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Derivatives
 9 Months Ended
Sep. 30, 2018
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives
Note 14:  Derivatives
We use derivatives to manage exposure to market risk, including interest rate risk, credit risk and foreign currency risk, and to assist customers with their risk management objectives. We designate certain derivatives as hedging instruments in a qualifying hedge accounting relationship (fair value or cash flow hedge). Our remaining derivatives consist of economic hedges that do not qualify for hedge accounting and derivatives held for customer accommodation trading, or other purposes. For more information on our derivative activities, see Note 16 (Derivatives) to Financial Statements in our 2017 Form 10-K.
Table 14.1 presents the total notional or contractual amounts and fair values for our derivatives. Derivative transactions can be measured in terms of the notional amount, but this amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments. The notional amount is generally not exchanged but is used only as the basis on which interest and other payments are determined.
Table 14.1: Notional or Contractual Amounts and Fair Values of Derivatives
 
September 30, 2018
 
 
December 31, 2017
 
 
Notional or
contractual
amount

 
 
 
Fair value

 
Notional or
contractual
amount

 
 
 
Fair value

(in millions)
 
Derivative
assets

 
Derivative
liabilities

 
 
Derivative
assets

 
Derivative
liabilities

Derivatives designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts (1)
$
184,332

 
2,471

 
650

 
209,677

 
2,492

 
1,092

Foreign exchange contracts (1)
35,136

 
737

 
1,221

 
34,135

 
1,482

 
1,137

Total derivatives designated as qualifying hedging instruments
 
 
3,208

 
1,871

 
 
 
3,974

 
2,229

Derivatives not designated as hedging instruments
 
 
 
 
 
 
 
 
 
 
 
Economic hedges:
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts (2)
181,607

 
166

 
375

 
220,558

 
159

 
201

Equity contracts
15,764

 
929

 
210

 
12,315

 
716

 
138

Foreign exchange contracts
14,288

 
115

 
116

 
15,976

 
78

 
309

Credit contracts – protection purchased
101

 
26

 
—

 
111

 
37

 
—

Subtotal
 
 
1,236

 
701

 
 
 
990

 
648

Customer accommodation trading and
 
 
 
 
 
 
 
 
 
 
 
other derivatives:
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
8,156,678

 
13,426

 
14,518

 
6,434,673

 
14,979

 
14,179

Commodity contracts
72,559

 
4,205

 
1,716

 
62,530

 
2,354

 
1,335

Equity contracts
229,905

 
6,894

 
8,514

 
213,750

 
6,291

 
8,363

Foreign exchange contracts
333,715

 
5,582

 
5,032

 
362,896

 
7,413

 
7,122

Credit contracts – protection sold
9,185

 
94

 
141

 
9,021

 
147

 
214

Credit contracts – protection purchased
17,973

 
134

 
177

 
17,406

 
207

 
208

Subtotal
 
 
30,335

 
30,098

 
 
 
31,391

 
31,421

Total derivatives not designated as hedging instruments
 
 
31,571

 
30,799

 
 
 
32,381

 
32,069

Total derivatives before netting
 
 
34,779

 
32,670

 
 
 
36,355

 
34,298

Netting (3)
 
 
(22,968
)
 
(24,084
)
 
 
 
(24,127
)
 
(25,502
)
Total
 
 
$
11,811

 
8,586

 
 
