Annual report pursuant to Section 13 and 15(d)

Fair Value Measurements

v3.20.4
Fair Value Measurements
 12 Months Ended
Dec. 31, 2020
Fair Value Disclosures [Abstract]  
Fair Value Measurements Fair Value Measurements
Under applicable accounting standards, fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The Corporation determines the fair values of its financial instruments under applicable accounting standards that require an entity to maximize the use of observable inputs and minimize the use of unobservable inputs. The Corporation categorizes its financial instruments into three levels based on the established fair value hierarchy and conducts a review of fair value hierarchy classifications on a quarterly basis. Transfers into or out of fair value hierarchy classifications are made if the significant inputs used in the financial models measuring the fair values of the assets and liabilities become unobservable or observable in the current marketplace. For more information regarding the fair value hierarchy and how the Corporation measures fair value, see Note 1 – Summary of Significant Accounting Principles. The Corporation accounts for certain financial instruments under the fair value option. For more information, see Note 21 – Fair Value Option.
Valuation Techniques
The following sections outline the valuation methodologies for the Corporation’s assets and liabilities. While the Corporation believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date.
During 2020, there were no significant changes to valuation approaches or techniques that had, or are expected to have, a material impact on the Corporation’s consolidated financial position or results of operations.
Trading Account Assets and Liabilities and Debt Securities
The fair values of trading account assets and liabilities are primarily based on actively traded markets where prices are based on either direct market quotes or observed transactions. The fair values of debt securities are generally based on quoted market prices or market prices for similar assets. Liquidity is a significant factor in the determination of the fair values of trading account assets and liabilities and debt securities. Market price quotes may not be readily available for some positions such as positions within a market sector where trading activity has slowed significantly or ceased. Some of these instruments are valued using a discounted cash flow model, which estimates the fair value of the securities using internal credit risk, and interest rate and prepayment risk models that incorporate management’s best estimate of current key assumptions such as default rates, loss severity and prepayment rates. Principal and interest cash flows are discounted using an observable discount rate for similar instruments with adjustments that management believes a market participant would consider in determining fair value for the specific security. Other instruments are valued using a net asset value approach which considers the value of the underlying securities. Underlying assets are valued using external pricing services, where available, or matrix pricing
based on the vintages and ratings. Situations of illiquidity generally are triggered by the market’s perception of credit uncertainty regarding a single company or a specific market sector. In these instances, fair value is determined based on limited available market information and other factors, principally from reviewing the issuer’s financial statements and changes in credit ratings made by one or more rating agencies.
Derivative Assets and Liabilities
The fair values of derivative assets and liabilities traded in the OTC market are determined using quantitative models that utilize multiple market inputs including interest rates, prices and indices to generate continuous yield or pricing curves and volatility factors to value the position. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. When third-party pricing services are used, the methods and assumptions are reviewed by the Corporation. Estimation risk is greater for derivative asset and liability positions that are either option-based or have longer maturity dates where observable market inputs are less readily available, or are unobservable, in which case, quantitative-based extrapolations of rate, price or index scenarios are used in determining fair values. The fair values of derivative assets and liabilities include adjustments for market liquidity, counterparty credit quality and other instrument-specific factors, where appropriate. In addition, the Corporation incorporates within its fair value measurements of OTC derivatives a valuation adjustment to reflect the credit risk associated with the net position. Positions are netted by counterparty, and fair value for net long exposures is adjusted for counterparty credit risk while the fair value for net short exposures is adjusted for the Corporation’s own credit risk. The Corporation also incorporates FVA within its fair value measurements to include funding costs on uncollateralized derivatives and derivatives where the Corporation is not permitted to use the collateral it receives. An estimate of severity of loss is also used in the determination of fair value, primarily based on market data.
Loans and Loan Commitments
The fair values of loans and loan commitments are based on market prices, where available, or discounted cash flow analyses using market-based credit spreads of comparable debt instruments or credit derivatives of the specific borrower or comparable borrowers. Results of discounted cash flow analyses may be adjusted, as appropriate, to reflect other market conditions or the perceived credit risk of the borrower.
Mortgage Servicing Rights
The fair values of MSRs are primarily determined using an option-adjusted spread valuation approach, which factors in prepayment risk to determine the fair value of MSRs. This approach consists of projecting servicing cash flows under multiple interest rate scenarios and discounting these cash flows using risk-adjusted discount rates.

Loans Held-for-sale
The fair values of LHFS are based on quoted market prices, where available, or are determined by discounting estimated cash flows using interest rates approximating the Corporation’s current origination rates for similar loans adjusted to reflect the inherent credit risk. The borrower-specific credit risk is embedded within the quoted market prices or is implied by considering loan performance when selecting comparables.
