Fair Value Measurement

12 Months Ended

Dec. 31, 2018

Fair Value Disclosures [Abstract]

Fair Value Measurement

Fair value measurement

JPMorgan Chase carries a portion of its assets and liabilities at fair value. These assets and liabilities are predominantly carried at fair value on a recurring basis (i.e., assets and liabilities that are measured and reported at fair value on the Firm’s Consolidated balance sheets). Certain assets (e.g., held-for-sale loans), liabilities and unfunded lending-related commitments are measured at fair value on a nonrecurring basis; that is, they are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment).

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. Fair value is based on quoted market prices or inputs, where available. If prices or quotes are not available, fair value is based on valuation models and other valuation techniques that consider relevant transaction characteristics (such as maturity) and use as inputs observable or unobservable market parameters, including yield curves, interest rates, volatilities, equity or debt prices, foreign exchange rates and credit curves. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value, as described below.

The level of precision in estimating unobservable market inputs or other factors can affect the amount of gain or loss recorded for a particular position. Furthermore, while the Firm believes its valuation methods are appropriate and consistent with those of other market participants, the methods and assumptions used reflect management judgment and may vary across the Firm’s businesses and portfolios.

The Firm uses various methodologies and assumptions in the determination of fair value. The use of different methodologies or assumptions by other market participants compared with those used by the Firm could result in the Firm deriving a different estimate of fair value at the reporting date.

Valuation process

Risk-taking functions are responsible for providing fair value estimates for assets and liabilities carried on the Consolidated balance sheets at fair value. The Firm’s VCG, which is part of the Firm’s Finance function and independent of the risk-taking functions, is responsible for verifying these estimates and determining any fair value adjustments that may be required to ensure that the Firm’s positions are recorded at fair value. The VGF is composed of senior finance and risk executives and is responsible for overseeing the management of risks arising from valuation activities conducted across the Firm. The Firmwide VGF is chaired by the Firmwide head of the VCG (under the direction of the Firm’s Controller), and includes sub-forums covering the CIB, CCB, CB, AWM and certain corporate functions including Treasury and CIO.

Price verification process

The VCG verifies fair value estimates provided by the risk-taking functions by leveraging independently derived prices, valuation inputs and other market data, where available. Where independent prices or inputs are not available, the VCG performs additional review to ensure the reasonableness of the estimates. The additional review may include evaluating the limited market activity including client unwinds, benchmarking valuation inputs to those used for similar instruments, decomposing the valuation of structured instruments into individual components, comparing expected to actual cash flows, reviewing profit and loss trends, and reviewing trends in collateral valuation. There are also additional levels of management review for more significant or complex positions.

The VCG determines any valuation adjustments that may be required to the estimates provided by the risk-taking functions. No adjustments to quoted prices are applied for instruments classified within level 1 of the fair value hierarchy (refer to below for further information on the fair value hierarchy). For other positions, judgment is required to assess the need for valuation adjustments to appropriately reflect liquidity considerations, unobservable parameters, and, for certain portfolios that meet specified criteria, the size of the net open risk position. The determination of such adjustments follows a consistent framework across the Firm:

• Liquidity valuation adjustments are considered where an observable external price or valuation parameter exists but is of lower reliability, potentially due to lower market activity. Liquidity valuation adjustments are applied and determined based on current market conditions. Factors that may be considered in determining the liquidity adjustment include analysis of: (1) the estimated bid-offer spread for the instrument being traded; (2) alternative pricing points for similar instruments in active markets; and (3) the range of reasonable values that the price or parameter could take.

• The Firm manages certain portfolios of financial instruments on the basis of net open risk exposure and, as permitted by U.S. GAAP, has elected to estimate the fair value of such portfolios on the basis of a transfer of the entire net open risk position in an orderly transaction. Where this is the case, valuation adjustments may be necessary to reflect the cost of exiting a larger-than-normal market-size net open risk position. Where applied, such adjustments are based on factors that a relevant market participant would consider in the transfer of the net open risk position, including the size of the adverse market move that is likely to occur during the period required to reduce the net open risk position to a normal market-size.

• Unobservable parameter valuation adjustments may be made when positions are valued using prices or input parameters to valuation models that are unobservable due to a lack of market activity or because they cannot be implied from observable market data. Such prices or parameters must be estimated and are, therefore, subject to management judgment. Unobservable

parameter valuation adjustments are applied to reflect the uncertainty inherent in the resulting valuation estimate.

• Where appropriate, the Firm also applies adjustments to its estimates of fair value in order to appropriately reflect counterparty credit quality (CVA), the Firm’s own creditworthiness (DVA) and the impact of funding (FVA), using a consistent framework across the Firm. For more information on such adjustments refer to Credit and funding adjustments on page 175 of this Note.

Valuation model review and approval

If prices or quotes are not available for an instrument or a similar instrument, fair value is generally determined using valuation models that consider relevant transaction data such as maturity and use as inputs market-based or independently sourced parameters. Where this is the case the price verification process described above is applied to the inputs to those models.

Under the Firm’s Estimations and Model Risk Management Policy, the Model Risk function reviews and approves new models, as well as material changes to existing models, prior to implementation in the operating environment. In certain circumstances, the head of the Model Risk function may grant exceptions to the Firm’s policy to allow a model to be used prior to review or approval. The Model Risk function may also require the user to take appropriate actions to mitigate the model risk if it is to be used in the interim. These actions will depend on the model and may include, for example, limitation of trading activity.

Valuation hierarchy

A three-level valuation hierarchy has been established under U.S. GAAP for disclosure of fair value measurements. The valuation hierarchy is based on the transparency of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows.

• Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

• Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

• Level 3 – one or more inputs to the valuation methodology are unobservable and significant to the fair value measurement.

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

The following table describes the valuation methodologies generally used by the Firm to measure its significant products/instruments at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.

Product/instrument	Valuation methodology	Classifications in the valuation hierarchy
Securities financing agreements	Valuations are based on discounted cash flows, which consider:	Predominantly level 2
	• Derivative features: for further information refer to the discussion of derivatives below.
	• Market rates for the respective maturity
	• Collateral characteristics
Loans and lending-related commitments — wholesale
Loans carried at fair value (e.g., trading loans and non-trading loans) and associated lending-related commitments	Where observable market data is available, valuations are based on:	Level 2 or 3
	• Observed market prices (circumstances are infrequent)
	• Relevant broker quotes
	• Observed market prices for similar instruments
	Where observable market data is unavailable or limited, valuations are based on discounted cash flows, which consider the following:
	• Credit spreads derived from the cost of CDS; or benchmark credit curves developed by the Firm, by industry and credit rating
	• Prepayment speed
	• Collateral characteristics
Loans — consumer
Trading loans — conforming residential mortgage loans expected to be sold (CCB, CIB)	Fair value is based on observable prices for mortgage-backed securities with similar collateral and incorporates adjustments to these prices to account for differences between the securities and the value of the underlying loans, which include credit characteristics, portfolio composition, and liquidity.	Predominantly level 2
Investment and trading securities	Quoted market prices are used where available.	Level 1
	In the absence of quoted market prices, securities are valued based on:	Level 2 or 3
	• Observable market prices for similar securities
	•   Relevant broker quotes
	•   Discounted cash flows
	In addition, the following inputs to discounted cash flows are used for the following products:
	Mortgage- and asset-backed securities specific inputs:
	•   Collateral characteristics
	• Deal-specific payment and loss allocations
	• Current market assumptions related to yield, prepayment speed, conditional default rates and loss severity
	Collateralized loan obligations (“CLOs”) specific inputs:
	•   Collateral characteristics
	•   Deal-specific payment and loss allocations
	•   Expected prepayment speed, conditional default rates, loss severity
	•   Credit spreads
	• Credit rating data
Physical commodities	Valued using observable market prices or data.	Level 1 and 2

