Fair value measurement

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. A three-level hierarchy for fair value measurements is utilized based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. BNY Mellon’s own creditworthiness is considered when valuing liabilities.

Fair value focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The objective is to determine from weighted indicators of fair value a reasonable point within the range that is most representative of fair value under current market conditions.

Determination of fair value

Following is a description of our valuation methodologies for assets and liabilities measured at fair value. We have established processes for determining fair values. Fair value is based upon quoted market prices in active markets, where available. For financial instruments where quotes from recent exchange transactions are not available, we determine fair value based on discounted cash flow analysis, comparison to similar instruments, and the use of financial models. Discounted cash flow analysis is dependent upon estimated future cash flows and the level of interest rates. Model-based pricing uses inputs of observable prices, where available, for interest rates, foreign exchange rates, option volatilities and other factors. Models are benchmarked and validated by an independent internal risk management function. Our valuation process takes into consideration factors such as counterparty credit quality, liquidity, concentration concerns, and observability of model parameters. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value.

Most derivative contracts are valued using internally developed models which are calibrated to observable market data and employ standard market pricing theory for their valuations. An initial “risk-neutral” valuation is performed on each position assuming time-discounting based on an AA credit curve. Then, to arrive at a fair value that incorporates counter-party credit risk, a credit adjustment is made to these results by discounting each trade’s expected exposures to the counterparty using the counterparty’s credit spreads, as implied by the credit default swap market. We also adjust expected liabilities to the counterparty using BNY Mellon’s own credit spreads, as implied by the credit default swap market. Accordingly, the valuation of our derivative position is sensitive to the current changes in our own credit spreads as well as those of our counterparties.

In certain cases, recent prices may not be observable for instruments that trade in inactive or less active markets. Upon evaluating the uncertainty in valuing financial instruments subject to liquidity issues, we make an adjustment to their value. The determination of the liquidity adjustment includes the availability of external quotes, the time since the latest available quote and the price volatility of the instrument.

Certain parameters in some financial models are not directly observable and, therefore, are based on management’s estimates and judgments. These financial instruments are normally traded less actively. We apply valuation adjustments to mitigate the possibility of error and revision in the model based estimate value. Examples include products where parameters such as correlation and recovery rates are unobservable.

The methods described above for instruments that trade in inactive or less active markets may produce a current fair value calculation that may not be indicative of net realizable value or reflective of future fair values. We believe our methods of determining fair value are appropriate and consistent with other market participants. However, the use of different methodologies or different assumptions to value certain financial instruments could result in a different estimate of fair value.

Valuation hierarchy

A three-level valuation hierarchy is used for disclosure of fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are described below.

Level 1: Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. Level 1 assets and liabilities include debt and equity securities, derivative financial instruments actively traded on exchanges and U.S. Treasury securities that are actively traded in highly liquid over-the-counter markets.

Level 2: Observable inputs other than Level 1 prices, for example, quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs that are observable or can be corroborated, either directly or indirectly, for substantially the full term of the financial instrument. Level 2 assets and liabilities include debt instruments that are traded less frequently than exchange-traded securities and derivative instruments whose model inputs are observable in the market or can be corroborated by market-observable data. Examples in this category are agency and non-agency mortgage-backed securities, corporate debt securities and over-the-counter derivative contracts.

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement. Examples in this category include certain private equity investments, derivative contracts that are highly structured or long-dated, and interests in certain securitized financial assets.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

Following is a description of the valuation methodologies used for instruments measured at fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.

Securities

Where quoted prices are available in an active market, we classify the securities within Level 1 of the valuation hierarchy. Securities include both long and short positions. Level 1 securities include highly liquid government bonds, money market funds, foreign covered bonds and exchange-traded equities.

If quoted market prices are not available, we estimate fair values using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Examples of such instruments, which would generally be classified within Level 2 of the valuation hierarchy, include agency and non-agency mortgage-backed securities, state and political subdivisions, commercial mortgage-backed securities, sovereign debt, corporate bonds and foreign covered bonds.

For securities where quotes from recent transactions are not available for identical securities, we determine fair value primarily based on pricing sources with reasonable levels of price transparency that employ financial models or obtain comparison to similar instruments to arrive at “consensus” prices.

Specifically, the pricing sources obtain recent transactions for similar types of securities (e.g., vintage, position in the securitization structure) and ascertain variables such as discount rate and speed of prepayment for the types of transaction and apply such variables to similar types of bonds. We view these as observable transactions in the current marketplace and classify such securities as Level 2. Pricing sources discontinue pricing any specific security whenever they determine there is insufficient observable data to provide a good faith opinion on price.

