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Derivative Financial Instruments
 12 Months Ended
Dec. 31, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivative Financial Instruments Derivative Financial Instruments
In the normal course of business, the derivative instruments we enter into are for trading, market making and risk management purposes. For financial reporting purposes, derivative instruments are designated in one of the following categories: (a) hedging instruments designated as qualifying hedges under derivative and hedge accounting principles, (b) financial instruments held for trading or (c) non-qualifying economic hedges. The derivative instruments held are predominantly swaps, futures, options and forward contracts. All derivatives are stated at fair value. Where we enter into enforceable master netting agreements with counterparties, the master netting agreements permit us to net those derivative asset and liability positions and to offset cash collateral held and posted with the same counterparty.
The following table presents the fair value of derivative contracts by major product type on a gross basis. Gross fair values exclude the effects of both counterparty netting as well as collateral, and therefore are not representative of our exposure. The table below also presents the amounts of counterparty netting and cash collateral that have been offset in the consolidated balance sheet, as well as cash and securities collateral posted and received under enforceable master netting agreements that do not meet the criteria for netting. Derivative assets and liabilities which are not subject to an enforceable master netting agreement, or are subject to a netting agreement where an appropriate legal opinion to determine such agreements are enforceable has not been either sought or obtained, have not been netted in the following table. Where we have received or posted collateral under netting agreements where an appropriate legal opinion to determine such agreements are enforceable has not been either sought or obtained, the related collateral also has not been netted in the following table.
December 31, 2020December 31, 2019
Derivative AssetsDerivative LiabilitiesDerivative AssetsDerivative Liabilities
(in millions)
Derivatives accounted for as fair value hedges(1)
OTC-cleared(2)
$— $— $— $1 
Bilateral OTC(2)
— 2 — 164 
Interest rate contracts— 2 — 165 
Derivatives accounted for as cash flow hedges(1)
Foreign exchange contracts - bilateral OTC(2)
— 53 16 20 
Interest rate contracts - bilateral OTC(2)
— — — 1 
Total derivatives accounted for as hedges— 55 16 186 
Trading derivatives not accounted for as hedges(3)
Exchange-traded(2)
14 9 110 3 
OTC-cleared(2)
— 58 167 29 
Bilateral OTC(2)
6,584 6,555 11,990 13,324 
Interest rate contracts(4)
6,598 6,622 12,267 13,356 
Exchange-traded(2)
— — 80 — 
OTC-cleared (2)
168 — — — 
Bilateral OTC(2)
18,299 18,549 16,440 15,786 
Foreign exchange contracts18,467 18,549 16,520 15,786 
Equity contracts - Bilateral OTC(2)
4,009 4,200 3,753 3,993 
Exchange-traded(2)
— 28 71 80 
Bilateral OTC(2)
1,323 1,550 1,087 1,309 
Precious metals contracts1,323 1,578 1,158 1,389 
OTC-cleared(2)
— — 1 — 
Bilateral OTC(2)
367 233 1,138 1,024 
Credit contracts367 233 1,139 1,024 
Other non-qualifying derivatives not accounted for as hedges(1)
Interest rate contracts - bilateral OTC(2)
89 1 128 51 
Foreign exchange contracts - bilateral OTC(2)
— 1 — — 
Equity contracts - bilateral OTC(2)
1,607 91 1,354 75 
OTC-cleared(2)
— 14 — — 
Bilateral OTC(2)
— 50 — 44 
Credit contracts— 64 — 44 
Other contracts - bilateral OTC(2)(5)
8 67 10 85 
Total derivatives32,468 31,461 36,345 35,989 
Less: Gross amounts of receivable / payable subject to enforceable master netting agreements(6)(8)
25,537 25,537 29,510 29,510 
Less: Gross amounts of cash collateral received / posted subject to enforceable master netting agreements(7)(8)
4,079 3,377 3,683 4,390 
Net amounts of derivative assets / liabilities presented in the balance sheet2,852 2,547 3,152 2,089 
Less: Gross amounts of financial instrument collateral received / posted subject to enforceable master netting agreements but not offset in the consolidated balance sheet
817 691 891 553 
Net amounts of derivative assets / liabilities$2,035 $1,856 $2,261 $1,536 
(1)Derivative assets / liabilities related to cash flow hedges, fair value hedges and derivative instruments held for purposes other than for trading are recorded in other assets / interest, taxes and other liabilities on the consolidated balance sheet.