 
12,228

 
8,796

(1)
Notional amounts presented exclude $0 million and $500 million of interest rate contracts at September 30, 2018, and December 31, 2017, respectively, for certain derivatives that are combined for designation as a hedge in a single relationship. The notional amount for foreign exchange contracts at September 30, 2018, and December 31, 2017, excludes $11.3 billion and $13.5 billion, respectively, for certain derivatives that are combined for designation as a hedge on a single instrument.
(2)
Includes economic hedge derivatives used to hedge the risk of changes in the fair value of residential MSRs, MLHFS, loans, derivative loan commitments and other interests held.
(3)
Represents balance sheet netting of derivative asset and liability balances, related cash collateral and portfolio level counterparty valuation adjustments. See Table 14.2 for further information.
Table 14.2 provides information on the gross fair values of derivative assets and liabilities, the balance sheet netting adjustments and the resulting net fair value amount recorded on our balance sheet, as well as the non-cash collateral associated with such arrangements. We execute substantially all of our derivative transactions under master netting arrangements and reflect all derivative balances and related cash collateral subject to enforceable master netting arrangements on a net basis within the balance sheet. The “Gross amounts recognized” column in the following table includes $31.4 billion and $29.2 billion of gross derivative assets and liabilities, respectively, at September 30, 2018, and $30.0 billion and $29.9 billion, respectively, at December 31, 2017, with counterparties subject to enforceable master netting arrangements that are carried on the balance sheet net of offsetting amounts. The remaining gross derivative assets and liabilities of $3.4 billion and $3.5 billion, respectively, at September 30, 2018, and $6.4 billion and $4.4 billion, respectively, at December 31, 2017, include those with counterparties subject to master netting arrangements for which we have not assessed the enforceability because they are with counterparties where we do not currently have positions to offset, those subject to master netting arrangements where we have not been able to confirm the enforceability and those not subject to master netting arrangements. As such, we do not net derivative balances or collateral within the balance sheet for these counterparties.
We determine the balance sheet netting adjustments based on the terms specified within each master netting arrangement. We disclose the balance sheet netting amounts within the column titled “Gross amounts offset in consolidated balance sheet.” Balance sheet netting adjustments are determined at the counterparty level for which there may be multiple contract types. For disclosure purposes, we allocate these netting adjustments to the contract type for each counterparty proportionally based upon the “Gross amounts recognized” by counterparty. As a result, the net amounts disclosed by contract type may not represent the actual exposure upon settlement of the contracts.
We do not net non-cash collateral that we receive and pledge on the balance sheet. For disclosure purposes, we present the fair value of this non-cash collateral in the column titled “Gross amounts not offset in consolidated balance sheet (Disclosure-only netting)” within the table. We determine and allocate the Disclosure-only netting amounts in the same manner as balance sheet netting amounts.
The “Net amounts” column within Table 14.2 represents the aggregate of our net exposure to each counterparty after considering the balance sheet and Disclosure-only netting adjustments. We manage derivative exposure by monitoring the credit risk associated with each counterparty using counterparty specific credit risk limits, using master netting arrangements and obtaining collateral. Derivative contracts executed in over-the-counter markets include bilateral contractual arrangements that are not cleared through a central clearing organization but are typically subject to master netting arrangements. The percentage of our bilateral derivative transactions outstanding at period end in such markets, based on gross fair value, is provided within the following table. Other derivative contracts executed in over-the-counter or exchange-traded markets are settled through a central clearing organization and are excluded from this percentage. In addition to the netting amounts included in the table, we also have balance sheet netting related to resale and repurchase agreements that are disclosed within Note 12 (Guarantees, Pledged Assets and Collateral, and Other Commitments).
Table 14.2: Gross Fair Values of Derivative Assets and Liabilities

(in millions)
Gross
amounts
recognized

 
Gross amounts
offset in
consolidated
balance
sheet (1)

 
Net amounts in
consolidated
balance
sheet

 
Gross amounts
not offset in
consolidated
balance sheet
(Disclosure-only
netting) (2)

 
Net
amounts

 
Percent
exchanged in
over-the-counter
market (3)

September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$
16,063

 
(10,905
)
 
5,158

 
(104
)
 
5,054

 
98
%
Commodity contracts
4,205

 
(1,165
)
 
3,040

 
(2
)
 
3,038

 
92

Equity contracts
7,823

 
(5,646
)
 
2,177

 
(494
)
 
1,683

 
74

Foreign exchange contracts
6,434

 
(5,036
)
 
1,398

 
(33
)
 
1,365

 
100

Credit contracts – protection sold
94

 
(92
)
 
2

 
—

 
2

 
13

Credit contracts – protection purchased
160

 
(124
)
 
36

 
(2
)
 
34

 
90

Total derivative assets
$
34,779

 
(22,968
)
 
11,811

 
(635
)
 
11,176

 
 
Derivative liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$
15,543

 
(11,982
)
 
3,561

 
(306
)
 
3,255

 
98
%
Commodity contracts
1,716

 
(823
)
 
893

 
—

 
893

 
55

Equity contracts
8,724

 
(5,949
)
 
2,775

 
(235
)
 
2,540

 
84

Foreign exchange contracts
6,369

 
(5,023
)
 
1,346

 
(61
)
 
1,285

 
100

Credit contracts – protection sold
141

 
(140
)
 
1

 
(1
)
 
—

 
84

Credit contracts – protection purchased
177

 
(167
)
 
10

 
—

 
10

 
9

Total derivative liabilities
$
32,670

 
(24,084
)
 
8,586

 
(603
)
 
7,983

 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
Derivative assets
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$
17,630

 
(11,929
)
 
5,701

 
(145
)
 
5,556

 
99
%
Commodity contracts
2,354

 
(966
)
 
1,388

 
(4
)
 
1,384

 
88

Equity contracts
7,007

 
(4,233
)
 
