Bank of America Corporation Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

Derivatives

Derivatives

12 Months Ended

Dec. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Balances

Derivatives are entered into on behalf of customers, for trading or to support risk management activities. Derivatives used in risk management activities include derivatives that may or may not be designated in qualifying hedge accounting relationships. Derivatives that are not designated in qualifying hedge accounting relationships are referred to as other risk management derivatives. For more information on the

Corporation’s derivatives and hedging activities, see Note 1 – Summary of Significant Accounting Principles. The following tables present derivative instruments included on the Consolidated Balance Sheet in derivative assets and liabilities at December 31, 2023 and 2022. Balances are presented on a gross basis, prior to the application of counterparty and cash collateral netting. Total derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements and have been reduced by cash collateral received or paid.



			December 31, 2023
			Gross Derivative Assets						Gross Derivative Liabilities
(Dollars in billions)	Contract/ Notional (1)		Trading and Other Risk Management Derivatives		Qualifying Accounting Hedges		Total		Trading and Other Risk Management Derivatives		Qualifying Accounting Hedges		Total
Interest rate contracts
Swaps	$	15,715.2	$	78.4	$	7.9	$	86.3	$	66.6	$	18.5	$	85.1
Futures and forwards	2,803.8		5.1		—		5.1		7.0		—		7.0
Written options (2)	1,807.7		—		—		—		31.7		—		31.7
Purchased options (3)	1,714.9		32.9		—		32.9		—		—		—
Foreign exchange contracts
Swaps	1,814.7		41.1		0.2		41.3		38.2		0.5		38.7
Spot, futures and forwards	3,561.7		37.2		6.1		43.3		40.3		6.2		46.5
Written options (2)	462.8		—		—		—		6.8		—		6.8
Purchased options (3)	405.3		6.2		—		6.2		—		—		—
Equity contracts
Swaps	427.0		13.3		—		13.3		16.7		—		16.7
Futures and forwards	136.9		2.1		—		2.1		1.6		—		1.6
Written options (2)	854.9		—		—		—		50.1		—		50.1
Purchased options (3)	716.2		44.1		—		44.1		—		—		—
Commodity contracts
Swaps	59.0		3.1		—		3.1		4.5		—		4.5
Futures and forwards	187.8		3.8		—		3.8		3.1		0.4		3.5
Written options (2)	67.1		—		—		—		3.3		—		3.3
Purchased options (3)	70.9		3.0		—		3.0		—		—		—
Credit derivatives (4)
Purchased credit derivatives:
Credit default swaps	312.8		1.7		—		1.7		2.5		—		2.5
Total return swaps/options	69.4		0.8		—		0.8		1.3		—		1.3
Written credit derivatives:
Credit default swaps	289.1		2.2		—		2.2		1.6		—		1.6
Total return swaps/options	68.6		1.1		—		1.1		0.3		—		0.3
Gross derivative assets/liabilities			$	276.1	$	14.2	$	290.3	$	275.6	$	25.6	$	301.2
Less: Legally enforceable master netting agreements							(221.6)						(221.6)
Less: Cash collateral received/paid							(29.4)						(36.2)
Total derivative assets/liabilities							$	39.3					$	43.4

(1)Represents the total contract/notional amount of derivative assets and liabilities outstanding.

(2)Includes certain out-of-the-money purchased options that have a liability amount primarily due to the deferral of option premiums to the end of the contract.

(3)Includes certain out-of-the-money written options that have an asset amount primarily due to the deferral of option premiums to the end of the contract.

(4)The net derivative asset (liability) and notional amount of written credit derivatives for which the Corporation held purchased credit derivatives with identical underlying referenced names were $520 million and $266.5 billion at December 31, 2023.



