Bank of America Corporation Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

Fair Value Disclosures

Fair Value Disclosures

3 Months Ended

Mar. 31, 2012



Note 4.	Fair Value Disclosures

Fair Value Accounting

Fair Value Hierarchy

In accordance with Fair Value Accounting, Merrill Lynch has categorized its financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy.

The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

Financial assets and liabilities recorded on the Condensed Consolidated Balance Sheets are categorized based on the inputs to the valuation techniques as follows:

Level 1. Financial assets and liabilities whose values are based on unadjusted quoted prices for identical assets or liabilities in an active market that Merrill Lynch has the ability to access (examples include active exchange-traded equity securities, exchange-traded derivatives, U.S. Government securities, and certain other sovereign government obligations).

Level 2. Financial assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly for substantially the full term of the asset or liability. Level 2 inputs include the following:

a) Quoted prices for similar assets or liabilities in active markets (examples include restricted stock and U.S. agency securities);

b) Quoted prices for identical or similar assets or liabilities in non-active markets (examples include corporate and municipal bonds, which can trade infrequently);

c) Pricing models whose inputs are observable for substantially the full term of the asset or liability (examples include most over-the-counter derivatives, including interest rate and currency swaps); and

d) Pricing models whose inputs are derived principally from or corroborated by observable market data through correlation or other means for substantially the full term of the asset or liability (examples include certain residential and commercial mortgage-related assets, including loans, securities and derivatives).

Level 3. Financial assets and liabilities whose values are based on prices or valuation techniques that require inputs that are both unobservable and significant to the overall fair value measurement. These inputs reflect management's view about the assumptions a market participant would use in pricing the asset or liability (examples include certain private equity investments, certain residential and commercial mortgage-related assets and long-dated or complex derivatives).

As required by Fair Value Accounting, when the inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. For example, a Level 3 fair value measurement may include inputs that are observable (Level 1 and 2) and unobservable (Level 3). Therefore gains and losses for such assets and liabilities categorized within the Level 3 reconciliation below may include changes in fair value that are attributable to both observable inputs (Levels 1 and 2) and unobservable inputs (Level 3). Further, the following reconciliations do not take into consideration the offsetting effect of Level 1 and 2 financial instruments entered into by Merrill Lynch that economically hedge certain exposures to the Level 3 positions.

A review of fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Level 3 gains and losses represent amounts incurred during the period in which the instrument was classified as Level 3. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in or transfers out of the Level 3 category as of the beginning of the quarter in which the reclassifications occur. Refer to the recurring and non-recurring sections within this Note for further information on transfers in and out of Level 3.

Valuation Processes and Techniques

Merrill Lynch has various processes and controls in place to ensure that its fair value measurements are reasonably estimated. A model validation policy governs the use and control of valuation models used to estimate fair value. This policy requires review and approval of models by personnel who are independent of the front office and periodic re-assessments to ensure that models are continuing to perform as designed. In addition, detailed reviews of trading gains and losses are analyzed on a daily basis by personnel who are independent of the front office. A price verification group, which is also independent of the front office, utilizes available market information including executed trades, market prices and market observable valuation model inputs to ensure that fair values are reasonably estimated. Merrill Lynch executes due diligence procedures over third party pricing service providers in order to support their use in the valuation process. Where market information is not available to support internal valuations, independent reviews of the valuations are performed and any material exposures are escalated through a management review process.

While Merrill Lynch 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 the first quarter of 2012, there were no changes to Merrill Lynch's valuation techniques that had or are expected to have, a material impact on its condensed consolidated financial position or results of operations.

The following outlines the valuation methodologies for Merrill Lynch's material categories of assets and liabilities:

U.S. Government and agencies

U.S. Treasury securities U.S. Treasury securities are valued using quoted market prices and are generally classified as Level 1 in the fair value hierarchy.

U.S. agency securities U.S. agency securities are comprised of two main categories consisting of agency issued debt and mortgage pass-throughs. The fair value of agency issued debt securities is derived using market prices and recent trade activity gathered from independent dealer pricing services or brokers. Generally, the fair value of mortgage pass-throughs is based on market prices of comparable securities. Agency issued debt securities and mortgage pass-throughs are generally classified as Level 2 in the fair value hierarchy.

