Fair Value Measurements

9 Months Ended

Sep. 30, 2011

Fair Value Option And Fair Value Measurements [Abstract]

Fair Value Measurements

20.  Fair Value Measurements

Accounting principles related to fair value measurements provide a framework for measuring fair value and focuses on an exit price in the principal (or alternatively, the most advantageous) market accessible in an orderly transaction between willing market participants (the “Fair Value Framework”). The Fair Value Framework establishes a three-tiered fair value hierarchy with Level 1 representing quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs are inputs that are observable for the identical asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are inactive, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. Level 3 inputs are unobservable inputs for the asset or liability and include situations where there is little, if any, market activity for the asset or liability. Transfers between leveling categories are recognized at the end of each reporting period.

Fair Value of Financial Instruments The fair value estimates, methods and assumptions set forth below for our financial instruments, including those financial instruments carried at cost, are made solely to comply with disclosures required by generally accepted accounting principles in the United States and should be read in conjunction with the financial statements and notes included in this quarterly report.

The following table summarizes the carrying amount and estimated fair value of our financial instruments at September 30, 2011 and December 31, 2010.

	September 30, 2011				December 31, 2010
	Carrying		Fair		Carrying		Fair
	Value		Value		Value		Value
			(in millions)
Financial assets:
Short-term financial assets	$	23,438	$	23,438	$	10,665	$	10,665
Federal funds sold and securities purchased under resale agreements		5,095		5,095		8,236		8,236
Non-derivative trading assets		31,746		31,746		26,390		26,390
Derivatives		9,772		9,772		6,891		6,891
Securities		54,881		55,158		48,713		48,923
Commercial loans, net of allowance for credit losses		31,156		31,393		29,480		29,773
Commercial loans designated under fair value option and held for sale		934		934		1,356		1,356
Consumer loans, net of allowance for credit losses		17,695		14,010		19,477		14,668
Consumer loans held for sale:
Residential mortgages		2,011		2,022		954		957
Credit cards		415		422		-		-
Other consumer		241		241		80		80
Financial liabilities:
Short-term financial liabilities	$	22,440	$	22,440	$	18,031	$	18,031
Deposits:
Without fixed maturities		116,627		116,627		95,457		95,457
Fixed maturities		6,623		6,644		17,808		17,845
Deposits designated under fair value option		9,626		9,626		7,386		7,386
Non-derivative trading liabilities		7,191		7,191		5,538		5,538
Derivatives		7,915		7,915		5,285		5,285
Long-term debt		14,364		14,356		11,862		12,026
Long-term debt designated under fair value option		4,221		4,221		5,368		5,368

Loan values presented in the table above were determined using the Fair Value Framework for measuring fair value, which is based on our best estimate of the amount within a range of value we believe would be received in a sale as of the balance sheet date (i.e. exit price). The secondary market demand and estimated value for our loans has been heavily influenced by the prevailing economic conditions during the past few years, including house price depreciation, rising unemployment, changes in consumer behavior, and changes in discount rates. Many investors are non-bank financial institutions or hedge funds with high equity levels and a high cost of debt. For certain consumer loans, investors incorporate numerous assumptions in predicting cash flows, such as higher charge-off levels and/or slower voluntary prepayment speeds than we, as the servicer of these loans, believe will ultimately be the case. The investor discount rates reflect this difference in overall cost of capital as well as the potential volatility in the underlying cash flow assumptions, the combination of which may yield a significant pricing discount from our intrinsic value. The estimated fair values at September 30, 2011 and December 31, 2010 reflect these market conditions.

Assets and Liabilities Recorded at Fair Value on a Recurring Basis The following table presents information about our assets and liabilities measured at fair value on a recurring basis as of September 30, 2011 and December 31, 2010, and indicates the fair value hierarchy of the valuation techniques utilized to determine such fair value.

