Fair value measurement

The guidance related to “Fair Value Measurement” included in ASC 820 defines fair value 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 and establishes a framework for measuring fair value. It establishes a three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date and expands the disclosures about instruments measured at fair value. ASC 820 requires consideration of a company’s own creditworthiness when valuing liabilities.

The standard provides a consistent definition of fair value, which 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 a 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

ASC 820 established a three-level valuation hierarchy 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 Sept. 30, 2014, 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 ASC 820 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 compose approximately 1% of our derivative financial instruments. Additional disclosures of derivative instruments are provided in Note 17 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 investment 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 Sept. 30, 2014 and Dec. 31, 2013, by caption on the consolidated balance sheet and by ASC 820 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 third quarter of 2014.



Assets measured at fair value on a recurring basis at Sept. 30, 2014
(dollar amounts in millions)	Level 1			Level 2			Level 3			Netting (a)			Total carrying value
Available-for-sale securities:
U.S. Treasury	$	21,101		$	—		$	—		$	—		$	21,101
U.S. Government agencies	—			361			—			—			361
Sovereign debt	79			15,626			—			—			15,705
State and political subdivisions (b)	—			5,393			11			—			5,404
Agency RMBS	—			30,208			—			—			30,208
Non-agency RMBS	—			1,005			—			—			1,005
Other RMBS	—			1,859			—			—			1,859
Commercial MBS	—			2,024			—			—			2,024
Agency commercial MBS	—			2,887			—			—			2,887
Asset-backed CLOs	—			1,996			—			—			1,996
Other asset-backed securities	—			3,025			—			—			3,025
Equity securities	97			—			—			—			97
Money market funds (b)	789			—			—			—			789
Corporate bonds	—			1,670			—			—			1,670
Other debt securities	—			2,030			—			—			2,030
Foreign covered bonds	2,266			683			—			—			2,949
Non-agency RMBS (c)	—			2,449			—			—			2,449
Total available-for-sale securities	24,332			71,216			11			—			95,559
Trading assets:
Debt and equity instruments (b)	3,137			3,267			—			—			6,404
Derivative assets not designated as hedging:
Interest rate	3			15,570			18			(13,269		)	2,322
Foreign exchange	—			6,348			—			(3,708		)	2,640
Equity	120			285			6			(164		)	247
Total derivative assets not designated as hedging	123			22,203			24			(17,141		)	5,209
Total trading assets	3,260			25,470			24			(17,141		)	11,613
Other assets:
Derivative assets designated as hedging:
Interest rate	—			573			—			—			573
Foreign exchange	—			204			—			—			204
Total derivative assets designated as hedging	—			777			—			—			777
Other assets (d)	223			771			79			—			1,073
Total other assets	223			1,548			79			—			1,850
Subtotal assets of operations at fair value	27,815			98,234			114			(17,141		)	109,022
Percentage of assets prior to netting	22		%	78		%	—		%
Assets of consolidated investment management funds:
Trading assets	115			8,708			—			—			8,823
Other assets	578			161			—			—			739
Total assets of consolidated investment management funds	693			8,869			—			—			9,562
Total assets	$	28,508		$	107,103		$	114		$	(17,141	)	$	118,584
Percentage of assets prior to netting	21		%	79		%	—		%



Liabilities measured at fair value on a recurring basis at Sept. 30, 2014
(dollar amounts in millions)	Level 1			Level 2			Level 3			Netting (a)			Total carrying value
Trading liabilities:
Debt and equity instruments	$	1,160		$	318		$	—		$	—		$	1,478
Derivative liabilities not designated as hedging:
Interest rate	10			16,084			23			(13,450		)	2,667
Foreign exchange	—			6,180			—			(3,003		)	3,177
Equity and other contracts	56			535			3			(182		)	412
Total derivative liabilities not designated as hedging	66			22,799			26			(16,635		)	6,256
Total trading liabilities	1,226			23,117			26			(16,635		)	7,734
Long-term debt (b)	—			337			—			—			337
Other liabilities - derivative liabilities designated as hedging:
Interest rate	—			178			—			—			178
Foreign exchange	—			57			—			—			57
Total other liabilities - derivative liabilities designated as hedging	—			235			—			—			235
Subtotal liabilities of operations at fair value	1,226			23,689			26			(16,635		)	8,306
Percentage of liabilities prior to netting	5		%	95		%	—		%
Liabilities of consolidated investment management funds:
Trading liabilities	—			8,130			—			—			8,130
Other liabilities	1			9			—			—			10
Total liabilities of consolidated investment management funds	1			8,139			—			—			8,140
Total liabilities	$	1,227		$	31,828		$	26		$	(16,635	)	$	16,446
Percentage of liabilities prior to netting	4		%	96		%	—		%