			December 31, 2022
			Gross Derivative Assets						Gross Derivative Liabilities
(Dollars in billions)	Contract/ Notional (1)		Trading and Other Risk Management Derivatives		Qualifying Accounting Hedges		Total		Trading and Other Risk Management Derivatives		Qualifying Accounting Hedges		Total
Interest rate contracts
Swaps	$	18,285.9	$	138.2	$	20.7	$	158.9	$	120.3	$	36.7	$	157.0
Futures and forwards	2,796.3		8.6		—		8.6		7.8		—		7.8
Written options (2)	1,657.9		—		—		—		41.4		—		41.4
Purchased options (3)	1,594.7		42.4		—		42.4		—		—		—
Foreign exchange contracts
Swaps	1,509.0		44.0		0.3		44.3		43.3		0.4		43.7
Spot, futures and forwards	4,159.3		59.9		0.1		60.0		62.1		0.6		62.7
Written options (2)	392.2		—		—		—		8.1		—		8.1
Purchased options (3)	362.6		8.3		—		8.3		—		—		—
Equity contracts
Swaps	394.0		10.8		—		10.8		12.2		—		12.2
Futures and forwards	114.6		3.3		—		3.3		1.0		—		1.0
Written options (2)	746.8		—		—		—		45.0		—		45.0
Purchased options (3)	671.6		40.9		—		40.9		—		—		—
Commodity contracts
Swaps	56.0		5.1		—		5.1		5.3		—		5.3
Futures and forwards	157.3		3.0		—		3.0		2.3		0.8		3.1
Written options (2)	59.5		—		—		—		3.3		—		3.3
Purchased options (3)	61.8		3.6		—		3.6		—		—		—
Credit derivatives (4)
Purchased credit derivatives:
Credit default swaps	319.9		2.8		—		2.8		1.6		—		1.6
Total return swaps/options	71.5		0.7		—		0.7		3.0		—		3.0
Written credit derivatives:
Credit default swaps	295.2		1.2		—		1.2		2.4		—		2.4
Total return swaps/options	85.3		4.4		—		4.4		0.9		—		0.9
Gross derivative assets/liabilities			$	377.2	$	21.1	$	398.3	$	360.0	$	38.5	$	398.5
Less: Legally enforceable master netting agreements							(315.9)						(315.9)
Less: Cash collateral received/paid							(33.8)						(37.8)
Total derivative assets/liabilities							$	48.6					$	44.8

(1)Represents the total contract/notional amount of derivative assets and liabilities outstanding.

(2)Includes certain out-of-the-money purchased options that have a liability amount primarily due to the deferral of option premiums to the end of the contract.

(3)Includes certain out-of-the-money written options that have an asset amount primarily due to the deferral of option premiums to the end of the contract.

(4)The net derivative asset (liability) and notional amount of written credit derivatives for which the Corporation held purchased credit derivatives with identical underlying referenced names were $(1.2) billion and $276.9 billion at December 31, 2022.

Offsetting of Derivatives

The Corporation enters into International Swaps and Derivatives Association, Inc. (ISDA) master netting agreements or similar agreements with substantially all of the Corporation’s derivative counterparties. Where legally enforceable, these master netting agreements give the Corporation, in the event of default by the counterparty, the right to liquidate securities held as collateral and to offset receivables and payables with the same counterparty. For purposes of the Consolidated Balance Sheet, the Corporation offsets derivative assets and liabilities and cash collateral held with the same counterparty where it has such a legally enforceable master netting agreement.

The following table presents derivative instruments included in derivative assets and liabilities on the Consolidated Balance

Sheet at December 31, 2023 and 2022 by primary risk (e.g., interest rate risk) and the platform, where applicable, on which these derivatives are transacted. Balances are presented on a gross basis, prior to the application of counterparty and cash collateral netting. Total gross derivative assets and liabilities are adjusted on an aggregate basis to take into consideration the effects of legally enforceable master netting agreements, which include reducing the balance for counterparty netting and cash collateral received or paid.

For more information on offsetting of securities financing agreements, see Note 10 – Securities Financing Agreements, Short-term Borrowings, Collateral and Restricted Cash.



Offsetting of Derivatives (1)

	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
(Dollars in billions)	December 31, 2023				December 31, 2022
Interest rate contracts
Over-the-counter	$	119.2	$	117.7	$	138.4	$	132.3
Exchange-traded	0.2		0.2		0.4		0.1
Over-the-counter cleared	4.4		3.3		71.4		71.1
Foreign exchange contracts
Over-the-counter	89.7		90.4		109.7		110.6
Over-the-counter cleared	0.2		0.2		1.3		1.2
Equity contracts
Over-the-counter	24.7		32.2		21.5		22.6
Exchange-traded	34.4		33.9		33.0		33.8
Commodity contracts
Over-the-counter	6.6		8.4		8.3		9.3
Exchange-traded	2.3		2.1		2.4		1.9
Over-the-counter cleared	0.4		0.5		0.3		0.3
Credit derivatives
Over-the-counter	5.7		5.6		8.9		7.5