2,774

 
(596
)
 
2,178

 
76

Foreign exchange contracts
8,973

 
(6,656
)
 
2,317

 
(25
)
 
2,292

 
100

Credit contracts – protection sold
147

 
(145
)
 
2

 
—

 
2

 
10

Credit contracts – protection purchased
244

 
(198
)
 
46

 
(3
)
 
43

 
89

Total derivative assets
$
36,355

 
(24,127
)
 
12,228

 
(773
)
 
11,455

 
 
Derivative liabilities
 
 
 
 
 
 
 
 
 
 
 
Interest rate contracts
$
15,472

 
(13,226
)
 
2,246

 
(1,078
)
 
1,168

 
99
%
Commodity contracts
1,335

 
(648
)
 
687

 
(1
)
 
686

 
76

Equity contracts
8,501

 
(4,041
)
 
4,460

 
(400
)
 
4,060

 
85

Foreign exchange contracts
8,568

 
(7,189
)
 
1,379

 
(204
)
 
1,175

 
100

Credit contracts – protection sold
214

 
(204
)
 
10

 
(9
)
 
1

 
85

Credit contracts – protection purchased
208

 
(194
)
 
14

 
—

 
14

 
9

Total derivative liabilities
$
34,298

 
(25,502
)
 
8,796

 
(1,692
)
 
7,104

 
 
(1)
Represents amounts with counterparties subject to enforceable master netting arrangements that have been offset in the consolidated balance sheet, including related cash collateral and portfolio level counterparty valuation adjustments. Counterparty valuation adjustments were $243 million and $245 million related to derivative assets and $108 million and $95 million related to derivative liabilities at September 30, 2018, and December 31, 2017, respectively. Cash collateral totaled $2.9 billion and $4.1 billion, netted against derivative assets and liabilities, respectively, at September 30, 2018, and $2.7 billion and $4.2 billion, respectively, at December 31, 2017.
(2)
Represents the fair value of non-cash collateral pledged and received against derivative assets and liabilities with the same counterparty that are subject to enforceable master netting arrangements. U.S. GAAP does not permit netting of such non-cash collateral balances in the consolidated balance sheet but requires disclosure of these amounts.
(3)
Represents derivatives executed in over-the-counter markets that are not settled through a central clearing organization. Over-the-counter percentages are calculated based on gross amounts recognized as of the respective balance sheet date. The remaining percentage represents derivatives settled through a central clearing organization, which are executed in either over-the-counter or exchange-traded markets.
Fair Value and Cash Flow Hedges
For fair value hedges, we use interest rate swaps to convert certain of our fixed-rate long-term debt and time certificates of deposit to floating rates to hedge our exposure to interest rate risk. We also enter into cross-currency swaps, cross-currency interest rate swaps and forward contracts to hedge our exposure to foreign currency risk and interest rate risk associated with the issuance of non-U.S. dollar denominated long-term debt. In addition, we use interest rate swaps, cross-currency swaps, cross-currency interest rate swaps and forward contracts to hedge against changes in fair value of certain investments in available-for-sale debt securities due to changes in interest rates, foreign currency rates, or both. We also use interest rate swaps to hedge against changes in fair value for certain mortgage loans held for sale.
For cash flow hedges, we use interest rate swaps to hedge the variability in interest payments received on certain floating-rate commercial loans and paid on certain floating-rate debt due to changes in the contractually specified interest rate.
We estimate $309 million pre-tax of deferred net losses primarily related to cash flow hedges in OCI at September 30, 2018, will be reclassified into net interest income during the next twelve months. The deferred losses expected to be reclassified into net interest income are primarily related to discontinued hedges of floating rate loans. We are hedging our foreign exposure to the variability of future cash flows for all forecasted transactions for a maximum of 8 years. For more information on our accounting hedges, see Note 1 (Summary of Significant Accounting Policies) and Note 16 (Derivatives) to Financial Statements in our 2017 Form 10-K.
Table 14.3 shows the net gains (losses) related to derivatives in fair value and cash flow hedging relationships.
Table 14.3: Gains (Losses) Recognized in Consolidated Statement of Income on Fair Value and Cash Flow Hedging Relationships
 
Net interest income
 
 
Noninterest income

 
(in millions)
Debt securities

Loans

Mortgage loans held for sale

Deposits

Long-term debt

 
Other

Total

Quarter ended September 30, 2018
 
 
 
 
 
 
 
 
Total amounts presented in the consolidated statement of income
$
3,595

11,116

210

(1,499
)
(1,667
)
 
633

12,388

Gains (losses) on fair value hedging relationships
 
 
 