In addition, we have significant investments in more actively traded agency RMBS and other types of securities such as sovereign debt. The pricing sources derive the prices for these securities largely from quotes they obtain from three major inter-dealer brokers. The pricing sources receive their daily observed trade price and other information feeds from the inter-dealer brokers.

For securities with bond insurance, the financial strength of the insurance provider is analyzed and that information is included in the fair value assessment for such securities.

In certain cases where there is limited activity or less transparency around inputs to the valuation, we classify those securities in Level 3 of the valuation hierarchy. Securities classified within Level 3 primarily include securities of state and political subdivisions and distressed debt securities.

At March 31, 2015, more than 99% of our securities were valued by pricing sources with reasonable levels of price transparency. Less than 1% of our securities were priced based on economic models and non-binding dealer quotes, and are included in Level 3 of the valuation hierarchy.

Consolidated collateralized loan obligations

BNY Mellon values assets in consolidated CLOs using observable market prices observed from the secondary loan market. The returns to the note holders are solely dependent on the assets and accordingly equal the value of those assets. Based on the structure of the CLOs, the valuation of the assets is attributable to the note holders. Changes in the values of assets and liabilities are reflected in the income statement as investment and other income and interest of investment management fund note holders, respectively. Consolidated CLOs are generally classified within Level 2 of the valuation hierarchy.

Derivatives

We classify exchange-traded derivatives valued using quoted prices in Level 1 of the valuation hierarchy. Examples include exchange-traded equity and foreign exchange options. Since few other classes of derivative contracts are listed on an exchange, most of our derivative positions are valued using internally developed models that use as their basis readily observable market parameters, and we classify them in Level 2 of the valuation hierarchy. Such derivatives include swaps and options, foreign exchange spot and forward contracts and credit default swaps.

Derivatives valued using models with significant unobservable market parameters in markets that lack two-way flow are classified in Level 3 of the valuation hierarchy. Examples include long-dated interest rate or currency swaps and options, where parameters may be unobservable for longer maturities; and certain products, where correlation risk is unobservable. The fair value of these derivatives composes less than 1% of our derivative financial instruments. Additional disclosures of derivative instruments are provided in Note 16 of the Notes to Consolidated Financial Statements.

Loans and unfunded lending-related commitments

Where quoted market prices are not available, we generally base the fair value of loans and unfunded lending-related commitments on observable market prices of similar instruments, including bonds, credit derivatives and loans with similar characteristics. If observable market prices are not available, we base the fair value on estimated cash flows adjusted for credit risk which are discounted using an interest rate appropriate for the maturity of the applicable loans or the unfunded lending-related commitments.

Unrealized gains and losses, if any, on unfunded lending-related commitments carried at fair value are classified in other assets and other liabilities, respectively. Loans and unfunded lending-related commitments carried at fair value are generally classified within Level 2 of the valuation hierarchy.

Seed capital

In our Investment Management business, we manage investment assets, including equities, fixed income, money market and alternative investment funds for institutions and other investors. As part of that activity, we make seed capital investments in certain funds. Seed capital is included in other assets. When applicable, we value seed capital based on the published NAV of the fund. We include funds in which ownership interests in the fund are publicly traded in an active market and institutional funds in which investors trade in and out daily in Level 1 of the valuation hierarchy. We include open-end funds where investors are allowed to sell their ownership interest back to the fund less frequently than daily and where our interest in the fund contains no other rights or obligations in Level 2 of the valuation hierarchy. However, we generally include investments in funds that allow investors to sell their ownership interest back to the fund less frequently than monthly in Level 3, unless actual redemption prices are observable.

For other types of investments in funds, we consider all of the rights and obligations inherent in our ownership interest, including the reported NAV as well as other factors that affect the fair value of our interest in the fund. To the extent the NAV measurements reported for the investments are based on unobservable inputs or include other rights and obligations (e.g., obligation to meet cash calls), we generally classify them in Level 3 of the valuation hierarchy.

Certain interests in securitizations

For certain interests in securitizations that are classified in securities available-for-sale, trading assets and long-term debt, we use discounted cash flow models, which generally include assumptions of projected finance charges related to the securitized assets, estimated net credit losses, prepayment assumptions and estimates of payments to third-party investors. When available, we compare our fair value estimates and assumptions to market activity and to the actual results of the securitized portfolio.