(2)Over-the-counter ("OTC") derivatives include derivatives executed and settled bilaterally with counterparties without the use of an organized exchange or central clearing house. The credit risk associated with bilateral OTC derivatives is managed through obtaining collateral and enforceable master netting agreements. OTC-cleared derivatives are executed bilaterally in the OTC market but then novated to a central clearing counterparty, whereby the central clearing counterparty becomes the counterparty to each of the original counterparties. Exchange traded derivatives are executed directly on an organized exchange. Credit risk is minimized for OTC-cleared derivatives and exchange traded derivatives through daily margining requirements. In addition, OTC-cleared interest rate and credit derivatives with certain central clearing counterparties are settled daily.
(3)Trading related derivative assets / liabilities are recorded in trading assets / trading liabilities on the consolidated balance sheet.
(4)The decreases in interest rate derivative assets and liabilities at December 31, 2020 primarily reflects reduced positions driven by the exit or transfer of certain contracts as part of our Restructuring Plan. See Note 3, "Strategic Initiatives," for additional information.
(5)Consists of swap agreements entered into in conjunction with the sales of Visa Inc. ("Visa") Class B common shares ("Class B Shares").
(6)Represents the netting of derivative receivable and payable balances for the same counterparty under enforceable netting agreements.
(7)Represents the netting of cash collateral posted and received by counterparty under enforceable netting agreements.
(8)Netting is performed at a counterparty level in cases where enforceable master netting agreements are in place, regardless of the type of derivative instrument. Therefore, we have not allocated netting to the different types of derivative instruments shown in the table above.
See Note 27, "Guarantee Arrangements, Pledged Assets and Repurchase Agreements," for further information on offsetting related to resale and repurchase agreements.
Derivatives Held for Risk Management Purposes  Our risk management policy requires us to identify, analyze and manage risks arising from the activities conducted during the normal course of business. We use derivative instruments as an asset and liability management tool to manage our exposures in interest rate, foreign currency and credit risks in existing assets and liabilities, commitments and forecasted transactions. The accounting for changes in fair value of a derivative instrument will depend on whether the derivative has been designated and qualifies for hedge accounting.
We designate derivative instruments to offset the fair value risk and cash flow risk arising from fixed-rate and floating-rate assets and liabilities as well as forecasted transactions. We assess the hedging relationships, both at the inception of the hedge and on an ongoing basis, using a regression approach to determine whether the designated hedging instrument is highly effective in offsetting changes in the fair value or the cash flows attributable to the hedged risk. Accounting principles for qualifying hedges require us to prepare detailed documentation describing the relationship between the hedging instrument and the hedged item, including, but not limited to, the risk management objective, the hedging strategy and the methods to assess and measure the ineffectiveness of the hedging relationship. We discontinue hedge accounting when we determine that the hedge is no longer highly effective, the hedging instrument is terminated, sold or expired, the designated forecasted transaction is not probable of occurring, or when the designation is removed by us.
Fair Value Hedges  In the normal course of business, we hold fixed-rate loans and securities, and issue fixed-rate deposits and senior and subordinated debt obligations. The fair value of fixed-rate assets and liabilities fluctuates in response to changes in interest rates. We utilize interest rate swaps, forward and futures contracts to minimize our exposure to changes in fair value caused by interest rate volatility. The changes in the fair value of the hedged item designated in a qualifying hedge are captured as an adjustment to the carrying amount of the hedged item (basis adjustment). If the hedging relationship is discontinued and the hedged item continues to exist, the basis adjustment is amortized over the remaining life of the hedged item.
