Guarantee Arrangements, Pledged Assets and Repurchase Agreements (Tables)

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

Carrying Value and Contractual Amounts of our Sell Protection Credit Derivatives and Major Off-Balance Sheet Guarantee Arrangements

The following table presents total carrying value and contractual amounts of our sell protection credit derivatives and major off-balance sheet guarantee arrangements at September 30, 2016 and December 31, 2015. Following the table is a description of the various arrangements.



	September 30, 2016					December 31, 2015
	Carrying Value			Notional / Maximum Exposure to Loss		Carrying Value			Notional / Maximum Exposure to Loss
	(in millions)
Credit derivatives⁽¹⁾⁽⁴⁾	$	(682	)	$	68,248	$	(2,621	)	$	91,435
Financial standby letters of credit, net of participations⁽²⁾⁽³⁾	—			5,539		—			5,842
Performance standby letters of credit, net of participations⁽²⁾⁽³⁾	—			2,887		—			3,008
Liquidity asset purchase agreements⁽³⁾	—			—		—			3,362
Total	$	(682	)	$	76,674	$	(2,621	)	$	103,647


⁽¹⁾	Includes $38,642 million and $44,130 million of notional issued for the benefit of HSBC affiliates at September 30, 2016 and December 31, 2015, respectively.


⁽²⁾	Includes $1,204 million and $910 million issued for the benefit of HSBC affiliates at September 30, 2016 and December 31, 2015, respectively.


⁽³⁾	For standby letters of credit and liquidity asset purchase agreements, maximum loss represents losses to be recognized assuming the letter of credit and liquidity facilities have been fully drawn and the obligors have defaulted with zero recovery.


⁽⁴⁾	For credit derivatives, the maximum loss is represented by the notional amounts without consideration of mitigating effects from collateral or recourse arrangements.

Net Credit Derivative Positions

The following table summarizes our net credit derivative positions at September 30, 2016 and December 31, 2015:



	September 30, 2016					December 31, 2015
	Carrying / Fair Value			Notional		Carrying / Fair Value			Notional
	(in millions)
Sell-protection credit derivative positions	$	(682	)	$	68,248	$	(2,621	)	$	91,435
Buy-protection credit derivative positions	889			75,267		2,789			96,635
Net position⁽¹⁾	$	207		$	7,019	$	168		$	5,200

⁽¹⁾

Positions are presented net in the table above to provide a complete analysis of our risk exposure and depict the way we manage our credit derivative portfolio. The offset of the sell-protection credit derivatives against the buy-protection credit derivatives may not be legally binding in the absence of master netting agreements with the same counterparty. Furthermore, the credit loss triggering events for individual sell protection credit derivatives may not be the same or occur in the same period as those of the buy protection credit derivatives thereby not providing an exact offset.

Summary of Credit Ratings of Credit Risk Related Guarantees

The following table summarizes the credit ratings related to guarantees including the ratings of counterparties against which we sold credit protection and financial standby letters of credit at September 30, 2016 as an indicative proxy of payment risk:



	Average Life (in years)	Credit Ratings of the Obligors or the Transactions
Notional/Contractual Amounts	Average Life (in years)	Investment Grade		Non-Investment Grade		Total
		(dollars are in millions)
Sell-protection Credit Derivatives⁽¹⁾
Single name credit default swaps ("CDS")	2.3	$	35,310	$	18,357	$	53,667
Structured CDS	0.8	3,719		491		4,210
Index credit derivatives	3.3	4,077		3,107		7,184
Total return swaps	2.6	2,837		351		3,188
Subtotal		45,943		22,306		68,249
Standby Letters of Credit⁽²⁾	1.0	5,597		2,829		8,426
Total		$	51,540	$	25,135	$	76,675


⁽¹⁾	The credit ratings in the table represent external credit ratings for classification as investment grade and non-investment grade.


⁽²⁾	External ratings for most of the obligors are not available. Presented above are the internal credit ratings which are developed using similar methodologies and rating scale equivalent to external credit ratings for purposes of classification as investment grade and non-investment grade.