Private equity investments

Our Other segment includes holdings of nonpublic private equity investments through funds managed by third-party investment managers. We value private equity investments initially based upon the transaction price, which we subsequently adjust to reflect expected exit values as evidenced by financing and sale transactions with third parties or through ongoing reviews by the investment managers.

Private equity investments also include publicly held equity investments, generally obtained through the initial public offering of privately held equity investments. These equity investments are often held in a partnership structure. Publicly held investments are marked-to-market at the quoted public value less adjustments for regulatory or contractual sales restrictions or adjustments to reflect the difficulty in selling a partnership interest.

Discounts for restrictions are quantified by analyzing the length of the restriction period and the volatility of the equity security. Publicly held private equity investments are primarily classified in Level 2 of the valuation hierarchy.

The following tables present the financial instruments carried at fair value at March 31, 2015 and Dec. 31, 2014, by caption on the consolidated balance sheet and by valuation hierarchy (as described above). We have included credit ratings information in certain of the tables because the information indicates the degree of credit risk to which we are exposed, and significant changes in ratings classifications could result in increased risk for us. There were no material transfers between Level 1 and Level 2 during the first quarter of 2015.



Assets measured at fair value on a recurring basis at March 31, 2015
(dollar amounts in millions)	Level 1			Level 2			Level 3			Netting (a)			Total carrying value
Available-for-sale securities:
U.S. Treasury	$	18,586		$	—		$	—		$	—		$	18,586
U.S. Government agencies	—			385			—			—			385
Sovereign debt/sovereign guaranteed	40			15,203			—			—			15,243
State and political subdivisions (b)	—			5,128			11			—			5,139
Agency RMBS	—			25,183			—			—			25,183
Non-agency RMBS	—			920			—			—			920
Other RMBS	—			1,386			—			—			1,386
Commercial MBS	—			1,851			—			—			1,851
Agency commercial MBS	—			3,785			—			—			3,785
Asset-backed CLOs	—			2,258			—			—			2,258
Other asset-backed securities	—			3,400			—			—			3,400
Equity securities	92			—			—			—			92
Money market funds (b)	730			—			—			—			730
Corporate bonds	—			1,745			—			—			1,745
Other debt securities	—			2,068			—			—			2,068
Foreign covered bonds	2,338			470			—			—			2,808
Non-agency RMBS (c)	—			2,138			—			—			2,138
Total available-for-sale securities	21,786			65,920			11			—			87,717
Trading assets:
Debt and equity instruments (b)	1,579			2,288			—			—			3,867
Derivative assets not designated as hedging:
Interest rate	27			17,024			3			(13,365		)	3,689
Foreign exchange	—			6,199			—			(4,391		)	1,808
Equity	64			192			3			(118		)	141
Total derivative assets not designated as hedging	91			23,415			6			(17,874		)	5,638
Total trading assets	1,670			25,703			6			(17,874		)	9,505
Loans	—			140			—			—			140
Other assets:
Derivative assets designated as hedging:
Interest rate	—			574			—			—			574
Foreign exchange	—			464			—			—			464
Total derivative assets designated as hedging	—			1,038			—			—			1,038
Other assets (d)	234			897			54			—			1,185
Total other assets	234			1,935			54			—			2,223
Subtotal assets of operations at fair value	23,690			93,698			71			(17,874		)	99,585
Percentage of assets prior to netting	20		%	80		%	—		%
Assets of consolidated investment management funds:
Trading assets	170			7,682			—			—			7,852
Other assets	462			111			—			—			573
Total assets of consolidated investment management funds	632			7,793			—			—			8,425
Total assets	$	24,322		$	101,491		$	71		$	(17,874	)	$	108,010
Percentage of assets prior to netting	19		%	81		%	—		%



