Financial Instruments Subject to Off-Balance Sheet Credit Risk

12 Months Ended

Dec. 31, 2020

Financial Instruments Subject to Off-Balance Sheet Credit Risk

Resale agreements: Schwab enters into collateralized resale agreements principally with other broker-dealers, which could result in losses in the event the counterparty fails to purchase the securities held as collateral for the cash advanced and the fair value of the securities declines. To mitigate this risk, Schwab requires that the counterparty deliver securities to a custodian, to be held as collateral, with a fair value at or in excess of the resale price. Schwab also sets standards for the credit quality of the counterparty, monitors the fair value of the underlying securities as compared to the related receivable, including accrued interest, and requires additional collateral where deemed appropriate. The collateral provided under these resale agreements is utilized to meet obligations under broker-dealer client protection rules, which place limitations on our ability to access such segregated securities. For Schwab to repledge or sell this collateral, we would be required to deposit cash and/or securities of an equal amount into our segregated reserve bank accounts in order to meet our segregated cash and investment requirement. Schwab’s resale agreements as of December 31, 2020 and 2019 were not subject to master netting arrangements.

Securities lending: Schwab loans brokerage client securities temporarily to other brokers and clearing houses in connection with its securities lending activities and receives cash as collateral for the securities loaned. Increases in security prices may cause the fair value of the securities loaned to exceed the amount of cash received as collateral. In the event the counterparty to these transactions does not return the loaned securities or provide additional cash collateral, we may be exposed to the risk of acquiring the securities at prevailing market prices in order to satisfy our client obligations. Schwab mitigates this risk by requiring credit approvals for counterparties, monitoring the fair value of securities loaned, and requiring additional cash as collateral when necessary. In addition, most of our securities lending transactions are through a program with a clearing organization, which guarantees the return of cash to us. We also borrow securities from other broker-dealers to fulfill short sales by brokerage clients and deliver cash to the lender in exchange for the securities. The fair value of these borrowed securities was $852 million and $719 million at December 31, 2020 and 2019, respectively. Our securities lending transactions are subject to enforceable master netting arrangements with other broker-dealers; however, we do not net securities lending transactions. Therefore, the securities loaned and securities borrowed are presented gross in the consolidated balance sheets.

The following table presents information about our resale agreements and securities lending activity depicting the potential effect of rights of setoff between these recognized assets and recognized liabilities.


	Gross Assets/ Liabilities		Gross Amounts Offset in the Consolidated Balance Sheets		Net Amounts Presented in the Consolidated Balance Sheets		Gross Amounts Not Offset in the Consolidated Balance Sheets					Net Amount
							Counterparty Offsetting		Collateral
December 31, 2020
Assets
Resale agreements (1)	$	14,904	$	—	$	14,904	$	—	$	(14,904)	(2)	$	—
Securities borrowed (3)	873		—		873		(673)		(195)			5
Total	$	15,777	$	—	$	15,777	$	(673)	$	(15,099)		$	5
Liabilities
Securities loaned (4,5)	$	7,549	$	—	$	7,549	$	(673)	$	(6,049)		$	827
Total	$	7,549	$	—	$	7,549	$	(673)	$	(6,049)		$	827

December 31, 2019
Assets
Resale agreements (1)	$	9,028	$	—	$	9,028	$	—	$	(9,028)	(2)	$	—
Securities borrowed (3)	735		—		735		(730)		(5)			—
Total	$	9,763	$	—	$	9,763	$	(730)	$	(9,033)		$	—
Liabilities
Securities loaned (4,5)	$	1,251	$	—	$	1,251	$	(730)	$	(445)		$	76
Total	$	1,251	$	—	$	1,251	$	(730)	$	(445)		$	76

(1) Included in cash and investments segregated and on deposit for regulatory purposes in the consolidated balance sheets.

(2) Actual collateral was greater than or equal to the value of the related assets. At December 31, 2020 and 2019, the fair value of collateral received in connection with resale agreements that are available to be repledged or sold was $15.2 billion and $9.2 billion, respectively.

(3) Included in other assets in the consolidated balance sheets.

(4) Included in accrued expenses and other liabilities in the consolidated balance sheets. The cash collateral received from counterparties under securities lending transactions was equal to or greater than the market value of the securities loaned at December 31, 2020 and 2019.

(5) Securities loaned are predominantly comprised of equity securities held in client brokerage accounts with overnight and continuous remaining contractual maturities.

Client trade settlement: Schwab is obligated to settle transactions with brokers and other financial institutions even if our clients fail to meet their obligations to us. Clients are required to complete their transactions on settlement date, generally two business days after the trade date. If clients do not fulfill their contractual obligations, we may incur losses. We have established procedures to reduce this risk by requiring deposits from clients in excess of amounts prescribed by regulatory requirements for certain types of trades, and therefore the potential to make payments under these client transactions is remote. Accordingly, no liability has been recognized for these transactions.

Margin lending: Clients with margin loans have agreed to allow Schwab to pledge collateralized securities in their brokerage accounts in accordance with federal regulations. The following table summarizes the fair value of client securities that were available, under such regulations, that could have been used as collateral, as well as the fair value of securities that we had pledged under such regulations and from securities borrowed transactions:


December 31,	2020		2019
Fair value of client securities available to be pledged	$	84,006	$	26,685
Fair value of securities pledged for:
Fulfillment of requirements with the Options Clearing Corporation (1)	$	10,222	$	2,171
Fulfillment of client short sales	6,274		2,293
Securities lending to other broker-dealers	6,522		1,017
Total collateral pledged	$	23,018	$	5,481

Note: Excludes amounts available and pledged for securities lending from fully-paid client securities. The fair value of fully-paid client securities available and pledged was $183 million as of December 31, 2020 and $142 million as of December 31, 2019.

(1) Securities pledged to fulfill client margin requirements for open option contracts established with the Options Clearing Corporation.