Quarterly report pursuant to Section 13 or 15(d)

Fair Value Measurements (Tables)

v3.19.3
Fair Value Measurements (Tables)
9 Months Ended
Sep. 30, 2019
Fair Value Disclosures [Abstract]  
Assets and Liabilities Carried at Fair Value on a Recurring Basis
Assets and liabilities carried at fair value on a recurring basis at September 30, 2019 and December 31, 2018, including financial instruments that the Corporation accounts for under the fair value option, are summarized in the following tables.
 
 
 
 
 
 
 
 
 
 
 
September 30, 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
$
1,356

 
$

 
$

 
$

 
$
1,356

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

 
50,298

 

 

 
50,298

Trading account assets:
 

 
 

 
 

 
 

 
 

U.S. Treasury and agency securities (2)
46,103

 
1,952

 

 

 
48,055

Corporate securities, trading loans and other

 
29,625

 
1,591

 

 
31,216

Equity securities
77,822

 
31,823

 
279

 

 
109,924

Non-U.S. sovereign debt
11,554

 
27,237

 
465

 

 
39,256

Mortgage trading loans, MBS and ABS:
 
 
 
 
 
 
 
 
 
U.S. government-sponsored agency guaranteed (2)

 
25,268

 

 

 
25,268

Mortgage trading loans, ABS and other MBS

 
8,402

 
1,563

 

 
9,965

Total trading account assets (3)
135,479

 
124,307

 
3,898

 

 
263,684

Derivative assets
15,501

 
372,583

 
3,370

 
(346,331
)
 
45,123

AFS debt securities:
 

 
 

 
 

 
 

 
 

U.S. Treasury and agency securities
55,704

 
1,243

 

 

 
56,947

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

Agency

 
134,949

 

 

 
134,949

Agency-collateralized mortgage obligations

 
4,962

 

 

 
4,962

Non-agency residential

 
1,435

 
508

 

 
1,943

Commercial

 
14,677

 

 

 
14,677

Non-U.S. securities

 
11,077

 
2

 

 
11,079

Other taxable securities

 
3,880

 
3

 

 
3,883

Tax-exempt securities

 
16,432

 

 

 
16,432

Total AFS debt securities
55,704

 
188,655

 
513

 

 
244,872

Other debt securities carried at fair value:
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
3

 

 

 

 
3

Non-agency residential MBS

 
1,235

 
308

 

 
1,543

Commercial

 
13

 

 

 
13

Non-U.S. securities
2,531

 
5,377

 

 

 
7,908

Other taxable securities

 
3

 

 

 
3

Total other debt securities carried at fair value
2,534

 
6,628

 
308

 

 
9,470

Loans and leases

 
7,273

 
401

 

 
7,674

Loans held-for-sale

 
4,625

 
386

 

 
5,011

Other assets (4)
18,471

 
2,081

 
2,400

 

 
22,952

Total assets (5)
$
229,045

 
$
756,450

 
$
11,276

 
$
(346,331
)
 
$
650,440

Liabilities
 

 
 

 
 

 
 

 
 

Interest-bearing deposits in U.S. offices
$

 
$
626

 
$

 
$

 
$
626

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

 
21,963

 

 

 
21,963

Trading account liabilities:
 

 
 

 
 

 
 

 
 
U.S. Treasury and agency securities
13,948

 
195

 

 

 
14,143

Equity securities
34,161

 
3,930

 
2

 

 
38,093

Non-U.S. sovereign debt
9,995

 
9,011

 

 

 
19,006

Corporate securities and other

 
7,387

 
13

 

 
7,400

Total trading account liabilities
58,104

 
20,523

 
15

 

 
78,642

Derivative liabilities
14,741

 
361,185

 
4,602

 
(342,503
)
 
38,025

Short-term borrowings

 
3,458

 

 

 
3,458

Accrued expenses and other liabilities
21,210

 
2,302

 

 

 
23,512

Long-term debt

 
35,909

 
864

 

 
36,773

Total liabilities (5)
$
94,055

 
$
445,966

 
$
5,481

 
$
(342,503
)
 
$
202,999

(1) 
Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(2) 
Includes $25.8 billion of GSE obligations.
(3) 
Includes securities with a fair value of $14.9 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 $1.6 billion which are classified as Level 3 assets.
(5) 
Total recurring Level 3 assets were 0.46 percent of total consolidated assets, and total recurring Level 3 liabilities were 0.25 percent of total consolidated liabilities.
 