	Fair Value Measurements on a Recurring Basis as of September 30, 2011
							Gross					Net
	Level 1		Level 2		Level 3		Balance		Netting(1)			Balance
	(in millions)
Assets:
Trading Securities, excluding derivatives:
U.S. Treasury, U.S. Government agencies and sponsored enterprises	$	1,036	$	143	$	-	$	1,179	$	-		$	1,179
Collateralized debt obligations		-		-		707		707		-			707
Asset-backed securities:
Residential mortgages		-		286		-		286		-			286
Home equity		-		2		-		2		-			2
Student loans		-		2		-		2		-			2
Corporate and other domestic debt securities		-		10,410		1,642		12,052		-			12,052
Debt Securities issued by foreign entities:
Corporate		-		60		237		297		-			297
Government		-		146		-		146		-			146
Equity securities		-		28		12		40		-			40
Precious metals trading		-		17,035		-		17,035		-			17,035
Derivatives(2):
Interest rate contracts		133		60,755		12		60,900		-			60,900
Foreign exchange contracts		23		24,544		224		24,791		-			24,791
Equity contracts		3		976		122		1,101		-			1,101
Precious metals contracts		79		2,180		36		2,295		-			2,295
Credit contracts		-		15,480		2,422		17,902		-			17,902
Other contracts		3		-		-		3		-			3
Derivatives netting		-		-		-		-		(97,220	)		(97,220	)
Total derivatives		241		103,935		2,816		106,992		(97,220	)		9,772
Securities available-for-sale:
U.S. Treasury, U.S. Government agencies and sponsored enterprises		27,210		16,349		-		43,559		-			43,559
Obligations of U.S. states and political subdivisions		-		596		-		596		-			596
Asset-backed securities:
Residential mortgages		-		11		-		11		-			11
Commercial mortgages		-		478		-		478		-			478
Home equity		-		293		-		293		-			293
Student loans		-		23		-		23		-			23
Other		-		95		-		95		-			95
Corporate and other domestic debt securities		-		604		-		604		-			604
Debt Securities issued by foreign entities:
Corporate		-		1,262		-		1,262		-			1,262
Government-backed		39		5,655		-		5,694		-			5,694
Equity securities		-		143		-		143		-			143
Loans(3)		-		353		11		364		-			364
Intangible(4)		-		-		237		237		-			237
Total assets	$	28,526	$	157,909	$	5,662	$	192,097	$	(97,220	)	$	94,877
Liabilities:
Deposits in domestic offices(5)	$	-	$	4,695	$	4,931	$	9,626	$	-		$	9,626
Trading liabilities, excluding derivatives		378		6,813		-		7,191		-			7,191
Derivatives(2):
Interest rate contracts		89		62,310		-		62,399		-			62,399
Foreign exchange contracts		15		25,114		226		25,355		-			25,355
Equity contracts		-		1,206		277		1,483		-			1,483
Precious metals contracts		34		1,260		36		1,330		-			1,330
Credit contracts		-		16,886		754		17,640		-			17,640
Derivatives netting		-		-		-		-		(100,292	)		(100,292	)
Total derivatives		138		106,776		1,293		108,207		(100,292	)		7,915
Long-term debt(6)		-		4,109		113		4,222		-			4,222
Total liabilities	$	516	$	122,393	$	6,337	$	129,246	$	(100,292	)	$	28,954