Total gross derivative assets/liabilities, before netting
Over-the-counter	245.9		254.3		286.8		282.3
Exchange-traded	36.9		36.2		35.8		35.8
Over-the-counter cleared	5.0		4.0		73.0		72.6
Less: Legally enforceable master netting agreements and cash collateral received/paid
Over-the-counter	(212.1)		(218.9)		(243.8)		(248.2)
Exchange-traded	(35.4)		(35.4)		(33.5)		(33.5)
Over-the-counter cleared	(3.5)		(3.5)		(72.4)		(72.0)
Derivative assets/liabilities, after netting	36.8		36.7		45.9		37.0
Other gross derivative assets/liabilities (2)	2.5		6.7		2.7		7.8
Total derivative assets/liabilities	39.3		43.4		48.6		44.8
Less: Financial instruments collateral (3)	(15.5)		(13.0)		(18.5)		(7.4)
Total net derivative assets/liabilities	$	23.8	$	30.4	$	30.1	$	37.4

(1)Over-the-counter derivatives include bilateral transactions between the Corporation and a particular counterparty. Over-the-counter cleared derivatives include bilateral transactions between the Corporation and a counterparty where the transaction is cleared through a clearinghouse. Exchange-traded derivatives include listed options transacted on an exchange.

(2)Consists of derivatives entered into under master netting agreements where the enforceability of these agreements is uncertain under bankruptcy laws in some countries or industries.

(3)Amounts are limited to the derivative asset/liability balance and, accordingly, do not include excess collateral received/pledged. Financial instruments collateral includes securities collateral received or pledged and cash securities held and posted at third-party custodians that are not offset on the Consolidated Balance Sheet but shown as a reduction to derive net derivative assets and liabilities.

ALM and Risk Management Derivatives

The Corporation’s ALM and risk management activities include the use of derivatives to mitigate risk to the Corporation including derivatives designated in qualifying hedge accounting relationships and derivatives used in other risk management activities. Interest rate, foreign exchange, equity, commodity and credit contracts are utilized in the Corporation's ALM and risk management activities.

The Corporation maintains an overall interest rate risk management strategy that incorporates the use of interest rate contracts, which are generally non-leveraged generic interest rate and basis swaps, options, futures and forwards, to minimize significant fluctuations in earnings caused by interest rate volatility. The Corporation’s goal is to manage interest rate sensitivity and volatility so that movements in interest rates do not significantly adversely affect earnings or capital. As a result of interest rate fluctuations, hedged fixed-rate assets and liabilities appreciate or depreciate in fair value. Gains or losses on the derivative instruments that are linked to the hedged fixed-rate assets and liabilities are expected to substantially offset this unrealized appreciation or depreciation.

Market risk, including interest rate risk, can be substantial in the mortgage business. Market risk in the mortgage business is the risk that values of mortgage assets or revenues will be adversely affected by changes in market conditions such as interest rate movements. To mitigate the interest rate risk in mortgage banking production income, the Corporation utilizes forward loan sale commitments and other derivative

instruments, including purchased options, and certain debt securities. The Corporation also utilizes derivatives such as interest rate options, interest rate swaps, forward settlement contracts and eurodollar futures to hedge certain market risks of MSRs.

The Corporation uses foreign exchange contracts to manage the foreign exchange risk associated with certain foreign currency-denominated assets and liabilities, as well as the Corporation’s investments in non-U.S. subsidiaries. Exposure to loss on these contracts will increase or decrease over their respective lives as currency exchange and interest rates fluctuate.

The Corporation purchases credit derivatives to manage credit risk related to certain funded and unfunded credit exposures. Credit derivatives include credit default swaps (CDS), total return swaps and swaptions. These derivatives are recorded on the Consolidated Balance Sheet at fair value with changes in fair value recorded in other income.

Derivatives Designated as Accounting Hedges

The Corporation uses various types of interest rate and foreign exchange derivative contracts to protect against changes in the fair value of its assets and liabilities due to fluctuations in interest rates and foreign exchange rates (fair value hedges). The Corporation also uses these types of contracts to protect against changes in the cash flows of its assets and liabilities, and other forecasted transactions (cash flow hedges). The Corporation hedges its net investment in consolidated non-U.S.

operations determined to have functional currencies other than the U.S. dollar using forward exchange contracts and cross-currency basis swaps, and by issuing foreign currency- denominated debt (net investment hedges).