Short-term Borrowings and Long-term Debt
The Corporation issues structured liabilities that have coupons or repayment terms linked to the performance of debt or equity securities, interest rates, indices, currencies or commodities. The fair values of these structured liabilities are estimated using quantitative models for the combined derivative and debt portions of the notes. These models incorporate observable and, in some instances, unobservable inputs including security prices, interest rate yield curves, option volatility, currency, commodity or equity rates and correlations among these inputs. The Corporation also considers the impact of its own credit spread in determining the discount rate used to value these liabilities. The credit spread is determined by reference to observable spreads in the secondary bond market.
Securities Financing Agreements
The fair values of certain reverse repurchase agreements, repurchase agreements and securities borrowed transactions are determined using quantitative models, including discounted cash flow models that require the use of multiple market inputs including interest rates and spreads to generate continuous yield or pricing curves, and volatility factors. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services.
Deposits
The fair values of deposits are determined using quantitative models, including discounted cash flow models that require the use of multiple market inputs including interest rates and spreads to generate continuous yield or pricing curves, and volatility factors. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third-party pricing services. The Corporation considers the impact of its own credit spread in the valuation of these liabilities. The credit risk is determined by reference to observable credit spreads in the secondary cash market.
Asset-backed Secured Financings
The fair values of asset-backed secured financings are based on external broker bids, where available, or are determined by discounting estimated cash flows using interest rates approximating the Corporation’s current origination rates for similar loans adjusted to reflect the inherent credit risk.

Recurring Fair Value
Assets and liabilities carried at fair value on a recurring basis at December 31, 2020 and 2019, including financial instruments that the Corporation accounts for under the fair value option, are summarized in the following tables.
December 31, 2020
  Fair Value Measurements
(Dollars in millions) Level 1 Level 2 Level 3
Netting Adjustments (1)
Assets/Liabilities at Fair Value
Assets          
Time deposits placed and other short-term investments
 $ 1,649  $ —  $ —  $ —  $ 1,649 
Federal funds sold and securities borrowed or purchased under agreements to resell
 —  108,856  —  —  108,856 
Trading account assets:          
U.S. Treasury and agency securities 45,219  3,051  —  —  48,270 
Corporate securities, trading loans and other —  22,817  1,359  —  24,176 
Equity securities 36,372  31,372  227  —  67,971 
Non-U.S. sovereign debt 5,753  20,884  354  —  26,991 
Mortgage trading loans, MBS and ABS:
U.S. government-sponsored agency guaranteed (2)
—  21,566  75  —  21,641 
Mortgage trading loans, ABS and other MBS —  8,440  1,365  —  9,805 
Total trading account assets (3)
87,344  108,130  3,380  —  198,854 
Derivative assets 15,624  416,175  2,751  (387,371) 47,179 
AFS debt securities:          
U.S. Treasury and agency securities 115,266  1,114  —  —  116,380 
Mortgage-backed securities:          
Agency —  61,849  —  —  61,849 
Agency-collateralized mortgage obligations —  5,260  —  —  5,260 
Non-agency residential —  631  378  —  1,009 
Commercial —  16,491  —  —  16,491 
Non-U.S. securities —  13,999  18  —  14,017 
Other taxable securities —  2,640  71  —  2,711 
Tax-exempt securities —  16,598  176  —  16,774 
Total AFS debt securities 115,266  118,582  643  —  234,491 
Other debt securities carried at fair value:
U.S. Treasury and agency securities 93  —  —  —  93 
Non-agency residential MBS —  506  267  —  773 
Non-U.S. and other securities
 2,619  8,625  —  —  11,244 
Total other debt securities carried at fair value 2,712  9,131  267  —  12,110 
Loans and leases —  5,964  717  —  6,681 
Loans held-for-sale —  1,349  236  —  1,585 
Other assets (4)
9,898  3,850  1,970  —  15,718 
Total assets (5)
$ 232,493  $ 772,037  $ 9,964  $ (387,371) $ 627,123 
Liabilities          
Interest-bearing deposits in U.S. offices $ —  $ 481  $ —  $ —  $ 481 
Federal funds purchased and securities loaned or sold under agreements to repurchase
 —  135,391  —  —  135,391 
Trading account liabilities:        
U.S. Treasury and agency securities 9,425  139  —  —  9,564 
Equity securities 38,189  4,235  —  —  42,424 
Non-U.S. sovereign debt 5,853  8,043  —  —  13,896 
Corporate securities and other —  5,420  16  —  5,436 
Total trading account liabilities 53,467  17,837  16  —  71,320 
Derivative liabilities 14,907  412,881  6,219  (388,481) 45,526 
Short-term borrowings —  5,874  —  —  5,874 
Accrued expenses and other liabilities 12,297  4,014  —  —  16,311 
Long-term debt —  31,036  1,164  —  32,200 
Total liabilities (5)
$ 80,671  $ 607,514  $ 7,399  $ (388,481) $ 307,103 
(1)Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(2)Includes $22.2 billion of GSE obligations.
(3)Includes securities with a fair value of $16.8 billion that were segregated in compliance with securities regulations or deposited with clearing organizations. This amount is included in the parenthetical disclosure on the Consolidated Balance Sheet. Trading account assets also includes precious metal inventories of $576 million that are accounted for at the lower of cost or net realizable value, which is the current selling price less any costs to sell.