Liabilities measured at fair value on a recurring basis at March 31, 2015
(dollar amounts in millions)	Level 1			Level 2			Level 3			Netting (a)			Total carrying value
Trading liabilities:
Debt and equity instruments	$	412		$	235		$	—		$	—		$	647
Derivative liabilities not designated as hedging:
Interest rate	8			17,225			3			(13,836		)	3,400
Foreign exchange	—			6,073			—			(3,044		)	3,029
Equity and other contracts	28			354			3			(119		)	266
Total derivative liabilities not designated as hedging	36			23,652			6			(16,999		)	6,695
Total trading liabilities	448			23,887			6			(16,999		)	7,342
Long-term debt (b)	—			355			—			—			355
Other liabilities - derivative liabilities designated as hedging:
Interest rate	—			553			—			—			553
Foreign exchange	—			59			—			—			59
Total other liabilities - derivative liabilities designated as hedging	—			612			—			—			612
Subtotal liabilities of operations at fair value	448			24,854			6			(16,999		)	8,309
Percentage of liabilities prior to netting	2		%	98		%	—		%
Liabilities of consolidated investment management funds:
Trading liabilities	—			6,584			—			—			6,584
Other liabilities	27			9			—			—			36
Total liabilities of consolidated investment management funds	27			6,593			—			—			6,620
Total liabilities	$	475		$	31,447		$	6		$	(16,999	)	$	14,929
Percentage of liabilities prior to netting	1		%	99		%	—		%

(a)

ASC 815 permits the netting of derivative receivables and derivative payables under legally enforceable master netting agreements and permits the netting of cash collateral. Netting is applicable to derivatives not designated as hedging instruments included in trading assets or trading liabilities, and derivatives designated as hedging instruments included in other assets or other liabilities. Netting is allocated to the derivative products based on the net fair value of each product.


(b)	Includes certain interests in securitizations.


(c)	Previously included in the Grantor Trust. The Grantor Trust was dissolved in 2011.


(d)	Includes private equity investments and seed capital.



Assets measured at fair value on a recurring basis at Dec. 31, 2014
(dollar amounts in millions)	Level 1			Level 2			Level 3			Netting (a)			Total carrying value
Available-for-sale securities:
U.S. Treasury	$	19,997		$	—		$	—		$	—		$	19,997
U.S. Government agencies	—			343			—			—			343
Sovereign debt/sovereign guaranteed	40			17,244			—			—			17,284
State and political subdivisions (b)	—			5,236			11			—			5,247
Agency RMBS	—			32,600			—			—			32,600
Non-agency RMBS	—			953			—			—			953
Other RMBS	—			1,551			—			—			1,551
Commercial MBS	—			1,959			—			—			1,959
Agency commercial MBS	—			3,132			—			—			3,132
Asset-backed CLOs	—			2,130			—			—			2,130
Other asset-backed securities	—			3,240			—			—			3,240
Equity securities	95			—			—			—			95
Money market funds (b)	763			—			—			—			763
Corporate bonds	—			1,785			—			—			1,785
Other debt securities	—			2,169			—			—			2,169
Foreign covered bonds	2,250			618			—			—			2,868
Non-agency RMBS (c)	—			2,214			—			—			2,214
Total available-for-sale securities	23,145			75,174			11			—			98,330
Trading assets:
Debt and equity instruments (b)	2,204			2,217			—			—			4,421
Derivative assets not designated as hedging:
Interest rate	7			17,137			6			(13,942		)	3,208
Foreign exchange	—			6,280			—			(4,246		)	2,034
Equity	96			278			3			(159		)	218
Total derivative assets not designated as hedging	103			23,695			9			(18,347		)	5,460
Total trading assets	2,307			25,912			9			(18,347		)	9,881
Loans	—			21			—			—			21
Other assets:
Derivative assets designated as hedging:
Interest rate	—			477			—			—			477
Foreign exchange	—			374			—			—			374
Total derivative assets designated as hedging	—			851			—			—			851
Other assets (d)	250			745			70			—			1,065
Total other assets	250			1,596			70			—			1,916
Subtotal assets of operations at fair value	25,702			102,703			90			(18,347		)	110,148
Percentage of assets prior to netting	20		%	80		%	—		%
Assets of consolidated investment management funds:
Trading assets	100			8,578			—			—			8,678
Other assets	457			147			—			—			604
Total assets of consolidated investment management funds	557			8,725			—			—			9,282
Total assets	$	26,259		$	111,428		$	90		$	(18,347	)	$	119,430
Percentage of assets prior to netting	19		%	81		%	—		%