Fair Value Hedges

The table below summarizes information related to fair value hedges for 2023, 2022 and 2021.



Gains and Losses on Derivatives Designated as Fair Value Hedges



	Derivative			Hedged Item
(Dollars in millions)		2023		2022		2021		2023		2022		2021
Interest rate risk on long-term debt (1)		$	3,594	$	(26,654)	$	(7,018)	$	(3,652)	$	26,825	$	6,838
Interest rate and foreign currency risk (2)		(17)		(120)		(90)		27		119		79
Interest rate risk on available-for-sale securities (3)		(3,518)		21,991		5,203		3,417		(22,280)		(5,167)
Price risk on commodity inventory (4)		2		674		—		(2)		(674)		—
Total		$	61	$	(4,109)	$	(1,905)	$	(210)	$	3,990	$	1,750

(1)Amounts are recorded in interest expense in the Consolidated Statement of Income.

(2)Represents cross-currency interest rate swaps related to available-for-sale debt securities and long-term debt. For 2023, 2022 and 2021, the derivative amount includes gains (losses) of $6 million, $0 and $0 in interest income, $13 million, $(37) million and $(73) million in interest expense, $(51) million, $(81) million and $0 in market making and similar activities, and $15 million, $(2) million and $(17) million in accumulated OCI, respectively. Line item totals are in the Consolidated Statement of Income and on the Consolidated Balance Sheet.

(3)Amounts are recorded in interest income in the Consolidated Statement of Income.

(4)Amounts are recorded in market making and similar activities in the Consolidated Statement of Income.

The table below summarizes the carrying value of hedged assets and liabilities that are designated and qualifying in fair value hedging relationships along with the cumulative amount of fair value hedging adjustments included in the carrying value that have been recorded in the current hedging relationships. These fair value hedging adjustments are open basis adjustments that are not subject to amortization as long as the hedging relationship remains designated.



Designated Fair Value Hedged Assets and Liabilities

	December 31, 2023				December 31, 2022
(Dollars in millions)	Carrying Value		Cumulative Fair Value Adjustments (1)		Carrying Value		Cumulative Fair Value Adjustments (1)

Long-term debt (2)	$	203,986	$	(5,767)	$	187,402	$	(21,372)
Available-for-sale debt securities (2, 3, 4)	134,077		(1,793)		167,518		(18,190)
Trading account assets (5)	7,475		414		16,119		146

(1)Increase (decrease) to carrying value.

(2)At December 31, 2023 and 2022, the cumulative fair value adjustments remaining on long-term debt and available-for-sale debt securities from discontinued hedging relationships resulted in a decrease of $10.5 billion and an increase of $137 million in the related liability and a decrease in the related asset of $5.6 billion and $4.9 billion, which are being amortized over the remaining contractual life of the de-designated hedged items.

(3)These amounts include the amortized cost of the financial assets in closed portfolios used to designate hedging relationships in which the hedged item is a stated layer that is expected to be remaining at the end of the hedging relationship (i.e. portfolio layer hedging relationship). At December 31, 2023 and 2022, the amortized cost of the closed portfolios used in these hedging relationships was $39.1 billion and $21.4 billion, of which $22.5 billion and $9.2 billion were designated in a portfolio layer hedging relationship. At December 31, 2023 and 2022, the cumulative adjustment associated with these hedging relationships was an increase of $48 million and a decrease of $451 million.

(4)Carrying value represents amortized cost.

(5)Represents hedging activities related to certain commodities inventory.

Cash Flow and Net Investment Hedges

The following table summarizes certain information related to cash flow hedges and net investment hedges for 2023, 2022 and 2021. Of the $8.0 billion after-tax net loss ($10.7 billion pretax) on derivatives in accumulated OCI at December 31, 2023, losses of $3.4 billion after-tax ($4.6 billion pretax) related to both open and terminated cash flow hedges are expected to be reclassified into earnings in the next 12 months. These net losses reclassified into earnings are expected to primarily decrease net interest income related to the respective hedged items. For open cash flow hedges, the maximum length of time over which forecasted transactions are hedged is approximately ten years. For terminated cash flow hedges, the time period over which the forecasted transactions will be

recognized in interest income is approximately five years, with the aggregated amount beyond this time period being insignificant.