 
 
 
 
 
Interest contracts
 
 
 
 
 
 
 
 
Amounts related to interest settlements on derivatives (1)
(34
)
—

(1
)
(10
)
39

 
—

(6
)
Recognized on derivatives
386

—

10

(58
)
(1,119
)
 
—

(781
)
Recognized on hedged items
(410
)
—

(12
)
61

1,101

 
—

740

Foreign exchange contracts
 
 
 
 
 
 
 
 
Amounts related to interest settlements on derivatives (1)(2)
8

—

—

—

(118
)
 
—

(110
)
Recognized on derivatives (3)
2

—

—

—

(58
)
 
(139
)
(195
)
Recognized on hedged items
(3
)
—

—

—

126

 
139

262

Net income (expense) recognized on fair value hedges
(51
)
—

(3
)
(7
)
(29
)
 
—

(90
)
 
 
 
 
 
 
 
 
 
Gains (losses) on cash flow hedging relationships
 
 
 
 
 
 
 
 
Interest contracts
 
 
 
 
 
 
 
 
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)
—

(78
)
—

—

—

 
—

(78
)
Foreign exchange contracts
 
 
 
 
 
 
 
 
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)
$
—

—

—

—

(1
)
 
—

(1
)
Net income (expense) recognized on cash flow hedges
$
—

(78
)
—

—

(1
)
 
—

(78
)
Nine months ended September 30, 2018
 
 
 
 
 
 
 
 
Total amounts presented in the consolidated statement of income
$
10,603

32,607

587

(3,857
)
(4,901
)
 
1,720

36,759

Gains (losses) on fair value hedging relationships
 
 
 
 
 
 
 
 
Interest contracts
 
 
 
 
 
 
 
 
Amounts related to interest settlements on derivatives (1)
(158
)
—

(3
)
(35
)
291

 
—

95

Recognized on derivatives
1,692

1

21

(248
)
(4,331
)
 
—

(2,865
)
Recognized on hedged items
(1,730
)
(1
)
(27
)
233

4,215

 
—

2,690

Foreign exchange contracts
 
 
 
 
 
 
 
 
Amounts related to interest settlements on derivatives (1)(2)
23

—

—

—

(300
)
 
—

(277
)
Recognized on derivatives (3)
8

—

—

—

(132
)
 
(889
)
(1,013
)
Recognized on hedged items
(5
)
—

—

—

153

 
820

968

Net income (expense) recognized on fair value hedges
(170
)
—

(9
)
(50
)
(104
)
 
(69
)
(402
)
 
 
 
 
 
 
 
 
 
Gains (losses) on cash flow hedging relationships
 
 
 
 
 
 
 
 
Interest contracts
 
 
 
 
 
 
 
 
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)
—

(215
)
—

—

—

 
—

(215
)
Foreign exchange contracts
 
 
 
 
 
 
 
 
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)
—

—

—

—

(1
)
 
—

(1
)
Net income (expense) recognized on cash flow hedges
$
—

(215
)
—

—

(1
)

—

(216
)
(continued on following page)
(continued from previous page)
 
 
 
 
 
 
 
 
 
Net interest income
 
 
Noninterest income

 
(in millions)
Debt securities

Loans

Mortgage loans held for sale

Deposits

Long-term debt

 
Other

Total

Quarter ended September 30, 2017
 
 
 
 
 
 
 
 
Total amounts presented in the consolidated statement of income
$
3,253

10,522

217

(869
)
(1,391
)
 
199

11,931

 
 
 
 
 
 
 
 
 
Gains (losses) on fair value hedging relationships
 
 
 
 
 
 
 
 
Interest contracts
 
 
 
 
 
 
 
 
Amounts related to interest settlements on derivatives (1)
(110
)
—

(1
)
25

246

 
—

160

Recognized on derivatives
(6
)
—

—

1

(162
)
 
—

(167
)
Recognized on hedged items
(5
)
—

(2
)
—

164

 
—

157

Foreign exchange contracts










 


 
Amounts related to interest settlements on derivatives (1)(2)
4

—

—

—

(60
)
 
—

(56
)
Recognized on derivatives (3)
—

—

—

—

(32
)
 
851

819

Recognized on hedged items
—

—

—

—

15

 
(790
)
(775
)
         Net income (expense) recognized on fair value hedges
(117
)
—

(3
)
26

171

 
61

138

 
 
 
 
 
 
 
 
 
Gains (losses) on cash flow hedging relationships
 
 
 
 
 
 
 
 
Interest contracts
 
 
 
 
 
 
 