 
 
 
 
 
 
 
 
 
 
December 31, 2018
 
Fair Value Measurements
 
 
 
 
(Dollars in millions)
Level 1
 
Level 2
 
Level 3
 
Netting Adjustments (1)
 
Assets/Liabilities at Fair Value
Assets
 

 
 

 
 

 
 

 
 

Time deposits placed and other short-term investments
$
1,214

 
$

 
$

 
$

 
$
1,214

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

 
56,399

 

 

 
56,399

Trading account assets:
 

 
 

 
 

 
 

 
 

U.S. Treasury and agency securities (2)
53,131

 
1,593

 

 

 
54,724

Corporate securities, trading loans and other

 
24,630

 
1,558

 

 
26,188

Equity securities
53,840

 
23,163

 
276

 

 
77,279

Non-U.S. sovereign debt
5,818

 
19,210

 
465

 

 
25,493

Mortgage trading loans, MBS and ABS:
 
 
 
 
 
 
 
 
 
U.S. government-sponsored agency guaranteed (2)

 
19,586

 

 

 
19,586

Mortgage trading loans, ABS and other MBS

 
9,443

 
1,635

 

 
11,078

Total trading account assets (3)
112,789

 
97,625

 
3,934

 

 
214,348

Derivative assets
9,967

 
315,413

 
3,466

 
(285,121
)
 
43,725

AFS debt securities:
 

 
 

 
 

 
 

 
 

U.S. Treasury and agency securities
53,663

 
1,260

 

 

 
54,923

Mortgage-backed securities:
 

 
 

 
 

 
 

 
 

Agency

 
121,826

 

 

 
121,826

Agency-collateralized mortgage obligations

 
5,530

 

 

 
5,530

Non-agency residential

 
1,320

 
597

 

 
1,917

Commercial

 
14,078

 

 

 
14,078

Non-U.S. securities

 
9,304

 
2

 

 
9,306

Other taxable securities

 
4,403

 
7

 

 
4,410

Tax-exempt securities

 
17,376

 

 

 
17,376

Total AFS debt securities
53,663

 
175,097

 
606

 

 
229,366

Other debt securities carried at fair value:
 
 
 
 
 
 
 
 
 
U.S. Treasury and agency securities
1,282

 

 

 

 
1,282

Non-agency residential MBS

 
1,434

 
172

 

 
1,606

Non-U.S. securities
490

 
5,354

 

 

 
5,844

Other taxable securities

 
3

 

 

 
3

Total other debt securities carried at fair value
1,772

 
6,791

 
172

 

 
8,735

Loans and leases

 
4,011

 
338

 

 
4,349

Loans held-for-sale

 
2,400

 
542

 

 
2,942

Other assets (4)
15,032

 
1,775

 
2,932

 

 
19,739

Total assets (5)
$
194,437

 
$
659,511

 
$
11,990

 
$
(285,121
)
 
$
580,817

Liabilities
 

 
 

 
 

 
 

 
 

Interest-bearing deposits in U.S. offices
$

 
$
492

 
$

 
$

 
$
492

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

 
28,875

 

 

 
28,875

Trading account liabilities:
 

 
 

 
 

 
 

 
 
U.S. Treasury and agency securities
7,894

 
761

 

 

 
8,655

Equity securities
33,739

 
4,070

 

 

 
37,809

Non-U.S. sovereign debt
7,452

 
9,182

 

 

 
16,634

Corporate securities and other

 
5,104

 
18

 

 
5,122

Total trading account liabilities
49,085

 
19,117

 
18

 

 
68,220

Derivative liabilities
9,931

 
303,441

 
4,401

 
(279,882
)
 
37,891

Short-term borrowings

 
1,648

 

 

 
1,648

Accrued expenses and other liabilities
18,096

 
1,979

 

 

 
20,075

Long-term debt

 
26,872

 
817

 

 
27,689

Total liabilities (5)
$
77,112

 
$
382,424

 
$
5,236

 
$
(279,882
)
 
$
184,890


(1) 
Amounts represent the impact of legally enforceable master netting agreements and also cash collateral held or placed with the same counterparties.
(2) 
Includes $20.2 billion of GSE obligations.
(3) 
Includes securities with a fair value of $16.6 billion that were segregated in compliance with securities regulations or deposited with clearing organizations. This amount is included in the parenthetical disclosure on the Consolidated Balance Sheet.
(4) 
Includes MSRs of $2.0 billion which are classified as Level 3 assets.
(5) 
Total recurring Level 3 assets were 0.51 percent of total consolidated assets, and total recurring Level 3 liabilities were 0.25 percent of total consolidated liabilities.
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation
The following tables present a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and nine months ended September 30, 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
July 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
September 30
Change in Unrealized Gains (Losses) in Net Income Related to Financial Instruments Still Held (2)
(Dollars in millions)
Purchases
Sales
Issuances
Settlements
Three Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Trading account assets:
 

 

 

 

 
 
 
 

 

 