On November 15, 2023, Bloomberg Index Services Limited announced the permanent cessation of the Bloomberg Short-Term Bank Yield Index (BSBY) and all its tenors effective after final publication on November 15, 2024. The Corporation determined that certain forecasted BSBY-indexed interest payments, which had been designated in cash flow hedges, were no longer expected to occur beyond November 15, 2024 as they will transition to a new reference rate. Accordingly, during the fourth quarter of 2023, the Corporation reclassified $2.0 billion of pretax loss from accumulated OCI into market making and similar activities for the amount related to these forecasted transactions.



Gains and Losses on Derivatives Designated as Cash Flow and Net Investment Hedges



	Gains (Losses) Recognized in Accumulated OCI on Derivatives						Gains (Losses) in Income Reclassified from Accumulated OCI
(Dollars in millions, amounts pretax)	2023		2022		2021		2023		2022		2021
Cash flow hedges
Interest rate risk on variable-rate portfolios (1)	$	1,995	$	(13,492)	$	(2,686)	$	(3,176)	$	(338)	$	148
Price risk on forecasted MBS purchases (1)	6		(129)		(249)		(2)		11		26
Price risk on certain compensation plans (2)	48		(88)		93		25		29		55
Total	$	2,049	$	(13,709)	$	(2,842)	$	(3,153)	$	(298)	$	229
Net investment hedges
Foreign exchange risk (3)	$	(808)	$	1,710	$	1,451	$	143	$	3	$	23

(1)Amounts reclassified from accumulated OCI are recorded in interest income and market making and similar activities in the Consolidated Statement of Income.

(2)Amounts reclassified from accumulated OCI are recorded in compensation and benefits expense in the Consolidated Statement of Income.

(3)Amounts reclassified from accumulated OCI are recorded in other income in the Consolidated Statement of Income. Amounts excluded from effectiveness testing and recognized in market making and similar activities were gains of $195 million and losses of $38 million and $123 million in 2023, 2022 and 2021, respectively.

Other Risk Management Derivatives

Other risk management derivatives are used by the Corporation to reduce certain risk exposures by economically hedging various assets and liabilities. The table below presents gains (losses) on these derivatives for 2023, 2022 and 2021. These gains (losses) are largely offset by the income or expense recorded on the hedged item.



Gains and Losses on Other Risk Management Derivatives


(Dollars in millions)	2023		2022		2021
Interest rate risk on mortgage activities (1, 2)	$	16	$	(326)	$	(18)
Credit risk on loans (2)	(70)		(37)		(25)
Interest rate and foreign currency risk on asset and liability management activities (3)	777		4,713		1,757
Price risk on certain compensation plans (4)	584		(1,073)		917

(1)Includes hedges of interest rate risk on MSRs and IRLCs to originate mortgage loans that will be held for sale.

(2)Gains (losses) on these derivatives are recorded in other income.

(3)Gains (losses) on these derivatives are recorded in market making and similar activities. For 2023, includes $447 million of positive fair value adjustments related to the interest rate swaps that occurred after de-designation of BSBY hedges and prior to re-designation of the interest rate swaps into new hedges.

(4)Gains (losses) on these derivatives are recorded in compensation and benefits expense.

Transfers of Financial Assets with Risk Retained through Derivatives

The Corporation enters into certain transactions involving the transfer of financial assets that are accounted for as sales where substantially all of the economic exposure to the transferred financial assets is retained through derivatives (e.g., interest rate and/or credit), but the Corporation does not retain control over the assets transferred. At December 31, 2023 and 2022, the Corporation had transferred $4.1 billion and $4.8 billion of non-U.S. government-guaranteed mortgage-backed securities to a third-party trust and retained economic exposure to the transferred assets through derivative contracts. In connection with these transfers, the Corporation received gross cash proceeds of $4.2 billion and $4.9 billion at the transfer dates. At December 31, 2023 and 2022, the fair value of the transferred securities was $4.1 billion and $4.7 billion.