 
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)
—

107

—

—

(2
)
 
—

105

Foreign exchange contracts
 
 
 
 
 
 
 
 
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)
—

—

—

—

—

 
—

—

Net income (expense) recognized on cash flow hedges
$
—

107

—

—

(2
)
 
—

105

Nine months ended September 30, 2017
 
 
 
 
 
 
 
 
Total amounts presented in the consolidated statement of income
$
9,652

31,021

590

(2,082
)
(3,813
)
 
1,045

36,413

 
 
 
 
 
 
 
 
 
Gains (losses) on fair value hedging relationships
 
 
 
 
 
 
 
 
Interest contracts
 
 
 
 
 
 
 
 
Amounts related to interest settlements on derivatives (1)
(363
)
(1
)
(4
)
29

1,041

 
—

702

Recognized on derivatives
(167
)
—

(11
)
30

(325
)
 
—

(473
)
Recognized on hedged items
121

—

4

(22
)
322

 
—

425

Foreign exchange contracts
 
 
 
 
 
 
 
 
Amounts related to interest settlements on derivatives (1)(2)
10

—

—

—

(142
)
 
—

(132
)
Recognized on derivatives (3)
11

—

—

—

(187
)
 
2,727

2,551

Recognized on hedged items
(7
)
—

—

—

215

 
(2,485
)
(2,277
)
         Net income (expense) recognized on fair value hedges
(395
)
(1
)
(11
)
37

924

 
242

796

 
 
 
 
 
 
 
 
 
Gains (losses) on cash flow hedging relationships
 
 
 
 
 
 
 
 
Interest contracts
 
 
 
 
 
 
 
 
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)
—

468

—

—

(8
)
 
—

460

Foreign exchange contracts
 
 
 
 
 
 
 
 
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)
—

—

—

—

—

 
—

—

Net income (expense) recognized on cash flow hedges
$
—

468

—

—

(8
)
 
—

460

(1)
Includes $11 million and $35 million for third quarter and first nine months of 2018, respectively, and includes $12 million and $22 million for the third quarter and first nine months of 2017, respectively which represents changes in fair value due to the passage of time associated with the non-zero fair value amount at hedge inception.
(2)
The third quarter and first nine months of 2018 included $(5) million and $(3) million, respectively, and the third quarter and first nine months of 2017 included $(1) million, and $(2) million, respectively, of the time value component recognized as net interest income (expense) on forward derivatives hedging foreign currency debt securities and long-term debt that were excluded from the assessment of hedge effectiveness.
(3)
For certain fair value hedges of foreign currency risk, changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads are excluded from the assessment of hedge effectiveness and recorded in other comprehensive income. See Note 20 (Other Comprehensive Income) for the amounts recognized in other comprehensive income.
(4)
See Note 20 (Other Comprehensive Income) for details of amounts reclassified to net income.
Table 14.4 shows the carrying amount and associated cumulative basis adjustment related to the application of hedge accounting that is included in the carrying amount of hedged assets and liabilities in fair value hedging relationships.


Table 14.4: Hedged Items in Fair Value Hedging Relationship
 
Hedged Items Currently Designated
 
 
Hedged Items No Longer Designated (1)
 
(in millions)
Carrying Amount of Assets/(Liabilities) (2)(4)

Hedge Accounting Basis Adjustment
Assets/(Liabilities) (3)

 
Carrying Amount of Assets/(Liabilities) (4)

Hedge Accounting Basis Adjustment
Assets/(Liabilities)

September 30, 2018
 
 
 
 
 
Available-for-sale debt securities (5)
$
29,736

(1,008
)
 
4,947

261

Loans
—

—

 
—

—

Mortgage loans held for sale
681

(6
)
 
—

—

Deposits
(45,282
)
383

 
—

—

Long-term debt
(127,072
)
2,223

 
(808
)
10

December 31, 2017
 
 
 
 
 
Available-for-sale debt securities (5)
32,498

870

 
5,221

343

Loans
140

(1
)
 
—

—

Mortgage loans held for sale
465

(1
)
 
—

—

Deposits
(23,679
)
158

 
—

—

Long-term debt
(128,950
)
(2,154
)
 
