In addition, we utilize forward foreign exchange contracts as hedges to mitigate foreign exchange exposures. We use forward foreign exchange contracts as cash flow hedges to convert certain forecasted non-U.S. dollar revenue and expenses into U.S. dollars. We use forward foreign exchange contracts with maturities of 15 months or less as cash flow hedges to hedge our foreign exchange exposure to currencies such as Indian rupee, British pound, Hong Kong dollar, Polish zloty, Singapore dollar and euro used in revenue and expense transactions for entities that have the U.S. dollar as their functional currency. As of Sept. 30, 2021, the hedged forecasted foreign currency transactions and designated forward foreign exchange contract hedges were $330 million (notional), with a net pre-tax gain of $1 million recorded in accumulated OCI. Over the next 12 months, a gain of $1 million will be reclassified to earnings.

We also utilize forward foreign exchange contracts as fair value hedges of the foreign exchange risk associated with available-for-sale securities. Forward points are designated as an excluded component and amortized into earnings over the hedge period. The unamortized derivative value associated with the excluded component is recognized in accumulated OCI. At Sept. 30, 2021, $143 million par value of available-for-sale securities was hedged with foreign currency forward contracts that had a notional value of $143 million.

Forward foreign exchange contracts are also used to hedge the value of our net investments in foreign subsidiaries. These forward foreign exchange contracts have maturities of less than one year. The derivatives employed are designated as hedges of changes in value of our foreign investments due to exchange rates. The change in fair market value of these forward foreign exchange contracts is reported within foreign currency translation adjustments in shareholders’ equity, net of tax. At Sept. 30, 2021, forward foreign exchange contracts with notional amounts totaling $8.3 billion were designated as net investment hedges.

From time to time, we also designate non-derivative financial instruments as hedges of our net investments in foreign subsidiaries. At Sept. 30, 2021, there were no non-derivative financial instruments hedging our net investments in foreign subsidiaries.

The following table presents the pre-tax gains (losses) related to our fair value and cash flow hedging activities recognized in the consolidated income statement.


Income statement impact of fair value and cash flow hedges
(in millions)	Location of gains (losses)	3Q21		2Q21		3Q20		YTD21		YTD20
Interest rate fair value hedges of available-for-sale securities
Derivative	Interest revenue	$	183	$	(325)	$	150	$	649	$	(864)
Hedged item	Interest revenue	(184)		322		(140)		(647)		856
Interest rate fair value hedges of long-term debt
Derivative	Interest expense	(96)		22		(68)		(427)		693
Hedged item	Interest expense	96		(21)		66		426		(691)
Foreign exchange fair value hedges of available-for-sale securities
Derivative (a)	Foreign exchange revenue	—		(1)		1		7		(11)
Hedged item	Foreign exchange revenue	—		1		1		(6)		13


Cash flow hedges of forecasted FX exposures



Gain (loss) reclassified from OCI into income	Staff expense	2		4		—		11		(2)
Gain (loss) recognized in the consolidated income statement due to fair value and cash flow hedging relationships		$	1	$	2	$	10	$	13	$	(6)

(a) Includes gains of less than $1 million in the third quarter of 2021, second quarter of 2021 and third quarter of 2020 and gains of $1 million in the first nine months of 2021 and first nine months of 2020 associated with the amortization of the excluded component. At Sept. 30, 2021 and Dec. 31, 2020, the remaining accumulated OCI balance associated with the excluded component was de minimis.

The following table presents the impact of hedging derivatives used in net investment hedging relationships.


Impact of derivative instruments used in net investment hedging relationships
(in millions)
Derivatives in net investment hedging relationships	Gain or (loss) recognized in accumulated OCI on derivatives										Location of gain or (loss) reclassified from accumulated OCI into income	Gain or (loss) reclassified from accumulated OCI into income
	3Q21		2Q21		3Q20		YTD21		YTD20				3Q21		2Q21		3Q20		YTD21		YTD20
FX contracts	$	201	$	(62)	$	(289)	$	221	$	103		Net interest revenue	$	—	$	—	$	—	$	—	$	—

The following table presents information on the hedged items in fair value hedging relationships.