Sales and Trading Revenue

The Corporation enters into trading derivatives to facilitate client transactions and to manage risk exposures arising from trading account assets and liabilities. It is the Corporation’s policy to include these derivative instruments in its trading activities,

which include derivatives and non-derivative cash instruments. The resulting risk from these derivatives is managed on a portfolio basis as part of the Corporation’s Global Markets business segment. The related sales and trading revenue generated within Global Markets is recorded in various income statement line items, including market making and similar activities and net interest income as well as other revenue categories.

Sales and trading revenue includes changes in the fair value and realized gains and losses on the sales of trading and other assets, net interest income, and fees primarily from commissions on equity securities. Revenue is generated by the difference in the client price for an instrument and the price at which the trading desk can execute the trade in the dealer market. For equity securities, commissions related to purchases and sales are recorded in the “Other” column in the Sales and Trading Revenue table. Changes in the fair value of these securities are included in market making and similar activities. For debt securities, revenue, with the exception of interest associated with the debt securities, is typically included in market making and similar activities. Unlike commissions for equity securities, the initial revenue related to broker-dealer services for debt securities is typically included in the pricing of the instrument rather than being charged through separate fee arrangements. Therefore, this revenue is recorded in market making and similar activities as part of the initial mark to fair value. For derivatives, the majority of revenue is included in market making and similar activities. In transactions where the Corporation acts as agent, which include exchange-traded futures and options, fees are recorded in other income.

The following table, which includes both derivatives and non-derivative cash instruments, identifies the amounts in the respective income statement line items attributable to the Corporation’s sales and trading revenue in Global Markets, categorized by primary risk, for 2023, 2022 and 2021. This table includes debit valuation adjustment (DVA) and funding valuation adjustment (FVA) gains (losses). Global Markets results in Note 23 – Business Segment Information are presented on a fully taxable-equivalent (FTE) basis. The following table is not presented on an FTE basis.



Sales and Trading Revenue

		Market making and similar activities		Net Interest Income		Other (1)		Total
(Dollars in millions)	2023
Interest rate risk		$	3,192	$	366	$	402	$	3,960
Foreign exchange risk		1,800		149		87		2,036
Equity risk		6,628		(1,955)		1,774		6,447
Credit risk		1,205		2,462		340		4,007
Other risk (2)		602		(155)		(67)		380
Total sales and trading revenue		$	13,427	$	867	$	2,536	$	16,830

	2022
Interest rate risk		$	1,919	$	1,619	$	392	$	3,930
Foreign exchange risk		1,981		46		(44)		1,983
Equity risk		6,077		(1,288)		1,757		6,546
Credit risk		592		2,228		177		2,997
Other risk (2)		835		(171)		15		679
Total sales and trading revenue		$	11,404	$	2,434	$	2,297	$	16,135

	2021
Interest rate risk		$	523	$	1,794	$	217	$	2,534
Foreign exchange risk		1,505		(80)		14		1,439
Equity risk		4,581		(5)		1,834		6,410
Credit risk		1,390		1,684		556		3,630
Other risk (2)		759		(128)		124		755
Total sales and trading revenue		$	8,758	$	3,265	$	2,745	$	14,768

(1)Represents amounts in investment and brokerage services and other income that are recorded in Global Markets and included in the definition of sales and trading revenue. Includes investment and brokerage services revenue of $2.0 billion, $2.0 billion and $1.9 billion in 2023, 2022 and 2021, respectively.

(2)Includes commodity risk.

Credit Derivatives

The Corporation enters into credit derivatives primarily to facilitate client transactions and to manage credit risk exposures. Credit derivatives derive value based on an underlying third-party referenced obligation or a portfolio of referenced obligations and generally require the Corporation, as the seller of credit protection, to make payments to a buyer upon the occurrence of a predefined credit event. Such credit events generally include bankruptcy of the referenced credit entity and failure to pay under the obligation, as well as acceleration of indebtedness and payment repudiation or moratorium. For credit derivatives based on a portfolio of referenced credits or credit indices, the Corporation may not be required to make payment until a specified amount of loss has occurred and/or may only be required to make payment up to a specified amount.

Credit derivatives are classified as investment and non-investment grade based on the credit quality of the underlying referenced obligation. The Corporation considers ratings of BBB- or higher as investment grade. Non-investment grade includes non-rated credit derivative instruments. The Corporation discloses internal categorizations of investment grade and non-investment grade consistent with how risk is managed for these instruments.

