Variable Interest Entities

We consolidate variable interest entities (“VIE”) in which we hold a controlling financial interest as evidenced by the power to direct the activities of a VIE that most significantly impact its economic performance and the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE and therefore are deemed to be the primary beneficiary. We take into account our entire involvement in a VIE (explicit or implicit) in identifying variable interests that individually or in the aggregate could be significant enough to warrant our designation as the primary beneficiary and hence require us to consolidate the VIE or otherwise require us to make appropriate disclosures. We consider our involvement to be potentially significant where we, among other things, (i) provide liquidity facilities to support the VIE's debt obligations, (ii) enter into derivative contracts to absorb the risks and benefits from the VIE or from the assets held by the VIE, (iii) provide a financial guarantee that covers assets held or liabilities issued by a VIE, (iv) sponsor the VIE in that we design, organize and structure the transaction; and (v) retain a financial or servicing interest in the VIE.

We are required to evaluate whether to consolidate a VIE when we first become involved and on an ongoing basis. In almost all cases, a qualitative analysis of our involvement in the entity provides sufficient evidence to determine whether we are the primary beneficiary. In rare cases, a more detailed analysis to quantify the extent of variability to be absorbed by each variable interest holder is required to determine the primary beneficiary.

Consolidated VIEs Historically, we have organized special purpose entities (“SPEs”) primarily to meet our funding needs through collateralized funding transactions. As part of these transactions, we transferred certain receivables to these trusts which in turn issued debt instruments collateralized by the transferred receivables. The entities used in these transactions are VIEs. As we are the servicer of the assets of these trusts and have retained the benefits and risks, we determined that we are the primary beneficiary of these trusts. Accordingly, we consolidate these entities and report the debt securities issued by them as secured financings in long-term debt. As a result, all receivables transferred in these secured financings remain and continue to remain on our balance sheet and the debt securities issued by them have remained and continue to be included in long-term debt. As all of our ongoing funding requirements have been integrated into the overall HSBC North America funding plans, we no longer use collateralized funding transactions to meet our funding needs.

The assets and liabilities of the consolidated secured financing VIE consisted of the following at September 30, 2016 and December 31, 2015:



	September 30, 2016					December 31, 2015
	Consolidated Assets		Consolidated Liabilities			Consolidated Assets			Consolidated Liabilities
	(in millions)
Real estate collateralized funding vehicles:
Receivables held for investment, net:
Real estate secured receivables held for investment	$	—	$	—		$	1,654		$	—
Accrued interest income and other	—		—			76			—
Credit loss reserves	—		—			(94		)	—
Receivables held for investment, net	—		—			1,636			—
Receivables held for sale	790		—			—			—
Other liabilities	—		(16		)	—			(22		)
Long-term debt	—		436			—			879
Total	$	790	$	420		$	1,636		$	857

The assets of the consolidated VIE serve as collateral for the obligations of the VIE. The holders of the debt securities issued by these vehicles have no recourse to our general assets.

Unconsolidated VIEs We do not have any unconsolidated VIEs.