Non-U.S. governments and agencies

Sovereign government obligations Sovereign government obligations are valued using quoted prices in active markets when available. To the extent quoted prices are not available, fair value is determined based on reference to recent trading activity and quoted prices of similar securities. These securities are generally classified in Level 1 or Level 2 in the fair value hierarchy, primarily based on the issuing country.

Municipal debt

Municipal bonds The fair value of municipal bonds is calculated using recent trade activity, market price quotations and new issuance levels. In the absence of this information, fair value is calculated using comparable bond credit spreads. Current interest rates, credit events, and individual bond characteristics such as coupon, call features, maturity, and revenue purpose are considered in the valuation process. The majority of these bonds are classified as Level 2 in the fair value hierarchy.

Auction Rate Securities (“ARS”) Merrill Lynch holds investments in certain ARS, including student loan and municipal ARS. Student loan ARS are comprised of various pools of student loans. Municipal ARS are issued by states and municipalities for a wide variety of purposes, including but not limited to healthcare, industrial development, education and transportation infrastructure. The fair value of the student loan ARS is calculated based upon a number of assumptions including weighted average life, coupon, discount margin and liquidity discounts. The fair value of the municipal ARS is calculated based upon projected refinancing and spread assumptions. In both cases, recent trades and issuer tenders are considered in the valuations. Student loan ARS and municipal ARS are classified as Level 3 in the fair value hierarchy.

Corporate and other debt

Corporate bonds Corporate bonds are valued based on either the most recent observable trade and/or external quotes, depending on availability. The most recent observable trade price is given highest priority as the valuation benchmark based on an evaluation of transaction date, size, frequency, and bid-offer. This price may be adjusted by bond or credit default swap spread movement. When credit default swap spreads are referenced, cash-to-synthetic basis magnitude and movement as well as maturity matching are incorporated into the value. When neither external quotes nor a recent trade is available, the bonds are valued using a discounted cash flow approach based on risk parameters of comparable securities. In such cases, the potential pricing difference in spread and/or price terms with the traded comparable is considered. Corporate bonds are generally classified as Level 2 or Level 3 in the fair value hierarchy.

Corporate loans and commitments The fair values of corporate loans and loan commitments are based on market prices and most recent transactions when available. When not available, a discounted cash flow valuation approach is applied using market-based credit spreads of comparable debt instruments, recent new issuance activity or relevant credit derivatives with appropriate cash-to-synthetic basis adjustments. Corporate loans and commitments are generally classified as Level 2 in the fair value hierarchy. Certain corporate loans, particularly those related to emerging market, leveraged and distressed companies have limited price transparency. These loans are generally classified as Level 3 in the fair value hierarchy.

Mortgages, mortgage-backed and asset-backed

Residential Mortgage-Backed Securities (“RMBS”), Commercial Mortgage-Backed Securities (“CMBS”), and other Asset-Backed Securities (“ABS”) RMBS, CMBS and other ABS are valued based on observable price or credit spreads for the particular security, or when price or credit spreads are not observable, the valuation is based on prices of comparable bonds or the present value of expected future cash flows. Valuation levels of RMBS and CMBS indices are used as an additional data point for benchmarking purposes or to price outright index positions.

When estimating the fair value based upon the present value of expected future cash flows, Merrill Lynch uses its best estimate of the key assumptions, including forecasted credit losses, prepayment rates, forward yield curves and discount rates commensurate with the risks involved, while also taking into account performance of the underlying collateral.

RMBS, CMBS and other ABS are classified as Level 3 in the fair value hierarchy if external prices or credit spreads are unobservable or if comparable trades/assets involve significant subjectivity related to property type differences, cash flows, performance and other inputs; otherwise, they are classified as Level 2 in the fair value hierarchy.

Equities

Exchange-Traded Equity Securities Exchange-traded equity securities are generally valued based on quoted prices from the exchange. These securities are classified as either Level 1 or Level 2 in the fair value hierarchy, primarily based on the exchange on which they are traded.

Convertible debentures Convertible debentures are valued based on observable trades and/or external quotes, depending on availability. When neither observable trades nor external quotes are available, the instruments are valued using a discounted cash flow approach based on risk parameters of comparable securities. In such cases, the potential pricing difference in spread and/or price terms with the traded comparable is considered. Convertible debentures are generally classified as Level 2 in the fair value hierarchy.