Liabilities measured at fair value on a recurring basis at Dec. 31, 2014
(dollar amounts in millions)	Level 1			Level 2			Level 3			Netting (a)			Total carrying value
Trading liabilities:
Debt and equity instruments	$	367		$	294		$	—		$	—		$	661
Derivative liabilities not designated as hedging:
Interest rate	3			17,645			6			(14,467		)	3,187
Foreign exchange	—			6,367			—			(3,149		)	3,218
Equity and other contracts	47			499			3			(181		)	368
Total derivative liabilities not designated as hedging	50			24,511			9			(17,797		)	6,773
Total trading liabilities	417			24,805			9			(17,797		)	7,434
Long-term debt (b)	—			347			—			—			347
Other liabilities:
Derivative liabilities designated as hedging:
Interest rate	—			385			—			—			385
Foreign exchange	—			62			—			—			62
Total derivative liabilities designated as hedging	—			447			—			—			447
Other liabilities	4			—			—			—			4
Total other liabilities	4			447			—			—			451
Subtotal liabilities of operations at fair value	421			25,599			9			(17,797		)	8,232
Percentage of liabilities prior to netting	2		%	98		%	—		%
Liabilities of consolidated investment management funds:
Trading liabilities	—			7,660			—			—			7,660
Other liabilities	1			8			—			—			9
Total liabilities of consolidated investment management funds	1			7,668			—			—			7,669
Total liabilities	$	422		$	33,267		$	9		$	(17,797	)	$	15,901
Percentage of liabilities prior to netting	1		%	99		%	—		%

(a)


(b)	Includes certain interests in securitizations.


(c)	Previously included in the Grantor Trust. The Grantor Trust was dissolved in 2011.


(d)	Includes private equity investments and seed capital.



Details of certain items measured at fair value on a recurring basis	March 31, 2015										Dec. 31, 2014
	Total carrying value (a)		Ratings								Total carrying value (a)		Ratings
			AAA/ AA-		A+/ A-		BBB+/ BBB-		BB+ and lower					AAA/ AA-		A+/ A-		BBB+/ BBB-		BB+ and lower
(dollar amounts in millions)			AAA/ AA-		A+/ A-		BBB+/ BBB-		BB+ and lower					AAA/ AA-		A+/ A-		BBB+/ BBB-		BB+ and lower
Non-agency RMBS, originated in:
2007	$	76	—	%	—	%	—	%	100	%	$	78	—	%	—	%	—	%	100	%
2006	134		—		—		—		100		138		—		—		—		100
2005	276		—		21		18		61		284		—		21		19		60
2004 and earlier	434		3		5		27		65		453		3		5		27		65
Total non-agency RMBS	$	920	1	%	8	%	19	%	72	%	$	953	1	%	9	%	19	%	71	%
Commercial MBS - Domestic, originated in:
2009-2015	$	686	84	%	16	%	—	%	—	%	$	639	83	%	17	%	—	%	—	%
2008	19		100		—		—		—		19		100		—		—		—
2007	349		65		21		14		—		353		65		21		14		—
2006	545		82		18		—		—		599		83		17		—		—
2005	179		100		—		—		—		271		100		—		—		—
2004 and earlier	6		100		—		—		—		6		100		—		—		—
Total commercial MBS - Domestic	$	1,784	81	%	16	%	3	%	—	%	$	1,887	82	%	15	%	3	%	—	%
Foreign covered bonds:
Canada	$	1,394	100	%	—	%	—	%	—	%	$	1,266	100	%	—	%	—	%	—	%
United Kingdom	604		100		—		—		—		690		100		—		—		—
Netherlands	215		100		—		—		—		244		100		—		—		—
Other	595		100		—		—		—		668		100		—		—		—
Total foreign covered bonds	$	2,808	100	%	—	%	—	%	—	%	$	2,868	100	%	—	%	—	%	—	%
European floating rate notes - available-for-sale:
United Kingdom	$	1,052	83	%	17	%	—	%	—	%	$	1,172	83	%	17	%	—	%	—	%
Netherlands	250		100		—		—		—		296		100		—		—		—
Ireland	129		—		—		—		100		144		—		—		—		100
Other	21		100		—		—		—		25		99		1		—		—
Total European floating rate notes - available-for-sale	$	1,452	79	%	12	%	—	%	9	%	$	1,637	79	%	12	%	—	%	9	%
Sovereign debt/sovereign guaranteed:
France	$	4,252	100	%	—	%	—	%	—	%	$	3,550	100	%	—	%	—	%	—	%
United Kingdom	2,858		100		—		—		—		5,076		100		—		—		—
Spain	1,817		—		—		100		—		1,978		—		—		100		—
Germany	1,548		100		—		—		—		1,522		100		—		—		—
Italy	1,252		—		—		100		—		1,427		—		—		100		—
Netherlands	1,237		100		—		—		—		1,800		100		—		—		—
Belguim	1,058		100		—		—		—		829		100		—		—		—
Ireland	802		—		17		83		—		672		—		—		100		—
Other	419		83		—		17		—		430		81		—		19		—
Total sovereign debt/sovereign guaranteed	$	15,243	74	%	1	%	25	%	—	%	$	17,284	76	%	—	%	24	%	—	%
Non-agency RMBS (b), originated in:
2007	$	599	—	%	—	%	—	%	100	%	$	620	—	%	—	%	—	%	100	%
2006	627		—		—		1		99		653		—		—		1		99
2005	706		—		3		1		96		727		—		3		1		96
2004 and earlier	206		—		4		7		89		214		—		4		7		89
Total non-agency RMBS (b)	$	2,138	—	%	1	%	1	%	98	%	$	2,214	—	%	1	%	1	%	98	%