Product/instrument	Valuation methodology	Classifications in the valuation hierarchy
Derivatives	Exchange-traded derivatives that are actively traded and valued using the exchange price.	Level 1
	Derivatives that are valued using models such as the Black-Scholes option pricing model, simulation models, or a combination of models that may use observable or unobservable valuation inputs as well as considering the contractual terms. The key valuation inputs used will depend on the type of derivative and the nature of the underlying instruments and may include equity prices, commodity prices, interest rate yield curves, foreign exchange rates, volatilities, correlations, CDS spreads and recovery rates.  Additionally, the credit quality of the counterparty and of the Firm as well as market funding levels may also be considered.	Level 2 or 3
	In addition, specific inputs used for derivatives that are valued based on models with significant unobservable inputs are as follows:
	Structured credit derivatives specific inputs include:
	•   CDS spreads and recovery rates
	•   Credit correlation between the underlying debt instruments
	Equity option specific inputs include:
	•   Equity volatilities
	•   Equity correlation
	•   Equity-FX correlation
	•   Equity-IR correlation
	Interest rate and FX exotic options specific inputs include:
	•   Interest rate spread volatility
	•   Interest rate correlation
	•   Foreign exchange correlation
	•   Interest rate-FX correlation
	Commodity derivatives specific inputs include:
	•   Commodity volatility
	•   Forward commodity price
	Additionally, adjustments are made to reflect counterparty credit quality (CVA) and the impact of funding (FVA). Refer to page 175 of this Note.
Mortgage servicing rights	Refer to Mortgage servicing rights in Note 15.	Level 3
Private equity direct investments	Fair value is estimated using all available information; the range of potential inputs include:	Level 2 or 3
	• Transaction prices
	• Trading multiples of comparable public companies
	• Operating performance of the underlying portfolio company
	• Adjustments as required, since comparable public companies are not identical to the company being valued, and for company-specific issues and lack of liquidity.
	• Additional available inputs relevant to the investment.
Fund investments (e.g., mutual/collective investment funds, private equity funds, hedge funds, and real estate funds)	Net asset value
	• NAV is supported by the ability to redeem and purchase at the NAV level.	Level 1
	• Adjustments to the NAV as required, for restrictions on redemption (e.g., lock-up periods or withdrawal limitations) or where observable activity is limited.	Level 2 or 3(a)
Beneficial interests issued by consolidated VIEs	Valued using observable market information, where available.	Level 2 or 3
	In the absence of observable market information, valuations are based on the fair value of the underlying assets held by the VIE.

(a) Excludes certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient.

Product/instrument	Valuation methodology	Classification in the valuation hierarchy
Structured notes (included in deposits, short-term borrowings and long-term debt)	• Valuations are based on discounted cash flow analyses that consider the embedded derivative and the terms and payment structure of the note. • The embedded derivative features are considered using models such as the Black-Scholes option pricing model, simulation models, or a combination of models that may use observable or unobservable valuation inputs, depending on the embedded derivative. The specific inputs used vary according to the nature of the embedded derivative features, as described in the discussion above regarding derivatives valuation. Adjustments are then made to this base valuation to reflect the Firm’s own credit risk (DVA). Refer to page 175 of this Note.	Level 2 or 3

The following table presents the assets and liabilities reported at fair value as of December 31, 2018 and 2017, by major product category and fair value hierarchy.

Assets and liabilities measured at fair value on a recurring basis
	Fair value hierarchy
December 31, 2018 (in millions)	Level 1		Level 2		Level 3		Derivative netting adjustments			Total fair value
Federal funds sold and securities purchased under resale agreements	$	—	$	13,235	$	—	$	—		$	13,235
Securities borrowed	—		5,105		—		—			5,105
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies(a)	—		76,249		549		—			76,798
Residential – nonagency	—		1,798		64		—			1,862
Commercial – nonagency	—		1,501		11		—			1,512
Total mortgage-backed securities	—		79,548		624		—			80,172
U.S. Treasury and government agencies(a)	51,477		7,702		—		—			59,179
Obligations of U.S. states and municipalities	—		7,121		689		—			7,810
Certificates of deposit, bankers’ acceptances and commercial paper	—		1,214		—		—			1,214
Non-U.S. government debt securities	27,878		27,056		155		—			55,089
Corporate debt securities	—		18,655		334		—			18,989
Loans(b)	—		40,047		1,706		—			41,753
Asset-backed securities	—		2,756		127		—			2,883
Total debt instruments	79,355		184,099		3,635		—			267,089
Equity securities	71,119		482		232		—			71,833
Physical commodities(c)	5,182		1,855		—		—			7,037
Other	—		13,192		301		—			13,493
Total debt and equity instruments(d)	155,656		199,628		4,168		—			359,452
Derivative receivables:
Interest rate	682		266,380		1,642		(245,490		)	23,214
Credit	—		19,235		860		(19,483		)	612
Foreign exchange	771		166,238		676		(154,235		)	13,450
Equity	—		46,777		2,508		(39,339		)	9,946
Commodity	—		20,339		131		(13,479		)	6,991
Total derivative receivables(e)	1,453		518,969		5,817		(472,026		)	54,213
Total trading assets(f)	157,109		718,597		9,985		(472,026		)	413,665
Available-for-sale securities:
Mortgage-backed securities:
U.S. government agencies(a)	—		68,646		—		—			68,646
Residential – nonagency	—		8,519		1		—			8,520
Commercial – nonagency	—		6,654		—		—			6,654
Total mortgage-backed securities	—		83,819		1		—			83,820
U.S. Treasury and government agencies	56,059		—		—		—			56,059
Obligations of U.S. states and municipalities	—		37,723		—		—			37,723
Certificates of deposit	—		75		—		—			75
Non-U.S. government debt securities	15,313		8,789		—		—			24,102
Corporate debt securities	—		1,918		—		—			1,918
Asset-backed securities:
Collateralized loan obligations	—		19,437		—		—			19,437
Other	—		7,260		—		—			7,260
Total available-for-sale securities	71,372		159,021		1		—			230,394
Loans	—		3,029		122		—			3,151
Mortgage servicing rights	—		—		6,130		—			6,130
Other assets(f)(g)	7,810		195		927		—			8,932
Total assets measured at fair value on a recurring basis	$	236,291	$	899,182	$	17,165	$	(472,026	)	$	680,612
Deposits	$	—	$	19,048	$	4,169	$	—		$	23,217
Federal funds purchased and securities loaned or sold under repurchase agreements	—		935		—		—			935
Short-term borrowings	—		5,607		1,523		—			7,130
Trading liabilities:
Debt and equity instruments(d)	80,199		22,755		50		—			103,004
Derivative payables:
Interest rate	1,526		239,576		1,680		(234,998		)	7,784
Credit	—		19,309		967		(18,609		)	1,667
Foreign exchange	695		163,549		973		(152,432		)	12,785
Equity	—		46,462		4,733		(41,034		)	10,161
Commodity	—		21,158		1,260		(13,046		)	9,372
Total derivative payables(e)	2,221		490,054		9,613		(460,119		)	41,769
Total trading liabilities	82,420		512,809		9,663		(460,119		)	144,773
Accounts payable and other liabilities	3,063		196		10		—			3,269
Beneficial interests issued by consolidated VIEs	—		27		1		—			28
Long-term debt	—		35,468		19,418		—			54,886
Total liabilities measured at fair value on a recurring basis	$	85,483	$	574,090	$	34,784	$	(460,119	)	$	234,238