Derivative contracts

Listed Derivative Contracts Listed derivatives that are actively traded are generally valued based on quoted prices from the exchange and are classified as Level 1 in the fair value hierarchy. Listed derivatives that are not actively traded are valued using the same approaches as those applied to OTC derivatives; they are generally classified as Level 2 in the fair value hierarchy.

OTC Derivative Contracts OTC derivative contracts include forwards, swaps and options related to interest rate, foreign currency, credit, equity or commodity underlyings.

The fair value of OTC derivatives is derived using market prices and other market based pricing parameters such as interest rates, currency rates and volatilities that are observed directly in the market or gathered from independent sources such as dealer consensus pricing services or brokers. Where models are used, they are used consistently and reflect the contractual terms of and specific risks inherent in the contracts. Generally, the models do not require a high level of subjectivity since the valuation techniques used in the models do not require significant judgment and inputs to the models are readily observable in active markets. When appropriate, valuations are adjusted for various factors such as liquidity and credit considerations based on available market evidence. In addition, for most collateralized interest rate and currency derivatives the requirement to pay interest on the collateral may be considered in the valuation. The majority of OTC derivative contracts are classified as Level 2 in the fair value hierarchy.

OTC derivative contracts that do not have readily observable market based pricing parameters are classified as Level 3 in the fair value hierarchy. Examples of derivative contracts classified within Level 3 include contractual obligations that have tenures that extend beyond periods in which inputs to the model would be observable, exotic derivatives with significant inputs into a valuation model that are less transparent in the market and certain credit default swaps (“CDS”) referenced to mortgage-backed securities. For example, derivative instruments, such as certain CDS referenced to RMBS, CMBS, ABS and collateralized debt obligations (“CDOs”), may be valued based on the underlying mortgage risk where these instruments are not actively quoted. Inputs to the valuation will include available information on similar underlying loans or securities in the cash market. The prepayments and loss assumptions on the underlying loans or securities are estimated using a combination of historical data, prices on recent market transactions, relevant observable market indices such as the Asset Backed Securities Index (“ABX”) or Commercial Mortgage Backed Securities Index (“CMBX”) and prepayment and default scenarios and analyses.

CDOs The fair value of CDOs is derived from a referenced basket of CDS, the CDO's capital structure, and the default correlation, which is an input to a proprietary CDO valuation model. The underlying CDO portfolios typically contain investment grade as well as non-investment grade obligors. After adjusting for differences in risk profile, the correlation parameter for an actual transaction is estimated by benchmarking against observable standardized index tranches and other comparable transactions. CDOs are classified as either Level 2 or Level 3 in the fair value hierarchy.

Investment securities non-qualifying

Investments in Private Equity, Real Estate and Hedge Funds Merrill Lynch has investments in numerous asset classes, including: direct private equity, private equity funds, hedge funds and real estate funds. Valuing these investments requires significant management judgment due to the nature of the assets and the lack of quoted market prices and liquidity in these assets. Initially, the transaction price of the investment is generally considered to be the best indicator of fair value. Thereafter, valuation of direct investments is based on an assessment of each individual investment using various methodologies, which include publicly traded comparables derived by multiplying a key performance metric (e.g., earnings before interest, taxes, depreciation and amortization) ("EBITDA") of the portfolio company by the relevant valuation multiple observed for comparable companies, acquisition comparables, entry level multiples and discounted cash flows. These valuations are subject to appropriate discounts for lack of liquidity or marketability. Certain factors which may influence changes to fair value include but are not limited to, recapitalizations, subsequent rounds of financing, and offerings in the equity or debt capital markets. For fund investments, Merrill Lynch generally records the fair value of its proportionate interest in the fund's capital as reported by the fund's respective managers.

Investment securities non-qualifying include equity securities that have recently gone through initial public offerings or secondary sales of public positions. These investments are primarily classified as either Level 1 or Level 2 in the fair value hierarchy. Level 2 classifications generally include those publicly traded equity investments that have a legal or contractual transfer restriction. All other investments in private equity, real estate and hedge funds are classified as Level 3 in the fair value hierarchy due to infrequent trading and/or unobservable market prices.

