Fair Value Option

9 Months Ended

Sep. 30, 2019

The Corporation elects to account for certain financial instruments under the fair value option. For more information on the primary financial instruments for which the fair value option elections have been made, see Note 21 – Fair Value Option to the Consolidated Financial Statements of the Corporation’s 2018 Annual Report on Form 10-K. The following tables provide information about the fair

value carrying amount and the contractual principal outstanding of assets and liabilities accounted for under the fair value option at September 30, 2019 and December 31, 2018, and information about where changes in the fair value of assets and liabilities accounted for under the fair value option are included in the Consolidated Statement of Income for the three and nine months ended September 30, 2019 and 2018.




Fair Value Option Elections

	September 30, 2019							December 31, 2018
(Dollars in millions)	Fair Value Carrying Amount		Contractual Principal Outstanding		Fair Value Carrying Amount Less Unpaid Principal			Fair Value Carrying Amount		Contractual Principal Outstanding		Fair Value Carrying Amount Less Unpaid Principal
Federal funds sold and securities borrowed or purchased under agreements to resell	$	50,298	$	50,238	$	60		$	56,399	$	56,376	$	23
Loans reported as trading account assets ⁽¹⁾	5,362		12,390		(7,028		)	6,195		13,088		(6,893		)
Trading inventory – other	17,989		n/a		n/a			13,778		n/a		n/a
Consumer and commercial loans	7,674		7,738		(64		)	4,349		4,399		(50		)
Loans held-for-sale ⁽¹⁾	5,011		6,119		(1,108		)	2,942		4,749		(1,807		)
Other assets	1		n/a		n/a			3		n/a		n/a
Long-term deposits	626		599		27			492		454		38
Federal funds purchased and securities loaned or sold under agreements to repurchase	21,963		21,966		(3		)	28,875		28,881		(6		)
Short-term borrowings	3,458		3,458		—			1,648		1,648		—
Unfunded loan commitments	116		n/a		n/a			169		n/a		n/a
Long-term debt ⁽²⁾	36,773		36,626		147			27,689		29,198		(1,509		)


⁽¹⁾	A significant portion of the loans reported as trading account assets and LHFS are distressed loans that were purchased at a deep discount to par, and the remainder are loans with a fair value near contractual principal outstanding.


⁽²⁾	Includes structured liabilities with a fair value of $36.4 billion and $27.3 billion, and contractual principal outstanding of $36.2 billion and $28.8 billion at September 30, 2019 and December 31, 2018.

n/a = not applicable




Gains (Losses) Relating to Assets and Liabilities Accounted for Under the Fair Value Option

	Three Months Ended September 30
	2019									2018
(Dollars in millions)	Trading Account Income			Other Income			Total			Trading Account Income		Other Income			Total
Loans reported as trading account assets ⁽¹⁾	$	4		$	—		$	4		$	74	$	—		$	74
Trading inventory – other ⁽²⁾	(156		)	—			(156		)	1,693		—			1,693
Consumer and commercial loans ⁽¹⁾	81			(6		)	75			176		8			184
Loans held-for-sale ⁽¹⁾	—			28			28			—		8			8
Long-term debt ^{(3, 4)}	(127		)	(20		)	(147		)	143		(19		)	124
Other ⁽⁵⁾	(1		)	(1		)	(2		)	2		52			54
Total	$	(199	)	$	1		$	(198	)	$	2,088	$	49		$	2,137

	Nine Months Ended September 30
	2019									2018
Loans reported as trading account assets ⁽¹⁾	$	167		$	—		$	167		$	145	$	—		$	145
Trading inventory – other ⁽²⁾	4,211			—			4,211			3,649		—			3,649
Consumer and commercial loans ⁽¹⁾	98			11			109			301		(24		)	277
Loans held-for-sale ⁽¹⁾	—			110			110			1		12			13
Long-term debt ^{(3, 4)}	(1,412		)	(65		)	(1,477		)	1,497		(75		)	1,422
Other ⁽⁵⁾	8			20			28			15		75			90
Total	$	3,072		$	76		$	3,148		$	5,608	$	(12	)	$	5,596


⁽¹⁾	Gains (losses) related to borrower-specific credit risk were not significant.