	Fair value hierarchy
December 31, 2017 (in millions)	Level 1		Level 2		Level 3		Derivative netting adjustments			Total fair value
Federal funds sold and securities purchased under resale agreements	$	—	$	14,732	$	—	$	—		$	14,732
Securities borrowed	—		3,049		—		—			3,049
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies(a)	—		41,515		307		—			41,822
Residential – nonagency	—		1,835		60		—			1,895
Commercial – nonagency	—		1,645		11		—			1,656
Total mortgage-backed securities	—		44,995		378		—			45,373
U.S. Treasury and government agencies(a)	30,758		6,475		1		—			37,234
Obligations of U.S. states and municipalities	—		9,067		744		—			9,811
Certificates of deposit, bankers’ acceptances and commercial paper	—		226		—		—			226
Non-U.S. government debt securities	28,887		28,831		78		—			57,796
Corporate debt securities	—		24,146		312		—			24,458
Loans(b)	—		35,242		2,719		—			37,961
Asset-backed securities	—		3,284		153		—			3,437
Total debt instruments	59,645		152,266		4,385		—			216,296
Equity securities	87,346		197		295		—			87,838
Physical commodities(c)	4,924		1,322		—		—			6,246
Other	—		14,197		690		—			14,887
Total debt and equity instruments(d)	151,915		167,982		5,370		—			325,267
Derivative receivables:
Interest rate	181		314,107		1,704		(291,319		)	24,673
Credit	—		21,995		1,209		(22,335		)	869
Foreign exchange	841		158,834		557		(144,081		)	16,151
Equity	—		37,722		2,318		(32,158		)	7,882
Commodity	—		19,875		210		(13,137		)	6,948
Total derivative receivables(e)	1,022		552,533		5,998		(503,030		)	56,523
Total trading assets(f)	152,937		720,515		11,368		(503,030		)	381,790
Available-for-sale securities:
Mortgage-backed securities:
U.S. government agencies(a)	—		70,280		—		—			70,280
Residential – nonagency	—		11,366		1		—			11,367
Commercial – nonagency	—		5,025		—		—			5,025
Total mortgage-backed securities	—		86,671		1		—			86,672
U.S. Treasury and government agencies	22,745		—		—		—			22,745
Obligations of U.S. states and municipalities	—		32,338		—		—			32,338
Certificates of deposit	—		59		—		—			59
Non-U.S. government debt securities	18,140		9,154		—		—			27,294
Corporate debt securities	—		2,757		—		—			2,757
Asset-backed securities:
Collateralized loan obligations	—		20,720		276		—			20,996
Other	—		8,817		—		—			8,817
Equity securities(g)	547		—		—		—			547
Total available-for-sale securities	41,432		160,516		277		—			202,225
Loans	—		2,232		276		—			2,508
Mortgage servicing rights	—		—		6,030		—			6,030
Other assets(f)(g)	13,795		343		1,265		—			15,403
Total assets measured at fair value on a recurring basis	$	208,164	$	901,387	$	19,216	$	(503,030	)	$	625,737
Deposits	$	—	$	17,179	$	4,142	$	—		$	21,321
Federal funds purchased and securities loaned or sold under repurchase agreements	—		697		—		—			697
Short-term borrowings	—		7,526		1,665		—			9,191
Trading liabilities:
Debt and equity instruments(d)	64,664		21,183		39		—			85,886
Derivative payables:
Interest rate	170		282,825		1,440		(277,306		)	7,129
Credit	—		22,009		1,244		(21,954		)	1,299
Foreign exchange	794		154,075		953		(143,349		)	12,473
Equity	—		39,668		5,727		(36,203		)	9,192
Commodity	—		21,017		884		(14,217		)	7,684
Total derivative payables(e)	964		519,594		10,248		(493,029		)	37,777
Total trading liabilities	65,628		540,777		10,287		(493,029		)	123,663
Accounts payable and other liabilities	9,074		121		13		—			9,208
Beneficial interests issued by consolidated VIEs	—		6		39		—			45
Long-term debt	—		31,394		16,125		—			47,519
Total liabilities measured at fair value on a recurring basis	$	74,702	$	597,700	$	32,271	$	(493,029	)	$	211,644

(a) At December 31, 2018 and 2017, included total U.S. government-sponsored enterprise obligations of $92.3 billion and $78.0 billion, respectively, which were predominantly mortgage-related.

(b) At December 31, 2018 and 2017, included within trading loans were $13.2 billion and $11.4 billion, respectively, of residential first-lien mortgages, and $2.3 billion and $4.2 billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with the intent to sell to U.S. government agencies of $7.6 billion and $5.7 billion, respectively, and reverse mortgages of zero and $836 million, respectively.

(c) Physical commodities inventories are generally accounted for at the lower of cost or net realizable value. “Net realizable value” is a term defined in U.S. GAAP as not exceeding fair value less costs to sell (“transaction costs”). Transaction costs for the Firm’s physical commodities inventories are either not applicable or immaterial to the value of the inventory. Therefore, net realizable value approximates fair value for the Firm’s physical commodities inventories. When fair value hedging has been applied (or when net realizable value is below cost), the carrying value of physical commodities approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. For a further discussion of the Firm’s hedge accounting relationships, refer to Note 5. To provide consistent fair value disclosure information, all physical commodities inventories have been included in each period presented.

(d) Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions).

(e) As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally enforceable master netting agreement exists. For purposes of the tables above, the Firm does not reduce derivative receivables and derivative payables balances for this netting adjustment, either within or across the levels of the fair value hierarchy, as such netting is not relevant to a presentation based on the transparency of inputs to the valuation of an asset or liability. The level 3 balances would be reduced if netting were applied, including the netting benefit associated with cash collateral.

(f) Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be classified in the fair value hierarchy. At December 31, 2018 and 2017, the fair values of these investments, which include certain hedge funds, private equity funds, real estate and other funds, were $747 million and $779 million, respectively. Included in these balances at December 31, 2018 and 2017, were trading assets of $49 million and $54 million, respectively, and other assets of $698 million and $725 million, respectively.

(g)

Effective January 1, 2018, the Firm adopted the recognition and measurement guidance. Equity securities that were previously reported as AFS securities were reclassified to other assets upon adoption. Level 3 valuations

The Firm has established well-structured processes for determining fair value, including for instruments where fair value is estimated using significant unobservable inputs (level 3). For further information on the Firm’s valuation process and a detailed discussion of the determination of fair value for individual financial instruments, refer to pages 159–163 of this Note.

Estimating fair value requires the application of judgment. The type and level of judgment required is largely dependent on the amount of observable market information available to the Firm. For instruments valued using internally developed valuation models and other valuation techniques that use significant unobservable inputs and are therefore classified within level 3 of the fair value hierarchy, judgments used to estimate fair value are more significant than those required when estimating the fair value of instruments classified within levels 1 and 2.

In arriving at an estimate of fair value for an instrument within level 3, management must first determine the appropriate valuation model or other valuation technique to use. Second, due to the lack of observability of significant inputs, management must assess all relevant empirical data in deriving valuation inputs including transaction details, yield curves, interest rates, prepayment speed, default rates, volatilities, correlations, equity or debt prices, valuations of comparable instruments, foreign exchange rates and credit curves.

The following table presents the Firm’s primary level 3 financial instruments, the valuation techniques used to measure the fair value of those financial instruments, the significant unobservable inputs, the range of values for those inputs and, for certain instruments, the weighted averages of such inputs. While the determination to classify an instrument within level 3 is based on the significance of the unobservable inputs to the overall fair value measurement, level 3 financial instruments typically include observable components (that is, components that are actively quoted and can be validated to external sources) in addition to the unobservable components. The level 1 and/or level 2 inputs are not included in the table. In addition, the Firm manages the risk of the observable components of level 3 financial instruments using securities and derivative positions that are classified within levels 1 or 2 of the fair value hierarchy.

The range of values presented in the table is representative of the highest and lowest level input used to value the significant groups of instruments within a product/instrument classification. Where provided, the weighted averages of the input values presented in the table are calculated based on the fair value of the instruments that the input is being used to value.

In the Firm’s view, the input range and the weighted average value do not reflect the degree of input uncertainty or an assessment of the reasonableness of the Firm’s estimates and assumptions. Rather, they reflect the characteristics of the various instruments held by the Firm and the relative distribution of instruments within the range of characteristics. For example, two option contracts may have similar levels of market risk exposure and valuation uncertainty, but may have significantly different implied volatility levels because the option contracts have different underlyings, tenors, or strike prices. The input range and weighted average values will therefore vary from period-to-period and parameter-to-parameter based on the characteristics of the instruments held by the Firm at each balance sheet date.

For the Firm’s derivatives and structured notes positions classified within level 3 at December 31, 2018, interest rate correlation inputs used in estimating fair value were concentrated towards the upper end of the range; equity correlation, equity-FX and equity-IR correlation inputs were concentrated in the middle of the range; commodity correlation inputs were concentrated in the middle of the range; credit correlation inputs were concentrated towards the lower end of the range; and the interest rate-foreign exchange (“IR-FX”) correlation inputs were distributed across the range. In addition, the interest rate spread volatility inputs used in estimating fair value were distributed across the range; equity volatilities and commodity volatilities were concentrated in the middle of the range; and forward commodity prices used in estimating the fair value of commodity derivatives were concentrated towards the lower end of the range. Recovery rate inputs used in estimating the fair value of credit derivatives were distributed across the range; credit spreads and conditional default rates were concentrated towards the lower end of the range; loss severity and price inputs were concentrated towards the upper end of the range.