Resale and repurchase agreements

Merrill Lynch elected the fair value option for certain resale and repurchase agreements. For such agreements, the fair value is estimated using a discounted cash flow model which incorporates inputs such as interest rate yield curves and option volatility. Resale and repurchase agreements for which the fair value option has been elected are generally classified as Level 2 in the fair value hierarchy.

Long-term and short-term borrowings

Merrill Lynch and its consolidated VIEs issue structured notes that have coupons or repayment terms linked to the performance of debt or equity securities, indices, currencies or commodities. The fair value of structured notes is estimated using valuation models for the combined derivative and debt portions of the notes when the fair value option has been elected. 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 between these inputs. The impact of Merrill Lynch's own credit spreads is also included based on Merrill Lynch's observed secondary bond market spreads. Structured notes are classified as either Level 2 or Level 3 in the fair value hierarchy.

Recurring Fair Value

The following tables present Merrill Lynch’s fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of March 31, 2012 and December 31, 2011, respectively.



(dollars in millions)
	Fair Value Measurements on a Recurring Basis
	as of March 31, 2012
	Level 1		Level 2		Level 3		Netting Adj⁽¹⁾			Total
Assets:
Securities segregated for regulatory purposes or deposited with clearing organizations:
Corporate debt	$	—	$	113	$	—	$	—		$	113
Non-U.S. governments and agencies	33		1,612		—		—			1,645
U.S. Government and agencies	3,608		501		—		—			4,109
Total securities segregated for regulatory purposes or deposited with clearing organizations	3,641		2,226		—		—			5,867
Receivables under resale agreements	—		90,998		—		—			90,998
Receivables under securities borrowed transactions	—		533		—		—			533
Trading assets, excluding derivative contracts:
Equities	21,100		8,104		178		—			29,382
Convertible debentures	—		4,920		43		—			4,963
Non-U.S. governments and agencies	34,080		3,383		546		—			38,009
Corporate debt	—		14,893		3,418		—			18,311
Preferred stock	—		131		207		—			338
Mortgages, mortgage-backed and asset-backed	—		5,394		3,768		—			9,162
U.S. Government and agencies	27,857		23,885		—		—			51,742
Municipals and money markets	994		10,037		2,009		—			13,040
Physical commodities and other	—		328		—		—			328
Total trading assets, excluding derivative contracts	84,031		71,075		10,169		—			165,275
Derivative contracts⁽²⁾	2,326		639,871		8,220		(621,203		)	29,214
Investment securities available-for-sale:
U.S. treasury securities and agency debentures	405		—		—		—			405
Securities, mortgage-backed and asset backed
Non-agency MBS	—		60		—		—			60
Corporate ABS	—		161		45		—			206
Total investment securities available-for-sale	405		221		45		—			671
Investment securities non-qualifying	1,991		1,432		421		—			3,844
Total investment securities	2,396		1,653		466		—			4,515
Securities received as collateral	16,775		840		—		—			17,615
Loans, notes and mortgages	—		965		1,809					2,774
Other assets	—		—		1,302		—			1,302
Liabilities:
Payables under repurchase agreements	—		54,434		—		—			54,434
Short-term borrowings	—		5,732		—		—			5,732
Trading liabilities, excluding derivative contracts:
Equities	15,829		1,930		—		—			17,759
Convertible debentures	—		154		—		—			154
Non-U.S. governments and agencies	17,339		1,075		—		—			18,414
Corporate debt	—		8,509		—		—			8,509
Preferred stock	—		136		14		—			150
U.S. Government and agencies	17,137		737		—		—			17,874
Municipals, money markets and other	399		21		45		—			465



Total trading liabilities, excluding derivative contracts	50,704	12,562	59	—		63,325
Derivative contracts⁽²⁾	1,747	641,960	5,013	(624,056	)	24,664
Obligation to return securities received as collateral	16,775	840	—	—		17,615
Other payables — interest and other	—	120	3	—		123
Long-term borrowings	—	30,826	1,743	—		32,569

During the three months ended March 31, 2012, approximately $1,740 million and $350 million of assets and liabilities, respectively, were transferred from Level 1 to Level 2, and approximately $250 million and $40 million of assets and liabilities, respectively, were transferred from Level 2 to Level 1. Approximately $640 million of the transfer from Level 1 to Level 2 was due to a restriction that became effective for a non-qualifying investment security. The remaining transfers were the result of additional information associated with certain equities, derivative contracts and investment securities non-qualifying.