Hedged items in fair value hedging relationships	Carrying amount of hedged asset or liability				Hedge accounting basis adjustment increase (decrease) (a)


(in millions)	Sept. 30, 2021		Dec. 31, 2020		Sept. 30, 2021		Dec. 31, 2020
Available-for-sale securities (b)(c)	$	24,662	$	17,536	$	742	$	1,428
Long-term debt	$	21,565	$	14,784	$	395	$	783

(a) Includes $182 million and $177 million of basis adjustment increases on discontinued hedges associated with available-for-sale securities at Sept. 30, 2021 and Dec. 31, 2020, respectively, and $80 million and $118 million of basis adjustment decreases on discontinued hedges associated with long-term debt at Sept. 30, 2021 and Dec. 31, 2020, respectively.

(b) Excludes hedged items where only foreign currency risk is the designated hedged risk, as the basis adjustments related to foreign currency hedges will not reverse through the consolidated income statement in future periods. The carrying amount excluded for available-for-sale securities was $143 million at Sept. 30, 2021 and $148 million at Dec. 31, 2020.

The following table summarizes the notional amount and carrying values of our total derivative portfolio.


Impact of derivative instruments on the balance sheet	Notional value				Asset derivatives fair value				Liability derivatives fair value
	Sept. 30, 2021		Dec. 31, 2020		Sept. 30, 2021		Dec. 31, 2020		Sept. 30, 2021		Dec. 31, 2020
(in millions)
Derivatives designated as hedging instruments: (a)(b)
Interest rate contracts	$	45,771	$	31,360	$	—	$	—	$	421	$	666
Foreign exchange contracts	8,749		8,706		238		19		7		441
Total derivatives designated as hedging instruments					$	238	$	19	$	428	$	1,107
Derivatives not designated as hedging instruments: (b)(c)
Interest rate contracts	$	195,065	$	198,865	$	3,424	$	4,482	$	2,989	$	3,880
Foreign exchange contracts	925,721		813,003		6,351		7,688		6,218		7,622
Equity contracts	8,214		5,142		265		2		9		37
Credit contracts	190		165		—		—		5		4
Total derivatives not designated as hedging instruments					$	10,040	$	12,172	$	9,221	$	11,543
Total derivatives fair value (d)					$	10,278	$	12,191	$	9,649	$	12,650
Effect of master netting agreements (e)					(5,875)		(8,346)		(6,529)		(7,845)
Fair value after effect of master netting agreements					$	4,403	$	3,845	$	3,120	$	4,805

(a) The fair value of asset derivatives and liability derivatives designated as hedging instruments is recorded as other assets and other liabilities, respectively, on the consolidated balance sheet.

(b) For derivative transactions settled at clearing organizations, cash collateral exchanged is deemed a settlement of the derivative each day. The settlement reduces the gross fair value of derivative assets and liabilities and results in a corresponding decrease in the effect of master netting agreements, with no impact to the consolidated balance sheet.

(c) The fair value of asset derivatives and liability derivatives not designated as hedging instruments is recorded as trading assets and trading liabilities, respectively, on the consolidated balance sheet.

(d) Fair values are on a gross basis, before consideration of master netting agreements, as required by ASC 815, Derivatives and Hedging.

(e) Effect of master netting agreements includes cash collateral received and paid of $1,060 million and $1,714 million, respectively, at Sept. 30, 2021, and $1,552 million and $1,051 million, respectively, at Dec. 31, 2020.

Trading activities (including trading derivatives)

Our trading activities are focused on acting as a market-maker for our customers, facilitating customer trades and risk-mitigating economic hedging in compliance with the Volcker Rule. The change in the fair value of the derivatives utilized in our trading activities is recorded in foreign exchange revenue and investment and other income on the consolidated income statement.

The following table presents our foreign exchange revenue and other trading revenue.


Foreign exchange revenue and other trading revenue
(in millions)	3Q21		2Q21		3Q20			YTD21		YTD20
Foreign exchange revenue	$	185	$	184	$	149	(a)	$	600	$	587	(a)
Other trading revenue (loss)	20		(1)		(14)		(a)	12		44		(a)

(a) In the first quarter of 2021, we reclassified certain items within total revenue on the consolidated income statement and reclassified prior periods to be comparable with the current period presentation. See Note 1 for additional information.