Level 3 inputs(a)
December 31, 2018
Product/Instrument	Fair value (in millions)			Principal valuation technique	Unobservable inputs(g)	Range of input values					Weighted average
Residential mortgage-backed securities and loans(b)	$	858		Discounted cash flows	Yield	0		%	–	19%	6%
					Prepayment speed	0		%	–	24%	9%
					Conditional default rate	0		%	–	9%	1%
					Loss severity	0		%	–	100%	6%
Commercial mortgage-backed securities and loans(c)	419			Market comparables	Price	$	0		–	$103	$90
Obligations of U.S. states and municipalities	689			Market comparables	Price	$	62		–	$100	$96
Corporate debt securities	334			Market comparables	Price	$	0		–	$107	$57
Loans(d)	234			Discounted cash flows	Yield	8%					8%
	942			Market comparables	Price	$	2		–	$101	$78
Asset-backed securities	127			Market comparables	Price	$	1		–	$102	$67
Net interest rate derivatives	(180		)	Option pricing	Interest rate spread volatility	16		bps	–	38bps
					Interest rate correlation	(45		)%	–	97%
					IR-FX correlation	45		%	–	60%
	142			Discounted cash flows	Prepayment speed	4		%	–	30%
Net credit derivatives	(163		)	Discounted cash flows	Credit correlation	25		%	–	55%
					Credit spread	10		bps	–	1,487bps
					Recovery rate	20		%	–	70%
					Conditional default rate	3		%	–	72%
					Loss severity	100%
	56			Market comparables	Price	$	1		–	$115
Net foreign exchange derivatives	(122		)	Option pricing	IR-FX correlation	(45		)%	–	60%
	(175		)	Discounted cash flows	Prepayment speed	8		%	–	9%
Net equity derivatives	(2,225		)	Option pricing	Equity volatility	14		%	–	57%
					Equity correlation	20		%	–	98%
					Equity-FX correlation	(75		)%	–	61%
					Equity-IR correlation	20		%	–	60%
Net commodity derivatives	(1,129		)	Option pricing	Forward commodity price	$	39		–	$56 per barrel
					Commodity volatility	5		%	–	68%
					Commodity correlation	(51		)%	–	95%
MSRs	6,130			Discounted cash flows	Refer to Note 15
Other assets	306			Discounted cash flows	Credit spread	55bps					55bps
					Yield	8%			–	10%	8%
	922			Market comparables	Price	$	20			$108	$40
					EBITDA multiple	2.9x			–	8.3x	7.5x
Long-term debt, short-term borrowings, and deposits(e)	25,110			Option pricing	Interest rate spread volatility	16		bps	–	38bps
					Interest rate correlation	(45		)%	–	97%
					IR-FX correlation	(45		)%	–	60%
					Equity correlation	20		%	–	98%
					Equity-FX correlation	(75		)%	–	61%
					Equity-IR correlation	20		%	–	60%
Other level 3 assets and liabilities, net(f)	326

(a) The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated balance sheets. Furthermore, the inputs presented for each valuation technique in the table are, in some cases, not applicable to every instrument valued using the technique as the characteristics of the instruments can differ.

(b) Includes U.S. government agency securities of $541 million, nonagency securities of $65 million and trading loans of $252 million.

(c) Includes U.S. government agency securities of $8 million, nonagency securities of $11 million, trading loans of $278 million and non-trading loans of $122 million.

(d) Comprises trading loans.

(e) Long-term debt, short-term borrowings and deposits include structured notes issued by the Firm that are financial instruments that typically contain embedded derivatives. The estimation of the fair value of structured notes includes the derivative features embedded within the instrument. The significant unobservable inputs are broadly consistent with those presented for derivative receivables.

(f) Includes level 3 assets and liabilities that are insignificant both individually and in aggregate.

(g) Price is a significant unobservable input for certain instruments. When quoted market prices are not readily available, reliance is generally placed on price-based internal valuation techniques. The price input is expressed assuming a par value of $100.

Changes in and ranges of unobservable inputs

The following discussion provides a description of the impact on a fair value measurement of a change in each unobservable input in isolation, and the interrelationship between unobservable inputs, where relevant and significant. The impact of changes in inputs may not be independent, as a change in one unobservable input may give rise to a change in another unobservable input. Where relationships do exist between two unobservable inputs, those relationships are discussed below. Relationships may also exist between observable and unobservable inputs (for example, as observable interest rates rise, unobservable prepayment rates decline); such relationships have not been included in the discussion below. In addition, for each of the individual relationships described below, the inverse relationship would also generally apply.

The following discussion also provides a description of attributes of the underlying instruments and external market factors that affect the range of inputs used in the valuation of the Firm’s positions.

Yield – The yield of an asset is the interest rate used to discount future cash flows in a discounted cash flow calculation. An increase in the yield, in isolation, would result in a decrease in a fair value measurement.

Credit spread – The credit spread is the amount of additional annualized return over the market interest rate that a market participant would demand for taking exposure to the credit risk of an instrument. The credit spread for an instrument forms part of the discount rate used in a discounted cash flow calculation. Generally, an increase in the credit spread would result in a decrease in a fair value measurement.

The yield and the credit spread of a particular mortgage-backed security primarily reflect the risk inherent in the instrument. The yield is also impacted by the absolute level of the coupon paid by the instrument (which may not correspond directly to the level of inherent risk). Therefore, the range of yield and credit spreads reflects the range of risk inherent in various instruments owned by the Firm. The risk inherent in mortgage-backed securities is driven by the subordination of the security being valued and the characteristics of the underlying mortgages within the collateralized pool, including borrower FICO scores, LTV ratios for residential mortgages and the nature of the property and/or any tenants for commercial mortgages. For corporate debt securities, obligations of U.S. states and municipalities and other similar instruments, credit spreads reflect the credit quality of the obligor and the tenor of the obligation.

Prepayment speed – The prepayment speed is a measure of the voluntary unscheduled principal repayments of a prepayable obligation in a collateralized pool. Prepayment speeds generally decline as borrower delinquencies rise. An increase in prepayment speeds, in isolation, would result in a decrease in a fair value measurement of assets valued at a premium to par and an increase in a fair value measurement of assets valued at a discount to par.

Prepayment speeds may vary from collateral pool to collateral pool, and are driven by the type and location of the

underlying borrower, and the remaining tenor of the obligation as well as the level and type (e.g., fixed or floating) of interest rate being paid by the borrower. Typically collateral pools with higher borrower credit quality have a higher prepayment rate than those with lower borrower credit quality, all other factors being equal.

Conditional default rate – The conditional default rate is a measure of the reduction in the outstanding collateral balance underlying a collateralized obligation as a result of defaults. While there is typically no direct relationship between conditional default rates and prepayment speeds, collateralized obligations for which the underlying collateral has high prepayment speeds will tend to have lower conditional default rates. An increase in conditional default rates would generally be accompanied by an increase in loss severity and an increase in credit spreads. An increase in the conditional default rate, in isolation, would result in a decrease in a fair value measurement. Conditional default rates reflect the quality of the collateral underlying a securitization and the structure of the securitization itself. Based on the types of securities owned in the Firm’s market-making portfolios, conditional default rates are most typically at the lower end of the range presented.

Loss severity – The loss severity (the inverse concept is the recovery rate) is the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding loan balance. An increase in loss severity is generally accompanied by an increase in conditional default rates. An increase in the loss severity, in isolation, would result in a decrease in a fair value measurement.

The loss severity applied in valuing a mortgage-backed security investment depends on factors relating to the underlying mortgages, including the LTV ratio, the nature of the lender’s lien on the property and other instrument-specific factors.

Correlation – Correlation is a measure of the relationship between the movements of two variables (e.g., how the change in one variable influences the change in the other). Correlation is a pricing input for a derivative product where the payoff is driven by one or more underlying risks. Correlation inputs are related to the type of derivative (e.g., interest rate, credit, equity, foreign exchange and commodity) due to the nature of the underlying risks. When parameters are positively correlated, an increase in one parameter will result in an increase in the other parameter. When parameters are negatively correlated, an increase in one parameter will result in a decrease in the other parameter. An increase in correlation can result in an increase or a decrease in a fair value measurement. Given a short correlation position, an increase in correlation, in isolation, would generally result in a decrease in a fair value measurement.

