Financial Instruments Subject to Off-Balance Sheet Credit Risk

9 Months Ended

Sep. 30, 2021

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 September 30, 2021 and December 31, 2020 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 $867 million and $852 million at September 30, 2021 and December 31, 2020, 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 condensed consolidated balance sheets.

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


	Gross Assets/ Liabilities		Gross Amounts Offset in the Condensed Consolidated Balance Sheets		Net Amounts Presented in the Condensed Consolidated Balance Sheets		Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets					Net Amount
							Counterparty Offsetting		Collateral
September 30, 2021
Assets
Resale agreements (1)	$	13,625	$	—	$	13,625	$	—	$	(13,625)	(2)	$	—
Securities borrowed (3)	900		—		900		(459)		(425)			16
Total	$	14,525	$	—	$	14,525	$	(459)	$	(14,050)		$	16
Liabilities
Securities loaned (4,5)	$	9,253	$	—	$	9,253	$	(459)	$	(8,108)		$	686
Secured short-term borrowings (6)	1,500		—		1,500		—		(1,500)			—
Total	$	10,753	$	—	$	10,753	$	(459)	$	(9,608)		$	686

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

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

(2) Actual collateral was greater than or equal to the value of the related assets. At September 30, 2021 and December 31, 2020, the fair value of collateral received in connection with resale agreements that are available to be repledged or sold was $13.9 billion and $15.2 billion, respectively.

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

(4) Included in accrued expenses and other liabilities in the condensed 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 September 30, 2021 and December 31, 2020.

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

(6) Included in short-term borrowings in the condensed consolidated balance sheets. See below for collateral pledged and Note 9 for additional information.

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:


	September 30, 2021		December 31, 2020
Fair value of client securities available to be pledged	$	114,171	$	84,006
Fair value of securities pledged for:
Fulfillment of requirements with the Options Clearing Corporation (1)	$	16,125	$	10,222
Fulfillment of client short sales	6,174		6,274
Securities lending to other broker-dealers	8,383		6,522
Collateral for short-term borrowings	1,680		—
Total collateral pledged to third parties	$	32,362	$	23,018

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 $167 million as of September 30, 2021 and $183 million as of December 31, 2020.

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