(a)	At March 31, 2015 and Dec. 31, 2014, foreign covered bonds and sovereign debt were included in Level 1 and Level 2 in the valuation hierarchy. All other assets in the table are Level 2 assets in the valuation hierarchy.


(b)	Previously included in the Grantor Trust. The Grantor Trust was dissolved in 2011.

Changes in Level 3 fair value measurements

Our classification of a financial instrument in Level 3 of the valuation hierarchy is based on the significance of the unobservable factors to the overall fair value measurement. However, these instruments generally include other observable components that are actively quoted or validated to third-party sources; accordingly, the gains and losses in the table below include changes in fair value due to observable parameters as well as the unobservable parameters in our valuation methodologies. We also frequently manage the risks of Level 3 financial instruments using securities and derivatives positions that are Level 1 or 2 instruments which are not included in the table; accordingly, the gains or losses below do not reflect the effect of our risk management activities related to the Level 3 instruments.

The Company has a Level 3 Pricing Committee which evaluates the valuation techniques used in determining the fair value of Level 3 assets and liabilities.

The tables below include a roll forward of the balance sheet amounts for the quarters ended March 31, 2015 and 2014 (including the change in fair value), for financial instruments classified in Level 3 of the valuation hierarchy.



Fair value measurements for assets using significant unobservable inputs for the three months ended March 31, 2015
	Available-for-sale securities			Trading assets								Total assets
(in millions)	State and political subdivisions			Derivative assets			(a)	Other assets				Total assets
Fair value at Dec. 31, 2014	$	11		$	9			$	70			$	90
Total gains or (losses) for the period:
Included in earnings (or changes in net assets)	—		(b)	(1		)	(c)	(2		)	(d)	(3		)
Purchases, sales and settlements:
Purchases	—			—				7				7
Sales	—			—				(21		)		(21		)
Settlements	—			(2		)		—				(2		)
Fair value at March 31, 2015	$	11		$	6			$	54			$	71
Change in unrealized gains or (losses) for the period included in earnings (or changes in net assets) for assets held at the end of the reporting period				$	(1	)		$	—			$	(1	)


(a)	Derivative assets are reported on a gross basis.


(b)	Realized gains (losses) are reported in securities gains (losses). Unrealized gains (losses) are reported in accumulated other comprehensive income (loss) except for the credit portion of OTTI losses which are recorded in securities gains (losses).


(c)	Reported in foreign exchange and other trading revenue.


(d)	Reported in investment and other income.



Fair value measurements for liabilities using significant unobservable inputs for the three months ended March 31, 2015
	Trading liabilities				Total liabilities
(in millions)	Derivative liabilities			(a)	Total liabilities
Fair value at Dec. 31, 2014	$	9			$	9
Total (gains) or losses for the period:
Included in earnings (or changes in net liabilities)	(1		)	(b)	(1		)
Settlements	(2		)		(2		)
Fair value at March 31, 2015	$	6			$	6
Change in unrealized (gains) or losses for the period included in earnings (or changes in net assets) for liabilities held at the end of the reporting period	$	1			$	1


(a)	Derivative liabilities are reported on a gross basis.


(b)	Reported in foreign exchange and other trading revenue.



Fair value measurements for assets using significant unobservable inputs for the three months ended March 31, 2014
	Available-for-sale securities			Trading assets
(in millions)	State and political subdivisions			Debt and equity instruments			Derivative assets			(a)	Other assets				Total assets
Fair value at Dec. 31, 2013	$	11		$	1		$	22			$	105			$	139
Transfers out of Level 3	—			—			(1		)		—				(1		)
Total gains or (losses) for the period:
Included in earnings (or changes in net assets)	—		(b)	—		(c)	(2		)	(c)	2			(d)	—
Purchases and sales:
Purchases	—			—			—				8				8
Sales	—			—			—				(5		)		(5		)
Fair value at March 31, 2014	$	11		$	1		$	19			$	110			$	141
Change in unrealized gains or (losses) for the period included in earnings (or changes in net assets) for assets held at the end of the reporting period				$	—		$	(2	)		$	—			$	(2	)


(a)	Derivative assets are reported on a gross basis.