 
Corporate securities, trading loans and other
$
1,393

$
28

$

$
158

$
(153
)
$

$
(143
)
$
356

$
(48
)
$
1,591

$

Equity securities
296

(8
)

17

(81
)

(1
)
66

(10
)
279

(31
)
Non-U.S. sovereign debt
481

9

(28
)



(36
)
39


465

10

Mortgage trading loans, ABS and other MBS
1,389

(8
)

91

(156
)

(48
)
316

(21
)
1,563

(24
)
Total trading account assets
3,559

21

(28
)
266

(390
)

(228
)
777

(79
)
3,898

(45
)
Net derivative assets (4)
(1,114
)
73


81

(270
)

(36
)

34

(1,232
)
52

AFS debt securities:
 

 

 

 

 

 

 

 

 

 

 
Non-agency residential MBS
568


(13
)



(8
)

(39
)
508


Non-U.S. securities
2









2


Other taxable securities
3









3


Total AFS debt securities
573


(13
)



(8
)

(39
)
513


Other debt securities carried at fair value – Non-agency residential MBS
273

(8
)




(5
)
48


308

(8
)
Loans and leases (5,6)
355

8


27

(17
)
44

(16
)


401

8

Loans held-for-sale (5)
486

5

(11
)
2



(96
)


386

(7
)
Other assets (6, 7)
2,551

(40
)
(5
)


53

(163
)
4


2,400

(82
)
Trading account liabilities – Equity securities
(2
)








(2
)

Trading account liabilities – Corporate securities
   and other
(13
)
1


(1
)





(13
)
(1
)
Long-term debt (5)
(902
)
16

1

(27
)


49

(1
)

(864
)
16

 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
Trading account assets:
 
 
 
 
 
 
 
 
 
 
 
Corporate securities, trading loans and other
$
1,638

$
14

$

$
54

$
(87
)
$

$
(175
)
$
269

$
(179
)
$
1,534

$
(14
)
Equity securities
228

8


21




43

(10
)
290

8

Non-U.S. sovereign debt
368

10

(13
)




109

(5
)
469

11

Mortgage trading loans, ABS and other MBS
1,523

16

(1
)
75

(184
)

(29
)
191

(112
)
1,479

8

Total trading account assets
3,757

48

(14
)
150

(271
)

(204
)
612

(306
)
3,772

13

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

23

(66
)

111

20

983

(570
)
(51
)
AFS debt securities:
 

 

 

 
 
 
 

 

 

 

 
Non-agency residential MBS
453

31

(28
)

(72
)


235

(75
)
544


Non-U.S. securities
3









3


Other taxable securities
99

(1
)
(3
)

(22
)



(66
)
7


Tax-exempt securities
1









1


Total AFS debt securities
556

30

(31
)

(94
)


235

(141
)
555


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

(23
)





60

(28
)
296

(10
)
Loans and leases (5)
493




(62
)

(21
)


410

(1
)
Loans held-for-sale (5)
577

12

(4
)
39



(82
)
12

(28
)
526

9

Other assets (6, 7)
3,184

121



(22
)
31

(174
)


3,140

55

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


9






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

(1
)


(11
)
106

(106
)
303

(923
)
13

(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly trading account income; Net derivative assets - trading account income and other income; Other debt securities carried at fair value - other income; Loans and leases - other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - primarily trading account income.
(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. Total gains (losses) in OCI include net unrealized losses of $53 million related to financial instruments still held at September 30, 2019.
(4) 
Net derivative assets include derivative assets of $3.4 billion and $4.4 billion and derivative liabilities of $4.6 billion and $5.0 billion at September 30, 2019 and 2018.
(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.

 
 
 
 
 
 
 
 
 
 
 
 
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
September 30
Change in Unrealized Gains (Losses) in Net Income Related to Financial Instruments Still Held (2)
(Dollars in millions)

Purchases
Sales
Issuances
Settlements
Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Trading account assets:
 

 

 

 

 
 
 
 

 

 

 
Corporate securities, trading loans and other
$
1,558

$
86

$

$
352

$
(305
)
$

$
(349
)
$
602

$
(353
)
$
1,591

$
33

Equity securities
276

14


38

(87
)

(4
)
69

(27
)
279

(14
)
Non-U.S. sovereign debt
465

36

(24
)
1



(47
)
39

(5
)
465

37

Mortgage trading loans, ABS and other MBS
1,635

80

(2
)
488

(817
)

(172
)
583

(232
)
1,563

13

Total trading account assets
3,934

216

(26
)
879

(1,209
)

(572
)
1,293

(617
)
3,898

69

Net derivative assets (4)
(935
)
(43
)

248

(676
)

(124
)
139

159

(1,232
)
(110
)
AFS debt securities:
 