Summary of Change in Estimated Repurchase Liability for Loans Sold to GSEs and Other Third Parties

The following table summarizes the change in our estimated repurchase liability during the three and nine months ended September 30, 2016 and 2015 for obligations arising from the breach of representations and warranties associated with mortgage loans sold:



	Three Months Ended September 30,						Nine Months Ended September 30,
	2016			2015			2016			2015
	(in millions)
Balance at beginning of period	$	13		$	21		$	17		$	27
Decrease in liability recorded through earnings	—			(2		)	(3		)	(7		)
Realized losses	(1		)	—			(2		)	(1		)
Balance at end of period	$	12		$	19		$	12		$	19

Summary of Pledged Assets Included in Consolidated Balance Sheet

Pledged assets included in the consolidated balance sheet consisted of the following:



	September 30, 2016		December 31, 2015
	(in millions)
Interest bearing deposits with banks	$	1,274	$	676
Trading assets⁽¹⁾	3,323		3,802
Securities available-for-sale⁽²⁾	10,417		11,092
Securities held-to-maturity	3,718		3,293
Loans⁽³⁾	18,135		17,880
Other assets⁽⁴⁾	644		1,765
Total	$	37,511	$	38,508


⁽¹⁾	Trading assets are primarily pledged against liabilities associated with repurchase agreements.


⁽²⁾	Securities available-for-sale are primarily pledged against derivatives, public fund deposits, trust deposits and various short-term and long term borrowings, as well as providing capacity for potential secured borrowings from the Federal Home Loan Bank of New York ("FHLB") and the Federal Reserve Bank of New York.


⁽³⁾	Loans are primarily residential mortgage loans pledged against current and potential borrowings from the FHLB and the Federal Reserve Bank of New York.


⁽⁴⁾	Other assets represent cash on deposit with non-banks related to derivative collateral support agreements.

Offsetting Assets and Liabilities

The following table provides information about resale and repurchase agreements that are subject to offset at September 30, 2016 and December 31, 2015:



							Gross Amounts Not Offset in the Balance Sheet
	Gross Amounts Recognized		Gross Amounts Offset in the Balance Sheet⁽¹⁾		Net Amounts Presented in the Balance Sheet		Financial Instruments ⁽²⁾		Cash Collateral Received / Pledged		Net Amount ⁽³⁾
	(in millions)
At September 30, 2016:
Assets:
Securities purchased under resale agreements	$	32,118	$	1,404	$	30,714	$	30,680	$	—	$	34
Liabilities:
Securities sold under repurchase agreements	$	5,390	$	1,404	$	3,986	$	3,986	$	—	$	—

At December 31, 2015:
Assets:
Securities purchased under resale agreements	$	25,058	$	5,211	$	19,847	$	19,845	$	—	$	2
Liabilities:
Securities sold under repurchase agreements	$	8,197	$	5,211	$	2,986	$	2,954	$	—	$	32


⁽¹⁾	Represents recognized amount of resale and repurchase agreements with counterparties subject to legally enforceable netting agreements that meet the applicable netting criteria as permitted by generally accepted accounting principles.


⁽²⁾	Represents securities received or pledged to cover financing transaction exposures.


⁽³⁾	Represents the amount of our exposure that is not collateralized / covered by pledged collateral.

Class of Collateral Pledged and Remaining Contractual Maturity of Repurchase Agreements Accounted for as Secured Borrowings

The following table provides the class of collateral pledged and remaining contractual maturity of repurchase agreements accounted for as secured borrowings at September 30, 2016 and December 31, 2015:



	Overnight and Continuous		Up to 30 Days		31 to 90 Days		91 Days to One Year		Greater Than One Year		Total
	(in millions)
At September 30, 2016:
U.S. Treasury, U.S. Government agency and sponsored entity securities	$	1,404	$	311	$	—	$	368	$	3,307	$	5,390

At December 31, 2015:
U.S. Treasury, U.S. Government agency and sponsored entity securities	$	1,764	$	3,457	$	—	$	—	$	2,976	$	8,197