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Derivative Instruments
 9 Months Ended
Sep. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Instruments
 Note 12
  
   Derivative Instruments
In the ordinary course of business, the Company enters into derivative transactions to manage various risks and to accommodate the business requirements of its customers. The Company recognizes all derivatives on the Consolidated Balance Sheet at fair value in other assets or in other liabilities. On the date the Company enters into a derivative contract, the derivative is designated as either a fair value hedge, cash flow hedge, net investment hedge, or a designation is not made as it is a customer-related transaction, an economic hedge for asset/liability risk management purposes or another stand-alone derivative created through the Company’s operations (“free-standing derivative”). When a derivative is designated as a fair value, cash flow or net investment hedge, the Company performs an assessment, at inception and, at a minimum, quarterly thereafter, to determine the effectiveness of the derivative in offsetting changes in the value or cash flows of the hedged item(s).
Fair Value Hedges
These derivatives are interest rate swaps the Company uses to hedge the change in fair value related to interest rate changes of its underlying fixed-rate debt. Changes in the fair value of derivatives designated as fair value hedges, and changes in the fair value of the hedged items, are recorded in earnings.
Cash Flow Hedges
These derivatives are interest rate swaps the Company uses to hedge the forecasted cash flows from its underlying variable-rate debt. Changes in the fair value of derivatives designated as cash flow hedges are recorded in other comprehensive income (loss) until the cash flows of the hedged items are realized. If a derivative designated as a cash flow hedge is terminated or ceases to be highly effective, the gain or loss in other comprehensive income (loss) is amortized to earnings over the period the forecasted hedged transactions impact earnings. If a hedged forecasted transaction is no longer probable, hedge accounting is ceased and any gain or loss included in other comprehensive income (loss) is reported in earnings immediately, unless the forecasted transaction is at least reasonably possible of occurring, whereby the amounts remain within other comprehensive income (loss). At September 30, 2020, the Company had $217 million
(net-of-tax)
of realized and unrealized losses on derivatives classified as cash flow hedges recorded in other comprehensive income (loss), compared with $51 million
(net-of-tax)
of realized and unrealized losses at December 31, 2019. The estimated amount to be reclassified from other comprehensive income (loss) into earnings during the remainder of 2020 and the next 12 months are losses of $10 million
(net-of-tax)
and $40 million
(net-of-tax),
respectively. All cash flow hedges were highly effective for the three and nine months ended September 30, 2020.
Net Investment Hedges
 The Company uses forward commitments to sell specified amounts of certain foreign currencies, and
non-derivative
debt instruments, to hedge the volatility of its net investment in foreign operations driven by fluctuations in foreign currency exchange rates. The carrying amount of
non-derivative
debt instruments designated as net investment hedges was $1.4 billion and $1.3 billion at September 30, 2020 and December 31, 2019, respectively.
Other Derivative Positions
 The Company enters into free-standing derivatives to mitigate interest rate risk and for other risk management purposes. These derivatives include forward commitments to sell
to-be-announced
securities (“TBAs”) and other commitments to sell residential mortgage loans, which are used to economically hedge the interest
rate risk related to mortgage loans held for sale (“MLHFS”) and unfunded mortgage loan commitments. The Company also enters into interest rate swaps, swaptions, forward commitments to buy TBAs, U.S. Treasury and Eurodollar futures and options on U.S. Treasury futures to economically hedge the change in the fair value of the Company’s MSRs. The Company also enters into foreign currency forwards to economically hedge remeasurement gains and losses the Company recognizes on foreign currency denominated assets and liabilities. In addition, the Company acts as a seller and buyer of interest rate derivatives and foreign exchange contracts for its customers. The Company mitigates the market and liquidity risk associated with these customer derivatives by entering into similar offsetting positions with broker-dealers, or on a portfolio basis by entering into other derivative or
non-derivative
financial instruments that partially or fully offset the exposure to earnings from these customer-related positions. The Company’s customer derivatives and related hedges are monitored and reviewed by the Company’s Market Risk Committee, which establishes policies for market risk management, including exposure limits for each portfolio. The Company also has derivative contracts that are created through its operations, including certain unfunded mortgage loan commitments and swap agreements related to the sale of a portion of its Class B common and preferred shares of Visa Inc. Refer to Note 14 for further information on these swap agreements.
The following table summarizes the asset and liability management derivative positions of the Company:
 