 

 

 

 

 

 

 

 

 

 
Non-agency residential MBS
597


77




(29
)
206

(343
)
508


Non-U.S. securities
2









2


Other taxable securities
7






(4
)


3


Total AFS debt securities
606


77




(33
)
206

(343
)
513


Other debt securities carried at fair value – Non-agency residential MBS
172

41





(13
)
155

(47
)
308

38

Loans and leases (5,6)
338

12


27

(32
)
97

(41
)


401

11

Loans held-for-sale (5,6)
542

43

(11
)
12

(71
)
11

(199
)
59


386

13

Other assets (6, 7)
2,932

(194
)
11


(10
)
161

(504
)
4


2,400

(342
)
Trading account liabilities – Equity securities

(2
)







(2
)
(2
)
Trading account liabilities – Corporate securities
   and other
(18
)
8



(3
)




(13
)
(1
)
Long-term debt (5)
(817
)
(71
)

(27
)

(13
)
125

(62
)
1

(864
)
(64
)
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
Trading account assets:
 

 

 
 
 
 

 
 

 

 
 
Corporate securities, trading loans and other
$
1,864

$
(14
)
$
(1
)
$
328

$
(298
)
$

$
(388
)
$
517

$
(474
)
$
1,534

$
(88
)
Equity securities
235

17


29

(11
)

(4
)
73

(49
)
290

17

Non-U.S. sovereign debt
556

39

(55
)
7

(50
)

(8
)
117

(137
)
469

40

Mortgage trading loans, ABS and other MBS
1,498

157

2

392

(760
)

(136
)
541

(215
)
1,479

92

Total trading account assets
4,153

199

(54
)
756

(1,119
)

(536
)
1,248

(875
)
3,772

61

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


371

(919
)

488

87

914

(570
)
(138
)
AFS debt securities:
 

 

 

 
 
 
 

 

 

 

 
Non-agency residential MBS

39

(42
)

(72
)


694

(75
)
544


Non-U.S. securities
25


(1
)

(10
)

(14
)
3


3


Other taxable securities
509

1

(5
)

(22
)

(10
)
60

(526
)
7


Tax-exempt securities
469







1

(469
)
1


Total AFS debt securities (8)
1,003

40

(48
)

(104
)

(24
)
758

(1,070
)
555


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

(27
)


(7
)


358

(28
)
296

(5
)
Loans and leases (5)
571

(20
)


(71
)

(70
)


410

(17
)
Loans held-for-sale (5)
690

24

(31
)
51



(160
)
12

(60
)
526

18

Other assets (6,7,8)
2,425

389


2

(68
)
83

(585
)
929

(35
)
3,140

188

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


9

(11
)
(2
)



(17
)
(7
)
Accrued expenses and other liabilities (5)
(8
)





8





Long-term debt (5)
(1,863
)
97

2

9


(131
)
429

(253
)
787

(923
)
87

(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly trading account income; Net derivative assets - trading account income and other income; Other debt securities carried at fair value - other income; Loans and leases - other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - primarily trading account income.
(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. Total gains (losses) in OCI include net unrealized gains of $47 million related to financial instruments still held at September 30, 2019.
(4) 
Net derivative assets include derivative assets of $3.4 billion and $4.4 billion and derivative liabilities of $4.6 billion and $5.0 billion at September 30, 2019 and 2018.
(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 out of AFS debt securities and into other assets primarily relate to the reclassification of certain securities.
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation
The following tables present a reconciliation of all assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and nine months ended September 30, 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
July 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
September 30
Change in Unrealized Gains (Losses) in Net Income Related to Financial Instruments Still Held (2)
(Dollars in millions)
Purchases
Sales
Issuances
Settlements
Three Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Trading account assets:
 

 

 

 

 
 
 
 

 

 

 
Corporate securities, trading loans and other
$
1,393

$
28

$

$
158

$
(153
)
$

$
(143
)
$
356

$
(48
)
$
1,591

$

Equity securities
296

(8
)

17

(81
)

(1
)
66

(10
)
279

(31
)
Non-U.S. sovereign debt
481

9

(28
)



(36
)
39


465

10

Mortgage trading loans, ABS and other MBS
1,389

(8
)

91

(156
)

(48
)
316

(21
)
1,563

(24
)
Total trading account assets
3,559

21

(28
)
266

(390
)

(228
)
777

(79
)
3,898

(45
)
Net derivative assets (4)
(1,114
)
73


81

(270
)

(36
)

34

(1,232
)
52

AFS debt securities:
 

 

 

 

 

 

 

 

 

 

 
Non-agency residential MBS
568


(13
)



(8
)

(39
)
508


Non-U.S. securities
2









2


Other taxable securities
3









3


Total AFS debt securities
573


(13
)



