We maintain an overall interest rate risk management strategy that actively incorporates the use of interest rate derivatives that include unleveraged interest rate swaps, purchased options, combinations of options, and may include futures and other forward interest rate contracts. Our primary objective for using derivatives is to manage risks, primarily interest rate risk. We use derivatives to manage volatility in interest income, interest expense, earnings, and capital by adjusting our interest rate sensitivity to minimize the impact of fluctuations in interest rates. Derivatives are used to stabilize forecasted interest receipts from variable-rate assets and to modify the coupon or the duration of fixed-rate financial assets or liabilities as we consider advisable. We also use derivatives as a product for our customers to manage their risks.

Derivatives related to interest rate risk management — When we use derivatives as hedges, either for economic or accounting purposes, it is done only to manage identified risks. We apply hedge accounting to certain derivatives executed for risk management purposes as subsequently described in more detail. However, we do not apply hedge accounting to all the derivatives involved in our risk management activities. Derivatives not designated as accounting hedges are not speculative and are used to economically manage our exposure to interest rate movements, including offsetting customer-facing derivatives. These derivatives either do not require the use of hedge accounting for their economic impact to be accurately reflected in our financial statements or they do not meet the strict hedge accounting requirements.

Derivatives related to customers — We provide certain borrowers access to over-the-counter interest rate derivatives, which we generally offset with interest rate derivatives executed with other dealers or central clearing houses. Other interest rate derivatives that we provide to customers, or use for our own purposes, include mortgage rate locks and forward sale loan commitments. We also provide commercial clients with short-term foreign currency spot trades or forward contracts with a maturity of, generally, 90 days or less. These trades are also largely offset by foreign currency trades with closely mirroring terms executed with other dealer counterparties or central clearing houses.

We record all derivatives on the Consolidated Balance Sheet at fair value in Other Assets or Other Liabilities regardless of the accounting designation of each derivative. We enter into International Swaps and Derivatives Association, Inc. (“ISDA”) master netting agreements, or similar agreements, with substantially all derivative counterparties. See Note 4, “Offsetting Assets and Liabilities” for more information. Where legally enforceable, these master netting agreements give us, in the event of default or the triggering of other specified contingent events by the counterparty, the right to use cash or liquidate securities held as collateral and to offset receivables and

payables with the same counterparty. For purposes of the Consolidated Balance Sheet, we do not offset derivative assets and liabilities and cash collateral held with the same counterparty where it has a legally enforceable master netting agreement and reports all derivatives on a gross fair value basis. Note 3 discusses the process to estimate fair value for derivatives. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting accounting designation. Derivatives used to hedge the exposure to changes in the fair value of assets, liabilities, or firm commitments attributable to interest rates or other eligible risks, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Changes in the fair value of derivatives that are not part of designated fair value or cash flow hedging relationships are recorded in current period earnings.

Fair Value Hedges — We generally use interest rate swaps designated as fair value hedges to hedge changes in the fair value of fixed-rate assets and liabilities for specific risks (e.g., interest rate risk resulting from changes in a benchmark interest rate). We use both received-fixed, pay-floating and pay-fixed, receive floating interest rate swaps to effectively convert the fixed-rate assets and liabilities to floating-rates. In qualifying fair value hedges, changes in value of the derivative hedging instrument are recognized in current period earnings in the same line item affected by the hedged item. Similarly, the periodic changes in value of the hedged item, for the risk being hedged, are recognized in current period earnings, thereby offsetting all, or a significant majority, of the change in the value of the derivative hedging instrument. Interest accruals on both the derivative hedging instrument and the hedged item are recorded in the same line item, effectively converting the designated fixed-rate assets or liabilities to a floating-rate. Generally, the designated risk being hedged in all of our fair value hedges is the change in fair value of the London Interbank Offered Rate (“LIBOR”) benchmark swap rate component of the contractual coupon cash flows of the fixed-rate assets or liabilities. The swaps are structured to match the critical terms of the hedged items, maximizing the economic (and accounting) effectiveness of the hedging relationships and resulting in the expectation that the swaps will be highly effective as a hedging instrument. All interest rate swaps designated as fair value hedges were highly effective and met all other requirements to remain designated and part of qualifying hedge accounting relationships as of the balance sheet date.

At December 31, 2019, we had $1.5 billion of fixed-to-floating interest rate swaps designated as fair value hedges of long-term debt (effectively converting the fixed-rate debt into floating-rate debt). In late March 2020, we terminated $1 billion of swaps (i.e., two $500 million swaps with maturities in August 2021 and February 2022). As a result, the cumulative basis adjustment on the debt at the time of the terminations (which was equal to the fair value of the swaps at the termination date) will be amortized as an adjustment to interest expense through the maturity of the debt, thereby reducing the effective interest rate. During 2020, $3 million of the outstanding unamortized debt basis adjustment was amortized. We have $12 million of unamortized debt basis adjustments from previously designed fair value hedges remaining.