    Asset Derivatives              Liability Derivatives  
(Dollars in Millions)  
Notional
Value
     
Fair
Value
     
Weighted-
Average
Remaining
Maturity
In Years
             
Notional
Value
     
Fair
Value
     
Weighted-
Average
Remaining
Maturity
In Years
  
September 30, 2020
           
 
         
Fair value hedges
           
 
         
Interest rate contracts
           
 
         
Receive fixed/pay floating swaps
   $ 8,400      $ –        2.02     
 
    $ –      $ –        –  
Cash flow hedges
           
 
         
Interest rate contracts
           
 
         
Pay fixed/receive floating swaps
     –        –        –     
 
      3,250        11        4.84  
Net investment hedges
           
 
         
Foreign exchange forward contracts
     483        5        .06     
 
      308        1        .06  
Other economic hedges
           
 
         
Interest rate contracts
           
 
         
Futures and forwards
           
 
         
Buy
     13,858        88        .06     
 
      5,141        11        .41  
Sell
     9,105        20        .04     
 
      28,066        102        .16  
Options
           
 
         
Purchased
     2,570        44        4.91     
 
      1,340        –        4.25  
Written
     5,817        227        .11     
 
      7,800        227        2.82  
Receive fixed/pay floating swaps
     4,985        –        5.36     
 
      6,367        –        11.18  
Pay fixed/receive floating swaps
     604        –        10.55     
 
      6,207        –        4.31  
Foreign exchange forward contracts
     275        2        .04     
 
      294        2        .05  
Equity contracts
     127        –        .67     
 
      20        –        .64  
Other (a)
     588        4        .02     
 
      2,376        199        2.07  
Total
   $ 46,812      $ 390        
 
    $ 61,169      $ 553     
December 31, 2019
           
 
         
Fair value hedges
           
 
         
Interest rate contracts
           
 
         
Receive fixed/pay floating swaps
   $ 18,300      $ –        3.89     
 
    $ 4,900      $ –        3.49  
Cash flow hedges
           
 
         
Interest rate contracts
           
 
         
Pay fixed/receive floating swaps
     1,532        –        6.06     
 
      7,150        10        2.11  
Net investment hedges
           
 
         
Foreign exchange forward contracts
     –        –        –     
 
      287        3        .04  
Other economic hedges
           
 
         
Interest rate contracts
           
 
         
Futures and forwards
           
 
         
Buy
     5,409        17        .08     
 
      5,477        11        .07  
Sell
     16,333        13        .81     
 
      8,113        25        .03  
Options
           
 
         
Purchased
     10,180        79        2.97     
 
      –        –        –  
Written
     1,270        30        .08     
 
      4,238        81        2.07  
Receive fixed/pay floating swaps
     4,408        –        5.99     
 
      5,316        –        13.04  
Pay fixed/receive floating swaps
     1,259        –        5.67     
 
      4,497        –        6.03  
Foreign exchange forward contracts
     113        1        .05     
 
      467        6        .04  
Equity contracts
     128        2        .45     
 
      20        –        1.06  
Other (a)
     34        –        .01     
 
      1,823        165        2.45  
Total
   $ 58,966      $ 142     
 
 
 
   
 
 
 
    $ 42,288      $ 301     
 
 
 
 
(a)
Includes derivative liability swap agreements related to the sale of a portion of the Company’s Class B common and preferred shares of Visa Inc. The Visa swap agreements had a total notional value, fair value and weighted-average remaining maturity of $1.8 billion, $195 million and 2.75
 
years at September 30, 2020, respectively, compared to $1.8 billion, $165 million and 2.50 years at December 31, 2019, respectively. In addition, includes short-term underwriting purchase and sale commitments with total asset and liability notional values of $588
 
m
illion at September 30, 2020, and $34 million at December 31, 2019.
The following table summarizes the customer-related derivative positions of the Company:
 
    Asset Derivatives              Liability Derivatives  
(Dollars in Millions)   Notional
Value		      Fair
Value		      Weighted-
Average
Remaining
Maturity In
Years		              Notional
Value		      Fair
Value		      Weighted-
Average
Remaining
Maturity In
Years		  
September 30, 2020
           
 
         
Interest rate contracts
           
 
         