The following table presents the carrying amount of hedged items in fair value hedges recognized in the consolidated balance sheet at December 31, 2020 and 2019, along with the cumulative amount of fair value hedging adjustments included in the carrying amount of those hedged items:
 
Carrying Amount of Hedged Items(1)
Cumulative Amount of Fair Value Hedging Adjustments Increasing (Decreasing) the
Carrying Amount of Hedged Items
ActiveDiscontinuedTotal
 (in millions)
At December 31, 2020
Securities available-for-sale ("AFS")$7,966 $681 $738 $1,419 
Deposits(2)
5,214 214 — 214 
Long-term debt2,227 242 (15)227 
At December 31, 2019
Securities AFS7,277 554 428 982 
Long-term debt10,975 285 (32)253 
(1)The carrying amount of securities AFS represents the amortized cost basis.
(2)During 2020, $5.0 billion of fixed-rate senior debt obligations issued to HSBC North America were recharacterized as time deposits. The cumulative amount of fair value hedging adjustments associated with this debt was reclassified to deposits. See Note 23, "Related Party Transactions," for additional information.
The following table presents information on gains and losses on derivative instruments designated and qualifying as hedging instruments and the hedged items in fair value hedges and their locations on the consolidated statement of income (loss):
 
Gain (Loss) on Derivatives(1)
Gain (Loss) on Hedged Items(1)
Net Ineffective Gain (Loss) Recognized(1)
  
Net Interest
Income		Other IncomeNet Interest
Income		Other IncomeOther Income
 (in millions)
Year Ended December 31, 2020
Interest rate contracts / Securities AFS$(731)$— $900 $— $— 
Interest rate contracts / Deposits148 — (261)— — 
Interest rate contracts / Long-term debt165 — (261)— — 
Total$(418)$— $378 $— $— 
Year Ended December 31, 2019
Interest rate contracts / Securities AFS$(776)$— $1,086 $— $— 
Interest rate contracts / Long-term debt235 — (703)— — 
Total$(541)$— $383 $— $— 
Year Ended December 31, 2018
Interest rate contracts / Securities AFS$(41)$322 $362 $(309)$13 
Interest rate contracts / Long-term debt(58)74 (233)(74)— 
Total$(99)$396 $129 $(383)$13 
(1)As a result of adopting new accounting guidance in 2019, beginning January 1, 2019, we report gains and losses on the derivatives and the hedged items in fair value hedges in net interest income. Prior to January 1, 2019, fair value hedge ineffectiveness was separately measured and reported in other income.
Cash Flow Hedges  We own or issue floating rate financial instruments and enter into forecasted transactions that give rise to variability in future cash flows. As a part of our risk management strategy, we use interest rate swaps, currency swaps and futures contracts to mitigate risk associated with variability in the cash flows. Changes in fair value of a derivative instrument associated with a qualifying cash flow hedge are recognized in other comprehensive income. When the cash flows being hedged materialize and are recorded in income or expense, the associated gain or loss from the hedging derivative previously recorded in accumulated other comprehensive income (loss) ("AOCI") is reclassified into earnings in the same accounting period in which the designated forecasted transaction or hedged item affects earnings. If a cash flow hedge of a forecasted transaction is discontinued because it is no longer highly effective, or if the hedge relationship is terminated, the cumulative gain or loss on the hedging derivative to that date will continue to be reported in AOCI unless it is probable that the hedged forecasted transaction will not occur by the end of the originally specified time period as documented at the inception of the hedge, at which time the cumulative gain or loss is released into earnings.
