Annual report pursuant to Section 13 and 15(d)

Derivatives

v3.20.4
Derivatives
 12 Months Ended
Dec. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives Derivatives
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, 2020 and 2019. 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, 2020
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 $ 13,242.8  $ 199.9  $ 10.9  $ 210.8  $ 209.3  $ 1.3  $ 210.6 
Futures and forwards 3,222.2  3.5  0.1  3.6  3.6  —  3.6 
Written options 1,530.5  —  —  —  40.5  —  40.5 
Purchased options 1,545.8  45.3  —  45.3  —  —  — 
Foreign exchange contracts  
Swaps 1,475.8  37.1  0.3  37.4  39.7  0.6  40.3 
Spot, futures and forwards 3,710.7  53.4  —  53.4  54.5  0.5  55.0 
Written options 289.6  —  —  —  4.8  —  4.8 
Purchased options 279.3  5.0  —  5.0  —  —  — 
Equity contracts  
Swaps 320.2  13.3  —  13.3  14.5  —  14.5 
Futures and forwards 106.2  0.3  —  0.3  1.4  —  1.4 
Written options 599.1  —  —  —  48.8  —  48.8 
Purchased options 541.2  52.6  —  52.6  —  —  — 
Commodity contracts    
Swaps 36.4  1.9  —  1.9  4.4  —  4.4 
Futures and forwards 63.6  2.0  —  2.0  1.0  —  1.0 
Written options 24.6  —  —  —  1.4  —  1.4 
Purchased options 24.7  1.5  —  1.5  —  —  — 
Credit derivatives (2)
     
Purchased credit derivatives:      
Credit default swaps 322.7  2.3  —  2.3  4.4  —  4.4 
Total return swaps/options 63.6  0.2  —  0.2  1.0  —  1.0 
Written credit derivatives:    
Credit default swaps 301.5  4.4  —  4.4  1.9  —  1.9 
Total return swaps/options 68.6  0.6  —  0.6  0.4  —  0.4 
Gross derivative assets/liabilities $ 423.3  $ 11.3  $ 434.6  $ 431.6  $ 2.4  $ 434.0 
Less: Legally enforceable master netting agreements     (344.9)     (344.9)
Less: Cash collateral received/paid       (42.5)     (43.6)
Total derivative assets/liabilities       $ 47.2      $ 45.5 
(1)Represents the total contract/notional amount of derivative assets and liabilities outstanding.
(2)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 $2.2 billion and $269.8 billion at December 31, 2020.
December 31, 2019
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 $ 15,074.4  $ 162.0  $ 9.7  $ 171.7  $ 168.5  $ 0.4  $ 168.9 
Futures and forwards 3,279.8  1.0  —  1.0  1.0  —  1.0 
Written options 1,767.7  —  —  —  32.5  —  32.5 
Purchased options 1,673.6  37.4  —  37.4  —  —  — 
Foreign exchange contracts            
Swaps 1,657.7  30.3  0.7  31.0  31.7  0.9  32.6 
Spot, futures and forwards 3,792.7  35.9  0.1  36.0  38.7  0.3  39.0 
Written options 274.3  —  —  —  3.8  —  3.8 
Purchased options 261.6  4.0  —  4.0  —  —  — 
Equity contracts              
Swaps 315.0  6.5  —  6.5  8.1  —  8.1 
Futures and forwards 125.1  0.3  —  0.3  1.1  —  1.1 
Written options 731.1  —  —  —  34.6  —  34.6 
Purchased options 668.6  42.4  —  42.4  —  —  — 
Commodity contracts              
Swaps 42.0  2.1  —  2.1  4.4  —  4.4 
Futures and forwards 61.3  1.7  —  1.7  0.4  —  0.4 
Written options 33.2  —  —  —  1.4  —  1.4 
Purchased options 37.9  1.4  —  1.4  —  —  — 
Credit derivatives (2)
             
Purchased credit derivatives:              
Credit default swaps 321.6  2.7  —  2.7  5.6  —  5.6 
Total return swaps/options 86.6  0.4  —  0.4  1.3  —  1.3 
Written credit derivatives:            
Credit default swaps 300.2  5.4  —  5.4  2.0  —  2.0 
Total return swaps/options 86.2  0.8  —  0.8  0.4  —  0.4 
Gross derivative assets/liabilities   $ 334.3  $ 10.5  $ 344.8  $ 335.5  $ 1.6  $ 337.1 
Less: Legally enforceable master netting agreements       (270.4)     (270.4)
Less: Cash collateral received/paid       (33.9)     (28.5)
Total derivative assets/liabilities       $ 40.5      $ 38.2 
(1)Represents the total contract/notional amount of derivative assets and liabilities outstanding.