(4)Includes MSRs of $1.0 billion which are classified as Level 3 assets.
(5)Total recurring Level 3 assets were 0.35 percent of total consolidated assets, and total recurring Level 3 liabilities were 0.29 percent of total consolidated liabilities.
December 31, 2019
Fair Value Measurements
(Dollars in millions) Level 1 Level 2 Level 3
Netting Adjustments (1)
Assets/Liabilities at Fair Value
Assets          
Time deposits placed and other short-term investments
 $ 1,000  $ —  $ —  $ —  $ 1,000 
Federal funds sold and securities borrowed or purchased under agreements to resell
 —  50,364  —  —  50,364 
Trading account assets:          
U.S. Treasury and agency securities 49,517  4,157  —  —  53,674 
Corporate securities, trading loans and other —  25,226  1,507  —  26,733 
Equity securities 53,597  32,619  239  —  86,455 
Non-U.S. sovereign debt 3,965  23,854  482  —  28,301 
Mortgage trading loans, MBS and ABS:
U.S. government-sponsored agency guaranteed (2)
—  24,324  —  —  24,324 
Mortgage trading loans, ABS and other MBS —  8,786  1,553  —  10,339 
Total trading account assets (3)
107,079  118,966  3,781  —  229,826 
Derivative assets 14,079  328,442  2,226  (304,262) 40,485 
AFS debt securities:          
U.S. Treasury and agency securities 67,332  1,196  —  —  68,528 
Mortgage-backed securities:          
Agency —  122,528  —  —  122,528 
Agency-collateralized mortgage obligations —  4,641  —  —  4,641 
Non-agency residential —  653  424  —  1,077 
Commercial —  15,021  —  —  15,021 
Non-U.S. securities —  11,989  2  —  11,991 
Other taxable securities —  3,876  65  —  3,941 
Tax-exempt securities —  17,804  108  —  17,912 
Total AFS debt securities 67,332  177,708  599  —  245,639 
Other debt securities carried at fair value:
U.S. Treasury and agency securities 3  —  —  —  3 
Agency MBS —  3,003  —  —  3,003 
Non-agency residential MBS —  1,035  299  —  1,334 
Non-U.S. and other securities 400  6,088  —  —  6,488 
Total other debt securities carried at fair value 403  10,126  299  —  10,828 
Loans and leases —  7,642  693  —  8,335 
Loans held-for-sale —  3,334  375  —  3,709 
Other assets (4)
11,782  1,376  2,360  —  15,518 
Total assets (5)
$ 201,675  $ 697,958  $ 10,333  $ (304,262) $ 605,704 
Liabilities          
Interest-bearing deposits in U.S. offices $ —  $ 508  $ —  $ —  $ 508 
Federal funds purchased and securities loaned or sold under agreements to repurchase
 —  16,008  —  —  16,008 
Trading account liabilities:        
U.S. Treasury and agency securities 13,140  282  —  —  13,422 
Equity securities 38,148  4,144  2  —  42,294 
Non-U.S. sovereign debt 10,751  11,310  —  —  22,061 
Corporate securities and other —  5,478  15  —  5,493 
Total trading account liabilities 62,039  21,214  17  —  83,270 
Derivative liabilities 11,904  320,479  4,764  (298,918) 38,229 
Short-term borrowings —  3,941  —  —  3,941 
Accrued expenses and other liabilities 13,927  1,507  —  —  15,434 
Long-term debt —  33,826  1,149  —  34,975 
Total liabilities (5)
$ 87,870  $ 397,483  $ 5,930  $ (298,918) $ 192,365 
(1)Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(2)Includes $26.7 billion of GSE obligations.
(3)Includes securities with a fair value of $14.7 billion that were segregated in compliance with securities regulations or deposited with clearing organizations. This amount is included in the parenthetical disclosure on the Consolidated Balance Sheet.
(4)Includes MSRs of $1.5 billion which are classified as Level 3 assets.
(5)Total recurring Level 3 assets were 0.42 percent of total consolidated assets, and total recurring Level 3 liabilities were 0.27 percent of total consolidated liabilities.
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 2020, 2019 and 2018, including net realized and unrealized gains (losses) included in earnings and accumulated OCI. Transfers into Level 3 occur primarily due to decreased price observability, and
transfers out of Level 3 occur primarily due to increased price observability. Transfers occur on a regular basis for long-term debt instruments due to changes in the impact of unobservable inputs on the value of the embedded derivative in relation to the instrument as a whole.