Foreign exchange revenue includes income from purchasing and selling foreign currencies, currency

forwards, futures and options as well as foreign currency remeasurement. Other trading revenue reflects results from trading in cash instruments, including fixed income and equity securities, and trading and economic hedging activity with non-foreign exchange derivatives.

We also use derivative financial instruments as risk-mitigating economic hedges, which are not formally designated as accounting hedges. This includes hedging the foreign currency, interest rate or market risks inherent in some of our balance sheet exposures, such as seed capital investments and deposits, as well as certain investment management fee revenue streams. We also use total return swaps to economically hedge obligations arising from the Company’s deferred compensation plan whereby the participants defer compensation and earn a return linked to the performance of investments they select. The gains or losses on these total return swaps are recorded in staff expense on the consolidated income statement and were a loss of $2 million in the third quarter of 2021, gains of $12 million in the third quarter of 2020, $13 million in the second quarter of 2021 and $21 million in the first nine months of 2021 and a loss of $1 million in the first nine months of 2020.

We manage trading risk through a system of position limits, a value-at-risk (“VaR”) methodology based on historical simulation and other market sensitivity measures. Risk is monitored and reported to senior management by a separate unit, independent from trading, on a daily basis. Based on certain assumptions, the VaR methodology is designed to capture the potential overnight pre-tax dollar loss from adverse changes in fair values of all trading positions. The calculation assumes a one-day holding period, utilizes a 99% confidence level and incorporates non-linear product characteristics. The VaR model is one of several statistical models used to develop economic capital results, which are allocated to lines of business for computing risk-adjusted performance.

VaR methodology does not evaluate risk attributable to extraordinary financial, economic or other occurrences. As a result, the risk assessment process includes a number of stress scenarios based upon the risk factors in the portfolio and management’s assessment of market conditions. Additional stress scenarios based upon historical market events are also performed. Stress tests may incorporate the impact of reduced market liquidity and the breakdown of historically observed correlations and extreme scenarios. VaR and other statistical measures, stress testing and sensitivity analysis are incorporated into other risk management materials.

Counterparty credit risk and collateral

We assess the credit risk of our counterparties through regular examination of their financial statements, confidential communication with the management of those counterparties and regular monitoring of publicly available credit rating information. This and other information is used to develop proprietary credit rating metrics used to assess credit quality.

Collateral requirements are determined after a comprehensive review of the credit quality of each counterparty. Collateral is generally held or pledged in the form of cash and/or highly liquid government securities. Collateral requirements are monitored and adjusted daily.

Additional disclosures concerning derivative financial instruments are provided in Note 14.

Disclosure of contingent features in over-the-counter (“OTC”) derivative instruments

Certain OTC derivative contracts and/or collateral agreements contain credit risk-contingent features triggered upon a rating downgrade in which the counterparty has the right to request additional collateral or the right to terminate the contracts in a net liability position.

The following table shows the aggregate fair value of OTC derivative contracts in net liability positions that contained credit risk-contingent features and the value of collateral that has been posted.


	Sept. 30, 2021		Dec. 31, 2020
(in millions)	Sept. 30, 2021		Dec. 31, 2020
Aggregate fair value of OTC derivatives in net liability positions (a)	$	4,790	$	5,235
Collateral posted	$	5,216	$	5,568

(a) Before consideration of cash collateral.

The aggregate fair value of OTC derivative contracts containing credit risk-contingent features can fluctuate from quarter to quarter due to changes in market conditions, composition of counterparty trades, new business or changes to the contingent features.

The Bank of New York Mellon, our largest banking subsidiary, enters into the substantial majority of our OTC derivative contracts and/or collateral agreements. As such, the contingent features may be triggered if The Bank of New York Mellon’s long-term issuer rating were downgraded.

The following table shows the fair value of contracts falling under early termination provisions that were in net liability positions for three key ratings triggers.