(dollars in millions)
	Fair Value Measurements on a Recurring Basis
	as of December 31, 2011
	Level 1		Level 2		Level 3		Netting Adj⁽¹⁾			Total
Assets:
Securities segregated for regulatory purposes or deposited with clearing organizations:
Corporate debt	$	—	$	295	$	—	$	—		$	295
Non-U.S. governments and agencies	—		1,757		—		—			1,757
U.S. Government and agencies	1,796		740		—		—			2,536
Total securities segregated for regulatory purposes or deposited with clearing organizations	1,796		2,792		—		—			4,588
Receivables under resale agreements	—		85,652		—		—			85,652
Receivables under securities borrowed transactions	—		259		—		—			259
Trading assets, excluding derivative contracts:
Equities	14,962		5,860		179		—			21,001
Convertible debentures	—		4,519		99		—			4,618
Non-U.S. governments and agencies	28,026		1,871		342		—			30,239
Corporate debt	—		13,027		3,962		—			16,989
Preferred stock	—		89		227		—			316
Mortgages, mortgage-backed and asset-backed	—		5,055		3,199		—			8,254
U.S. Government and agencies	22,183		20,820		—		—			43,003
Municipals and money markets	1,067		9,755		2,047		—			12,869
Physical commodities and other	—		175		—		—			175
Total trading assets, excluding derivative contracts	66,238		61,171		10,055		—			137,464
Derivative contracts⁽²⁾	1,810		722,108		10,110		(699,015		)	35,013
Investment securities available-for-sale:
U.S. treasury securities and agency debentures	398		—		—		—			398
Securities, mortgage-backed and asset backed
Non-agency MBS	—		249		—		—			249
Corporate ABS	—		—		47		—			47
Total investment securities available-for-sale	398		249		47		—			694
Investment securities non-qualifying	2,624		328		574		—			3,526
Total investment securities	3,022		577		621		—			4,220
Securities received as collateral	13,058		658		—		—			13,716



Loans, notes and mortgages	—	596	1,726	—		2,322
Other assets	—	—	1,349	—		1,349
Liabilities:
Payables under repurchase agreements	—	34,235	—	—		34,235
Short-term borrowings	—	5,908	—	—		5,908
Trading liabilities, excluding derivative contracts:
Equities	10,868	1,230	—	—		12,098
Convertible debentures	—	125	—	—		125
Non-U.S. governments and agencies	15,911	643	—	—		16,554
Corporate debt	—	6,927	52	—		6,979
Preferred stock	—	89	16	—		105
U.S. Government and agencies	15,603	1,373	—	—		16,976
Municipals, money markets and other	549	51	45	—		645
Total trading liabilities, excluding derivative contracts	42,931	10,438	113	—		53,482
Derivative contracts⁽²⁾	1,419	724,713	5,615	(705,508	)	26,239
Obligation to return securities received as collateral	13,058	658	—	—		13,716
Other payables — interest and other	—	163	10	—		173
Long-term borrowings	—	28,139	2,186	—		30,325


(1)	Represents counterparty and cash collateral netting.


(2)	Refer to Note 6 for product level detail.

Transfers between Level 1 and Level 2 assets and liabilities were not significant for the year ended December 31, 2011.

Level 3 derivative contracts (assets) relate to derivative positions on U.S. ABS CDOs and other mortgage products of $2.4 billion, $3.1 billion of other credit derivatives that incorporate unobservable model valuation inputs, and $4.6 billion of equity, currency, interest rate and commodity derivatives that are long-dated and/or have unobservable model valuation inputs (e.g., unobservable correlation).

Level 3 non-qualifying investment securities primarily relate to certain private equity positions.

Level 3 loans, notes and mortgages primarily relate to residential mortgage and corporate loans.