Level 3 – Fair Value Measurements (1)
Balance
January 1
Total Realized/Unrealized Gains (Losses) in Net
Income (2)
Gains
(Losses)
in OCI (3)
Gross Gross
Transfers
into
Level 3 		 Gross
Transfers
out of
Level 3 		 Balance
December 31
Change in Unrealized Gains (Losses) in Net Income Related to Financial Instruments Still Held (2)
(Dollars in millions)
 Purchases Sales Issuances Settlements
Year Ended December 31, 2020
Trading account assets:              
Corporate securities, trading loans and other
$ 1,507  $ (138) $ (1) $ 430  $ (242) $ 10  $ (282) $ 639  $ (564) $ 1,359  $ (102)
Equity securities
 239  (43) —  78  (53) —  (3) 58  (49) 227  (31)
Non-U.S. sovereign debt
 482  45  (46) 76  (61) —  (39) 150  (253) 354  47 
Mortgage trading loans, ABS and other MBS
 1,553  (120) (3) 577  (746) 11  (96) 757  (493) 1,440  (92)
Total trading account assets 3,781  (256) (50) 1,161  (1,102) 21  (420) 1,604  (1,359) 3,380  (178)
Net derivative assets (liabilities) (4)
(2,538) (235) —  120  (646) —  (112) (235) 178  (3,468) (953)
AFS debt securities:                    
Non-agency residential MBS 424  (2) 3  23  (54) —  (44) 158  (130) 378  (2)
Non-U.S. securities
 2  1  —  —  (1) —  (1) 17  —  18  1 
Other taxable securities
 65  —  —  9  (4) —  —  1  —  71  — 
Tax-exempt securities 108  (21) 3  —  —  —  (169) 265  (10) 176  (20)
Total AFS debt securities 599  (22) 6  32  (59) —  (214) 441  (140) 643  (21)
Other debt securities carried at fair value – Non-agency residential MBS
 299  26  —  —  (180) —  (24) 190  (44) 267  3 
Loans and leases (5,6)
693  (4) —  145  (76) 22  (161) 98  —  717  9 
Loans held-for-sale (5,6)
375  26  (28) —  (489) 691  (119) 93  (313) 236  (5)
Other assets (6,7)
2,360  (288) 3  178  (4) 224  (506) 5  (2) 1,970  (374)
Trading account liabilities – Equity securities
 (2) 1  —  —  —  —  —  —  1  —  — 
Trading account liabilities – Corporate securities
   and other
 (15) 8  —  (7) (3) —  1  —  —  (16) — 
Long-term debt (5)
(1,149) (46) 2  (104) —  (47) 218  (52) 14  (1,164) (5)
Year Ended December 31, 2019
Trading account assets:          
Corporate securities, trading loans and other
 $ 1,558  $ 105  $ —  $ 534  $ (390) $ 18  $ (578) $ 699  $ (439) $ 1,507  $ 29 
Equity securities 276  (12) —  38  (87) —  (9) 79  (46) 239  (18)
Non-U.S. sovereign debt 465  46  (12) 1  —  —  (51) 39  (6) 482  47 
Mortgage trading loans, ABS and other MBS
 1,635  99  (2) 662  (899) —  (175) 738  (505) 1,553  26 
Total trading account assets 3,934  238  (14) 1,235  (1,376) 18  (813) 1,555  (996) 3,781  84 
Net derivative assets (liabilities) (4,8)
(935) (37) —  298  (837) —  (97) 147  (1,077) (2,538) 228 
AFS debt securities:              
Non-agency residential MBS 597  13  64  —  (73) —  (40) 206  (343) 424  — 
Non-U.S. securities 2  —  —  —  —  —  —  —  —  2  — 
Other taxable securities 7  2  —  —  —  —  (5) 61  —  65  — 
Tax-exempt securities —  —  —  —  —  —  —  108  —  108  — 
Total AFS debt securities 606  15  64  —  (73) —  (45) 375  (343) 599  — 
Other debt securities carried at fair value – Non-agency residential MBS
 172  36  —  —  —  —  (17) 155  (47) 299  38 
Loans and leases (5,6)
338  —  —  230  (35) 217  (57) —  —  693  (1)
Loans held-for-sale (5,6)
542  48  (6) 12  (71) 36  (245) 59  —  375  22 
Other assets (6,7)
2,932  (81) 19  —  (10) 179  (683) 5  (1) 2,360  (267)
Trading account liabilities – Equity securities
 —  (2) —  —  —  —  —  —  —  (2) (2)
Trading account liabilities – Corporate securities
   and other
 (18) 8  —  (1) (3) (1) —  —  —  (15) — 
Long-term debt (5,8)
(817) (59) (64) —  —  (40) 180  (350) 1  (1,149) (55)
(1)Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2)Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly market making and similar activities; Net derivative assets (liabilities) - market making and similar activities and other income; AFS debt securities - predominantly other income; Other debt securities carried at fair value - other income; Loans and leases - market making and similar activities and other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - market making and similar activities.
(3)Includes unrealized gains (losses) in OCI on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. Amounts include net unrealized gains (losses) of $(41) million and $3 million related to financial instruments still held at December 31, 2020 and 2019.
(4)Net derivative assets (liabilities) include derivative assets of $2.8 billion and $2.2 billion and derivative liabilities of $6.2 billion and $4.8 billion at December 31, 2020 and 2019.
(5)Amounts represent instruments that are accounted for under the fair value option.
(6)Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales.