(1,953
)
16

(1)
Represents hedged items no longer designated in qualifying fair value hedging relationships for which an associated basis adjustment exists at the balance sheet date.
(2)
Does not include the carrying amount of hedged items where only foreign currency risk is the designated hedged risk. The carrying amount excluded for debt securities is $1.3 billion and $(6.4) billion for long-term debt as of September 30, 2018 and $1.5 billion for debt securities and for long-term debt is $(7.7) billion as of December 31, 2017.
(3)
The balance includes $1.5 billion and $49 million of debt securities and long-term debt cumulative basis adjustments as of September 30, 2018, respectively, and $2.1 billion and $297 million of debt securities and long-term debt cumulative basis adjustments as of December 31, 2017, respectively, on terminated hedges whereby the hedged items have subsequently been re-designated into existing hedges.
(4)
Represents the full carrying amount of the hedged asset or liability item as of the balance sheet date, except for circumstances in which only a portion of the asset or liability was designated as the hedged item in which case only the portion designated is presented.
(5)
Carrying amount represents the amortized cost.
Derivatives Not Designated as Hedging Instruments
We use economic hedge derivatives to hedge the risk of changes in the fair value of certain residential MLHFS, residential MSRs measured at fair value, derivative loan commitments and other interests held. We also use economic hedge derivatives to mitigate the periodic earnings volatility caused by mismatches between the changes in fair value of the hedged item and hedging instrument recognized on our fair value accounting hedges. The resulting gain or loss on these economic hedge derivatives is reflected in mortgage banking noninterest income, net gains (losses) from equity investments and other noninterest income.
The derivatives used to hedge MSRs measured at fair value, resulted in net derivative gains (losses) of $(501) million and $(2.0) billion in the third quarter and first nine months of 2018, respectively, and $240 million and $599 million in the third quarter and first nine months of 2017, respectively which are included in mortgage banking noninterest income. The aggregate fair value of these derivatives was a net liability of $185 million at September 30, 2018, and net asset of $89 million at December 31, 2017. The change in fair value of these derivatives for each period end is due to changes in the underlying market indices and interest rates as well as the purchase and sale of derivative financial instruments throughout the period as part of our dynamic MSR risk management process.
Loan commitments for mortgage loans that we intend to sell are considered derivatives. The aggregate fair value of derivative loan commitments on the balance sheet was a net negative fair value of $7 million and a positive fair value of $17 million at September 30, 2018, and December 31, 2017, respectively, and is included in the caption “Interest rate contracts” under “Customer accommodation trading and other derivatives” in Table 14.1 in this Note.
For more information on economic hedges and other derivatives, see Note 16 (Derivatives) to Financial Statements in our 2017 Form 10-K. Table 14.5 shows the net gains (losses) recognized by income statement lines, related to derivatives not designated as hedging instruments.
 
Table 14.5: Gains (Losses) on Derivatives Not Designated as Hedging Instruments
 
Noninterest income
 
(in millions)
Mortgage banking

Net gains (losses) from equity securities

Net gains (losses) from trading activities

Other

Total

Quarter ended September 30, 2018
 
 
 
 
 
Net gains (losses) recognized on economic hedges derivatives:
 
 
 
 
 
Interest contracts (1)
$
(334
)
—

—

(1
)
(335
)
Equity contracts
—

(719
)
—

8

(711
)
Foreign exchange contracts
—

—

—

78

78

Credit contracts
—

—

—

4

4

Subtotal (2)
(334
)
(719
)
—

89

(964
)
Net gains (losses) recognized on customer accommodation trading and other derivatives:
 
 
 
 
 
Interest contracts (3)
(67
)
—

298

(1
)
230

Equity contracts
—

—

(1,147
)
(112
)
(1,259
)
Foreign exchange contracts
—

—

258

—

258

Credit contracts
—

—

(28
)
—

(28
)
Commodity contracts
—

—

14

—

14

Other
—

—

—

—

—

Subtotal
(67
)
—

(605
)
(113
)
(785
)
Net gains (losses) recognized related to derivatives not designated as hedging instruments
$
(401
)
(719
)
(605
)
(24
)
(1,749
)
Nine months ended September 30, 2018
 
 
 
 
 
Net gains (losses) recognized on economic hedges derivatives:
 
 
 
 
 
Interest contracts (1)
$
(1,114
)
—

—

5

(1,109
)
Equity contracts
—

(1,317
)
—

13

(1,304
)
Foreign exchange contracts
—

—

—

405

405

Credit contracts
—

—

—

(2
)
(2
)
Subtotal (2)
(1,114
)
(1,317
)
—

421

(2,010
)
Net gains (losses) recognized on customer accommodation trading and other derivatives:
 
 
 
 
 
Interest contracts (3)
(372
)
—

865

(1
)
492

Equity contracts
—

—

(33
)
(378
)
(411
)
Foreign exchange contracts
—

—

659

—

659

Credit contracts
—

—

(22
)
—

(22
)
Commodity contracts
—

—

88

—

88

Other
—

—

—

—

—

Subtotal
(372
)
—

1,557

(379
)
806

Net gains (losses) recognized related to derivatives not designated as hedging instruments
$
(1,486
)
(1,317
)
1,557

