Offsetting of Assets and Liabilities

9 Months Ended

Sep. 30, 2020

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Northern Trust has elected to net derivative assets and liabilities when legally enforceable master netting arrangements or similar agreements exist between Northern Trust and the counterparty.

The following table provides information regarding the offsetting of derivative assets and securities purchased under agreements to resell within the consolidated balance sheets as of September 30, 2020 and December 31, 2019.

TABLE 79: OFFSETTING OF DERIVATIVE ASSETS AND SECURITIES PURCHASED UNDER AGREEMENTS TO RESELL


	SEPTEMBER 30, 2020
(In Millions)	GROSS RECOGNIZED ASSETS		GROSS AMOUNTS OFFSET IN THE BALANCE SHEET⁽²⁾		NET AMOUNTS PRESENTED IN THE BALANCE SHEET		GROSS AMOUNTS NOT OFFSET IN THE BALANCE SHEET		NET AMOUNT⁽⁴⁾
Derivative Assets⁽¹⁾
Foreign Exchange Contracts Over the Counter (OTC)	$	1,764.3	$	1,405.7	$	358.6	$	29.7	$	328.9
Interest Rate Swaps OTC	333.7		2.6		331.1		—		331.1

Total Derivatives Subject to a Master Netting Arrangement	2,098.0		1,408.3		689.7		29.7		660.0
Total Derivatives Not Subject to a Master Netting Arrangement	515.2		—		515.2		0.9		514.3
Total Derivatives	2,613.2		1,408.3		1,204.9		30.6		1,174.3
Securities Purchased under Agreements to Resell⁽³⁾	$	1,533.4	$	—	$	1,533.4	$	1,533.4	$	—


	DECEMBER 31, 2019
(In Millions)	GROSS RECOGNIZED ASSETS		GROSS AMOUNTS OFFSET IN THE BALANCE SHEET⁽²⁾		NET AMOUNTS PRESENTED IN THE BALANCE SHEET		GROSS AMOUNTS NOT OFFSET IN THE BALANCE SHEET		NET AMOUNT⁽⁴⁾
Derivative Assets⁽¹⁾
Foreign Exchange Contracts OTC	$	2,691.1	$	2,334.1	$	357.0	$	16.5	$	340.5
Interest Rate Swaps OTC	151.9		3.9		148.0		—		148.0
Interest Rate Swaps Exchange Cleared	1.0		—		1.0		—		1.0
Total Derivatives Subject to a Master Netting Arrangement	2,844.0		2,338.0		506.0		16.5		489.5
Total Derivatives Not Subject to a Master Netting Arrangement	543.7		—		543.7		0.3		543.4
Total Derivatives	3,387.7		2,338.0		1,049.7		16.8		1,032.9
Securities Purchased under Agreements to Resell⁽³⁾	$	707.8	$	—	$	707.8	$	707.8	$	—

⁽¹⁾Derivative assets are reported in Other Assets on the consolidated balance sheets. Other Assets (excluding derivative assets) totaled $7.3 billion and $7.4 billion as of September 30, 2020 and December 31, 2019, respectively.

⁽²⁾Including cash collateral received from counterparties.

⁽³⁾Securities purchased under agreements to resell are reported in Federal Funds Sold and Securities Purchased under Agreements to Resell on the consolidated balance sheets. There were no Federal Funds Sold as of September 30, 2020 and $5.0 million of Federal Funds Sold as of December 31, 2019.

⁽⁴⁾Northern Trust did not possess any cash collateral that was not offset in the consolidated balance sheets that could have been used to offset the net amounts presented in the consolidated balance sheets as of September 30, 2020 and December 31, 2019.

The following table provides information regarding the offsetting of derivative liabilities and securities sold under agreements to repurchase within the consolidated balance sheets as of September 30, 2020 and December 31, 2019.

TABLE 80: OFFSETTING OF DERIVATIVE LIABILITIES AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE


	SEPTEMBER 30, 2020
(In Millions)	GROSS RECOGNIZED LIABILITIES		GROSS AMOUNTS OFFSET IN THE BALANCE SHEET⁽²⁾		NET AMOUNTS PRESENTED IN THE BALANCE SHEET		GROSS AMOUNTS NOT OFFSET IN THE BALANCE SHEET		NET AMOUNT⁽³⁾
Derivative Liabilities⁽¹⁾
Foreign Exchange Contracts OTC	$	1,969.2	$	1,493.6	$	475.6	$	—	$	475.6
Interest Rate Swaps OTC	142.3		109.7		32.6		—		32.6

Other Financial Derivatives	32.3		—		32.3		—		32.3
Total Derivatives Subject to a Master Netting Arrangement	2,143.8		1,603.3		540.5		—		540.5
Total Derivatives Not Subject to a Master Netting Arrangement	357.0		—		357.0		—		357.0
Total Derivatives	2,500.8		1,603.3		897.5		—		897.5
Securities Sold under Agreements to Repurchase	$	269.8	$	—	$	269.8	$	269.8	$	—