(7)Settlements primarily represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time.
(8)Transfers into long-term debt include a $1.4 billion transfer in of Level 3 derivative assets to reflect the Corporation's change to present bifurcated embedded derivatives with their respective host instruments.
Level 3 – Fair Value Measurements (1)
(Dollars in millions) Balance
January 1
Total Realized/Unrealized Gains (Losses) in Net
 Income (2)
Gains
(Losses)
in OCI (3)
Gross Gross
Transfers
into
Level 3		 Gross
Transfers
out of
Level 3		 Balance
December 31
Change in Unrealized Gains (Losses) in Net Income Related to Financial Instruments Still Held (2)
Purchases Sales Issuances Settlements
Year Ended December 31, 2018
Trading account assets:            
Corporate securities, trading loans and other $ 1,864  $ (32) $ (1) $ 436  $ (403) $ 5  $ (568) $ 804  $ (547) $ 1,558  $ (117)
Equity securities 235  (17) —  44  (11) —  (4) 78  (49) 276  (22)
Non-U.S. sovereign debt 556  47  (44) 13  (57) —  (30) 117  (137) 465  48 
Mortgage trading loans, ABS and other MBS 1,498  148  3  585  (910) —  (158) 705  (236) 1,635  97 
Total trading account assets 4,153  146  (42) 1,078  (1,381) 5  (760) 1,704  (969) 3,934  6 
Net derivative assets (liabilities) (4)
(1,714) 106  —  531  (1,179) —  778  39  504  (935) (116)
AFS debt securities:              
Non-agency residential MBS —  27  (33) —  (71) —  (25) 774  (75) 597  — 
Non-U.S. securities 25  —  (1) —  (10) —  (15) 3  —  2  — 
Other taxable securities 509  1  (3) —  (23) —  (11) 60  (526) 7  — 
Tax-exempt securities 469  —  —  —  —  —  (1) 1  (469) —  — 
Total AFS debt securities (5)
1,003  28  (37) —  (104) —  (52) 838  (1,070) 606  — 
Other debt securities carried at fair value - Non-agency residential MBS —  (18) —  —  (8) —  (34) 365  (133) 172  (18)
Loans and leases (6,7)
571  (16) —  —  (134) —  (83) —  —  338  (9)
Loans held-for-sale (6)
690  44  (26) 71  —  1  (201) 23  (60) 542  31 
Other assets (5,7,8)
2,425  414  (38) 2  (69) 96  (792) 929  (35) 2,932  149 
Trading account liabilities – Corporate securities and other (24) 11  —  9  (12) (2) —  —  —  (18) (7)
Accrued expenses and other liabilities (6)
(8) —  —  —  —  —  8  —  —  —  — 
Long-term debt (6)
(1,863) 103  4  9  —  (141) 486  (262) 847  (817) 95 
(1)Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2)Includes gains/losses reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly market making and similar activities; Net derivative assets (liabilities) - market making and similar activities and other income; Other debt securities carried at fair value - other income; Loans and leases - predominantly other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - primarily market making and similar activities.   
(3)Includes unrealized gains (losses) in OCI on AFS debt securities, foreign currency translation adjustments and the impact of changes in the Corporation’s credit spreads on long-term debt accounted for under the fair value option. Amounts include net unrealized losses of $105 million related to financial instruments still held at December 31, 2018.
(4)Net derivative assets (liabilities) include derivative assets of $3.5 billion and derivative liabilities of $4.4 billion.
(5)Transfers out of AFS debt securities and into other assets primarily relate to the reclassifcation of certain securities.
(6)Amounts represent instruments that are accounted for under the fair value option.
(7)Issuances represent loan originations and MSRs recognized following securitizations or whole-loan sales.
(8)Settlements primarily represent the net change in fair value of the MSR asset due to the recognition of modeled cash flows and the passage of time.
The following tables present information about significant unobservable inputs related to the Corporation’s material categories of Level 3 financial assets and liabilities at December 31, 2020 and 2019.