(8
)

(39
)
513


Other debt securities carried at fair value – Non-agency residential MBS
273

(8
)




(5
)
48


308

(8
)
Loans and leases (5,6)
355

8


27

(17
)
44

(16
)


401

8

Loans held-for-sale (5)
486

5

(11
)
2



(96
)


386

(7
)
Other assets (6, 7)
2,551

(40
)
(5
)


53

(163
)
4


2,400

(82
)
Trading account liabilities – Equity securities
(2
)








(2
)

Trading account liabilities – Corporate securities
   and other
(13
)
1


(1
)





(13
)
(1
)
Long-term debt (5)
(902
)
16

1

(27
)


49

(1
)

(864
)
16

 
 
 
 
 
 
 
 
 
 
 
 
Three Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
Trading account assets:
 
 
 
 
 
 
 
 
 
 
 
Corporate securities, trading loans and other
$
1,638

$
14

$

$
54

$
(87
)
$

$
(175
)
$
269

$
(179
)
$
1,534

$
(14
)
Equity securities
228

8


21




43

(10
)
290

8

Non-U.S. sovereign debt
368

10

(13
)




109

(5
)
469

11

Mortgage trading loans, ABS and other MBS
1,523

16

(1
)
75

(184
)

(29
)
191

(112
)
1,479

8

Total trading account assets
3,757

48

(14
)
150

(271
)

(204
)
612

(306
)
3,772

13

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

23

(66
)

111

20

983

(570
)
(51
)
AFS debt securities:
 

 

 

 
 
 
 

 

 

 

 
Non-agency residential MBS
453

31

(28
)

(72
)


235

(75
)
544


Non-U.S. securities
3









3


Other taxable securities
99

(1
)
(3
)

(22
)



(66
)
7


Tax-exempt securities
1









1


Total AFS debt securities
556

30

(31
)

(94
)


235

(141
)
555


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

(23
)





60

(28
)
296

(10
)
Loans and leases (5)
493




(62
)

(21
)


410

(1
)
Loans held-for-sale (5)
577

12

(4
)
39



(82
)
12

(28
)
526

9

Other assets (6, 7)
3,184

121



(22
)
31

(174
)


3,140

55

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


9






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

(1
)


(11
)
106

(106
)
303

(923
)
13

(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly trading account income; Net derivative assets - trading account income and other income; Other debt securities carried at fair value - other income; Loans and leases - other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - primarily trading account income.
(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. Total gains (losses) in OCI include net unrealized losses of $53 million related to financial instruments still held at September 30, 2019.
(4) 
Net derivative assets include derivative assets of $3.4 billion and $4.4 billion and derivative liabilities of $4.6 billion and $5.0 billion at September 30, 2019 and 2018.
(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.

 
 
 
 
 
 
 
 
 
 
 
 
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
September 30
Change in Unrealized Gains (Losses) in Net Income Related to Financial Instruments Still Held (2)
(Dollars in millions)

Purchases
Sales
Issuances
Settlements
Nine Months Ended September 30, 2019
 
 
 
 
 
 
 
 
 
 
 
Trading account assets:
 

 

 

 

 
 
 
 

 

 

 
Corporate securities, trading loans and other
$
1,558

$
86

$

$
352

$
(305
)
$

$
(349
)
$
602

$
(353
)
$
1,591

$
33

Equity securities
276

14


38

(87
)

(4
)
69

(27
)
279

(14
)
Non-U.S. sovereign debt
465

36

(24
)
1



(47
)
39

(5
)
465

37

Mortgage trading loans, ABS and other MBS
1,635

80

(2
)
488

(817
)

(172
)
583

(232
)
1,563

13

Total trading account assets
3,934

216

(26
)
879

(1,209
)

(572
)
1,293

(617
)
3,898

69

Net derivative assets (4)
(935
)
(43
)

248

(676
)

(124
)
139

159

(1,232
)
(110
)
AFS debt securities:
 

 

 

 

 

 

 

 

 

 

 
Non-agency residential MBS
597


77




(29
)
206

(343
)
508


Non-U.S. securities
2









2


Other taxable securities
7






(4
)


3


Total AFS debt securities
606


77




(33
)
206

(343
)
513


Other debt securities carried at fair value – Non-agency residential MBS
172

41





(13
)
155

(47
)
308

38

Loans and leases (5,6)
338

12


27

(32
)
97

(41
)


401

11

Loans held-for-sale (5,6)
542

43

(11
)
12

(71
)
11

(199
)
59


386

13

Other assets (6, 7)
2,932

(194
)
11


(10
)
161

(504
)
4


2,400

(342
)
Trading account liabilities – Equity securities

(2
)