Credit derivative instruments where the Corporation is the seller of credit protection and their expiration at December 31, 2023 and 2022 are summarized in the following table.



Credit Derivative Instruments

	Less than One Year		One to Three Years		Three to Five Years		Over Five Years		Total
	December 31, 2023
(Dollars in millions)	Carrying Value
Credit default swaps:
Investment grade	$	—	$	11	$	26	$	20	$	57
Non-investment grade	38		277		601		595		1,511
Total	38		288		627		615		1,568
Total return swaps/options:
Investment grade	59		—		—		—		59
Non-investment grade	149		69		56		5		279
Total	208		69		56		5		338
Total credit derivatives	$	246	$	357	$	683	$	620	$	1,906
Credit-related notes:
Investment grade	$	—	$	—	$	—	$	859	$	859
Non-investment grade	—		5		16		1,103		1,124
Total credit-related notes	$	—	$	5	$	16	$	1,962	$	1,983
	Maximum Payout/Notional
Credit default swaps:
Investment grade	$	33,750	$	65,015	$	83,313	$	17,023	$	199,101
Non-investment grade	18,061		32,155		33,934		5,827		89,977
Total	51,811		97,170		117,247		22,850		289,078
Total return swaps/options:
Investment grade	40,515		1,503		1,561		23		43,602
Non-investment grade	20,694		1,414		1,907		988		25,003
Total	61,209		2,917		3,468		1,011		68,605
Total credit derivatives	$	113,020	$	100,087	$	120,715	$	23,861	$	357,683

	December 31, 2022
	Carrying Value
Credit default swaps:
Investment grade	$	2	$	25	$	133	$	34	$	194
Non-investment grade	120		516		870		697		2,203
Total	122		541		1,003		731		2,397
Total return swaps/options:
Investment grade	55		336		—		—		391
Non-investment grade	332		9		132		10		483
Total	387		345		132		10		874
Total credit derivatives	$	509	$	886	$	1,135	$	741	$	3,271
Credit-related notes:
Investment grade	$	—	$	—	$	19	$	1,017	$	1,036
Non-investment grade	—		7		6		1,035		1,048
Total credit-related notes	$	—	$	7	$	25	$	2,052	$	2,084
	Maximum Payout/Notional
Credit default swaps:
Investment grade	$	34,670	$	66,170	$	93,237	$	18,677	$	212,754
Non-investment grade	15,229		29,629		30,891		6,662		82,411
Total	49,899		95,799		124,128		25,339		295,165
Total return swaps/options:
Investment grade	38,722		10,407		—		—		49,129
Non-investment grade	32,764		500		2,054		897		36,215
Total	71,486		10,907		2,054		897		85,344
Total credit derivatives	$	121,385	$	106,706	$	126,182	$	26,236	$	380,509

The notional amount represents the maximum amount payable by the Corporation for most credit derivatives. However, the Corporation does not monitor its exposure to credit derivatives based solely on the notional amount because this measure does not take into consideration the probability of occurrence. As such, the notional amount is not a reliable indicator of the Corporation’s exposure to these contracts. Instead, a risk framework is used to define risk tolerances and establish limits so that certain credit risk-related losses occur within acceptable, predefined limits.

Credit-related notes in the table above include investments in securities issued by CDO, collateralized loan obligation (CLO) and credit-linked note vehicles. These instruments are primarily

classified as trading securities. The carrying value of these instruments equals the Corporation’s maximum exposure to loss. The Corporation is not obligated to make any payments to the entities under the terms of the securities owned.

Credit-related Contingent Features and Collateral

The Corporation executes the majority of its derivative contracts in the OTC market with large, international financial institutions, including broker-dealers and, to a lesser degree, with a variety of nonfinancial companies. A significant majority of the derivative transactions are executed on a daily margin basis. Therefore, events such as a credit rating downgrade (depending on the ultimate rating level) or a breach of credit covenants would typically require an increase in the amount of collateral

required of the counterparty, where applicable, and/or allow the Corporation to take additional protective measures such as early termination of all trades. Further, as previously discussed on page 105, the Corporation enters into legally enforceable master netting agreements that reduce risk by permitting closeout and netting of transactions with the same counterparty upon the occurrence of certain events.