42

(1,204
)

(continued on following page)
(continued from previous page)
 
 
Noninterest income
 
(in millions)
Mortgage banking

Net gains (losses) from equity securities

Net gains (losses) from trading activities

Other

Total

Quarter ended September 30, 2017
 
 
 
 
 
Net gains (losses) recognized on economic hedges derivatives:
 
 
 
 
 
Interest contracts (1)
$
138

—

—

(19
)
119

Equity contracts
—

(490
)
—

1

(489
)
Foreign exchange contracts
—

—

—

(300
)
(300
)
Credit contracts
—

—

—

(6
)
(6
)
Subtotal (2)
138

(490
)
—

(324
)
(676
)
Net gains (losses) recognized on customer accommodation trading and other derivatives:
 
 
 
 
 
Interest contracts (3)
152

—

17

—

169

Equity contracts
—

—

(851
)
—

(851
)
Foreign exchange contracts
—

—

155

—

155

Credit contracts
—

—

(31
)
—

(31
)
Commodity contracts
—

—

63

—

63

Other
—

—

—

8

8

Subtotal
152

—

(647
)
8

(487
)
Net gains (losses) recognized related to derivatives not designated as hedging instruments
$
290

(490
)
(647
)
(316
)
(1,163
)
Nine months ended September 30, 2017
 
 
 
 
 
Net gains (losses) recognized on economic hedges derivatives:
 
 
 
 
 
Interest contracts (1)
$
480

—

—

(64
)
416

Equity contracts
—

(1,164
)
—

(11
)
(1,175
)
Foreign exchange contracts
—

—

—

(834
)
(834
)
Credit contracts
—

—

—

8

8

Subtotal (2)
480

(1,164
)
—

(901
)
(1,585
)
Net gains (losses) recognized on customer accommodation trading and other derivatives:
 
 
 
 
 
Interest contracts (3)
599

—

80

—

679

Equity contracts
—

—

(2,525
)
—

(2,525
)
Foreign exchange contracts
—

—

356

—

356

Credit contracts
—

—

(59
)
—

(59
)
Commodity contracts
—

—

138

—

138

Other
—

—

—

22

22

Subtotal
599

—

(2,010
)
22

(1,389
)
Net gains (losses) recognized related to derivatives not designated as hedging instruments
$
1,079

(1,164
)
(2,010
)
(879
)
(2,974
)
(1)
Includes gains (losses) on the derivatives used as economic hedges of MSRs measured at fair value, derivative loan commitments and mortgage loans held for sale.
(2)
Includes hedging gains (losses) of $10 million and $46 million for the third quarter and first nine months of 2018, respectively, and $(18) million and $(64) million for the third quarter and first nine months of 2017, respectively, which partially offset hedge accounting ineffectiveness.
(3)
Amounts presented in mortgage banking noninterest income are gains on derivative loan commitments.
Credit Derivatives
Credit derivative contracts are arrangements whose value is derived from the transfer of credit risk of a reference asset or entity from one party (the purchaser of credit protection) to another party (the seller of credit protection). We use credit derivatives to assist customers with their risk management objectives. We may also use credit derivatives in structured product transactions or liquidity agreements written to special purpose vehicles. The maximum exposure of sold credit derivatives is managed through posted collateral, purchased credit derivatives and similar products in order to achieve our desired credit risk profile. This credit risk management provides an ability to recover a significant portion of any amounts that would be paid under the sold credit derivatives. We would be
required to perform under sold credit derivatives in the event of default by the referenced obligors. Events of default include events such as bankruptcy, capital restructuring or lack of principal and/or interest payment. In certain cases, other triggers may exist, such as the credit downgrade of the referenced obligors or the inability of the special purpose vehicle for which we have provided liquidity to obtain funding.
Table 14.6 provides details of sold and purchased credit derivatives.
Table 14.6: Sold and Purchased Credit Derivatives
 
 
 
Notional amount
 
 
 
(in millions)
Fair value
liability

 
Protection
sold (A)

 
Protection
sold –
non-
investment
grade

 
Protection
purchased
with
identical
underlyings (B)

 
Net
protection
sold
(A) - (B)

 
Other
protection
purchased

 
Range of
maturities
September 30, 2018
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps on:
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
$
23

 
1,906

 
391

 
1,266

 
640

 
1,300

 
2018 - 2027
Structured products
55

 
148

 
143

 
130

 
18

 
114

 
2022 - 2047
Credit protection on:
 