(2
)
(2
)
Trading account liabilities – Corporate securities
   and other
(18
)
8



(3
)




(13
)
(1
)
Long-term debt (5)
(817
)
(71
)

(27
)

(13
)
125

(62
)
1

(864
)
(64
)
 
 
 
 
 
 
 
 
 
 
 
 
Nine Months Ended September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
Trading account assets:
 

 

 
 
 
 

 
 

 

 
 
Corporate securities, trading loans and other
$
1,864

$
(14
)
$
(1
)
$
328

$
(298
)
$

$
(388
)
$
517

$
(474
)
$
1,534

$
(88
)
Equity securities
235

17


29

(11
)

(4
)
73

(49
)
290

17

Non-U.S. sovereign debt
556

39

(55
)
7

(50
)

(8
)
117

(137
)
469

40

Mortgage trading loans, ABS and other MBS
1,498

157

2

392

(760
)

(136
)
541

(215
)
1,479

92

Total trading account assets
4,153

199

(54
)
756

(1,119
)

(536
)
1,248

(875
)
3,772

61

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


371

(919
)

488

87

914

(570
)
(138
)
AFS debt securities:
 

 

 

 
 
 
 

 

 

 

 
Non-agency residential MBS

39

(42
)

(72
)


694

(75
)
544


Non-U.S. securities
25


(1
)

(10
)

(14
)
3


3


Other taxable securities
509

1

(5
)

(22
)

(10
)
60

(526
)
7


Tax-exempt securities
469







1

(469
)
1


Total AFS debt securities (8)
1,003

40

(48
)

(104
)

(24
)
758

(1,070
)
555


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

(27
)


(7
)


358

(28
)
296

(5
)
Loans and leases (5)
571

(20
)


(71
)

(70
)


410

(17
)
Loans held-for-sale (5)
690

24

(31
)
51



(160
)
12

(60
)
526

18

Other assets (6,7,8)
2,425

389


2

(68
)
83

(585
)
929

(35
)
3,140

188

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


9

(11
)
(2
)



(17
)
(7
)
Accrued expenses and other liabilities (5)
(8
)





8





Long-term debt (5)
(1,863
)
97

2

9


(131
)
429

(253
)
787

(923
)
87

(1) 
Assets (liabilities). For assets, increase (decrease) to Level 3 and for liabilities, (increase) decrease to Level 3.
(2) 
Includes gains (losses) reported in earnings in the following income statement line items: Trading account assets/liabilities - predominantly trading account income; Net derivative assets - trading account income and other income; Other debt securities carried at fair value - other income; Loans and leases - other income; Loans held-for-sale - other income; Other assets - primarily other income related to MSRs; Long-term debt - primarily trading account income.
(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. Total gains (losses) in OCI include net unrealized gains of $47 million related to financial instruments still held at September 30, 2019.
(4) 
Net derivative assets include derivative assets of $3.4 billion and $4.4 billion and derivative liabilities of $4.6 billion and $5.0 billion at September 30, 2019 and 2018.
(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 out of AFS debt securities and into other assets primarily relate to the reclassification of certain securities.
Fair Value Inputs, Assets and Liabilities, Quantitative Information
The following tables present information about significant unobservable inputs related to the Corporation’s material categories of Level 3 financial assets and liabilities at September 30, 2019 and December 31, 2018.
 
 
 
 
 
 
Quantitative Information about Level 3 Fair Value Measurements at September 30, 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
$
1,515

Discounted cash flow, Market comparables
Yield
0% to 25%
6%
Trading account assets – Mortgage trading loans, ABS and other MBS
287

Prepayment speed
1% to 28% CPR
18% CPR
Loans and leases
401

Default rate
0% to 3% CDR
1% CDR
Loans held-for-sale
6

Loss severity
0% to 48%
15%
AFS debt securities, primarily non-agency residential
513

Price
$0 to $680
$92
Other debt securities carried at fair value - Non-agency residential
308

 
 
 
Instruments backed by commercial real estate assets
$
183

Discounted cash flow
Yield
0% to 25%
18%
Trading account assets – Corporate securities, trading loans and other
158

Price
$0 to $100
$60
Trading account assets – Mortgage trading loans, ABS and other MBS
23

 
 
 
Loans held-for-sale
2

 
 
 
Commercial loans, debt securities and other
$
3,529

Discounted cash flow, Market comparables
Yield
1% to 15%
6%
Trading account assets – Corporate securities, trading loans and other
1,433

Prepayment speed
10% to 20%
17%
Trading account assets – Non-U.S. sovereign debt
465

Default rate
3% to 4%
4%
Trading account assets – Mortgage trading loans, ABS and other MBS
1,253