Potential close-out exposures (fair value) (a)
	Sept. 30, 2021		Dec. 31, 2020
(in millions)
If The Bank of New York Mellon’s rating changed to: (b)
A3/A-	$	45	$	79
Baa2/BBB	$	465	$	813
Ba1/BB+	$	2,597	$	2,859

(a) The amounts represent potential total close-out values if The Bank of New York Mellon’s long-term issuer rating were to immediately drop to the indicated levels, and do not reflect collateral posted.

(b) Represents ratings by Moody’s/S&P.

If The Bank of New York Mellon’s debt rating had fallen below investment grade on Sept. 30, 2021 and Dec. 31, 2020, existing collateral arrangements would have required us to post additional collateral of $47 million and $41 million, respectively.

Offsetting assets and liabilities

The following tables present derivative and financial instruments and their related offsets. There were no derivative instruments or financial instruments subject to a legally enforceable netting agreement for which we are not currently netting.


Offsetting of derivative assets and financial assets at Sept. 30, 2021
	Gross assets recognized		Gross amounts offset in the balance sheet			Net assets recognized in the balance sheet		Gross amounts not offset in the balance sheet
(in millions)					(a)			Financial instruments		Cash collateral received		Net amount
Derivatives subject to netting arrangements:
Interest rate contracts	$	2,238	$	1,456		$	782	$	223	$	—	$	559
Foreign exchange contracts	5,943		4,251			1,692		66		—		1,626
Equity and other contracts	265		168			97		28		—		69
Total derivatives subject to netting arrangements	8,446		5,875			2,571		317		—		2,254
Total derivatives not subject to netting arrangements	1,832		—			1,832		—		—		1,832
Total derivatives	10,278		5,875			4,403		317		—		4,086
Reverse repurchase agreements	66,757		49,195		(b)	17,562		17,536		—		26
Securities borrowing	10,935		—			10,935		10,355		—		580
Total	$	87,970	$	55,070		$	32,900	$	28,208	$	—	$	4,692

(a) Includes the effect of netting agreements and net cash collateral received. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions.

(b) Offsetting of reverse repurchase agreements relates to our involvement in the Fixed Income Clearing Corporation (“FICC”), where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system.


Offsetting of derivative assets and financial assets at Dec. 31, 2020
	Gross assets recognized		Gross amounts offset in the balance sheet			Net assets recognized in the balance sheet		Gross amounts not offset in the balance sheet
(in millions)					(a)			Financial instruments		Cash collateral received		Net amount
Derivatives subject to netting arrangements:
Interest rate contracts	$	2,972	$	1,952		$	1,020	$	311	$	—	$	709
Foreign exchange contracts	7,128		6,392			736		146		—		590
Equity and other contracts	2		2			—		—		—		—
Total derivatives subject to netting arrangements	10,102		8,346			1,756		457		—		1,299
Total derivatives not subject to netting arrangements	2,089		—			2,089		—		—		2,089
Total derivatives	12,191		8,346			3,845		457		—		3,388
Reverse repurchase agreements	78,828		59,561		(b)	19,267		19,252		—		15
Securities borrowing	11,640		—			11,640		11,166		—		474
Total	$	102,659	$	67,907		$	34,752	$	30,875	$	—	$	3,877

(a) Includes the effect of netting agreements and net cash collateral received. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions.

(b) Offsetting of reverse repurchase agreements relates to our involvement in the FICC, where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system.


Offsetting of derivative liabilities and financial liabilities at Sept. 30, 2021						Net liabilities recognized in the balance sheet
	Gross liabilities recognized		Gross amounts offset in the balance sheet					Gross amounts not offset in the balance sheet
(in millions)					(a)			Financial instruments		Cash collateral pledged		Net amount
Derivatives subject to netting arrangements:
Interest rate contracts	$	3,389	$	1,844		$	1,545	$	1,503	$	—	$	42
Foreign exchange contracts	5,744		4,685			1,059		247		—		812
Equity and other contracts	9		—			9		—		—		9
Total derivatives subject to netting arrangements	9,142		6,529			2,613		1,750		—		863
Total derivatives not subject to netting arrangements	507		—			507		—		—		507
Total derivatives	9,649		6,529			3,120		1,750		—		1,370
Repurchase agreements	59,510		49,195		(b)	10,315		10,308		2		5
Securities lending	1,658		—			1,658		1,581		—		77
Total	$	70,817	$	55,724		$	15,093	$	13,639	$	2	$	1,452

(a) Includes the effect of netting agreements and net cash collateral paid. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions.