 
 
 
 
 
 
 
 
 
 
 
 
Default swap index
—

 
2,194

 
453

 
308

 
1,886

 
3,824

 
2018 - 2028
Commercial mortgage-backed securities index
53

 
402

 
122

 
375

 
27

 
51

 
2047 - 2058
Asset-backed securities index
9

 
43

 
43

 
42

 
1

 
1

 
2045 - 2046
Other
1

 
4,492

 
4,372

 
—

 
4,492

 
10,663

 
2018 - 2038
Total credit derivatives
$
141

 
9,185

 
5,524

 
2,121

 
7,064

 
15,953

 
 
December 31, 2017
 
 
 
 
 
 
 
 
 
 
 
 
 
Credit default swaps on:
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate bonds
$
35

 
2,007

 
510

 
1,575

 
432

 
946

 
2018 - 2027
Structured products
86

 
267

 
252

 
232

 
35

 
153

 
2022 - 2047
Credit protection on:
 
 
 
 
 
 
 
 
 
 
 
 
 
Default swap index
—

 
2,626

 
540

 
308

 
2,318

 
3,932

 
2018 - 2027
Commercial mortgage-backed securities index
83

 
423

 
—

 
401

 
22

 
87

 
2047 - 2058
Asset-backed securities index
9

 
42

 
—

 
42

 
—

 
1

 
2045 - 2046
Other
1

 
3,656

 
3,306

 
—

 
3,656

 
9,840

 
2018 - 2031
Total credit derivatives
$
214

 
9,021

 
4,608

 
2,558

 
6,463

 
14,959

 
 

Protection sold represents the estimated maximum exposure to loss that would be incurred under an assumed hypothetical circumstance, where the value of our interests and any associated collateral declines to zero, without any consideration of recovery or offset from any economic hedges. We believe this hypothetical circumstance to be a remote possibility and accordingly, this required disclosure is not an indication of expected loss. The amounts under non-investment grade represent the notional amounts of those credit derivatives on which we have a higher risk of being required to perform under the terms of the credit derivative and are a function of the underlying assets.
We consider the risk of performance to be high if the underlying assets under the credit derivative have an external rating that is below investment grade or an internal credit default grade that is equivalent thereto. We believe the net protection sold, which is representative of the net notional amount of protection sold and purchased with identical underlyings, in combination with other protection purchased, is more representative of our exposure to loss than either non-investment grade or protection sold. Other protection purchased represents additional protection, which may offset the exposure to loss for protection sold, that was not purchased with an identical underlying of the protection sold.

Credit-Risk Contingent Features
Certain of our derivative contracts contain provisions whereby if the credit rating of our debt were to be downgraded by certain major credit rating agencies, the counterparty could demand additional collateral or require termination or replacement of derivative instruments in a net liability position. The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a net liability position was $7.7 billion at September 30, 2018, and $8.3 billion at December 31, 2017, for which we posted $5.9 billion and $7.1 billion, respectively, in collateral in the normal course of business. A credit rating below investment grade is the credit-risk-related contingent feature that if triggered requires the maximum amount of collateral to be posted. If the credit rating of our debt had been downgraded below investment grade, on September 30, 2018, or December 31, 2017, we would have been required to post additional collateral of $1.8 billion or $1.2 billion, respectively, or potentially settle the contract in an amount equal to its fair value. Some contracts require that we provide more collateral than the fair value of derivatives that are in a net liability position if a downgrade occurs.

Counterparty Credit Risk
By using derivatives, we are exposed to counterparty credit risk if counterparties to the derivative contracts do not perform as expected. If a counterparty fails to perform, our counterparty credit risk is equal to the amount reported as a derivative asset on our balance sheet. The amounts reported as a derivative asset are derivative contracts in a gain position, and to the extent subject to legally enforceable master netting arrangements, net of derivatives in a loss position with the same counterparty and cash collateral received. We minimize counterparty credit risk through credit approvals, limits, monitoring procedures, executing master netting arrangements and obtaining collateral, where appropriate. To the extent the master netting arrangements and other criteria meet the applicable requirements, including determining the legal enforceability of the arrangement, it is our policy to present derivative balances and related cash collateral amounts net on the balance sheet. We incorporate credit valuation adjustments (CVA) to reflect counterparty credit risk in determining the fair value of our derivatives. Such adjustments, which consider the effects of enforceable master netting agreements and collateral arrangements, reflect market-based views of the credit quality of each counterparty. Our CVA calculation is determined based on observed credit spreads in the credit default swap market and indices indicative of the credit quality of the counterparties to our derivatives.