Fair Value Hedges of Assets — During the third quarter of 2020, we began hedging certain newly acquired fixed-rate AFS securities using pay-fixed, receive-floating interest rate swaps, effectively converting the fixed interest income to a floating-rate on the hedged portion of the securities. Subsequently, two of these hedges were slightly restructured to better match the terms of the hedged securities requiring these hedges to be redesignated. Changes in the fair value of the hedged securities prior to the redesignations were recognized in the amortized cost basis of the securities and, similar to the terminated debt hedges noted above, the unamortized basis adjustments will be amortized to interest income through the originally designated maturity of the hedging relationships. Both hedges were designated as hedges of 30-year U.S. Treasury securities and hedged for the full life of the securities. We have $7 million of cumulative unamortized basis adjustments from these previous fair value hedging relationships, which will continue to be amortized as an adjustment to interest income through the end of 2050, thereby increasing the effective interest rate recognized on these securities. As of December 31, 2020, we had qualifying fair value hedging relationships of fixed-rate AFS securities being hedged by pay-fixed, receive-floating interest rate swaps with an aggregate notional amount of $383 million.

Cash Flow Hedges — For derivatives designated and qualifying as cash flow hedges, ineffectiveness is not measured or separately disclosed. Rather, as long as the hedging relationship continues to qualify for hedge accounting, the entire change in the fair value of the hedging instrument is recorded in OCI and recognized in earnings as the hedged transaction affects earnings. Derivative amounts affecting earnings are recognized consistent with the classification of the hedged item. We may use interest rate swaps, options, or a combination of options in our cash flow hedging strategy to eliminate or reduce the variable cash flows associated primarily with interest receipts on floating-rate commercial loans due to changes in any separately identifiable and reliably measurable contractual interest rate index.

As of December 31, 2020, we had receive-fixed interest rate swaps with an aggregate notional amount of $3.2 billion designated as cash flow hedges of the variability of interest receipts on floating-rate commercial loans due to changes in the LIBOR swap rate. As of December 31, 2020, we had deferred gains in AOCI from active and terminated cash flow hedges of $95 million. Amounts deferred in AOCI from cash flow hedges are expected to be fully reclassified to interest income by the second quarter of 2024.

Hedge Effectiveness — We assess the effectiveness of each hedging relationship by comparing the changes in fair value or cash flows on the derivative hedging instrument with the changes in fair value or cash flows on the designated hedged item or transactions for the risk being hedged. If a hedging relationship ceases to qualify for hedge accounting, the relationship is discontinued and future changes in the fair value of the derivative instrument are recognized in current period earnings. For a discontinued or terminated fair value hedging relationship, all remaining basis adjustments to the carrying amount of the hedged item are amortized to interest income or expense over the remaining life of the hedged item consistent with the amortization of other discounts or premiums. Previous balances deferred in AOCI from discontinued or terminated cash flow hedges are reclassified to interest income or expense as the hedged transactions affect earnings or over the originally specified term of the hedging relationship.

Exposure to credit risk arises from the possibility of nonperformance by counterparties. No significant losses on derivative instruments have occurred during 2020 as a result of counterparty nonperformance. Financial institutions that are well-capitalized and well-established are the counterparties for those derivatives entered into for asset-liability management and used to offset derivatives sold to our customers. We reduce our counterparty exposure for derivative contracts by centrally clearing all eligible derivatives.

For those derivatives that are not centrally cleared, the counterparties are typically financial institutions or our customers. For those that are financial institutions, as noted above, we manage our credit exposure through the use of a Credit Support Annex (“CSA”) to an ISDA master agreement with each counterparty. Eligible collateral types are documented by the CSA and controlled under our general credit policies. Collateral balances are typically monitored on a daily basis. A valuation haircut policy reflects the fact that collateral may fall in value between the date the collateral is called and the date of liquidation or enforcement. As of December 31, 2020, all of our collateral held as credit risk mitigation under a CSA is cash.

We offer interest rate swaps to our customers to assist them in managing their exposure to changing interest rates. Upon issuance, all of these customer swaps are immediately offset through closely matching derivative contracts, such that we minimize our interest rate risk exposure resulting from such transactions. Most of these customers do not have the capability for centralized clearing. Therefore, we manage the credit risk through loan underwriting that includes a credit risk exposure formula for the swap, the same collateral and guarantee protection applicable to the loan and credit approvals, limits, and monitoring procedures. Fee income from customer swaps is included in other service charges, commissions and fees. Nevertheless, the related credit risk is considered and measured when and where appropriate.