(b)	Realized gains (losses) are reported in securities gains (losses). Unrealized gains (losses) are reported in accumulated other comprehensive income (loss) except for the credit portion of OTTI losses which are recorded in securities gains (losses).


(c)	Reported in foreign exchange and other trading revenue.


(d)	Reported in investment and other income.



Fair value measurements for liabilities using significant unobservable inputs for the three months ended March 31, 2014
	Trading liabilities				Total liabilities
(in millions)	Derivative liabilities			(a)	Total liabilities
Fair value at Dec. 31, 2013	$	75			$	75
Transfers out of Level 3	(37		)		(37		)
Total (gains) or losses for the period:
Included in earnings (or changes in net liabilities)	3			(b)	3
Fair value at March 31, 2014	$	41			$	41
Change in unrealized (gains) or losses for the period included in earnings (or changes in net assets) for liabilities held at the end of the reporting period	$	3			$	3


(a)	Derivative liabilities are reported on a gross basis.


(b)	Reported in foreign exchange and other trading revenue.

Assets and liabilities measured at fair value on a nonrecurring basis

Under certain circumstances, we make adjustments to fair value our assets, liabilities and unfunded lending-related commitments although they are not measured at fair value on an ongoing basis. An example would be the recording of an impairment of an asset.

The following tables present the financial instruments carried on the consolidated balance sheet by caption and by level in the fair value hierarchy as of March 31, 2015 and Dec. 31, 2014, for which a nonrecurring change in fair value has been recorded during the quarters ended March 31, 2015 and Dec. 31, 2014.



Assets measured at fair value on a nonrecurring basis at March 31, 2015							Total carrying value
(in millions)	Level 1		Level 2		Level 3		Total carrying value
Loans (a)	$	—	$	108	$	2	$	110
Other assets (b)	—		7		—		7
Total assets at fair value on a nonrecurring basis	$	—	$	115	$	2	$	117



Assets measured at fair value on a nonrecurring basis at Dec. 31, 2014							Total carrying value
(in millions)	Level 1		Level 2		Level 3		Total carrying value
Loans (a)	$	—	$	112	$	2	$	114
Other assets (b)	—		6		—		6
Total assets at fair value on a nonrecurring basis	$	—	$	118	$	2	$	120


(a)	During the quarters ended March 31, 2015 and Dec. 31, 2014, the fair value of these loans increased less than $1 million and decreased $3 million, respectively, based on the fair value of the underlying collateral as allowed by ASC 310, Accounting by Creditors for Impairment of a loan, with an offset to the allowance for credit losses.


(b)	Includes other assets received in satisfaction of debt and loans held for sale. Loans held for sale are carried on the balance sheet at the lower of cost or fair value.

Estimated fair value of financial instruments

The carrying amounts of our financial instruments (i.e., monetary assets and liabilities) are determined under different accounting methods - see Note 1 of the Notes to Consolidated Financial Statements. The following disclosure discusses these instruments on a uniform fair value basis. However, active markets do not exist for a significant portion of these instruments. For financial instruments where quoted prices from identical assets and liabilities in active markets do not exist, we determine fair value based on discounted cash flow analysis and comparison to similar instruments. Discounted cash flow analysis is dependent upon estimated future cash flows and the level of interest rates. Other judgments would result in different fair values. The fair value information supplements the basic financial statements and other traditional financial data presented throughout this report.

A summary of the practices used for determining fair value and the respective level in the valuation hierarchy for financial assets and liabilities not recorded at fair value follows.

Interest-bearing deposits with the Federal Reserve and other central banks and interest-bearing deposits with banks

The estimated fair value of interest-bearing deposits with the Federal Reserve and other central banks is equal to the book value as these interest-bearing deposits are generally considered cash equivalents. These instruments are classified as Level 2 within the valuation hierarchy. The estimated fair value of interest-bearing deposits with banks is generally determined using discounted cash flows and duration of the instrument to maturity. The primary inputs used to value these transactions are interest rates based on current LIBOR market rates and time to maturity. Interest-bearing deposits with banks are classified as Level 2 within the valuation hierarchy.