(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, 2013
(dollar amounts in millions)	Level 1			Level 2			Level 3			Netting (a)			Total carrying value
Available-for-sale securities:
U.S. Treasury	$	12,852		$	—		$	—		$	—		$	12,852
U.S. Government agencies	—			948			—			—			948
Sovereign debt	40			11,314			—			—			11,354
State and political subdivisions (b)	—			6,663			11			—			6,674
Agency RMBS	—			25,321			—			—			25,321
Non-agency RMBS	—			1,142			—			—			1,142
Other RMBS	—			2,285			—			—			2,285
Commercial MBS	—			2,357			—			—			2,357
Agency commercial MBS	—			1,789			—			—			1,789
Asset-backed CLOs	—			1,562			—			—			1,562
Other asset-backed securities	—			2,891			—			—			2,891
Equity securities	19			—			—			—			19
Money market funds (b)	938			—			—			—			938
Corporate bonds	—			1,815			—			—			1,815
Other debt securities	—			1,796			—			—			1,796
Foreign covered bonds	2,238			633			—			—			2,871
Non-agency RMBS (c)	—			2,695			—			—			2,695
Total available-for-sale securities	16,087			63,211			11			—			79,309
Trading assets:
Debt and equity instruments (b)	4,559			4,338			1			—			8,898
Derivative assets not designated as hedging:
Interest rate	4			14,702			6			(13,231		)	1,481
Foreign exchange	—			3,609			1			(2,294		)	1,316
Equity	274			395			15			(281		)	403
Total derivative assets not designated as hedging	278			18,706			22			(15,806		)	3,200
Total trading assets	4,837			23,044			23			(15,806		)	12,098
Other assets:
Derivative assets designated as hedging:
Interest rate	—			1,206			—			—			1,206
Foreign exchange	—			76			—			—			76
Total derivative assets designated as hedging	—			1,282			—			—			1,282
Other assets (d)	148			193			105			—			446
Total other assets	148			1,475			105			—			1,728
Subtotal assets of operations at fair value	21,072			87,730			139			(15,806		)	93,135
Percentage of assets prior to netting	19		%	81		%	—		%
Assets of consolidated investment management funds:
Trading assets	61			10,336			—			—			10,397
Other assets	739			136			—			—			875
Total assets of consolidated investment management funds	800			10,472			—			—			11,272
Total assets	$	21,872		$	98,202		$	139		$	(15,806	)	$	104,407
Percentage of assets prior to netting	18		%	82		%	—		%



Liabilities measured at fair value on a recurring basis at Dec. 31, 2013
(dollar amounts in millions)	Level 1			Level 2			Level 3			Netting (a)			Total carrying value
Trading liabilities:
Debt and equity instruments	$	1,030		$	585		$	—		$	—		$	1,615
Derivative liabilities not designated as hedging:
Interest rate	3			15,178			31			(12,429		)	2,783
Foreign exchange	—			3,536			—			(1,711		)	1,825
Equity and other contracts	214			745			44			(281		)	722
Total derivative liabilities not designated as hedging	217			19,459			75			(14,421		)	5,330
Total trading liabilities	1,247			20,044			75			(14,421		)	6,945
Long-term debt (b)	—			321			—			—			321
Other liabilities - derivative liabilities designated as hedging:
Interest rate	—			167			—			—			167
Foreign exchange	—			336			—			—			336
Total other liabilities - derivative liabilities designated as hedging	—			503			—			—			503
Subtotal liabilities of operations at fair value	1,247			20,868			75			(14,421		)	7,769
Percentage of liabilities prior to netting	6		%	94		%	—		%
Liabilities of consolidated investment management funds:
Trading liabilities	16			10,069			—			—			10,085
Other liabilities	—			46			—			—			46
Total liabilities of consolidated investment management funds	16			10,115			—			—			10,131
Total liabilities	$	1,263		$	30,983		$	75		$	(14,421	)	$	17,900
Percentage of liabilities prior to netting	4		%	96		%	—		%