(2)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 $2.8 billion and $309.7 billion at December 31, 2019.
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, 2020 and 2019 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 – Federal Funds Sold or Purchased, Securities Financing Agreements, Short-term Borrowings and Restricted Cash.
Offsetting of Derivatives (1)
Derivative
Assets		 Derivative Liabilities Derivative
Assets		 Derivative Liabilities
(Dollars in billions) December 31, 2020 December 31, 2019
Interest rate contracts        
Over-the-counter $ 247.7  $ 243.5  $ 203.1  $ 196.6 
Exchange-traded —  —  0.1  0.1 
Over-the-counter cleared 10.2  9.1  6.0  5.3 
Foreign exchange contracts
Over-the-counter 92.2  96.5  69.2  73.1 
Over-the-counter cleared 1.4  1.3  0.5  0.5 
Equity contracts
Over-the-counter 31.3  28.3  21.3  17.8 
Exchange-traded 32.3  31.0  26.4  22.8 
Commodity contracts
Over-the-counter 3.5  5.0  2.8  4.2 
Exchange-traded 0.7  0.7  0.8  0.8 
Over-the-counter cleared —  —  —  0.1 
Credit derivatives
Over-the-counter 5.2  5.6  6.4  6.6 
Over-the-counter cleared 2.2  1.9  2.5  2.2 
Total gross derivative assets/liabilities, before netting
Over-the-counter 379.9  378.9  302.8  298.3 
Exchange-traded 33.0  31.7  27.3  23.7 
Over-the-counter cleared 13.8  12.3  9.0  8.1 
Less: Legally enforceable master netting agreements and cash collateral received/paid
Over-the-counter (345.7) (347.2) (274.7) (269.3)
Exchange-traded (29.5) (29.5) (21.5) (21.5)
Over-the-counter cleared (12.2) (11.8) (8.1) (8.1)
Derivative assets/liabilities, after netting 39.3  34.4  34.8  31.2 
Other gross derivative assets/liabilities (2)
7.9  11.1  5.7  7.0 
Total derivative assets/liabilities 47.2  45.5  40.5  38.2 
Less: Financial instruments collateral (3)
(16.1) (16.6) (14.6) (16.1)
Total net derivative assets/liabilities $ 31.1  $ 28.9  $ 25.9  $ 22.1 
(1)OTC derivatives include bilateral transactions between the Corporation and a particular counterparty. OTC-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 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 following table summarizes information related to fair value hedges for 2020, 2019 and 2018.
Gains and Losses on Derivatives Designated as Fair Value Hedges
Derivative Hedged Item
(Dollars in millions) 2020 2019 2018 2020 2019 2018
Interest rate risk on long-term debt (1)
$ 7,091  $ 6,113  $ (1,538) $ (7,220) $ (6,110) $ 1,429 
Interest rate and foreign currency risk on long-term debt (2)
783  119  (1,187) (783) (101) 1,079 
Interest rate risk on available-for-sale securities (3)
(44) (102) (52) 49  98  50 
Total $ 7,830  $ 6,130  $ (2,777) $ (7,954) $ (6,113) $ 2,558 
(1)Amounts are recorded in interest expense in the Consolidated Statement of Income.
(2)In 2020, 2019 and 2018, the derivative amount includes gains (losses) of $701 million, $73 million and $(116) million in interest expense, $73 million, $28 million and $(992) million in market making and similar activities, and $9 million, $18 million and $(79) 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.
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 (Liabilities)
Carrying Value
Cumulative
Fair Value Adjustments (1)
Carrying Value
Cumulative
Fair Value Adjustments (1)
(Dollars in millions) December 31, 2020 December 31, 2019
Long-term debt (2)
$ (150,556) $ (8,910) $ (162,389) $ (8,685)
Available-for-sale debt securities (2, 3, 4)
116,252  114  1,654  64 
Trading account assets (5)
427  15  —  — 
(1)For assets, increase (decrease) to carrying value and for liabilities, (increase) decrease to carrying value.