Receive fixed/pay floating swaps
   $ 149,619      $ 4,432        5.02     
 
    $ 4,983      $ 38        10.63  
Pay fixed/receive floating swaps
     5,479        3        10.31     
 
      142,997        1,409        4.83  
Other (a)
     9,049        2        3.53     
 
      7,490        3        3.59  
Options
           
 
         
Purchased
     65,401        110        1.36     
 
      3,119        64        2.10  
Written
     3,310        65        2.19     
 
      60,533        76        1.23  
Futures
           
 
         
Buy
     1,463        –        .71     
 
      –        –        –  
Sell
     –        –        –     
 
      5,682        –        .77  
Foreign exchange rate contracts
           
 
         
Forwards, spots and swaps
     35,624        1,029        1.15     
 
      36,540        998        1.36  
Options
           
 
         
Purchased
     744        22        .74     
 
      –        –        –  
Written
     –        –        –     
 
      744        22        .74  
Credit contracts
     2,836        2        2.88     
 
      7,478        9        3.84  
Total
   $ 273,525      $ 5,665        
 
    $ 269,566      $ 2,619     
December 31, 2019
           
 
         
Interest rate contracts
           
 
         
Receive fixed/pay floating swaps
   $ 108,560      $ 1,865        4.83     
 
    $ 31,544      $ 88        3.83  
Pay fixed/receive floating swaps
     28,150        30        3.83     
 
      101,078        753        4.55  
Other (a)
     6,895        1        3.45     
 
      6,218        2        2.98  
Options
           
 
         
Purchased
     46,406        43        2.06     
 
      12,804        47        1.25  
Written
     6,901        49        1.93     
 
      49,741        41        1.82  
Futures
           
 
         
Buy
     894        –        .21     
 
      –        –        –  
Sell
     3,874        1        1.18     
 
      1,995        –        1.04  
Foreign exchange rate contracts
           
 
         
Forwards, spots and swaps
     36,350        748        .97     
 
      36,671        729        1.07  
Options
           
 
         
Purchased
     1,354        17        .54     
 
      –        –        –  
Written
     –        –        –     
 
      1,354        17        .54  
Credit contracts
     2,879        1        3.28     
 
      7,488        5        4.33  
Total
   $ 242,263      $ 2,755     
 
 
 
   
 
 
 
    $ 248,893      $ 1,682     
 
 
 
 
(a)
Primarily represents floating rate interest rate swaps that pay based on differentials between specified interest rate indexes.
The table below shows the effective portion of the gains (losses) recognized in other comprehensive income (loss) and the gains (losses) reclassified from other comprehensive income (loss) into earnings
(net-of-tax):
 
    Three Months Ended September 30             Nine Months Ended September 30  
    Gains (Losses)
Recognized in
Other
Comprehensive
Income
(Loss)		     Gains (Losses)
Reclassified from
Other
Comprehensive
Income
(Loss) into Earnings		             Gains (Losses)
Recognized in
Other
Comprehensive
Income
(Loss)		     Gains (Losses)
Reclassified from
Other
Comprehensive
Income
(Loss) into Earnings		  
(Dollars in Millions)   2020     2019     2020     2019             2020     2019     2020     2019  
Asset and Liability Management Positions
          
 
         
Cash flow hedges
          
 
         
Interest rate contracts
   $ 21     $ (44 )    $ (2 )    $ (5 )   
 
    $ (171 )    $ (200 )    $ (5 )    $ 6  
Net investment hedges
          
 
         
Foreign exchange forward contracts
     (4 )      10       –       –    
 
      6       8       –       –  
Non-derivative
debt instruments
     (45 )      37       –       –    
 
 
 
      (41 )      42       –       –  
 
Note:
The Company does not exclude components from effectiveness testing for cash flow and net investment hedges.
The table below shows the effect of fair value and cash flow hedge accounting included in interest expense on the Consolidated Statement of Income:
 
    Three Months Ended
September 30		             Nine Months Ended
September 30		  
(Dollars in Millions)   2020     2019             2020     2019  
Total amount of interest expense presented in the Consolidated Statement of Income
   $ 346     $ 1,156    
 
    $ 1,711     $ 3,394  
 
Asset and Liability Management Positions
      
 
     
Fair value hedges
      
 
     
Interest rate contract derivatives
     28       (183 )   
 