(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	Sept. 30, 2014										Dec. 31, 2013
	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	$	80	—	%	—	%	—	%	100	%	$	90	—	%	—	%	41	%	59	%
2006	152		—		—		—		100		156		—		—		—		100
2005	297		—		22		19		59		330		—		24		16		60
2004 and earlier	476		3		5		29		63		566		3		6		30		61
Total non-agency RMBS	$	1,005	1	%	9	%	19	%	71	%	$	1,142	1	%	10	%	23	%	66	%
Commercial MBS - Domestic, originated in:
2009-2014	$	584	84	%	16	%	—	%	—	%	$	466	81	%	19	%	—	%	—	%
2008	21		100		—		—		—		22		59		41		—		—
2007	366		66		20		14		—		457		69		20		11		—
2006	620		83		17		—		—		683		84		16		—		—
2005	341		100		—		—		—		486		100		—		—		—
2004 and earlier	16		100		—		—		—		153		93		7		—		—
Total commercial MBS - Domestic	$	1,948	83	%	14	%	3	%	—	%	$	2,267	84	%	14	%	2	%	—	%
Foreign covered bonds:
Canada	$	1,337	100	%	—	%	—	%	—	%	$	851	100	%	—	%	—	%	—	%
United Kingdom	665		100		—		—		—		803		100		—		—		—
Netherlands	254		100		—		—		—		298		100		—		—		—
Other	693		100		—		—		—		919		100		—		—		—
Total foreign covered bonds	$	2,949	100	%	—	%	—	%	—	%	$	2,871	100	%	—	%	—	%	—	%
European floating rate notes - available-for-sale:
United Kingdom	$	1,450	84	%	16	%	—	%	—	%	$	1,668	79	%	21	%	—	%	—	%
Netherlands	319		100		—		—		—		434		100		—		—		—
Ireland	152		—		—		—		100		165		10		—		—		90
Italy	—		—		—		—		—		104		—		100		—		—
Other	31		91		1		—		8		42		89		5		—		6
Total European floating rate notes - available-for-sale	$	1,952	80	%	12	%	—	%	8	%	$	2,413	75	%	19	%	—	%	6	%
Sovereign debt:
United Kingdom	$	5,077	100	%	—	%	—	%	—	%	$	4,709	100	%	—	%	—	%	—	%
France	3,856		100		—		—		—		1,568		100		—		—		—
Netherlands	1,783		100		—		—		—		2,105		100		—		—		—
Germany	1,582		100		—		—		—		2,182		100		—		—		—
Spain	917		—		—		100		—		137		—		—		100		—
Italy	906		—		—		100		—		171		—		—		100		—
Ireland	283		—		—		100		—		—		—		—		—		—
Other	1,301		90		2		8		—		482		100		—		—		—
Total sovereign debt	$	15,705	86	%	—	%	14	%	—	%	$	11,354	97	%	—	%	3	%	—	%
Non-agency RMBS (b), originated in:
2007	$	751	—	%	—	%	—	%	100	%	$	812	—	%	—	%	—	%	100	%
2006	701		—		—		1		99		780		—		—		1		99
2005	772		—		3		1		96		854		—		3		—		97
2004 and earlier	225		—		4		10		86		249		—		4		16		80
Total non-agency RMBS (b)	$	2,449	—	%	1	%	2	%	97	%	$	2,695	—	%	1	%	2	%	97	%


(a)	At Sept. 30, 2014 and Dec. 31, 2013, 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 three and nine months ended Sept. 30, 2014 and 2013 (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 Sept. 30, 2014
	Available-for-sale securities			Trading assets												Total assets
(in millions)	State and political subdivisions			Debt and equity instruments				Derivative assets			(a)	Other assets				Total assets
Fair value at June 30, 2014	$	11		$	1			$	22			$	98			$	132
Transfers out of Level 3	—			—				(10		)		—				(10		)
Total gains or (losses) for the period:
Included in earnings (or changes in net assets)	—		(b)	—			(c)	13			(c)	(10		)	(d)	3
Sales and settlements:
Sales	—			—				—				(9		)		(9		)
Settlements	—			(1		)		(1		)		—				(2		)
Fair value at Sept. 30, 2014	$	11		$	—			$	24			$	79			$	114
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				$	—			$	16			$	—			$	16


(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 Sept. 30, 2014
	Trading liabilities				Total liabilities
(in millions)	Derivative liabilities			(a)	Total liabilities
Fair value at June 30, 2014	$	51			$	51
Transfers out of Level 3	(2		)		(2		)
Total (gains) or losses for the period:
Included in earnings (or changes in net liabilities)	(23		)	(b)	(23		)
Fair value at Sept. 30, 2014	$	26			$	26
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	$	(12	)		$	(12	)


(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 Sept. 30, 2013
	Available-for-sale securities				Trading assets														Assets of consolidated investment management funds
(in millions)	State and political subdivisions				Debt and equity instruments			Derivative assets			(a)	Other assets				Total assets of operations			Assets of consolidated investment management funds
Fair value at June 30, 2013	$	52			$	2		$	42			$	113			$	209		$	44
Transfers out of Level 3	—				—			(14		)		—				(14		)	—
Total gains or (losses) for the period:
Included in earnings (or changes in net assets)	(1		)	(b)	1		(c)	(2		)	(c)	(2		)	(d)	(4		)	2			(e)
Sales	—				—			—				(10		)		(10		)	(46		)
Fair value at Sept. 30, 2013	$	51			$	3		$	26			$	101			$	181		$	—
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.


