(326	)			75				(74	)			726
Non-U.S. sovereign debt			1,143				-				(155	)			-				(80	)			103				(59	)			952
Mortgage trading loans and ABS			7,770				175				157				-				(586	)			389				(397	)			7,508
Total trading account assets			21,077				292				323				-				(3,790	)			2,756				(1,599	)			19,059
Net derivative assets (2)			7,863				-				4,991				-				(4,451	)			768				231				9,402
AFS debt securities:
Non-agency MBS:
Residential			7,216				(96	)			(515	)			(310	)			(5,829	)			1,698				(188	)			1,976
Commercial			258				-				(13	)			(31	)			(128	)			52				(88	)			50
Non-U.S. securities			468				-				(124	)			(89	)			(78	)			56				-				233
Corporate/Agency bonds			927				-				(3	)			35				(666	)			30				(19	)			304
Other taxable securities			9,854				5,812				19				(119	)			(2,742	)			1,119				(43	)			13,900
Tax-exempt securities			1,623				-				(25	)			(9	)			(561	)			316				(107	)			1,237
Total AFS debt securities			20,346				5,716				(661	)			(523	)			(10,004	)			3,271				(445	)			17,700
Loans and leases (3)			4,936				-				(140	)			-				(898	)			-				-				3,898
Mortgage servicing rights			19,465				-				(4,696	)			-				(24	)			-				-				14,745
Loans held-for-sale (3)			6,942				-				67				-				(1,427	)			399				-				5,981
Other assets (4)			7,821				-				1,537				-				(1,421	)			-				(235	)			7,702
Trading account liabilities:
Non-U.S. sovereign debt			(386	)			-				23				-				(24	)			-				380				(7	)
Corporate securities and other			(10	)			-				(5	)			-				(9	)			(52	)			3				(73	)
Total trading account liabilities			(396	)			-				18				-				(33	)			(52	)			383				(80	)
Commercial paper and other short-term borrowings (3)			(707	)			-				(41	)			-				48				-				-				(700	)
Accrued expenses and other liabilities (3)			(891	)			-				50				-				(77	)			-				-				(918	)
Long-term debt (3)			(4,660	)			-				788				-				(264	)			(897	)			943				(4,090	)