Quantitative Information about Level 3 Fair Value Measurements at December 31, 2020
(Dollars in millions) Inputs
Financial Instrument Fair
Value		 Valuation
Technique		 Significant Unobservable
Inputs		 Ranges of
Inputs
Weighted Average (1)
Loans and Securities (2)
Instruments backed by residential real estate assets $ 1,543  Discounted cash flow, Market comparables Yield
(3)% to 25%
 6  %
Trading account assets – Mortgage trading loans, ABS and other MBS
 467  Prepayment speed
1% to 56% CPR
20% CPR
Loans and leases 431  Default rate
0% to 3% CDR
1% CDR
AFS debt securities – Non-agency residential 378  Price
$0 to $168
 $110
Other debt securities carried at fair value – Non-agency residential 267  Loss severity
0% to 47%
 18  %
Instruments backed by commercial real estate assets $ 407  Discounted cash
flow		 Yield
0% to 25%
 4  %
Trading account assets – Corporate securities, trading loans and other 262  Price
$0 to $100
 $52
Trading account assets – Mortgage trading loans, ABS and other MBS 43 
AFS debt securities, primarily other taxable securities 89 
Loans held-for-sale 13 
Commercial loans, debt securities and other $ 3,066  Discounted cash flow, Market comparables Yield
0% to 26%
 9  %
Trading account assets – Corporate securities, trading loans and other
 1,097  Prepayment speed
10% to 20%
 14  %
Trading account assets – Non-U.S. sovereign debt 354  Default rate
3% to 4%
 4  %
Trading account assets – Mortgage trading loans, ABS and other MBS 930  Loss severity
35% to 40%
 38  %
AFS debt securities – Tax-exempt securities 176  Price
$0 to $142
 $66
Loans and leases 286  Long-dated equity volatilities
77%
 n/a
Loans held-for-sale 223 
Other assets, primarily auction rate securities $ 937  Discounted cash flow, Market comparables Price
$10 to $97
 $91

Discount rate 8  % n/a
MSRs $ 1,033  Discounted cash
flow
Weighted-average life, fixed rate (5)
0 to 13 years
4 years
Weighted-average life, variable rate (5)
0 to 10 years
3 years
Option-adjusted spread, fixed rate
7% to 14%
 9  %
Option-adjusted spread, variable rate
9% to 15%
 12  %
Structured liabilities
Long-term debt $ (1,164)
Discounted cash flow, Market comparables, Industry standard derivative pricing (3)
Yield
0% to 11%
 9  %
Equity correlation
2% to 100%
 64  %
Long-dated equity volatilities
7% to 64%
 32  %
Price
$0 to $124
 $86
Natural gas forward price
$1/MMBtu to $4/MMBtu
$3 /MMBtu
Net derivative assets (liabilities)
Credit derivatives $ (112) Discounted cash flow, Stochastic recovery correlation model Yield
5%
 n/a
Upfront points
0 to 100 points
 75 points
Prepayment speed
15% to 100% CPR
22% CPR
Default rate
2% CDR
 n/a
Credit correlation
21% to 64%
 57  %
Price
$0 to $122
 $69
Equity derivatives $ (1,904)
Industry standard derivative pricing (3)
Equity correlation
2% to 100%
 64  %
Long-dated equity volatilities
7% to 64%
 32  %
Commodity derivatives $ (1,426)
Discounted cash flow, Industry standard derivative pricing (3)
Natural gas forward price
$1/MMBtu to $4/MMBtu
$3 /MMBtu
Correlation
39% to 85%
 73  %
Volatilities
23% to 70%
 39  %
Interest rate derivatives $ (26)
Industry standard derivative pricing (4)
Correlation (IR/IR)
15% to 96%
 34  %
Correlation (FX/IR)
0% to 46%
 3  %
Long-dated inflation rates
 (7)% to 84%
14  %
Long-dated inflation volatilities
0% to 1%
 1  %
Interest rate volatilities
0% to 2%
 1  %
Total net derivative assets (liabilities) $ (3,468)
(1)For loans and securities, structured liabilities and net derivative assets (liabilities), the weighted average is calculated based upon the absolute fair value of the instruments.
(2)The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page 156: Trading account assets – Corporate securities, trading loans and other of $1.4 billion, Trading account assets – Non-U.S. sovereign debt of $354 million, Trading account assets – Mortgage trading loans, ABS and other MBS of $1.4 billion, AFS debt securities of $643 million, Other debt securities carried at fair value - Non-agency residential of $267 million, Other assets, including MSRs, of $2.0 billion, Loans and leases of $717 million and LHFS of $236 million.
(3)Includes models such as Monte Carlo simulation and Black-Scholes.
(4)Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates.
(5)The weighted-average life is a product of changes in market rates of interest, prepayment rates and other model and cash flow assumptions.