Federal funds sold and securities purchased under resale agreements

The estimated fair value of federal funds sold and securities purchased under resale agreements is based on inputs such as interest rates and tenors. Federal funds sold and securities purchased under resale agreements are classified as Level 2 within the valuation hierarchy.

Securities held-to-maturity

Where quoted prices are available in an active market for identical assets and liabilities, we classify the securities as Level 1 within the valuation hierarchy. Securities are defined as both long and short positions. Level 1 securities include U.S. Treasury securities.

If quoted market prices are not available for identical assets and liabilities, we estimate fair value using pricing models, quoted prices of securities with similar characteristics or discounted cash flows. Examples of such instruments, which would generally be classified as Level 2 within the valuation hierarchy, include certain agency and non-agency mortgage-backed securities, commercial mortgage-backed securities and state and political subdivision securities. For securities where quotes from active markets are not available for identical securities, we determine fair value primarily based on pricing sources with reasonable levels of price transparency that employ financial models or obtain comparison to similar instruments to arrive at “consensus” prices.

Specifically, the pricing sources obtain active market prices for similar types of securities (e.g., vintage, position in the securitization structure) and ascertain variables such as discount rate and speed of prepayment for the types of transaction and apply such variables to similar types of bonds. We view these as observable transactions in the current marketplace and classify such securities as Level 2 within the valuation hierarchy.

Loans

For residential mortgage loans, fair value is estimated using discounted cash flow analysis, adjusting where appropriate for prepayment estimates, using interest rates currently being offered for loans with similar terms and maturities to borrowers. The estimated fair value of margin loans and overdrafts is equal to the book value due to the short-term nature of these assets. The estimated fair value of other types of loans, including our term loan program, is determined using discounted cash flows. Inputs include current LIBOR market rates adjusted for credit spreads. These loans are generally classified as Level 2 within the valuation hierarchy.

Other financial assets

Other financial assets include cash, the Federal Reserve Bank stock and accrued interest receivable. Cash is classified as Level 1 within the valuation hierarchy. The Federal Reserve Bank stock is not redeemable or transferable. The estimated fair value of the Federal Reserve Bank stock is based on the issue price and is classified as Level 2 within the valuation hierarchy. Accrued interest receivable is generally short-term. As a result, book value is considered to equal fair value. Accrued interest receivable is included as Level 2 within the valuation hierarchy.

Noninterest-bearing and interest-bearing deposits

Interest-bearing deposits are comprised of money market rate and demand deposits, savings deposits and time deposits. Except for time deposits, book value is considered to equal fair value for these deposits due to their short duration to maturity or payable on demand feature. The fair value of interest-bearing time deposits is determined using discounted cash flow analysis. Inputs primarily consist of current LIBOR market rates and time to maturity. For all noninterest-bearing deposits, book value is considered to equal fair value as a result of the short duration of the deposit. Interest-bearing and noninterest-bearing deposits are classified as Level 2 within the valuation hierarchy.

Federal funds purchased and securities sold under repurchase agreements

The estimated fair value of federal funds purchased and securities sold under repurchase agreements is based on inputs such as interest rates and tenors. Federal funds purchased and securities sold under repurchase agreements are classified as Level 2 within the valuation hierarchy.

Payables to customers and broker-dealers

The estimated fair value of payables to customers and broker-dealers is equal to the book value, due to the demand feature of the payables to customers and broker-dealers, and are classified as Level 2 within the valuation hierarchy.

Borrowings

Borrowings primarily consist of overdrafts of subcustodian account balances in our Investment Services businesses, commercial paper and accrued interest payable. The estimated fair value of overdrafts of subcustodian account balances in our Investment Services businesses is considered to equal book value as a result of the short duration of the overdrafts and is included as Level 2 within the valuation hierarchy. Overdrafts are typically repaid within two days. The estimated fair value of our commercial paper is based on discount and duration of the commercial paper. Our commercial paper matures within 397 days from date of issue and is not redeemable prior to maturity or subject to voluntary prepayment. Our commercial paper is included in Level 2 of the valuation hierarchy. Accrued interest payable is generally short-term. As a result, book value is considered to equal fair value. Accrued interest payable is included as Level 2 within the valuation hierarchy.

Long-term debt

The estimated fair value of long-term debt is based on current rates for instruments of the same remaining maturity or quoted market prices for the same or similar issues. Long-term debt is classified as Level 2 within the valuation hierarchy.