Loss severity
35% to 40%
37%
Loans held-for-sale
378

Price
$0 to $158
$70
Other assets, primarily auction rate securities
$
844

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

 
 
 
 

 
 
 
 
MSRs
$
1,556

Discounted cash flow
Weighted-average life, fixed rate (5)
0 to 14 years
4 years
 
 
Weighted-average life, variable rate (5)
0 to 9 years
3 years
 
 
Option-adjusted spread, fixed rate
9% to 14%
9%
 
 
Option-adjusted spread, variable rate
9% to 15%
11%
Structured liabilities
 
 
 
 
 
Long-term debt
$
(864
)
Discounted cash flow, Market comparables, Industry standard derivative pricing (3)
Equity correlation
16% to 97%
69%
 
 
Long-dated equity volatilities
4% to 80%
32%
 
 
Price
$0 to $113
$76
 
 
 
 
 
Net derivative assets
 
 
 
 
 
Credit derivatives
$
(9
)
Discounted cash flow, Stochastic recovery correlation model
Yield
5%
n/a
 
 
Upfront points
0 to 100 points
69 points
 
 
Prepayment speed
15% to 100% CPR
32% CPR
 
 
Default rate
1% to 4% CDR
2% CDR
 
 
Loss severity
35%
n/a
 
 
Price
$0 to $138
$81
Equity derivatives
$
(1,107
)
Industry standard derivative pricing (3)
Equity correlation
16% to 97%
69%
 
 
Long-dated equity volatilities
4% to 80%
32%
Commodity derivatives
$
18

Discounted cash flow, Industry standard derivative pricing (3)
Natural gas forward price
$1/MMBtu to $7/MMBtu
$3/MMBtu
 
 
Correlation
30% to 69%
68%
 
 
Volatilities
15% to 62%
33%
Interest rate derivatives
$
(134
)
Industry standard derivative pricing (4)
Correlation (IR/IR)
15% to 97%
51%
 
 
Correlation (FX/IR)
0% to 46%
3%
 
 
Long-dated inflation rates
-15% to 148%
84%
 
 
Long-dated inflation volatilities
0% to 1%
1%
Total net derivative assets
$
(1,232
)
 
 
 
 
(1) 
For loans and securities, structured liabilities and net derivative assets, 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 82: Trading account assets – Corporate securities, trading loans and other of $1.6 billion, Trading account assets – Non-U.S. sovereign debt of $465 million, Trading account assets – Mortgage trading loans, ABS and other MBS of $1.6 billion, AFS debt securities of $513 million, Other debt securities carried at fair value - Non-agency residential of $308 million, Other assets, including MSRs, of $2.4 billion, Loans and leases of $401 million and LHFS of $386 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, 2018
 
 
 
 
 
(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
$
1,536

Discounted cash flow, Market comparables
Yield
0% to 25%
8%
Trading account assets – Mortgage trading loans, ABS and other MBS
419

Prepayment speed
0% to 21% CPR
12% CPR
Loans and leases
338

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

Loss severity
0% to 51%
17%
AFS debt securities, primarily non-agency residential
606

Price
$0 to $128
$72
Other debt securities carried at fair value - Non-agency residential
172

 
 
 
Instruments backed by commercial real estate assets
$
291

Discounted cash flow
Yield
0% to 25%
7%
Trading account assets – Corporate securities, trading loans and other
200

Price
$0 to $100
$79
Trading account assets – Mortgage trading loans, ABS and other MBS
91

 
 
 
Commercial loans, debt securities and other
$
3,489

Discounted cash flow, Market comparables
Yield
1% to 18%
13%
Trading account assets – Corporate securities, trading loans and other
1,358

Prepayment speed
10% to 20%
15%
Trading account assets – Non-U.S. sovereign debt
465

Default rate
3% to 4%
4%
Trading account assets – Mortgage trading loans, ABS and other MBS
1,125

Loss severity
35% to 40%
38%
Loans held-for-sale
541

Price
$0 to $141
$68
Other assets, primarily auction rate securities
$
890

Discounted cash flow, Market comparables
Price
$10 to $100
$95
 
 
 
 
 
 
 
 
 
 
MSRs
$
2,042

Discounted cash flow
Weighted-average life, fixed rate (5)
0 to 14 years
5 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
$
(817
)
Discounted cash flow, Market comparables, Industry standard derivative pricing (3)
Equity correlation
11% to 100%
67%
 
 
Long-dated equity volatilities
4% to 84%
32%
 
 
Yield
7% to 18%
16%
 
 
Price
$0 to $100
$72
Net derivative assets
 
 
 
 
 
Credit derivatives
$
(565
)
Discounted cash flow, Stochastic recovery correlation model
Yield
0% to 5%
4%
 