The level of correlation used in the valuation of derivatives with multiple underlying risks depends on a number of factors including the nature of those risks. For example, the correlation between two credit risk exposures would be different than that between two interest rate risk exposures. Similarly, the tenor of the transaction may also impact the correlation input, as the relationship between the underlying risks may be different over different time periods. Furthermore, correlation levels are very much dependent on market conditions and could have a relatively wide range of levels within or across asset classes over time, particularly in volatile market conditions.

Volatility – Volatility is a measure of the variability in possible returns for an instrument, parameter or market index given how much the particular instrument, parameter or index changes in value over time. Volatility is a pricing input for options, including equity options, commodity options, and interest rate options. Generally, the higher the volatility of the underlying, the riskier the instrument. Given a long position in an option, an increase in volatility, in isolation, would generally result in an increase in a fair value measurement.

The level of volatility used in the valuation of a particular option-based derivative depends on a number of factors, including the nature of the risk underlying the option (e.g., the volatility of a particular equity security may be significantly different from that of a particular commodity index), the tenor of the derivative as well as the strike price of the option.

EBITDA multiple – EBITDA multiples refer to the input (often derived from the value of a comparable company) that is multiplied by the historic and/or expected earnings before interest, taxes, depreciation and amortization (“EBITDA”) of a company in order to estimate the company’s value. An increase in the EBITDA multiple, in isolation, net of adjustments, would result in an increase in a fair value measurement.

Changes in level 3 recurring fair value measurements

The following tables include a rollforward of the Consolidated balance sheets amounts (including changes in fair value) for financial instruments classified by the Firm within level 3 of the fair value hierarchy for the years ended December 31, 2018, 2017 and 2016. When a determination is made to classify a financial instrument within level 3, the determination is based on the significance of the unobservable inputs to the overall fair value measurement. However, level 3 financial instruments typically include, in addition to the unobservable or level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources); accordingly, the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology. Also, the Firm risk-manages the observable components of level 3 financial instruments using securities and derivative positions that are classified within level 1 or 2 of the fair value hierarchy; as these level 1 and level 2 risk management instruments are not included below, the gains or losses in the following tables do not reflect the effect of the Firm’s risk management activities related to such level 3 instruments.

	Fair value measurements using significant unobservable inputs
Year ended December 31, 2018 (in millions)	Fair value at January 1, 2018			Total realized/unrealized gains/(losses)															Transfers into level 3(h)			Transfers (out of) level 3(h)			Fair value at Dec. 31, 2018			Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2018
								Purchases(f)			Sales					Settlements(g)
Assets:(a)
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies	$	307		$	(23	)		$	478		$	(164	)			$	(73	)	$	94		$	(70	)	$	549		$	(21	)
Residential – nonagency	60			(2		)		78			(50		)			(7		)	59			(74		)	64			1
Commercial – nonagency	11			2				18			(18		)			(17		)	36			(21		)	11			(2		)
Total mortgage-backed securities	378			(23		)		574			(232		)			(97		)	189			(165		)	624			(22		)
U.S. Treasury and government agencies	1			—				—			—					—			—			(1		)	—			—
Obligations of U.S. states and municipalities	744			(17		)		112			(70		)			(80		)	—			—			689			(17		)
Non-U.S. government debt securities	78			(22		)		459			(277		)			(12		)	23			(94		)	155			(9		)
Corporate debt securities	312			(18		)		364			(309		)			(48		)	262			(229		)	334			(1		)
Loans	2,719			26				1,364			(1,793		)			(658		)	813			(765		)	1,706			(1		)
Asset-backed securities	153			28				98			(41		)			(55		)	45			(101		)	127			22
Total debt instruments	4,385			(26		)		2,971			(2,722		)			(950		)	1,332			(1,355		)	3,635			(28		)
Equity securities	295			(40		)		118			(120		)			(1		)	107			(127		)	232			9
Other	690			(285		)		55			(40		)			(118		)	3			(4		)	301			(301		)
Total trading assets – debt and equity instruments	5,370			(351		)	(c)	3,144			(2,882		)			(1,069		)	1,442			(1,486		)	4,168			(320		)	(c)
Net derivative receivables:(b)
Interest rate	264			150				107			(133		)			(430		)	(15		)	19			(38		)	187
Credit	(35		)	(40		)		5			(7		)			(57		)	4			23			(107		)	(28		)
Foreign exchange	(396		)	103				52			(20		)			30			(108		)	42			(297		)	(63		)
Equity	(3,409		)	198				1,676			(2,208		)			1,805			(617		)	330			(2,225		)	561
Commodity	(674		)	(73		)		1			(72		)			(301		)	7			(17		)	(1,129		)	146
Total net derivative receivables	(4,250		)	338			(c)	1,841			(2,440		)			1,047			(729		)	397			(3,796		)	803			(c)
Available-for-sale securities:
Mortgage-backed securities	1			—				—			—					—			—			—			1			—
Asset-backed securities	276			1				—			—					(277		)	—			—			—			—
Total available-for-sale securities	277			1			(d)	—			—					(277		)	—			—			1			—
Loans	276			(7		)	(c)	123			—					(196		)	—			(74		)	122			(7		)	(c)
Mortgage servicing rights	6,030			230			(e)	1,246			(636		)			(740		)	—			—			6,130			230			(e)
Other assets	1,265			(328		)	(c)	61			(37		)			(37		)	4			(1		)	927			(340		)	(c)
	Fair value measurements using significant unobservable inputs
Year ended December 31, 2018 (in millions)	Fair value at January 1, 2018			Total realized/unrealized (gains)/losses																		Transfers (out of) level 3(h)			Fair value at Dec. 31, 2018			Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2018
								Purchases			Sales			Issuances		Settlements(g)			Transfers into level 3(h)
Liabilities:(a)
Deposits	$	4,142		$	(136	)	(c)(i)	$	—		$	—		$	1,437	$	(736	)	$	2		$	(540	)	$	4,169		$	(204	)	(c)(i)
Federal funds purchased and securities loaned or sold under repurchase agreements	—			—				—			—			—		—			—			—			—			—
Short-term borrowings	1,665			(329		)	(c)(i)	—			—			3,455		(3,388		)	272			(152		)	1,523			(131		)	(c)(i)
Trading liabilities – debt and equity instruments	39			19			(c)	(99		)	114			—		(1		)	14			(36		)	50			16			(c)
Accounts payable and other liabilities	13			—				(12		)	5			—		—			4			—			10			—
Beneficial interests issued by consolidated VIEs	39			—				—			1			—		(39		)	—			—			1			—
Long-term debt	16,125			(1,169		)	(c)(i)	—			—			11,919		(7,769		)	1,143			(831		)	19,418			(1,385		)	(c)(i)