⁽²⁾	The gains (losses) in trading account income are primarily offset by (losses) gains on trading liabilities that hedge these assets.


⁽³⁾	The net gains (losses) in trading account income relate to the embedded derivatives in structured liabilities and are typically offset by (losses) gains on derivatives and securities that hedge these liabilities.

⁽⁴⁾

For the cumulative impact of changes in the Corporation’s own credit spreads and the amount recognized in accumulated OCI, see Note 14 – Accumulated Other Comprehensive Income (Loss). For more information on how the Corporation’s own credit spread is determined, see Note 20 – Fair Value Measurements to the Consolidated Financial Statements of the Corporation’s 2018 Annual Report on Form 10-K.

⁽⁵⁾

Includes gains (losses) on federal funds sold and securities borrowed or purchased under agreements to resell, long-term deposits, federal funds purchased and securities loaned or sold under agreements to repurchase, short-term borrowings and unfunded loan commitments.

- Definition

The entire disclosure for a company's election to apply the fair value option for measurement and reporting of eligible financial assets and liabilities (as defined), as well as certain other eligible items (as defined) included in the statement of financial position, whether such option is elected for a single eligible item or a group of similar eligible items and is in addition to other disclosures concerning fair value which the company may be required to provide. Such disclosure might be expected to include: (1) for items included in the statement of financial position: (a) the reasons for electing a fair value option for each eligible item or group of similar eligible items; (b) if the fair value option is elected for some but not all eligible items within a group of similar eligible items: (i) a description of those similar items and the reasons for partial election and (ii) information of how the group of similar items relates to individual balance sheet line items; (c) for each line item in the statement of financial position that includes an item or items for which the fair value option has been elected: (i) information of how each line item in the statement of financial position relates to major categories of assets and liabilities presented in accordance with other fair value disclosures and (ii) the aggregate carrying amount of ineligible items included in each line item in the balance sheet, if any; (d) the difference between the aggregate fair value and the aggregate unpaid principal balance (assuming contractual principal amounts and fair value option elected) of: (i) loans and long-term receivables (other than securities otherwise reported at fair value) and (ii) long-term debt instruments; (e) for loans held as assets for which the fair value option has been elected: (i) the aggregate fair value of loans that are 90 days or more past due, (ii) if the policy is to recognize interest income separately from other changes in fair value, the aggregate fair value of loans in nonaccrual status, and (iii) the difference between the aggregate fair value and the aggregate unpaid principal balance for loans that are 90 days or more past due, in nonaccrual status, or both; (f) for investments that would have been accounted for under the equity method if the entity had not chosen to apply the fair value option, the information required for such investments, if material either individually or in the aggregate; (2) for items included in the income statement: (a) the amounts of gains and losses from fair value changes included in earnings and in which line in the income statement those gains and losses are reported whether or not combined with gains and losses from items required to be accounted for at fair value; (b) a description of how interest and dividends are measured and where they are reported in the income statement; (c) for loans and other receivables held as assets: (i) the estimated amount of gains or losses included in earnings attributable to changes in instrument-specific credit risk and (ii) how the gains or losses attributable to changes in instrument-specific credit risk were determined; (d) for liabilities with fair values that have been significantly affected during the reporting period by changes in the instrument-specific credit risk: (i) the estimated amount of gains and losses from fair value changes included in earnings that are attributable to changes in the instrument-specific credit risk, (ii) qualitative information about the reasons for those changes, and (iii) how the gains and losses attributable to changes in instrument-specific credit risk were determined; and (3) certain other disclosures as required or determined to be provided.

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