Level 3 other assets represent net monoline exposure to a single counterparty. This exposure was reclassified from derivative contracts (assets) during the third quarter of 2011 because of the inherent default risk and given that these contracts no longer provide a hedge benefit (see Note 6).

Level 3 derivative contracts (liabilities) relate to derivative positions on U.S. ABS CDOs and other mortgage products of $1.6 billion, $0.7 billion of other credit derivatives that incorporate unobservable model valuation inputs, and $3.3 billion of equity, currency, interest rate and commodity derivatives that are long-dated and/or have unobservable model valuation inputs (e.g., unobservable correlation).

Level 3 long-term borrowings primarily relate to equity-linked structured notes of $1.7 billion, which have unobservable model valuation inputs (e.g., unobservable correlation).

Level 3 Financial Instruments

The following tables provide a summary of changes in Merrill Lynch’s Level 3 financial assets and liabilities for the three months ended March 31, 2012 and March 31, 2011.



(dollars in millions)
	Level 3 Financial Assets and Liabilities Three Months Ended March 31, 2012
			Total Realized and Unrealized Gains or (Losses) included in Income								Total Realized and Unrealized Gains or (Losses) included in Income			Unrealized Gains or (Losses) to OCI		Sales		Purchases		Issuances		Settlements
	Beginning Balance		Principal Transactions			Other Revenue			Interest					Unrealized Gains or (Losses) to OCI		Sales		Purchases		Issuances		Settlements		Transfers In		Transfers Out			Ending Balance
Assets:
Trading assets, excluding derivative contracts:
Equities	$	179	$	1		$	—		$	—	$	1		$	—	(39	)	41		$	—	(9	)	$	7	$	(2	)	$	178
Convertible debentures	99		2			—			—		2			—		(53	)	—		—		—		5		(10		)	43
Non-U.S. governments and agencies	342		24			—			—		24			—		(81	)	273		—		—		—		(12		)	546
Corporate debt	3,962		85			—			—		85			—		(523	)	368		—		(154	)	56		(376		)	3,418
Preferred stock	227		12			—			—		12			—		(70	)	38		—		(1	)	1		—			207
Mortgages, mortgage-backed and asset-backed	3,199		90			—			—		90			—		(230	)	166		—		(80	)	736		(113		)	3,768
Municipals and money markets	2,047		(6		)	—			—		(6		)	—		(132	)	134		—		(11	)	—		(23		)	2,009
Total trading assets, excluding derivative contracts	10,055		208			—			—		208			—		(1,128	)	1,020		—		(255	)	805		(536		)	10,169
Derivative contracts, net	4,495		(701		)	—			—		(701		)	—		(258	)	353		—		(375	)	59		(366		)	3,207
Investment securities available-for-sale :
Corporate ABS	47		—			(2		)	—		(2		)	—		—		—		—		—		—		—			45
Total investment securities available-for-sale	47		—			(2		)	—		(2		)	—		—		—		—		—		—		—			45
Investment securities non-qualifying	574		—			(7		)	—		(7		)	—		(13	)	9		—		(142	)	—		—			421
Total investment securities	621		—			(9		)	—		(9		)	—		(13	)	9		—		(142	)	—		—			466
Loans, notes and mortgages	1,726		—			95			7		102			—		—		4		—		(23	)	—		—			1,809
Other assets	1,349		—			(47		)	—		(47		)	—		—		—		—		—		—		—			1,302
Liabilities:
Trading liabilities, excluding derivative contracts:
Corporate debt	52		—			—			—		—			—		19		(38	)	—		—		1		(34		)	—
Preferred stock	16		(2		)	—			—		(2		)	—		—		(4	)	—		—		—		—			14
Municipals, money markets and other	45		1			—			—		1			—		6		(6	)	1		—		—		—			45
Total trading liabilities, excluding derivative contracts	113		(1		)	—			—		(1		)	—		25		(48	)	1		—		1		(34		)	59
Other payables - interest and other	10		—			3			—		3			—		—		(1	)	—		—		—		(3		)	3
Long-term borrowings	2,186		(139		)	(44		)	—		(183		)	—		33		(68	)	28		(377	)	222		(464		)	1,743

Transfers out for corporate debt primarily relates to increased market liquidity for certain corporate loans. Transfers in for mortgages, mortgage-backed and asset-backed is primarily the result of additional information related to certain CLOs. Transfers out for mortgages, mortgage-backed and asset-backed relates to increased market activity (i.e., executed trades) for certain loans backed by commercial real estate. Transfers out for derivative contracts, net primarily relates to increased price observability (i.e., market comparables) for certain total return swaps ("TRS") and foreign exchange swaps. Transfers in and out related to long-term borrowings are primarily due to changes in the impact of unobservable inputs on the value of certain equity-linked structured notes.