(e)	Reported in income from consolidated investment management funds.



Fair value measurements for liabilities using significant unobservable inputs for the three months ended Sept. 30, 2013
	Trading liabilities				Total liabilities
(in millions)	Derivative liabilities			(a)	Total liabilities
Fair value at June 30, 2013	$	117			$	117
Transfers out of Level 3	(13		)		(13		)
Total (gains) or losses for the period:
Included in earnings (or changes in net liabilities)	(5		)	(b)	(5		)
Settlements	(7		)		(7		)
Fair value at Sept. 30, 2013	$	92			$	92
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 nine months ended Sept. 30, 2014
	Available-for-sale securities			Trading assets												Total 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	—			—				(12		)		—				(12		)
Total gains or (losses) for the period:
Included in earnings (or changes in net assets)	—		(b)	—			(c)	15			(c)	(5		)	(d)	10
Purchases, sales and settlements:
Purchases	—			—				—				14				14
Sales	—			—				—				(35		)		(35		)
Settlements	—			(1		)		(1		)		—				(2		)
Fair value at Sept. 30, 2014	$	11		$	—			$	24			$	79			$	114
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				$	—			$	19			$	—			$	19


(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 nine months ended Sept. 30, 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	(39		)		(39		)
Total (gains) or losses for the period:
Included in earnings (or changes in net liabilities)	(13		)	(b)	(13		)
Purchases	3				3
Fair value at Sept 30, 2014	$	26			$	26
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 nine months ended Sept. 30, 2013
	Available-for-sale securities			Trading assets															Assets of consolidated investment management funds
(in millions)	State and political subdivisions			Debt and equity instruments				Derivative assets			(a)	Other assets				Total assets of operations			Assets of consolidated investment management funds
Fair value at Dec. 31, 2012	$	45		$	48			$	58			$	120			$	271		$	44
Transfers out of Level 3	—			—				(19		)		—				(19		)	—
Total gains or (losses) for the period:
Included in earnings (or changes in net assets)	6		(b)	4			(c)	(13		)	(c)	(2		)	(d)	(5		)	2			(e)
Purchases and sales:
Purchases	—			—				—				3				3			—
Sales	—			(49		)		—				(20		)		(69		)	(46		)
Fair value at Sept. 30, 2013	$	51		$	3			$	26			$	101			$	181		$	—
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				$	—			$	(13	)		$	—			$	(13	)	$	—


(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.


(e)	Reported in income from consolidated investment management funds.



Fair value measurements for liabilities using significant unobservable inputs for the nine months ended Sept 30, 2013
	Trading liabilities				Total liabilities
(in millions)	Derivative liabilities			(a)	Total liabilities
Fair value at Dec. 31, 2012	$	224			$	224
Transfers out of Level 3	(17		)		(17		)
Total (gains) or losses for the period:
Included in earnings (or changes in net liabilities)	(110		)	(b)	(110		)
Settlements	(5		)		(5		)
Fair value at Sept 30, 2013	$	92			$	92
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	$	27			$	27


(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 Sept. 30, 2014 and Dec. 31, 2013, for which a nonrecurring change in fair value has been recorded during the quarters ended Sept. 30, 2014 and Dec. 31, 2013.



Assets measured at fair value on a nonrecurring basis at Sept. 30, 2014							Total carrying value
(in millions)	Level 1		Level 2		Level 3		Total carrying value
Loans (a)	$	—	$	114	$	5	$	119
Other assets (b)	—		10		—		10
Total assets at fair value on a nonrecurring basis	$	—	$	124	$	5	$	129



Assets measured at fair value on a nonrecurring basis at Dec. 31, 2013							Total carrying value
(in millions)	Level 1		Level 2		Level 3		Total carrying value
Loans (a)	$	—	$	128	$	9	$	137
Other assets (b)	—		15		—		15
Total assets at fair value on a nonrecurring basis	$	—	$	143	$	9	$	152


(a)	During the quarters ended Sept. 30, 2014 and Dec. 31, 2013, the fair value of these loans decreased less than $1 million and $1 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 market value.