	DECEMBER 31, 2019
(In Millions)	GROSS RECOGNIZED LIABILITIES		GROSS AMOUNTS OFFSET IN THE BALANCE SHEET⁽²⁾		NET AMOUNTS PRESENTED IN THE BALANCE SHEET		GROSS AMOUNTS NOT OFFSET IN THE BALANCE SHEET		NET AMOUNT⁽³⁾
Derivative Liabilities⁽¹⁾
Foreign Exchange Contracts OTC	$	2,181.6	$	1,548.6	$	633.0	$	0.1	$	632.9
Interest Rate Swaps OTC	96.7		57.3		39.4		—		39.4
Interest Rate Swaps Exchange Cleared	0.7		—		0.7		—		0.7
Other Financial Derivatives	33.4		12.5		20.9		—		20.9
Total Derivatives Subject to a Master Netting Arrangement	2,312.4		1,618.4		694.0		0.1		693.9
Total Derivatives Not Subject to a Master Netting Arrangement	1,000.6		—		1,000.6		—		1,000.6
Total Derivatives	3,313.0		1,618.4		1,694.6		0.1		1,694.5
Securities Sold under Agreements to Repurchase	$	489.7	$	—	$	489.7	$	489.7	$	—

⁽¹⁾Derivative liabilities are reported in Other Liabilities on the consolidated balance sheets. Other Liabilities (excluding derivative liabilities) totaled $3.6 billion and $3.1 billion as of September 30, 2020 and December 31, 2019, respectively.

⁽²⁾Including cash collateral deposited with counterparties.

⁽³⁾Northern Trust did not place any cash collateral with counterparties that was not offset in the consolidated balance sheets that could have been used to offset the net amounts presented in the consolidated balance sheets as of September 30, 2020 and December 31, 2019.

All of Northern Trust’s securities sold under agreements to repurchase (repurchase agreements) and securities purchased under agreements to resell (reverse repurchase agreements) involve the transfer of financial assets in exchange for cash subject to a right and obligation to repurchase those assets for an agreed upon amount. In the event of a repurchase failure, the cash or financial assets are available for offset. All of Northern Trust’s repurchase agreements and reverse repurchase agreements are subject to a master netting arrangement, which sets forth the rights and obligations for repurchase and offset. Under the master netting arrangement, Northern Trust is entitled to offset receivables from and collateral placed with a single counterparty against obligations owed to that counterparty. In addition, collateral held by Northern Trust can be offset against receivables from that counterparty. However, Northern Trust’s repurchase agreements and reverse repurchase agreements do not meet the requirements to net under GAAP.

Derivative asset and liability positions with a single counterparty can be offset against each other in cases where legally enforceable master netting arrangements or similar agreements exist. Derivative assets and liabilities can be further offset by cash collateral received from, and deposited with, the transacting counterparty. The basis for this view is that, upon termination of transactions subject to a master netting arrangement or similar agreement, the individual derivative receivables do not represent resources to which general creditors have rights and individual derivative payables do not represent claims that are equivalent to the claims of general creditors.

Credit risk associated with derivative instruments relates to the failure of the counterparty and the failure of Northern Trust to pay based on the contractual terms of the agreement, and is generally limited to the unrealized fair value gains and losses on these instruments, net of any collateral received or deposited. The amount of credit risk will increase or decrease during the lives of the instruments as interest rates, foreign exchange rates, or equity prices fluctuate. Northern Trust’s risk is controlled by

limiting such activity to an approved list of counterparties and by subjecting such activity to the same credit and quality controls as are followed in lending and investment activities. Credit Support Annexes and other similar agreements are currently in place with a number of Northern Trust’s counterparties which mitigate the aforementioned credit risk associated with derivative activity conducted with those counterparties by requiring that significant net unrealized fair value gains be supported by collateral placed with Northern Trust.

Additional cash collateral received from and deposited with derivative counterparties totaling $281.0 million and $280.8 million, respectively, as of September 30, 2020, and $196.3 million and $2.0 million, respectively, as of December 31, 2019, was not offset against derivative assets and liabilities in the consolidated balance sheets as the amounts exceeded the net derivative positions with those counterparties.

Certain master netting arrangements Northern Trust enters into with derivative counterparties contain credit-risk-related contingent features in which the counterparty has the option to declare Northern Trust in default and accelerate cash settlement of net derivative liabilities with the counterparty in the event Northern Trust’s credit rating falls below specified levels. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a liability position was $565.5 million and $766.2 million at September 30, 2020 and December 31, 2019, respectively. Cash collateral amounts deposited with derivative counterparties on those dates included $184.4 million and $327.1 million, respectively, posted against these liabilities, resulting in a net maximum amount of termination payments that could have been required at September 30, 2020 and December 31, 2019, of $381.1 million and $439.1 million, respectively. Accelerated settlement of these liabilities would not have a material effect on the consolidated financial position or liquidity of Northern Trust.