CPR = Constant Prepayment Rate
CDR = Constant Default Rate
MMBtu = Million British thermal units
IR = Interest Rate
FX = Foreign Exchange
n/a = not applicable
Quantitative Information about Level 3 Fair Value Measurements at December 31, 2019
(Dollars in millions) Inputs
Financial Instrument Fair
Value		 Valuation
Technique		 Significant Unobservable
Inputs		 Ranges of
Inputs
Weighted Average (1)
Loans and Securities (2)
Instruments backed by residential real estate assets $ 1,407  Discounted cash flow, Market comparables Yield
0% to 25%
 6  %
Trading account assets – Mortgage trading loans, ABS and other MBS
 332 
Prepayment speed
1% to 27% CPR
17% CPR
Loans and leases 281  Default rate
0% to 3% CDR
1% CDR
Loans held-for-sale 4  Loss severity
0% to 47%
 14  %
AFS debt securities, primarily non-agency residential 491  Price
$0 to $160
 $94
Other debt securities carried at fair value - Non-agency residential 299 
Instruments backed by commercial real estate assets $ 303  Discounted cash flow Yield
0% to 30%
 14  %
Trading account assets – Corporate securities, trading loans and other 201  Price
$0 to $100
 $55
Trading account assets – Mortgage trading loans, ABS and other MBS 85 
Loans held-for-sale 17 
Commercial loans, debt securities and other $ 3,798  Discounted cash flow, Market comparables Yield
1% to 20%
 6  %
Trading account assets – Corporate securities, trading loans and other
 1,306 
Prepayment speed
10% to 20%
 13  %
Trading account assets – Non-U.S. sovereign debt 482  Default rate
3% to 4%
 4  %
Trading account assets – Mortgage trading loans, ABS and other MBS 1,136  Loss severity
35% to 40%
 38  %
AFS debt securities – Tax-exempt securities 108  Price
 $0 to $142
 $72
Loans and leases 412  Long-dated equity volatilities
35%
 n/a
Loans held-for-sale 354 
Other assets, primarily auction rate securities $ 815  Discounted cash flow, Market comparables
Price
$10 to $100
 $96

MSRs $ 1,545  Discounted cash flow
Weighted-average life, fixed rate (5)
0 to 14 years
5 years
Weighted-average life, variable rate (5)
0 to 9 years
3 years
Option-adjusted spread, fixed rate
7% to 14%
9  %
Option-adjusted spread, variable rate
9% to 15%
 11  %
Structured liabilities
Long-term debt $ (1,149)
Discounted cash flow, Market comparables, Industry standard derivative pricing (3)
Yield
2% to 6%
 5  %
Equity correlation
 9% to 100%
 63  %
Long-dated equity volatilities
4% to 101%
 32  %
Price
$0 to $116
 $74
Natural gas forward price
$1/MMBtu to $5/MMBtu
$3/MMBtu
Net derivative assets (liabilities)
Credit derivatives
 $ 13  Discounted cash flow, Stochastic recovery correlation model
Yield
5%
 n/a
Upfront points
0 to 100 points
 63 points
Prepayment speed
15% to 100% CPR
22% CPR
Default rate
1% to 4% CDR
2% CDR
Loss severity
35%
 n/a
Price
$0 to $104
 $73
Equity derivatives
 $ (1,081)
Industry standard derivative pricing (3)
Equity correlation
9% to 100%
 63  %
Long-dated equity volatilities
4% to 101%
 32  %
Commodity derivatives
 $ (1,357)
Discounted cash flow, Industry standard derivative pricing (3)
Natural gas forward price
$1/MMBtu to $5/MMBtu
$3/MMBtu
Correlation
30% to 69%
 68  %
Volatilities
14% to 54%
 27  %
Interest rate derivatives
 $ (113)
Industry standard derivative pricing (4)
Correlation (IR/IR)
15% to 94%
 52  %
Correlation (FX/IR)
0% to 46%
 2  %
Long-dated inflation rates
G(23)% to 56%
16  %
Long-dated inflation volatilities
0% to 1%
 1  %
Total net derivative assets (liabilities) $ (2,538)
(1)For loans and securities, structured liabilities and net derivative assets (liabilities), the weighted average is calculated based upon the absolute fair value of the instruments.
(2)The categories are aggregated based upon product type which differs from financial statement classification. The following is a reconciliation to the line items in the table on page 157: Trading account assets – Corporate securities, trading loans and other of $1.5 billion, Trading account assets – Non-U.S. sovereign debt of $482 million, Trading account assets – Mortgage trading loans, ABS and other MBS of $1.6 billion, AFS debt securities of $599 million, Other debt securities carried at fair value - Non-agency residential of $299 million, Other assets, including MSRs, of $2.4 billion, Loans and leases of $693 million and LHFS of $375 million.
(3)Includes models such as Monte Carlo simulation and Black-Scholes.
(4)Includes models such as Monte Carlo simulation, Black-Scholes and other methods that model the joint dynamics of interest, inflation and foreign exchange rates.
(5)The weighted-average life is a product of changes in market rates of interest, prepayment rates and other model and cash flow assumptions.
CPR = Constant Prepayment Rate
CDR = Constant Default Rate
MMBtu = Million British thermal units
IR = Interest Rate
FX = Foreign Exchange
n/a = not applicable
In the previous tables, instruments backed by residential and commercial real estate assets include RMBS, commercial MBS, whole loans and mortgage CDOs. Commercial loans, debt securities and other include corporate CLOs and CDOs, commercial loans and bonds, and securities backed by non-real estate assets. Structured liabilities primarily include equity-linked notes that are accounted for under the fair value option.
The Corporation uses multiple market approaches in valuing certain of its Level 3 financial instruments. For example, market comparables and discounted cash flows are used together. For a given product, such as corporate debt securities, market comparables may be used to estimate some of the unobservable inputs and then these inputs are incorporated into a discounted cash flow model. Therefore, the balances disclosed encompass both of these techniques.
The level of aggregation and diversity within the products disclosed in the tables result in certain ranges of inputs being wide and unevenly distributed across asset and liability categories.