(dollars in millions)
	Level 3 Financial Assets and Liabilities Three Months Ended March 31, 2011
			Total Realized and Unrealized Gains or (Losses) included in Income								Total Realized and Unrealized Gains or (Losses) included in Income			Unrealized Gains or (Losses) to OCI			Sales		Purchases		Issuances		Settlements
	Beginning Balance		Principal Transactions			Other Revenue			Interest					Unrealized Gains or (Losses) to OCI			Sales		Purchases		Issuances		Settlements		Transfers In		Transfers Out			Ending Balance
Assets:
Trading assets, excluding derivative contracts:
Equities	$	170	$	34		$	—		$	—	$	34		$	—		(48	)	60		$	—	—		$	—	$	(1	)	$	215
Convertible debentures	—		—			—			—		—			—					119		—		—		—					119
Non-U.S. governments and agencies	243		5			—			—		5			—			(4	)	48		—		—		—		(40		)	252
Corporate debt	4,605		285			—			—		285			—			(1,069	)	341		—		(39	)	96		(221		)	3,998
Preferred stock	287		9			—			—		9			—			(13	)	3		—		—		39		—			325
Mortgages, mortgage-backed and asset-backed	5,747		329			—			—		329			—			(836	)	561		—		(19	)	1		(350		)	5,433
Municipals and money markets	2,327		19			—			—		19			—			(909	)	936		—		(23	)	4		(4		)	2,350
Total trading assets, excluding derivative contracts	13,379		681			—			—		681			—			(2,879	)	2,068		—		(81	)	140		(616		)	12,692
Derivative contracts, net	6,368		(257		)	—			—		(257		)	—			(432	)	337		—		(438	)	299		(323		)	5,554
Investment securities available-for-sale :
Mortgage-backed securities — agency CMOs	—		—			—			—		—			—			—		56		—		—		—		—			56
Mortgage-backed securities — non-agency MBSs	213		—			(9		)	—		(9		)	(19		)	(82	)	—		—		—		—		—			103
Total investment securities available-for-sale	213		—			(9		)	—		(9		)	(19		)	(82	)	56		—		—		—		—			159
Investment securities non-qualifying	3,394		—			220					220						(804	)	22		—		(189	)			(1,548		)	1,095
Total investment securities	3,607		—			211			—		211			(19		)	(886	)	78		—		(189	)	—		(1,548		)	1,254
Loans, notes and mortgages	1,891		—			175			8		183			—			(169	)	31		—		(42	)	113		(14		)	1,993

Liabilities:
Trading liabilities, excluding derivative contracts:
Corporate debt	—		—			—			—		—			—			52		—		—		—		—		—			52
Preferred stock	—		—			—			—		—			—			23		—		—		—		—		—			23
Municipals, money markets and other	—		—			—			—		—			—			22		—		—		—		—		—			22
Total trading liabilities, excluding derivative contracts	—		—			—			—		—			—			97		—		—		—		—		—			97
Other payables - interest and other	126		—			24			—		24			—			4		(6	)	—		—		—		—			100
Long-term borrowings	2,396		(92		)	(35		)	—		(127		)	—			—		(62	)	43		(231	)	300		(209		)	2,364

Sales of corporate debt primarily relates to sales of corporate ARS and distressed loans. Sales and purchases of municipal securities is primarily due to dealer activity in student loan ARS. Sales of investment securities non-qualifying relates to the sale of a private equity investment during the first quarter of 2011.