At December 31, 2020, active cash flow hedge relationships extend or mature through March 2023. During 2020, $11 million of losses related to discontinued cash flow hedge relationships were amortized to earnings from AOCI compared with losses of $35 million and $23 million during 2019 and 2018, respectively. During the next twelve months, we expect to amortize $14 million of remaining losses to earnings resulting from these discontinued cash flow hedges. The interest accrual related to the hedging instruments is recognized in net interest income.
The following table presents information on gains and losses on derivative instruments designated and qualifying as hedging instruments in cash flow hedges (including amounts recognized in AOCI from discontinued cash flow hedges) and their locations on the consolidated statement of income (loss):
 
Gain (Loss) Recognized in
AOCI on Derivatives(1)
Location of Gain (Loss)
Reclassified from AOCI into Income(1)
Gain (Loss) Reclassified From
AOCI into Income(1)
202020192018202020192018
 (in millions)
Year Ended December 31,
Foreign exchange contracts$— $3 $(2)Net interest income$— $— $— 
Interest rate contracts84 (27)31 Net interest income(11)(35)(23)
Total$84 $(24)$29 $(11)$(35)$(23)
(1)As a result of adopting new accounting guidance in 2019, beginning January 1, 2019, gains and losses on the derivatives in cash flow hedges are initially reported in AOCI and then reclassified into earnings in the same accounting period in which the designated forecasted transaction or hedged item affects earnings. Prior to January 1, 2019, cash flow hedge ineffectiveness was separately measured and reported immediately in other income. Cash flow hedge ineffectiveness was immaterial during 2018.
Trading Derivatives and Non-Qualifying Hedging Activities  In addition to risk management, we also enter into derivative contracts, including buy- and sell-protection credit derivatives, for the purposes of trading and market making, or repackaging risks to form structured trades to meet clients' risk taking objectives. Additionally, we buy or sell securities and use derivatives to mitigate the market risks arising from our trading activities with our clients that exceed our risk appetite. We also use buy-protection credit derivatives to manage our counterparty credit risk exposure. Where we enter into derivatives for trading purposes, realized and unrealized gains and losses are recognized in trading revenue. Counterparty credit risk associated with OTC derivatives, including risk-mitigating buy-protection credit derivatives, are recognized as an adjustment to the fair value of the derivatives and are recorded in trading revenue.
Our non-qualifying hedging and other activities include:
•Derivative contracts related to the fixed-rate long-term debt issuances and hybrid instruments, including all structured notes and deposits, for which we have elected fair value option accounting. These derivative contracts are non-qualifying hedges but are considered economic hedges.
•Credit default swaps which are designated as economic hedges against the credit risks within our loan portfolio. In the event of an impairment loss occurring in a loan that is economically hedged, the impairment loss is recognized as provision for credit losses while the gain on the credit default swap is recorded as other income.
•Swap agreements entered into in conjunction with the sales of Visa Class B Shares to a third party to retain the litigation risk associated with the Class B Shares sold until the related litigation is settled and the Class B Shares can be converted into Class A common shares ("Class A Shares"). See Note 27, "Guarantee Arrangements, Pledged Assets and Repurchase Agreements," for additional information.
•Forward purchases or sales of to-be-announced ("TBA") securities used to economically hedge changes in the fair value of agency-eligible residential mortgage loans held for sale attributable to changes in market interest rates. Changes in the fair value of TBA positions, which are considered derivatives, are recorded in other income. See Note 8, "Loans Held for Sale," for additional information.
Derivative instruments designated as economic hedges that do not qualify for hedge accounting are recorded at fair value through profit and loss. Realized and unrealized gains and losses on economic hedges are recognized in gain (loss) on instruments designated at fair value and related derivatives or other income while the derivative asset or liability positions are reflected as other assets or other liabilities.