 
Upfront points
0 points to 100 points
70 points
 
 
Credit correlation
70%
n/a
 
 
Prepayment speed
15% to 20% CPR
15% CPR
 
 
Default rate
1% to 4% CDR
2% CDR
 
 
Loss severity
35%
n/a
 
 
Price
$0 to $138
$93
Equity derivatives
$
(348
)
Industry standard derivative pricing (3)
Equity correlation
11% to 100%
67%
 
 
Long-dated equity volatilities
4% to 84%
32%
Commodity derivatives
$
10

Discounted cash flow, Industry standard derivative pricing (3)
Natural gas forward price
$1/MMBtu to $12/MMBtu
$3/MMBtu
 
 
Correlation
38% to 87%
71%
 
 
Volatilities
15% to 132%
38%
Interest rate derivatives
$
(32
)
Industry standard derivative pricing (4)
Correlation (IR/IR)
15% to 70%
61%
 
 
Correlation (FX/IR)
0% to 46%
1%
 
 
Long-dated inflation rates
-20% to 38%
2%
 
 
Long-dated inflation volatilities
0% to 1%
1%
Total net derivative assets
$
(935
)
 
 
 
 

(1) 
For loans and securities, structured liabilities and net derivative assets, 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 83: Trading account assets – Corporate securities, trading loans and other of $1.6 billion, Trading account assets – Non-U.S. sovereign debt of $465 million, Trading account assets – Mortgage trading loans, ABS and other MBS of $1.6 billion, AFS debt securities of $606 million, Other debt securities carried at fair value - Non-agency residential of $172 million, Other assets, including MSRs, of 2.9 billion, Loans and leases of $338 million and LHFS of $542 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
Assets and Liabilities Measured at Fair Value on Nonrecurring Basis The amounts below represent assets still held as of the reporting date for which a nonrecurring fair value adjustment was recorded during the three and nine months ended September 30, 2019 and
2018. In the tables below, other assets includes the measurement of the Corporation's merchant services equity method investment on which the Corporation recorded an impairment charge of $2.1 billion during the three months ended September 30, 2019. For additional information, see Note 11 – Commitments and Contingencies.
 
 
 
 
 
 
 
 
Assets Measured at Fair Value on a Nonrecurring Basis
 
 
 
September 30, 2019
 
Three Months Ended September 30, 2019
 
Nine Months Ended September 30, 2019
(Dollars in millions)
 
Level 2
 
Level 3
 
Gains (Losses)
Assets
 

 
 

 
 
 
 
Loans held-for-sale
$
5

 
$
111

 
$
(7
)
 
$
(18
)
Loans and leases (1)

 
232

 
(21
)
 
(62
)
Foreclosed properties (2, 3)

 
19

 
(7
)
 
(10
)
Other assets
165

 
658

 
(2,085
)
 
(2,104
)
 
 
 
 
 
 
 
 
 
September 30, 2018
 
Three Months Ended September 30, 2018
 
Nine Months Ended September 30, 2018
Assets
 

 
 

 
 
 
 
Loans held-for-sale
$
45

 
$
12

 
$
(2
)
 
$
(2
)
Loans and leases (1)

 
492

 
(63
)
 
(194
)
Foreclosed properties (2, 3)

 
87

 
(8
)
 
(22
)
Other assets
294

 
3

 
(22
)
 
(58
)
(1) 
Includes $8 million and $25 million of losses on loans that were written down to a collateral value of zero during the three and nine months ended September 30, 2019 compared to losses of $24 million and $76 million for the same periods in 2018.
(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 $275 million and $500 million of properties acquired upon foreclosure of certain government-guaranteed loans (principally FHA-insured loans) at September 30, 2019 and 2018.
Fair Value, Assets and Liabilities Measured on Nonrecurring Basis, Valuation Techniques
The table below presents information about significant unobservable inputs at September 30, 2019 and December 31, 2018.
 
 
 
 
 
 
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)
September 30, 2019
Loans held-for-sale
$
111

Discounted cash flow
Price
$77 to $100
$86
Loans and leases (2)
232

Market comparables
OREO discount
13% to 59%
24
%
 
 
 
Costs to sell
8% to 26%
9
%
Other assets (3)
652

Discounted cash flow
Customer attrition
0% to 19%
5
%
 
 
 
Costs to service
11% to 19%
15
%
 
December 31, 2018
Loans and leases (2)
$
474

Market comparables
OREO discount
13% to 59%
25
%
 
 
 
Costs to sell
8% to 26%
9
%

(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 merchant services joint venture was measured using a discounted cash flow method in which the two primary drivers of fair value were the customer attrition rate and certain costs to service the customers. The weighted averages are calculated based on variations of the attrition rates and costs to service the customers.