Transfers out for corporate debt primarily relates to increased price observability (e.g., trading comparables) for certain corporate bond positions. Transfers out for mortgages, mortgage-backed and asset-backed securities primarily relates to increased price observability for certain RMBS and consumer ABS portfolios. Transfers in for net derivative contracts primarily relates to changes in the valuation methodology for certain CDO positions. Transfers out for net derivative contracts primarily relates to increased price observability for certain credit derivative positions. Transfers out related to investment securities non-qualifying is due to a private equity investment that underwent an initial public offering during the first quarter of 2011. Transfers in and out related to long-term borrowings are primarily due to changes in the impact of unobservable inputs on the value of certain equity-linked structured notes.

The following tables provide the portion of gains or losses included in income for the three months ended March 31, 2012 and March 31, 2011 attributable to unrealized gains or losses relating to those Level 3 assets and liabilities held at March 31, 2012 and March 31, 2011, respectively.



(dollars in millions)
	Unrealized Gains or (Losses) for Level 3 Assets and Liabilities Still Held
	Three Months Ended March 31, 2012
	Principal Transactions			Other Revenue			Interest		Total
Assets:
Trading assets, excluding derivative contracts:
Equities	$	6		$	—		$	—	$	6
Convertible debentures	2			—			—		2
Non-U.S. governments and agencies	13			—			—		13
Corporate debt	62			—			—		62
Preferred stock	3			—			—		3
Mortgages, mortgage-backed and asset-backed	50			—			—		50
Municipals and money markets	(8		)	—			—		(8		)
Total trading assets, excluding derivative contracts	128			—			—		128
Derivative contracts, net	(613		)	—			—		(613		)
Investment securities non-qualifying	—			(10		)	—		(10		)
Total investment securities	—			(10		)	—		(10		)
Loans, notes and mortgages	—			96			—		96
Other assets	—			(47		)	—		(47		)
Liabilities:
Trading liabilities, excluding derivative contracts:
Preferred stock	(2		)	—			—		(2		)
Municipals, money markets and other	1			—			—		1
Total trading liabilities, excluding derivative contracts	(1		)	—			—		(1		)
Other payables — interest and other	—			3			—		3
Long-term borrowings	(129		)	(44		)	—		(173		)



(dollars in millions)
	Unrealized Gains or (Losses) for Level 3 Assets and Liabilities Still Held
	Three Months Ended March 31, 2011
	Principal Transactions			Other Revenue			Interest		Total
Assets:
Trading assets, excluding derivative contracts:
Equities	$	15		$	—		$	—	$	15
Non-U.S. governments and agencies	3			—			—		3
Corporate debt	198			—			—		198
Preferred stock	6			—			—		6
Mortgages, mortgage-backed and asset-backed	243			—			—		243
Municipals and money markets	19			—			—		19
Total trading assets, excluding derivative contracts	484			—			—		484
Derivative contracts, net	(75		)	—			—		(75		)
Investment securities available-for-sale:
Mortgage-backed securities - non-agency MBSs	—			(19		)	—		(19		)
Total investment securities available-for-sale	—			(19		)	—		(19		)
Investment securities non-qualifying	—			(30		)	—		(30		)
Total investment securities	—			(49		)	—		(49		)
Loans, notes and mortgages	—			168			—		168
Liabilities:
Other payables — interest and other	—			22			—		22
Long-term borrowings	(92		)	(35		)	—		(127		)

Level 3 Significant Inputs

The following tables present information about significant unobservable inputs related to material components of Merrill Lynch's Level 3 financial assets and liabilities as of March 31, 2012:

Quantitative Information about Level 3 Fair Value Measurements



(Dollars in millions)			Inputs
Financial Instrument	Fair Value		Unobservable Inputs	Ranges of Inputs
Loans and Securities
Instruments backed by residential real estate assets	$	1,656	Yield	1% to 25%
Loans, notes and mortgages	1,111		Prepayment Speeds	3% to 10% CPR
Trading assets - Mortgages, mortgage-backed and asset-backed	545		Default Rates	1% to 4% CDR
			Loss Severities	35% to 45%
Instruments backed by commercial real estate assets	$	1,849	Yield	1% to 11%
Loans, notes and mortgages	248		Loss Severities	16% to 91%
Other assets	1,302
Trading assets - Mortgages, mortgage-backed and asset-backed	299
Instruments backed by other assets	$	634	Yield	1% to 5%
Loans, notes and mortgages	450
Trading assets - Mortgages, mortgage-backed and asset-backed	184