(b) Offsetting of repurchase agreements relates to our involvement in the FICC, where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system.


Offsetting of derivative liabilities and financial liabilities at Dec. 31, 2020						Net liabilities recognized in the balance sheet
	Gross liabilities recognized		Gross amounts offset in the balance sheet					Gross amounts not offset in the balance sheet
(in millions)					(a)			Financial instruments		Cash collateral pledged		Net amount
Derivatives subject to netting arrangements:
Interest rate contracts	$	4,533	$	2,348		$	2,185	$	2,115	$	—	$	70
Foreign exchange contracts	7,280		5,484			1,796		143		—		1,653
Equity and other contracts	37		13			24		7		—		17
Total derivatives subject to netting arrangements	11,850		7,845			4,005		2,265		—		1,740
Total derivatives not subject to netting arrangements	800		—			800		—		—		800
Total derivatives	12,650		7,845			4,805		2,265		—		2,540
Repurchase agreements	69,831		59,561		(b)	10,270		10,270		—		—
Securities lending	1,035		—			1,035		983		—		52
Total	$	83,516	$	67,406		$	16,110	$	13,518	$	—	$	2,592

(a) Includes the effect of netting agreements and net cash collateral paid. The offset related to the OTC derivatives was allocated to the various types of derivatives based on the net positions.

(b) Offsetting of repurchase agreements relates to our involvement in the FICC, where we settle government securities transactions on a net basis for payment and delivery through the Fedwire system.

Secured borrowings

The following table presents the contract value of repurchase agreements and securities lending transactions accounted for as secured borrowings by the type of collateral provided to counterparties.


Repurchase agreements and securities lending transactions accounted for as secured borrowings
	Sept. 30, 2021								Dec. 31, 2020
	Remaining contractual maturity						Total		Remaining contractual maturity						Total
(in millions)	Overnight and continuous		Up to 30 days		30 days or more				Overnight and continuous		Up to 30 days		30 days or more
Repurchase agreements:
U.S. Treasury	$	52,216	$	144	$	—	$	52,360	$	62,381	$	—	$	—	$	62,381
Corporate bonds	217		16		1,161		1,394		190		218		1,436		1,844
Agency RMBS	1,369		—		—		1,369		3,117		—		80		3,197
U.S. government agencies	985		—		—		985		425		—		—		425
State and political subdivisions	57		48		857		962		66		40		864		970
Sovereign debt/sovereign guaranteed	578		—		349		927		—		—		—		—
Other debt securities	1		5		198		204		7		21		138		166
Equity securities	—		230		1,079		1,309		—		21		827		848
Total	$	55,423	$	443	$	3,644	$	59,510	$	66,186	$	300	$	3,345	$	69,831
Securities lending:
Agency RMBS	$	123	$	—	$	—	$	123	$	161	$	—	$	—	$	161
Other debt securities	119		—		—		119		52		—		—		52
Equity securities	1,416		—		—		1,416		822		—		—		822
Total	$	1,658	$	—	$	—	$	1,658	$	1,035	$	—	$	—	$	1,035
Total secured borrowings	$	57,081	$	443	$	3,644	$	61,168	$	67,221	$	300	$	3,345	$	70,866

BNY Mellon’s repurchase agreements and securities lending transactions primarily encounter risk associated with liquidity. We are required to pledge collateral based on predetermined terms within the agreements. If we were to experience a decline in the fair value of the collateral pledged for these transactions, we could be required to provide additional collateral to the counterparty, therefore decreasing the amount of assets available for other liquidity needs that may arise. BNY Mellon also offers tri-party collateral agency services in the tri-party repo market where we are exposed to credit risk. In order to mitigate this risk, we require dealers to fully secure intraday credit.