Our noncustomer-facing derivative contracts generally require us to pledge collateral for derivatives that are in a net liability position. A certain number of these derivative contracts contain credit-risk-related contingent features that include the requirement to maintain a minimum debt credit rating. We may be required to pledge additional collateral if a credit-risk-related feature were triggered, such as a downgrade of our credit rating. However, in past situations, not all counterparties have demanded that additional collateral be pledged when provided for under their

contracts. At December 31, 2020, the fair value of our noncleared (bilateral) derivative liabilities was $418 million, for which we were required to pledge cash collateral of approximately $103 million in the normal course of business. If our credit rating were downgraded one notch by either Standard & Poor’s or Moody’s at December 31, 2020, there would likely be $2 million additional collateral required to be pledged. As a result of the Dodd-Frank Act, all newly eligible derivatives entered into are cleared through a central clearinghouse. Derivatives that are centrally cleared do not have credit-risk-related features that require additional collateral if our credit rating were downgraded.


	December 31, 2020						December 31, 2019
	Notional amount		Fair value				Notional amount		Fair value
(In millions)			Other assets		Other liabilities				Other assets		Other liabilities
Derivatives designated as hedging instruments:
Cash flow hedges of floating-rate assets:
Purchased interest rate floors	$	—	$	—	$	—	$	—	$	—	$	—
Receive-fixed interest rate swaps	3,150		—		—		3,588		—		—
Fair value hedges:
Debt hedges: Receive-fixed interest rate swaps	500		—		—		1,500		—		—
Asset hedges: Pay-fixed interest rate swaps	383		3		—		—		—		—
Total derivatives designated as hedging instruments	4,033		3		—		5,088		—		—
Derivatives not designated as hedging instruments:
Customer-facing interest rate derivatives 1, 2	5,986		390		2		4,409		146		5
Offsetting interest rate derivatives 2	5,986		3		409		4,422		5		157
Other interest rate derivatives	1,649		20		3		726		3		1
Foreign exchange derivatives	223		4		4		385		4		4
Total derivatives not designated as hedging instruments	13,844		417		418		9,942		158		167
Total derivatives	$	17,877	$	420	$	418	$	15,030	$	158	$	167


	Year Ended December 31, 2020
(In millions)	Effective portion of derivative gain/(loss) deferred in AOCI		Excluded components deferred in AOCI (amortization approach)		Amount of gain/(loss) reclassified from AOCI into income		Interest on fair value hedges		Hedge ineffectiveness / AOCI reclass due to missed forecast

Cash flow hedges of floating-rate assets: 1
Purchased interest rate floors	$	—	$	—	$	11	$	—	$	—
Interest rate swaps	101		—		36		—		—
Fair value hedges of liabilities:
Receive-fixed interest rate swaps	—		—		—		6		—
Basis amortization on terminated hedges 2, 3	—		—		—		13		—
Fair value hedges of assets:
Pay-fixed interest rate swaps	—		—		—		(1)		—
Basis amortization on terminated hedges 2, 3	—		—		—		—		—
Total derivatives designated as hedging instruments	$	101	$	—	$	47	$	18	$	—


	Year Ended December 31, 2019
(In millions)	Effective portion of derivative gain/(loss) deferred in AOCI		Excluded components deferred in AOCI (amortization approach)		Amount of gain/(loss) reclassified from AOCI into income		Interest on fair value hedges		Hedge ineffectiveness / AOCI reclass due to missed forecast

Cash flow hedges of floating-rate assets: 1
Purchased interest rate floors	$	—	$	27	$	3	$	—	$	—
Interest rate swaps	47		—		(7)		—		—
Fair value hedges of liabilities:
Receive-fixed interest rate swaps	—		—		—		3		—
Basis amortization on terminated hedges 2, 3	—		—		—		—		—
Fair value hedges of assets:
Pay-fixed interest rate swaps	—		—		—		—		—
Basis amortization on terminated hedges 2, 3	—		—		—		—		—
Total derivatives designated as hedging instruments	$	47	$	27	$	(4)	$	3	$	—

3The cumulative unamortized basis adjustment from previously terminated or redesignated fair value hedges as of December 31, 2020, is $12 million and $7 million of terminated fair value debt and asset hedges, respectively. The amortization of the cumulative unamortized basis adjustment from asset hedges is not shown in the schedules because it is not significant.


	Gain/(loss) recorded in income
	Twelve Months Ended December 31, 2020						Twelve Months Ended December 31, 2019
(In millions)	Derivatives 2		Hedged items		Total income statement impact		Derivatives 2		Hedged items		Total income statement impact
Debt: Receive-fixed interest rate swaps 1,2	$	63	$	(63)	$	—	$	5	$	(5)	$	—
Assets: Pay-fixed interest rate swaps 1,2	28		(28)		—		—		—		—


	Par value of hedged assets/(liabilities)				Carrying amount of the hedged assets/(liabilities)				Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged assets/(liabilities)
(In millions)	2020		2019		2020		2019		2020		2019
Long-term fixed-rate debt1,2	$	(500)	$	(1,500)	$	(537)	$	(1,510)	$	(37)	$	(10)
Fixed-rate AFS securities1,2	383		—		362		—		(21)		—