	Fair value measurements using significant unobservable inputs
Year ended December 31, 2017 (in millions)	Fair value at January 1, 2017			Total realized/unrealized gains/(losses)																		Transfers (out of) level 3(h)			Fair value at Dec. 31, 2017			Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2017
								Purchases(f)			Sales					Settlements(g)			Transfers into level 3(h)
Assets:(a)
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies	$	392		$	(11	)		$	161		$	(171	)			$	(70	)	$	49		$	(43	)	$	307		$	(20	)
Residential – nonagency	83			19				53			(30		)			(64		)	132			(133		)	60			11
Commercial – nonagency	17			9				27			(44		)			(13		)	64			(49		)	11			1
Total mortgage-backed securities	492			17				241			(245		)			(147		)	245			(225		)	378			(8		)
U.S. Treasury and government agencies	—			—				—			—					—			1			—			1			—
Obligations of U.S. states and municipalities	649			18				152			(70		)			(5		)	—			—			744			15
Non-U.S. government debt securities	46			—				559			(518		)			—			62			(71		)	78			—
Corporate debt securities	576			11				872			(612		)			(497		)	157			(195		)	312			18
Loans	4,837			333				2,389			(2,832		)			(1,323		)	806			(1,491		)	2,719			43
Asset-backed securities	302			32				354			(356		)			(56		)	75			(198		)	153			—
Total debt instruments	6,902			411				4,567			(4,633		)			(2,028		)	1,346			(2,180		)	4,385			68
Equity securities	231			39				176			(148		)			(4		)	59			(58		)	295			21
Other	761			100				30			(46		)			(162		)	17			(10		)	690			39
Total trading assets – debt and equity instruments	7,894			550			(c)	4,773			(4,827		)			(2,194		)	1,422			(2,248		)	5,370			128			(c)
Net derivative receivables:(b)	—
Interest rate	1,263			72				60			(82		)			(1,040		)	(8		)	(1		)	264			(473		)
Credit	98			(164		)		1			(6		)			—			77			(41		)	(35		)	32
Foreign exchange	(1,384		)	43				13			(10		)			854			(61		)	149			(396		)	42
Equity	(2,252		)	(417		)		1,116			(551		)			(245		)	(1,482		)	422			(3,409		)	(161		)
Commodity	(85		)	(149		)		—			—					(433		)	(6		)	(1		)	(674		)	(718		)
Total net derivative receivables	(2,360		)	(615		)	(c)	1,190			(649		)			(864		)	(1,480		)	528			(4,250		)	(1,278		)	(c)
Available-for-sale securities:																									—
Mortgage-backed securities	1			—				—			—					—			—			—			1			—
Asset-backed securities	663			15				—			(50		)			(352		)	—			—			276			14
Total available-for-sale securities	664			15			(d)	—			(50		)			(352		)	—			—			277			14			(d)
Loans	570			35			(c)	—			(26		)			(303		)	—			—			276			3			(c)
Mortgage servicing rights	6,096			(232		)	(e)	1,103			(140		)			(797		)	—			—			6,030			(232		)	(e)
Other assets	2,223			244			(c)	66			(177		)			(870		)	—			(221		)	1,265			74			(c)
	Fair value measurements using significant unobservable inputs
Year ended December 31, 2017 (in millions)	Fair value at January 1, 2017			Total realized/unrealized (gains)/losses																		Transfers (out of) level 3(h)			Fair value at Dec. 31, 2017			Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2017
								Purchases			Sales			Issuances		Settlements(g)			Transfers into level 3(h)
Liabilities:(a)
Deposits	$	2,117		$	152		(c)(i)	$	—		$	—		$	3,027	$	(291	)	$	11		$	(874	)	$	4,142		$	198		(c)(i)
Federal funds purchased and securities loaned or sold under repurchase agreements	—			—				—			—			—		—			—			—			—			—
Short-term borrowings	1,134			42			(c)(i)	—			—			3,289		(2,748		)	150			(202		)	1,665			7			(c)(i)
Trading liabilities – debt and equity instruments	43			(3		)	(c)	(46		)	48			—		3			3			(9		)	39			—
Accounts payable and other liabilities	13			(2		)		(1		)	—			—		3			—			—			13			(2		)
Beneficial interests issued by consolidated VIEs	48			2			(c)	(122		)	39			—		(6		)	78			—			39			—
Long-term debt	12,850			1,067			(c)(i)	—			—			12,458		(10,985		)	1,660			(925		)	16,125			552			(c)(i)

	Fair value measurements using significant unobservable inputs
Year ended December 31, 2016 (in millions)	Fair value at January 1, 2016			Total realized/unrealized gains/(losses)																		Transfers (out of) level 3(h)			Fair value at Dec. 31, 2016			Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2016
								Purchases(f)			Sales					Settlements(g)			Transfers into level 3(h)
Assets:(a)
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. government agencies	$	715		$	(20	)		$	135		$	(295	)			$	(115	)	$	111		$	(139	)	$	392		$	(36	)
Residential – nonagency	194			4				252			(319		)			(20		)	67			(95		)	83			5
Commercial – nonagency	115			(11		)		69			(29		)			(3		)	173			(297		)	17			3
Total mortgage-backed securities	1,024			(27		)		456			(643		)			(138		)	351			(531		)	492			(28		)
Obligations of U.S. states and municipalities	651			19				149			(132		)			(38		)	—			—			649			—
Non-U.S. government debt securities	74			(4		)		91			(97		)			(7		)	19			(30		)	46			(7		)
Corporate debt securities	736			2				445			(359		)			(189		)	148			(207		)	576			(22		)
Loans	6,604			(343		)		2,228			(2,598		)			(1,311		)	1,044			(787		)	4,837			(169		)
Asset-backed securities	1,832			39				655			(712		)			(968		)	288			(832		)	302			19
Total debt instruments	10,921			(314		)		4,024			(4,541		)			(2,651		)	1,850			(2,387		)	6,902			(207		)
Equity securities	265			—				90			(108		)			(40		)	29			(5		)	231			7
Physical commodities	—			—				—			—					—			—			—			—			—
Other	744			79				649			(287		)			(360		)	26			(90		)	761			28
Total trading assets – debt and equity instruments	11,930			(235		)	(c)	4,763			(4,936		)			(3,051		)	1,905			(2,482		)	7,894			(172		)	(c)
Net derivative receivables:(b)
Interest rate	876			756				193			(57		)			(713		)	(14		)	222			1,263			(144		)
Credit	549			(742		)		10			(2		)			211			36			36			98			(622		)
Foreign exchange	(725		)	67				64			(124		)			(649		)	(48		)	31			(1,384		)	(350		)
Equity	(1,514		)	(145		)		277			(852		)			213			94			(325		)	(2,252		)	(86		)
Commodity	(935		)	194				1			10					645			8			(8		)	(85		)	(36		)
Total net derivative receivables	(1,749		)	130			(c)	545			(1,025		)			(293		)	76			(44		)	(2,360		)	(1,238		)	(c)
Available-for-sale securities:
Mortgage-backed securities	1			—				—			—					—			—			—			1			—
Asset-backed securities	823			1				—			—					(119		)	—			(42		)	663			1
Total available-for-sale securities	824			1			(d)	—			—					(119		)	—			(42		)	664			1			(d)
Loans	1,518			(49		)	(c)	259			(7		)			(838		)	—			(313		)	570			—
Mortgage servicing rights	6,608			(163		)	(e)	679			(109		)			(919		)	—			—			6,096			(163		)	(e)
Other assets	2,401			130			(c)	487			(496		)			(299		)	—			—			2,223			48			(c)
	Fair value measurements using significant unobservable inputs
Year ended December 31, 2016 (in millions)	Fair value at January 1, 2016			Total realized/unrealized (gains)/losses															Transfers into level 3(h)			Transfers (out of) level 3(h)			Fair value at Dec. 31, 2016			Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2016
								Purchases			Sales			Issuances		Settlements(g)
Liabilities:(a)
Deposits	$	2,950		$	(56	)	(c)	$	—		$	—		$	1,375	$	(1,283	)	$	—		$	(869	)	$	2,117		$	23		(c)
Federal funds purchased and securities loaned or sold under repurchase agreements	—			—				—			—			—		(2		)	6			(4		)	—			—
Short-term borrowings	639			(230		)	(c)	—			—			1,876		(1,210		)	114			(55		)	1,134			(70		)	(c)
Trading liabilities – debt and equity instruments	63			(12		)	(c)	(15		)	23			—		(22		)	13			(7		)	43			(18		)	(c)
Accounts payable and other liabilities	19			—				—			—			—		(6		)	—			—			13			—
Beneficial interests issued by consolidated VIEs	549			(31		)	(c)	—			—			143		(613		)	—			—			48			6			(c)
Long-term debt	11,447			147			(c)	—			—			8,140		(5,810		)	315			(1,389		)	12,850			639			(c)

(a) Level 3 assets as a percentage of total Firm assets accounted for at fair value (including assets measured at fair value on a nonrecurring basis) were 3%, 3% and 4% at December 31, 2018, 2017 and 2016 respectively. Level 3 liabilities as a percentage of total Firm liabilities accounted for at fair value (including liabilities measured at fair value on a nonrecurring basis) were 15%, 15% and 12% at December 31, 2018, 2017 and 2016, respectively.

(b) All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty.

(c) Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans, and lending-related commitments originated with the intent to sell, and mortgage loan purchase commitments, which are reported in mortgage fees and related income.

(d) Realized gains/(losses) on AFS securities, as well as other-than-temporary impairment (“OTTI”) losses that are recorded in earnings, are reported in investment securities gains/(losses). Unrealized gains/(losses) are reported in OCI. Realized gains/(losses) and foreign exchange hedge accounting adjustments recorded in income on AFS securities were $1 million, zero and zero for the years ended December 31, 2018, 2017 and 2016, respectively. Unrealized gains/(losses) recorded on AFS securities in OCI were zero, $15 million and $1 million for the years ended December 31, 2018, 2017 and 2016, respectively.