(2)At December 31, 2020 and 2019, the cumulative fair value adjustments remaining on long-term debt and AFS debt securities from discontinued hedging relationships resulted in an (increase) decrease in the related liability of $(3.7) billion and $1.3 billion and an increase (decrease) in the related asset of $(69) million and $8 million, which are being amortized over the remaining contractual life of the de-designated hedged items.
(3)These amounts include the amortized cost basis of the prepayable financial assets used to designate hedging relationships in which the hedged item is the last layer expected to be remaining at the end of the hedging relationship (i.e. last-of-layer hedging relationship). At December 31, 2020, the amortized cost of the closed portfolios used in these hedging relationships was $34.6 billion, of which $7.0 billion was designated in the last-of-layer hedging relationship. The cumulative basis adjustments associated with these hedging relationships were not significant.
(4)Carrying value represents amortized cost.
(5)Represents hedging activities related to precious metals inventory.
Cash Flow and Net Investment Hedges
The following table summarizes certain information related to cash flow hedges and net investment hedges for 2020, 2019 and 2018. Of the $426 million after-tax net gain ($566 million pretax) on derivatives in accumulated OCI at December 31, 2020, gains of $190 million after-tax ($254 million pretax) related to both open and terminated hedges are expected to be
reclassified into earnings in the next 12 months. These net gains reclassified into earnings are expected to primarily increase net interest income related to the respective hedged items. For terminated cash flow hedges, the time period over which the majority of the forecasted transactions are hedged is approximately 3 years, with a maximum length of time for certain forecasted transactions of 16 years.
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) 2020 2019 2018 2020 2019 2018
Cash flow hedges
Interest rate risk on variable-rate assets (1)
$ 763  $ 671  $ (159) $ (7) $ (104) $ (165)
Price risk on forecasted MBS purchases (1)
241  —  —  9  —  — 
Price risk on certain compensation plans (2)
85  34  4  12  (2) 27 
Total $ 1,089  $ 705  $ (155) $ 14  $ (106) $ (138)
Net investment hedges
Foreign exchange risk (3)
$ (834) $ 22  $ 989  $ 4  $ 366  $ 411 
(1)Amounts reclassified from accumulated OCI are recorded in interest income 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 (losses) of $(11) million, $154 million and $47 million in 2020, 2019 and 2018, 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 following table presents gains (losses) on these derivatives for 2020, 2019 and 2018. 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) 2020 2019 2018
Interest rate risk on mortgage activities (1, 2)
$ 446  $ 315  $ (107)
Credit risk on loans (2)
(68) (58) 9 
Interest rate and foreign currency risk on ALM activities (3)
(2,971) 1,112  3,278 
Price risk on certain compensation plans (4)
700  943  (495)
(1)Primarily related to hedges of interest rate risk on MSRs and IRLCs to originate mortgage loans that will be held for sale. The net gains on IRLCs, which are not included in the table but are considered derivative instruments, were $165 million, $73 million and $47 million in 2020, 2019 and 2018.
(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.
(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 both December 31, 2020 and 2019, the Corporation had transferred $5.2 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 $5.2 billion as of both transfer dates. At December 31, 2020 and 2019, the fair value of the transferred securities was $5.5 billion and $5.3 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 2020, 2019 and 2018. 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 table below 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) 2020
Interest rate risk $ 2,211  $ 2,400  $ 231  $ 4,842 
Foreign exchange risk 1,482  (20) 3  1,465 
Equity risk 3,656  (77) 1,801  5,380 
Credit risk 812  1,638  328  2,778 
Other risk 308  4  44  356 
Total sales and trading revenue
 $ 8,469  $ 3,945  $ 2,407  $ 14,821 
2019
Interest rate risk $ 1,000  $ 1,817  $ 113  $ 2,930 
Foreign exchange risk 1,288  62  57  1,407 
Equity risk 3,563  (634) 1,569  4,498 
Credit risk 1,091  1,807  519  3,417 
Other risk 120  70  53  243 
Total sales and trading revenue
 $ 7,062  $ 3,122  $ 2,311  $ 12,495 
2018
Interest rate risk $ 810  $ 1,651  $ 245  $ 2,706 
Foreign exchange risk 1,504  31  22  1,557 
Equity risk 3,870  (657) 1,643  4,856 
Credit risk 1,034  1,886  600  3,520 
Other risk 40  197  49  286 
Total sales and trading revenue $ 7,258  $ 3,108  $ 2,559  $ 12,925 
(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 $1.9 billion, $1.7 billion and $1.7 billion in 2020, 2019 and 2018, respectively.