Uncertainty of Fair Value Measurements from Unobservable Inputs
Loans and Securities
A significant increase in market yields, default rates, loss severities or duration would have resulted in a significantly lower fair value for long positions. Short positions would have been impacted in a directionally opposite way. The impact of changes in prepayment speeds would have resulted in differing impacts depending on the seniority of the instrument and, in the case of CLOs, whether prepayments can be reinvested. A significant increase in price would have resulted in a significantly higher fair value for long positions, and short positions would have been impacted in a directionally opposite way.
Structured Liabilities and Derivatives
For credit derivatives, a significant increase in market yield, upfront points (i.e., a single upfront payment made by a
protection buyer at inception), credit spreads, default rates or loss severities would have resulted in a significantly lower fair value for protection sellers and higher fair value for protection buyers. The impact of changes in prepayment speeds would have resulted in differing impacts depending on the seniority of the instrument.
Structured credit derivatives are impacted by credit correlation. Default correlation is a parameter that describes the degree of dependence among credit default rates within a credit portfolio that underlies a credit derivative instrument. The sensitivity of this input on the fair value varies depending on the level of subordination of the tranche. For senior tranches that are net purchases of protection, a significant increase in default correlation would have resulted in a significantly higher fair value. Net short protection positions would have been impacted in a directionally opposite way.
For equity derivatives, commodity derivatives, interest rate derivatives and structured liabilities, a significant change in long-dated rates and volatilities and correlation inputs (i.e., the degree of correlation between an equity security and an index, between two different commodities, between two different interest rates, or between interest rates and foreign exchange rates) would have resulted in a significant impact to the fair value; however, the magnitude and direction of the impact depend on whether the Corporation is long or short the exposure. For structured liabilities, a significant increase in yield or decrease in price would have resulted in a significantly lower fair value.
Nonrecurring Fair Value
The Corporation holds certain assets that are measured at fair value only in certain situations (e.g., the impairment of an asset), and these measurements are referred to herein as nonrecurring. The amounts below represent assets still held as of the reporting date for which a nonrecurring fair value adjustment was recorded during 2020, 2019 and 2018.
Assets Measured at Fair Value on a Nonrecurring Basis
December 31, 2020 December 31, 2019
(Dollars in millions)
 
Level 2 Level 3 Level 2 Level 3
Assets      
Loans held-for-sale $ 1,020  $ 792  $ 53  $ 102 
Loans and leases (1)
—  301  —  257 
Foreclosed properties (2, 3)
—  17  —  17 
Other assets 323  576  178  646 
Gains (Losses)
2020 2019 2018
Assets      
Loans held-for-sale $ (79) $ (14) $ (18)
Loans and leases (1)
(73) (81) (202)
Foreclosed properties (6) (9) (24)
Other assets (98) (2,145) (64)
(1)Includes $30 million, $36 million and $83 million of losses on loans that were written down to a collateral value of zero during 2020, 2019 and 2018, respectively.
(2)Amounts are included in other assets on the Consolidated Balance Sheet and represent the carrying value of foreclosed properties that were written down subsequent to their initial classification as foreclosed properties. Losses on foreclosed properties include losses recorded during the first 90 days after transfer of a loan to foreclosed properties.
(3)Excludes $119 million and $260 million of properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans) at December 31, 2020 and 2019.
The table below presents information about significant unobservable inputs utilized in the Corporation's nonrecurring Level 3 fair value measurements during 2020 and 2019.
Quantitative Information about Nonrecurring Level 3 Fair Value Measurements
Inputs
Financial Instrument Fair Value Valuation
Technique		 Significant Unobservable
Inputs		 Ranges of
Inputs
Weighted
Average (1)
(Dollars in millions) 2020
Loans held-for-sale $ 792  Discounted cash flow Price
$8 to $99
 $95
Loans and leases (2)
301  Market comparables OREO discount
13% to 59%
 24  %
Costs to sell
8% to 26%
 9  %
Other assets (3)
576  Discounted cash flow Revenue attrition
2% to 19%
 7  %
Discount rate
11% to 14%
 12  %
2019
Loans held-for-sale $ 102  Discounted cash flow Price
$85 to $97
 $88
Loans and leases (2)
257  Market comparables OREO discount
13% to 59%
 24  %
Costs to sell
8% to 26%
 9  %
Other assets (4)
640  Discounted cash flow Customer attrition
0% to 19%
 5  %
Cost to service
11% to 19%
 15  %
(1)The weighted average is calculated based upon the fair value of the loans.
(2)Represents residential mortgages where the loan has been written down to the fair value of the underlying collateral.
(3)The fair value of the intangible asset related to the merchant contracts received from the merchant services joint venture was measured using a discounted cash flow method for which the two key assumptions were the revenue attrition rate and the discount rate. For more information, see Note 7 – Goodwill and Intangible Assets.
(4)Reflects the measurement of the Corporation’s merchant services equity method investment on which the Corporation recorded an impairment charge in 2019. The fair value of the merchant services joint venture was measured using a discounted cash flow method for which the two key assumptions were the customer attrition rate and the cost-to-service rate.