Certain of the Corporation’s derivative contracts contain credit risk-related contingent features, primarily in the form of ISDA master netting agreements and credit support documentation that enhance the creditworthiness of these instruments compared to other obligations of the respective counterparty with whom the Corporation has transacted. These contingent features may be for the benefit of the Corporation as well as its counterparties with respect to changes in the Corporation’s creditworthiness and the mark-to-market exposure under the derivative transactions. At December 31, 2023 and 2022, the Corporation held cash and securities collateral of $104.1 billion and $101.3 billion and posted cash and securities collateral of $93.4 billion and $81.2 billion in the normal course of business under derivative agreements, excluding cross-product margining agreements where clients are permitted to margin on a net basis for both derivative and secured financing arrangements.

In connection with certain OTC derivative contracts and other trading agreements, the Corporation can be required to provide additional collateral or to terminate transactions with certain counterparties in the event of a downgrade of the senior debt ratings of the Corporation or certain subsidiaries. The amount of additional collateral required depends on the contract and is usually a fixed incremental amount and/or the market value of the exposure.

At December 31, 2023, the amount of collateral, calculated based on the terms of the contracts, that the Corporation and certain subsidiaries could be required to post to counterparties but had not yet posted to counterparties was $2.5 billion, including $1.1 billion for Bank of America, National Association (BANA).

Some counterparties are currently able to unilaterally terminate certain contracts, or the Corporation or certain subsidiaries may be required to take other action such as find a suitable replacement or obtain a guarantee. At December 31, 2023 and 2022, the liability recorded for these derivative contracts was not significant.

The following table presents the amount of additional collateral that would have been contractually required by derivative contracts and other trading agreements at December 31, 2023 if the rating agencies had downgraded their long-term senior debt ratings for the Corporation or certain subsidiaries by one incremental notch and by an additional second incremental notch. The table also presents derivative liabilities that would be subject to unilateral termination by counterparties upon downgrade of the Corporation's or certain subsidiaries’ long-term senior debt ratings.



Additional Collateral Required to be Posted and Derivative Liabilities Subject to Unilateral Termination Upon Downgrade at December 31, 2023

(Dollars in millions)	One Incremental Notch		Second Incremental Notch
Additional collateral required to be posted upon downgrade
Bank of America Corporation	$	134	$	902
Bank of America, N.A. and subsidiaries (1)	45		729

Derivative liabilities subject to unilateral termination upon downgrade
Derivative liabilities	$	7	$	36
Collateral posted	6		23

(1)Included in Bank of America Corporation collateral requirements in this table.

Valuation Adjustments on Derivatives

The Corporation records credit risk valuation adjustments on derivatives in order to properly reflect the credit quality of the counterparties and its own credit quality. The Corporation calculates valuation adjustments on derivatives based on a modeled expected exposure that incorporates current market risk factors. The exposure also takes into consideration credit mitigants such as enforceable master netting agreements and collateral. CDS spread data is used to estimate the default probabilities and severities that are applied to the exposures. Where no observable credit default data is available for counterparties, the Corporation uses proxies and other market data to estimate default probabilities and severity.

The table below presents credit valuation adjustment (CVA), DVA and FVA gains (losses) on derivatives (excluding the effect of any related hedge activities), which are recorded in market making and similar activities, for 2023, 2022 and 2021. CVA gains reduce the cumulative CVA thereby increasing the derivative assets balance. DVA gains increase the cumulative DVA thereby decreasing the derivative liabilities balance. CVA and DVA losses have the opposite impact. FVA gains related to derivative assets reduce the cumulative FVA thereby increasing the derivative assets balance. FVA gains related to derivative liabilities increase the cumulative FVA thereby decreasing the derivative liabilities balance. FVA losses have the opposite impact.



Valuation Adjustments Gains (Losses) on Derivatives (1)


(Dollars in millions)	2023		2022		2021
Derivative assets (CVA)	$	159	$	(80)	$	208
Derivative assets/liabilities (FVA)	(33)		125		(2)
Derivative liabilities (DVA)	(207)		194		3

(1)At December 31, 2023, 2022 and 2021, cumulative CVA reduced the derivative assets balance by $359 million, $518 million and $438 million, cumulative FVA reduced the net derivative balance by $87 million, $54 million and $179 million, and cumulative DVA reduced the derivative liabilities balance by $299 million, $506 million and $312 million, respectively.