The following table presents information on gains and losses on derivative instruments held for trading purposes and their locations on the consolidated statement of income (loss):
 Location of Gain (Loss)
Recognized in Income on Derivatives		Gain (Loss) Recognized in Income on Derivatives
Year Ended December 31,
202020192018
 (in millions)
Interest rate contractsTrading revenue$396 $(89)$303 
Foreign exchange contractsTrading revenue(747)310 105 
Equity contractsTrading revenue57 (496)100 
Precious metals contractsTrading revenue594 312 376 
Credit contractsTrading revenue(556)(445)(52)
Total$(256)$(408)$832 
The significant gains and losses recognized in trading revenue on derivatives during 2020 primarily reflects the impact of market volatility driven by the COVID-19 pandemic.
The following table presents information on gains and losses on derivative instruments held for non-qualifying hedging and other activities and their locations on the consolidated statement of income (loss):
 Location of Gain (Loss)
Recognized in Income on Derivatives		Gain (Loss) Recognized in Income on Derivatives
Year Ended December 31,
202020192018
 (in millions)
Interest rate contractsGain (loss) on instruments designated at fair value and related derivatives$229 $364 $(120)
Interest rate contractsOther income(6)(1)(1)
Foreign exchange contractsGain (loss) on instruments designated at fair value and related derivatives(1)(3)(11)
Equity contractsGain (loss) on instruments designated at fair value and related derivatives592 1,809 (981)
Credit contractsGain (loss) on instruments designated at fair value and related derivatives37 — — 
Credit contractsOther income(18)(24)(3)
Other contracts(1)
Other income(9)(63)(15)
Total$824 $2,082 $(1,131)
(1)Consists of swap agreements entered into in conjunction with the sales of Visa Class B Shares.
Credit-Risk Related Contingent Features  The majority of our derivative contracts contain provisions that require us to maintain a specific credit rating from each of the major credit rating agencies. Sometimes the derivative instrument transactions are a part of broader structured product transactions. If our credit ratings were to fall below the current ratings, the counterparties to our derivative instruments could demand us to post additional collateral. The amount of additional collateral required to be posted will depend on whether we are downgraded by one or more notches. The aggregate fair value of all derivative instruments with credit-risk related contingent features that were in a net liability position at December 31, 2020 was $221 million, for which we had posted collateral of $67 million. The aggregate fair value of all derivative instruments with credit-risk-related contingent features that were in a net liability position at December 31, 2019 was $611 million, for which we had posted collateral of $316 million. Substantially all of the collateral posted is in the form of cash or securities available-for-sale. See Note 27, "Guarantee Arrangements, Pledged Assets and Repurchase Agreements," for further details.
The following table presents the amount of additional collateral that we would be required to post (from the current collateral level) related to derivative instruments with credit-risk related contingent features if our long-term ratings were downgraded by one or two notches. A downgrade by a single rating agency that does not result in a rating lower than a preexisting corresponding rating provided by another rating agency will generally not result in additional collateral.
One-notch downgradeTwo-notch downgrade
 (in millions)
Amount of additional collateral to be posted upon downgrade$— $121 
Notional Value of Derivative Contracts  The following table summarizes the notional values of derivative contracts:
At December 31,20202019
 (in millions)
Interest rate:
Futures and forwards$37,098 $597,980 
Swaps406,609 2,130,442 
Options written33,269 158,861 
Options purchased32,427 164,265 
Total interest rate509,403 3,051,548 
Foreign exchange:
Swaps, futures and forwards1,195,449 1,362,959 
Options written53,200 44,876 
Options purchased53,595 46,085 
Spot57,040 67,060 
Total foreign exchange1,359,284 1,520,980 
Commodities, equities and precious metals:
Swaps, futures and forwards54,458 55,678 
Options written17,078 39,035 
Options purchased27,083 49,517 
Total commodities, equities and precious metals98,619 144,230 
Credit derivatives52,611 90,049 
Other contracts(1)
1,216 1,044 
Total$2,021,133 $4,807,851 
(1)Consists of swap agreements entered into in conjunction with the sales of Visa Class B Shares.