(e) Changes in fair value for MSRs are reported in mortgage fees and related income.

(f) Loan originations are included in purchases.

(g) Includes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, deconsolidations associated with beneficial interests in VIEs and other items.

(h) All transfers into and/or out of level 3 are based on changes in the observability and/or significance of the valuation inputs and are assumed to occur at the beginning of the quarterly reporting period in which they occur.

(i) Realized (gains)/losses due to DVA for fair value option elected liabilities are reported in principal transactions revenue, and they were not material for the years ended December 31, 2018 and 2017, respectively. Unrealized (gains)/losses are reported in OCI, and they were $(277) million and $(48) million for the years ended December 31, 2018 and 2017, respectively.

Level 3 analysis

Consolidated balance sheets changes

Level 3 assets (including assets measured at fair value on a nonrecurring basis) were 0.7% of total Firm assets at December 31, 2018. The following describes significant changes to level 3 assets since December 31, 2017, for those items measured at fair value on a recurring basis. For further information on changes impacting items measured at fair value on a nonrecurring basis, refer to Assets and liabilities measured at fair value on a nonrecurring basis on page 176.

For the year ended December 31, 2018

Level 3 assets were $17.2 billion at December 31, 2018, reflecting a decrease of $2.1 billion from December 31, 2017, largely due to:

• $1.2 billion decrease in trading assets — debt and equity instruments predominantly driven by a decrease of $1.0 billion in trading loans primarily due to settlements and net sales.

Transfers between levels for instruments carried at

fair value on a recurring basis

During the year ended December 31, 2018, transfers from level 3 into level 2 included the following:

• $1.5 billion of total debt and equity instruments, the majority of which were trading loans, driven by an increase in observability.

• $1.2 billion of gross equity derivative receivables and $1.5 billion of gross equity derivative payables as a result of an increase in observability and a decrease in the significance of unobservable inputs.

During the year ended December 31, 2018, transfers from level 2 into level 3 included the following:

• $1.4 billion of total debt and equity instruments, the majority of which were trading loans, driven by a decrease in observability.

• $1.0 billion of gross equity derivative receivables and $1.6 billion of gross equity derivative payables as a result of a decrease in observability and an increase in the significance of unobservable inputs.

• $1.1 billion of long-term debt driven by a decrease in observability and an increase in the significance of unobservable inputs for certain structured notes.

During the year ended December 31, 2017, transfers from level 3 into level 2 included the following:

• $1.5 billion of trading loans driven by an increase in observability.

• $1.2 billion of gross equity derivative payables as a result of an increase in observability and a decrease in the significance of unobservable inputs.

During the year ended December 31, 2017, transfers from level 2 into level 3 included the following:

• $1.0 billion of gross equity derivative receivables and $2.5 billion of gross equity derivative payables as a result of a decrease in observability and an increase in the significance of unobservable inputs.

• $1.7 billion of long-term debt driven by a decrease in observability and an increase in the significance of unobservable inputs for certain structured notes.

During the year ended December 31, 2016, transfers from level 3 into level 2 included the following:

• $1.4 billion of long-term debt driven by an increase in observability and a reduction in the significance of unobservable inputs for certain structured notes.

During the year ended December 31, 2016, transfers from level 2 into level 3 included the following:

• $1.1 billion of gross equity derivative receivables and $1.0 billion of gross equity derivative payables as a result of an decrease in observability and an increase in the significance of unobservable inputs.

• $1.0 billion of trading loans driven by a decrease in observability.

All transfers are based on changes in the observability and/or significance of the valuation inputs and are assumed to occur at the beginning of the quarterly reporting period in which they occur.

Gains and losses

The following describes significant components of total realized/unrealized gains/(losses) for instruments measured at fair value on a recurring basis for the years ended December 31, 2018, 2017 and 2016. For further information on these instruments, refer to Changes in level 3 recurring fair value measurements rollforward tables on pages 170-174.

2018

• $1.6 billion of net gains on liabilities largely driven by market movements in long-term debt.

2017

• $1.3 billion of net losses on liabilities predominantly driven by market movements in long-term debt.

2016

•

There were no individually significant movements for the year ended December 31, 2016.Credit and funding adjustments – derivatives

Derivatives are generally valued using models that use as their basis observable market parameters. These market parameters generally do not consider factors such as counterparty nonperformance risk, the Firm’s own credit quality, and funding costs. Therefore, it is generally necessary to make adjustments to the base estimate of fair value to reflect these factors.

CVA represents the adjustment, relative to the relevant benchmark interest rate, necessary to reflect counterparty nonperformance risk. The Firm estimates CVA using a scenario analysis to estimate the expected positive credit exposure across all of the Firm’s existing positions with each counterparty, and then estimates losses based on the probability of default and estimated recovery rate as a result of a counterparty credit event considering contractual factors designed to mitigate the Firm’s credit exposure, such as collateral and legal rights of offset. The key inputs to this methodology are (i) the probability of a default event occurring for each counterparty, as derived from observed or estimated CDS spreads; and (ii) estimated recovery rates implied by CDS spreads, adjusted to consider the differences in recovery rates as a derivative creditor relative to those reflected in CDS spreads, which generally reflect senior unsecured creditor risk.

FVA represents the adjustment to reflect the impact of funding and is recognized where there is evidence that a market participant in the principal market would incorporate it in a transfer of the instrument. The Firm’s FVA framework, applied to uncollateralized (including partially collateralized) over-the-counter (“OTC”) derivatives incorporates key inputs such as: (i) the expected funding requirements arising from the Firm’s positions with

each counterparty and collateral arrangements; and (ii) the estimated market funding cost in the principal market which, for derivative liabilities, considers the Firm’s credit risk (DVA). For collateralized derivatives, the fair value is estimated by discounting expected future cash flows at the relevant overnight indexed swap rate given the underlying collateral agreement with the counterparty, and therefore a separate FVA is not necessary.

The following table provides the impact of credit and funding adjustments on principal transactions revenue in the respective periods, excluding the effect of any associated hedging activities. The FVA presented below includes the impact of the Firm’s own credit quality on the inception value of liabilities as well as the impact of changes in the Firm’s own credit quality over time.

Year ended December 31, (in millions)	2018			2017			2016
Credit and funding adjustments:
Derivatives CVA	$	193		$	802		$	(84	)
Derivatives FVA	(74		)	(295		)	7

Valuation adjustments on fair value option elected liabilities

The valuation of the Firm’s liabilities for which the fair value option has been elected requires consideration of the Firm’s own credit risk. DVA on fair value option elected liabilities reflects changes (subsequent to the issuance of the liability) in the Firm’s probability of default and LGD, which are estimated based on changes in the Firm’s credit spread observed in the bond market. Realized (gains)/losses due to DVA for fair value option elected liabilities are reported in principal transactions revenue. Unrealized (gains)/losses are reported in OCI. Refer to page 174 in this Note and Note 23 for further information.

Assets and liabilities measured at fair value on a nonrecurring basis

The following tables present the assets held as of December 31, 2018 and 2017, respectively, for which a nonrecurring fair value adjustment was recorded during the years ended December 31, 2018 and 2017, respectively, by major product category and fair value hierarchy.

	Fair value hierarchy							Total fair value
December 31, 2018 (in millions)	Level 1		Level 2		Level 3
Loans	$	—	$	273	$	264	(b)	$	537
Other assets(a)	—		8		815			823
Total assets measured at fair value on a nonrecurring basis	$	—	$	281	$	1,079		$	1,360

	Fair value hierarchy						Total fair value
December 31, 2017 (in millions)	Level 1		Level 2		Level 3
Loans	$	—	$	238	$	596	$	834
Other assets	—		283		183		466
Total assets measured at fair value on a nonrecurring basis	$	—	$	521	$	779	$	1,300

(a) Primarily includes equity securities without readily determinable fair values that were adjusted based on observable price changes in orderly transactions from an identical or similar investment of the same issuer (measurement alternative) as a result of the adoption of the recognition and measurement guidance. Of the $815 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2018, $667 million related to such equity securities. These equity securities are classified as level 3 due to the infrequency of the observable prices and/or the restrictions on the shares.