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, 2020 and 2019 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, 2020
(Dollars in millions) Carrying Value
Credit default swaps:          
Investment grade $ —  $ 1  $ 35  $ 94  $ 130 
Non-investment grade 26  233  364  1,163  1,786 
Total 26  234  399  1,257  1,916 
Total return swaps/options:          
Investment grade 21  4  —  —  25 
Non-investment grade 345  —  —  —  345 
Total 366  4  —  —  370 
Total credit derivatives $ 392  $ 238  $ 399  $ 1,257  $ 2,286 
Credit-related notes:          
Investment grade $ —  $ —  $ —  $ 572  $ 572 
Non-investment grade 64  2  10  947  1,023 
Total credit-related notes $ 64  $ 2  $ 10  $ 1,519  $ 1,595 
  Maximum Payout/Notional
Credit default swaps:          
Investment grade $ 33,474  $ 75,731  $ 87,218  $ 16,822  $ 213,245 
Non-investment grade 13,664  28,770  35,978  9,852  88,264 
Total 47,138  104,501  123,196  26,674  301,509 
Total return swaps/options:          
Investment grade 30,961  1,061  77  —  32,099 
Non-investment grade 36,128  364  27  5  36,524 
Total 67,089  1,425  104  5  68,623 
Total credit derivatives $ 114,227  $ 105,926  $ 123,300  $ 26,679  $ 370,132 
December 31, 2019
Carrying Value
Credit default swaps:
Investment grade $ —  $ 5  $ 60  $ 164  $ 229 
Non-investment grade 70  292  561  808  1,731 
Total 70  297  621  972  1,960 
Total return swaps/options:          
Investment grade 35  —  —  —  35 
Non-investment grade 344  —  —  —  344 
Total 379  —  —  —  379 
Total credit derivatives $ 449  $ 297  $ 621  $ 972  $ 2,339 
Credit-related notes:          
Investment grade $ —  $ 3  $ 1  $ 639  $ 643 
Non-investment grade 6  2  1  1,125  1,134 
Total credit-related notes $ 6  $ 5  $ 2  $ 1,764  $ 1,777 
  Maximum Payout/Notional
Credit default swaps:
Investment grade $ 55,827  $ 67,838  $ 71,320  $ 17,708  $ 212,693 
Non-investment grade 19,049  26,521  29,618  12,337  87,525 
Total 74,876  94,359  100,938  30,045  300,218 
Total return swaps/options:          
Investment grade 56,488  —  62  76  56,626 
Non-investment grade 28,707  657  104  60  29,528 
Total 85,195  657  166  136  86,154 
Total credit derivatives $ 160,071  $ 95,016  $ 101,104  $ 30,181  $ 386,372 
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 non-financial 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 112, 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, 2020 and 2019, the Corporation held cash and securities collateral of $96.5 billion and $84.3 billion and posted cash and securities collateral of $88.6 billion and $69.1 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, 2020, 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 $2.6 billion, including $1.2 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, 2020 and 2019, 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, 2020 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.
Additional Collateral Required to be Posted Upon Downgrade at December 31, 2020
(Dollars in millions) One
incremental notch		 Second
incremental notch
Bank of America Corporation $ 300  $ 735 
Bank of America, N.A. and subsidiaries (1)
61  570 
(1)Included in Bank of America Corporation collateral requirements in this table.
The following table presents the derivative liabilities that would be subject to unilateral termination by counterparties and the amounts of collateral that would have been contractually required at December 31, 2020 if the long-term senior debt ratings for the Corporation or certain subsidiaries had been lower by one incremental notch and by an additional second incremental notch.
Derivative Liabilities Subject to Unilateral Termination Upon Downgrade at December 31, 2020
(Dollars in millions) One
incremental notch		 Second
incremental notch
Derivative liabilities $ 45  $ 1,035 
Collateral posted 23  544 
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 2020, 2019 and 2018. 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) 2020 2019 2018
Derivative assets (CVA) $ (118) $ 72  $ 77 
Derivative assets/liabilities (FVA)
 (24) (2) (15)
Derivative liabilities (DVA) 24  (147) (19)
(1)At December 31, 2020, 2019 and 2018, cumulative CVA reduced the derivative assets balance by $646 million, $528 million and $600 million, cumulative FVA reduced the net derivatives balance by $177 million, $153 million and $151 million, and cumulative DVA reduced the derivative liabilities balance by $309 million, $285 million and $432 million, respectively.