      (166 )      (234 ) 
Hedged items
     (27 )      181    
 
      167       232  
Cash Flow hedges
      
 
     
Interest rate contract derivatives
     3       6    
 
 
 
      7       (8 ) 
 
Note:
The Company does not exclude components from effectiveness testing for fair value and cash flow hedges. The Company reclassified losses of $18 million and $24 million into earnings during the three and nine months ended September 30, 2020, respectively, as a result of the discontinuance of cash flow hedges. The Company did not reclassify gains or losses into earnings as a result of the discontinuance of cash flow hedges during the three and nine months ended September 30, 2019.    
The table below shows cumulative hedging adjustments and the carrying amount of assets and liabilities designated in fair value hedges:
 
    Carrying Amount of the Hedged Assets
and Liabilities		              Cumulative Hedging Adjustment (a)  
(Dollars in Millions)   September 30, 2020      December 31, 2019              September 30, 2020      December 31, 2019  
Line Item in the Consolidated Balance Sheet
        
 
      
Long-term Debt
   $ 8,599      $ 23,195     
 
 
 
    $ 990      $ 35  
 
(a)
The cumulative hedging adjustment related to discontinued hedging relationships was $780 million and $(7) million at September 30, 2020 and December 31, 2019, respectively.
The table below shows the gains (losses) recognized in earnings for other economic hedges and the customer-related positions:
 
    
Location of Gains (Losses)
Recognized in Earnings
      Three Months Ended
September 30		             Nine Months Ended
September 30		  
(Dollars in Millions)    2020     2019             2020     2019  
Asset and Liability Management Positions
          
 
     
Other economic hedges
          
 
     
Interest rate contracts
          
 
     
Futures and forwards
      Mortgage banking revenue/
other noninterest income
 		    $ 46     $ 20    
 
    $ 53     $ (20 ) 
Purchased and written options
      Mortgage banking revenue        428       154    
 
      1,173       347  
Swaps
      Mortgage banking revenue        (51 )      215    
 
      724       513  
Foreign exchange forward contracts
      Other noninterest income        (2 )      (3 )   
 
      9       (18 ) 
Equity contracts
      Compensation expense        3       –    
 
      –       (2 ) 
Other
      Other noninterest income        (69 )      –    
 
      (70 )      –  
Customer-Related Positions
          
 
     
Interest rate contracts
          
 
     
Swaps
      Commercial products revenue        59       26    
 
      103       61  
Purchased and written options
      Commercial products revenue        (14 )      2    
 
      3       11  
Futures
      Commercial products revenue        –       (3 )   
 
      (18 )      (7 ) 
Foreign exchange rate contracts
          
 
     
Forwards, spots and swaps
      Commercial products revenue        20       20    
 
      54       59  
Purchased and written options
      Commercial products revenue        1       1    
 
      1       1  
Credit contracts
      Commercial products revenue        (10 )      (4 )   
 
 
 
      (15 )      (12 ) 
Derivatives are subject to credit risk associated with counterparties to the derivative contracts. The Company measures that credit risk using a credit valuation adjustment and includes it within the fair value of the derivative. The Company manages counterparty credit risk through diversification of its derivative positions among various counterparties, by entering into derivative positions that are centrally cleared through clearinghouses, by entering into master netting arrangements and, where possible, by requiring collateral arrangements. A master netting arrangement allows two counterparties, who have multiple derivative contracts with each other, the ability to net settle amounts under all contracts, including any related collateral, through a single payment and in a single currency. Collateral arrangements generally require the counterparty to deliver collateral (typically cash or U.S. Treasury and agency securities) equal to the Company’s net derivative receivable, subject to minimum transfer and credit rating requirements.
The Company’s collateral arrangements are predominately bilateral and, therefore, contain provisions that require collateralization of the Company’s net liability derivative positions. Required collateral coverage is based on net liability thresholds and may be contingent upon the Company’s credit rating from two of the nationally recognized statistical rating organizations. If the Company’s credit rating were to fall below credit ratings thresholds established in the collateral arrangements, the counterparties to the derivatives could request immediate additional collateral coverage up to and including full collateral coverage for derivatives in a net liability position. The aggregate fair value of all derivatives under collateral arrangements that were in a net liability position at September 30, 2020, was $1.5 billion. At September 30, 2020, the Company had $1.3 billion of cash posted as collateral against this net liability position.