(b) Of the $264 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2018, $225 million related to residential real estate loans carried at the net realizable value of the underlying collateral (e.g., collateral-dependent loans and other loans charged off in accordance with regulatory guidance). These amounts are classified as level 3 as they are valued using information from broker’s price opinions, appraisals and automated valuation models and discounted based upon the Firm’s experience with actual liquidation values. These discounts ranged from 13% to 54% with a weighted average of 25%.

There were no material liabilities measured at fair value on a nonrecurring basis at December 31, 2018 and 2017.

Nonrecurring fair value changes

The following table presents the total change in value of assets and liabilities for which a fair value adjustment has been recognized for the years ended December 31, 2018, 2017 and 2016, related to financial instruments held at those dates.

December 31, (in millions)	2018				2017			2016
Loans	$	(68	)		$	(159	)	$	(209	)
Other assets	132			(a)	(148		)	37
Accounts payable and other liabilities	—				(1		)	—
Total nonrecurring fair value gains/(losses)	$	64			$	(308	)	$	(172	)

(a) Included $149 million for the year ended 2018 of net gains as a result of the measurement alternative.

For further information about the measurement of impaired collateral-dependent loans, and other loans where the carrying value is based on the fair value of the underlying collateral (e.g., residential mortgage loans charged off in accordance with regulatory guidance), refer to Note 12.

Equity securities without readily determinable fair values

As a result of the adoption of the recognition and measurement guidance and the election of the measurement alternative in the first quarter of 2018, the Firm measures certain equity securities without readily determinable fair values at cost less impairment (if any), plus or minus observable price changes from an identical or similar investment of the same issuer, with such changes recognized in other income.

In its determination of the new carrying values upon observable price changes, the Firm may adjust the prices if deemed necessary to arrive at the Firm’s estimated fair values. Such adjustments may include adjustments to reflect the different rights and obligations of similar securities, and other adjustments that are consistent with the Firm’s valuation techniques for private equity direct investments.

The following table presents the carrying value of equity securities without readily determinable fair values held as of December 31, 2018, that are measured under the measurement alternative and the related adjustments recorded during the periods presented for those securities with observable price changes. These securities are included in the nonrecurring fair value tables when applicable price changes are observable.

	As of or for the
(in millions)	Year ended  December 31, 2018
Other assets
Carrying value	$	1,510
Upward carrying value changes	309
Downward carrying value changes/impairment	(160		)

Included in other assets above is the Firm’s interest in approximately 40 million Visa Class B shares, recorded at a nominal carrying value. These shares are subject to certain transfer restrictions currently and will be convertible into Visa Class A shares upon final resolution of certain litigation matters involving Visa. The conversion rate of Visa Class B shares into Visa Class A shares is 1.6298 at December 31, 2018, and may be adjusted by Visa depending on developments related to the litigation matters. Additional disclosures about the fair value of financial instruments that are not carried on the Consolidated balance sheets at fair value

U.S. GAAP requires disclosure of the estimated fair value of certain financial instruments. Financial instruments within the scope of these disclosure requirements are included in the following table. However, certain financial instruments and all nonfinancial instruments are excluded from the scope of these disclosure requirements. Accordingly, the fair value disclosures provided in the following table include only a partial estimate of the fair value of JPMorgan Chase’s assets and liabilities. For example, the Firm has developed long-term relationships with its customers through its deposit base and credit card accounts, commonly referred to as core deposit intangibles and credit card relationships. In the opinion of management, these items, in the aggregate, add significant value to JPMorgan Chase, but their fair value is not disclosed in this Note.

Financial instruments for which carrying value approximates fair value

Certain financial instruments that are not carried at fair value on the Consolidated balance sheets are carried at amounts that approximate fair value, due to their short-term nature and generally negligible credit risk. These instruments include cash and due from banks, deposits with banks, federal funds sold, securities purchased under resale agreements and securities borrowed, short-term receivables and accrued interest receivable, short-term borrowings, federal funds purchased, securities loaned and sold under repurchase agreements, accounts payable, and accrued liabilities. In addition, U.S. GAAP requires that the fair value of deposit liabilities with no stated maturity (i.e., demand, savings and certain money market deposits) be equal to their carrying value; recognition of the inherent funding value of these instruments is not permitted.

The following table presents by fair value hierarchy classification the carrying values and estimated fair values at December 31, 2018 and 2017, of financial assets and liabilities, excluding financial instruments that are carried at fair value on a recurring basis, and their classification within the fair value hierarchy.

	December 31, 2018										December 31, 2017
			Estimated fair value hierarchy										Estimated fair value hierarchy
(in billions)	Carrying value		Level 1		Level 2		Level 3		Total estimated fair value		Carrying value		Level 1		Level 2		Level 3		Total estimated fair value
Financial assets
Cash and due from banks	$	22.3	$	22.3	$	—	$	—	$	22.3	$	25.9	$	25.9	$	—	$	—	$	25.9
Deposits with banks	256.5		256.5		—		—		256.5		405.4		401.8		3.6		—		405.4
Accrued interest and accounts receivable	72.0		—		71.9		0.1		72.0		67.0		—		67.0		—		67.0
Federal funds sold and securities purchased under resale agreements	308.4		—		308.4		—		308.4		183.7		—		183.7		—		183.7
Securities borrowed	106.9		—		106.9		—		106.9		102.1		—		102.1		—		102.1
Investment securities, held-to-maturity	31.4		—		31.5		—		31.5		47.7		—		48.7		—		48.7
Loans, net of allowance for loan losses(a)	968.0		—		241.5		728.5		970.0		914.6		—		213.2		707.1		920.3
Other(b)	60.5		—		59.6		1.0		60.6		53.9		—		52.1		9.2		61.3
Financial liabilities
Deposits	$	1,447.4	$	—	$	1,447.5	$	—	$	1,447.5	$	1,422.7	$	—	$	1,422.7	$	—	$	1,422.7
Federal funds purchased and securities loaned or sold under repurchase agreements	181.4		—		181.4		—		181.4		158.2		—		158.2		—		158.2
Short-term borrowings	62.1		—		62.1		—		62.1		42.6		—		42.4		0.2		42.6
Accounts payable and other liabilities	160.6		0.2		157.0		3.0		160.2		152.0		—		148.9		2.9		151.8
Beneficial interests issued by consolidated VIEs	20.2		—		20.2		—		20.2		26.0		—		26.0		—		26.0
Long-term debt and junior subordinated deferrable interest debentures	227.1		—		224.6		3.3		227.9		236.6		—		240.3		3.2		243.5

Effective January 1, 2018, the Firm adopted several new accounting standards. Certain of the new accounting standards were applied retrospectively and, accordingly, prior period amounts were revised. For additional information, refer to Note 1.

(a) Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal, contractual interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and primary origination or secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. The difference between the estimated fair value and carrying value of a financial asset or liability is the result of the different methodologies used to determine fair value as compared with carrying value. For example, credit losses are estimated for a financial asset’s remaining life in a fair value calculation but are estimated for a loss emergence period in the allowance for loan loss calculation; future loan income (interest and fees) is incorporated in a fair value calculation but is generally not considered in the allowance for loan losses.

(b) The prior period amounts have been revised to conform with the current period presentation.

The majority of the Firm’s lending-related commitments are not carried at fair value on a recurring basis on the Consolidated balance sheets. The carrying value of the wholesale allowance for lending-related commitments and the estimated fair value of these wholesale lending-related commitments were as follows for the periods indicated.

	December 31, 2018										December 31, 2017
			Estimated fair value hierarchy										Estimated fair value hierarchy
(in billions)	Carrying value(a)		Level 1		Level 2		Level 3		Total estimated fair value		Carrying value(a)		Level 1		Level 2		Level 3		Total estimated fair value
Wholesale lending-related commitments	$	1.0	$	—	$	—	$	2.1	$	2.1	$	1.1	$	—	$	—	$	1.6	$	1.6

(a) Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which is recognized at fair value at the inception of the guarantees.

The Firm does not estimate the fair value of consumer lending-related commitments. In many cases, the Firm can reduce or cancel these commitments by providing the borrower notice or, in some cases as permitted by law, without notice. For a further discussion of the valuation of lending-related commitments, refer to page 161 of this Note.