Fair Value Option

9 Months Ended

Sep. 30, 2021

Fair Value OptionThe 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 2020 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, 2021 and December 31, 2020, 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, 2021 and 2020.



Fair Value Option Elections

	September 30, 2021						December 31, 2020
(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	$	154,137	$	154,135	$	2	$	108,856	$	108,811	$	45
Loans reported as trading account assets (1)	9,410		17,534		(8,124)		7,967		17,372		(9,405)
Trading inventory – other	22,962		n/a		n/a		22,790		n/a		n/a
Consumer and commercial loans	7,566		7,628		(62)		6,681		6,778		(97)
Loans held-for-sale (1)	3,982		4,884		(902)		1,585		2,521		(936)

Other assets	194		n/a		n/a		200		n/a		n/a
Long-term deposits	542		530		12		481		448		33
Federal funds purchased and securities loaned or sold under agreements to repurchase	155,151		155,187		(36)		135,391		135,390		1
Short-term borrowings	4,128		4,341		(213)		5,874		5,178		696
Unfunded loan commitments	95		n/a		n/a		99		n/a		n/a

Long-term debt	28,696		29,783		(1,087)		32,200		33,470		(1,270)

(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.

n/a = not applicable



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

	Three Months Ended September 30
	2021						2020
(Dollars in millions)	Market making and similar activities		Other Income		Total		Market making and similar activities		Other Income		Total


Loans reported as trading account assets	$	5	$	—	$	5	$	58	$	—	$	58
Trading inventory – other (1)	(1,155)		—		(1,155)		709		—		709
Consumer and commercial loans	(56)		(11)		(67)		(2)		102		100
Loans held-for-sale (2)	—		53		53		—		22		22




Short-term borrowings	548		—		548		(38)		—		(38)
Unfunded loan commitments	—		8		8		—		(18)		(18)

Long-term debt (3)	225		(9)		216		(347)		(6)		(353)
Other (4)	7		—		7		19		7		26
Total	$	(426)	$	41	$	(385)	$	399	$	107	$	506


















	Nine Months Ended September 30
	2021						2020

Loans reported as trading account assets	$	288	$	—	$	288	$	(15)	$	—	$	(15)
Trading inventory – other (1)	419		—		419		1,259		—		1,259
Consumer and commercial loans	58		34		92		(49)		(85)		(134)
Loans held-for-sale (2)	—		64		64		—		67		67




Short-term borrowings	1,022		—		1,022		196		—		196
Unfunded loan commitments	—		2		2		—		(88)		(88)

Long-term debt (3)	(436)		(33)		(469)		(1,300)		(31)		(1,331)
Other (4)	18		(24)		(6)		28		(31)		(3)
Total	$	1,369	$	43	$	1,412	$	119	$	(168)	$	(49)

(1) The gains (losses) in market making and similar activities are primarily offset by (losses) gains on trading liabilities that hedge these assets.

(2) Includes the value of IRLCs on funded loans, including those sold during the period.

(3) The net gains (losses) in market making and similar activities relate to the embedded derivatives in structured liabilities and are typically offset by (losses) gains on derivatives and securities that hedge these liabilities. For the cumulative impact of changes in the Corporation’s own credit spreads and the amount recognized in accumulated OCI, see Note 12 – 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 2020 Annual Report on Form 10-K.

(4) Includes gains (losses) on federal funds sold and securities borrowed or purchased under agreements to resell, other assets, long-term deposits and federal funds purchased and securities loaned or sold under agreements to repurchase.



Gains (Losses) Related to Borrower-specific Credit Risk for Assets and Liabilities Accounted for Under the Fair Value Option

	Three Months Ended September 30				Nine Months Ended September 30
(Dollars in millions)	2021		2020		2021		2020
Loans reported as trading account assets	$	(21)	$	11	$	166	$	(225)
Consumer and commercial loans	(22)		100		10		(96)
Loans held-for-sale	37		(24)		35		(117)
Unfunded loan commitments	8		(18)		2		(88)

- 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.

+ References + Details