	Fair Value Measurements on a Recurring Basis as of December 31, 2010
							Gross					Net
	Level 1		Level 2		Level 3		Balance		Netting(1)			Balance
	(in millions)
Assets:
Trading Securities, excluding derivatives:
U.S. Treasury, U.S. Government agencies and sponsored enterprises	$	1,874	$	694	$	-	$	2,568	$	-		$	2,568
Collateralized debt obligations		-		-		793		793		-			793
Asset-backed securities:
Residential mortgages		-		344		-		344		-			344
Home equity		-		6		-		6		-			6
Student loans		-		5		-		5		-			5
Corporate and other domestic debt securities		-		4,257		833		5,090		-			5,090
Debt Securities issued by foreign entities:
Corporate		-		133		243		376		-			376
Government		-		430		-		430		-			430
Equity securities		-		36		17		53		-			53
Precious metals trading		-		16,725		-		16,725		-			16,725
Derivatives(2):
Interest rate contracts		214		32,393		-		32,607		-			32,607
Foreign exchange contracts		23		16,233		207		16,463		-			16,463
Equity contracts		-		997		174		1,171		-			1,171
Precious metals contracts		-		982		22		1,004		-			1,004
Credit contracts		-		10,682		2,086		12,768		-			12,768
Other		-		-		4		4		-			4
Derivatives netting		-		-		-		-		(57,126	)		(57,126	)
Total derivatives		237		61,287		2,493		64,017		(57,126	)		6,891
Securities available-for-sale:
U.S. Treasury, U.S. Government agencies and sponsored enterprises		25,632		14,850		-		40,482		-			40,482
Obligations of U.S. states and political subdivisions		-		579		-		579		-			579
Asset-backed securities:
Residential mortgages		-		11		-		11		-			11
Commercial mortgages		-		552		-		552		-			552
Home equity		-		352		-		352		-			352
Student loans		-		27		-		27		-			27
Other		-		104		-		104		-			104
Corporate and other domestic debt securities		-		683		-		683		-			683
Debt Securities issued by foreign entities:
Government-backed		41		2,564		-		2,605		-			2,605
Equity securities		-		128		-		128		-			128
Loans(3)		-		1,277		11		1,288		-			1,288
Intangible(4)		-		-		394		394		-			394
Total assets	$	27,784	$	105,044	$	4,784	$	137,612	$	(57,126	)	$	80,486
Liabilities:
Deposits in domestic offices(5)	$	-	$	3,774	$	3,612	$	7,386	$	-		$	7,386
Trading liabilities, excluding derivatives		173		5,365		-		5,538		-			5,538
Derivatives(2):
Interest rate contracts		90		32,701		-		32,791		-			32,791
Foreign exchange contracts		15		16,520		211		16,746		-			16,746
Equity contracts		-		833		163		996		-			996
Precious metals contracts		101		1,951		21		2,073		-			2,073
Credit contracts		-		11,639		884		12,523		-			12,523
Other		8		10		5		23		-			23
Derivatives netting		-		-		-		-		(59,867	)		(59,867	)
Total derivatives		214		63,654		1,284		65,152		(59,867	)		5,285
Long-term debt(6)		-		5,067		301		5,368		-			5,368
Total liabilities	$	387	$	77,860	$	5,197	$	83,444	$	(59,867	)	$	23,577

(1)	Represents counterparty and cash collateral netting which allow the offsetting of amounts relating to certain contracts if certain conditions are met.
(2)	Includes trading derivative assets of $8.7 billion and $6.0 billion and trading derivative liabilities of $5.8 billion and $5.0 billion as of September 30, 2011 and December 31, 2010, respectively, as well as derivatives held for hedging and commitments accounted for as derivatives.
(3)	Includes leveraged acquisition finance and other commercial loans held for sale or risk-managed on a fair value basis for which we have elected to apply the fair value option. See Note 8, “Loans Held for Sale,” for further information.
(4)	Represents residential mortgage servicing rights. See Note 9, “Intangible Assets,” for further information on residential mortgage servicing rights.
(5)	Represents structured deposits risk-managed on a fair value basis for which we have elected to apply the fair value option.
(6)	Includes structured notes and own debt issuances which we have elected to measure on a fair value basis.

Significant Transfers into/out of Levels 1 and 2 There were no significant transfers between levels 1 and 2 for the three and nine months ended September 30, 2011 and 2010.

Information on Level 3 assets and liabilities The following table summarizes additional information about changes in the fair value of Level 3 assets and liabilities during the three and nine months ended September 30, 2011 and 2010. As a risk management practice, we may risk manage the Level 3 assets and liabilities, in whole or in part, using securities and derivative positions that are classified as Level 1 or Level 2 measurements within the fair value hierarchy. Since those Level 1 and Level 2 risk management positions are not included in the table below, the information provided does not reflect the effect of such risk management activities related to the Level 3 assets and liabilities.

				Total Gains and (Losses) Included in(1)
				Trading						Other										Transfers			Transfers					Current Period
	July 1,			Revenue			Other			Comprehensive										Into			Out of		Sept. 30,			Unrealized
	2011			(Loss)			Revenue			Income		Purchases		Issuances			Settlements			Level 3			Level 3		2011			Gains (Losses)
	(in millions)
Assets:
Trading assets, excluding derivatives:
Collateralized debt obligations	$	770		$	(41	)	$	-		$	-	$	7	$	-		$	(29	)	$	-		$	-	$	707		$	(48	)
Corporate and other domestic debt securities		1,615			5			-			-		22		-			-			-			-		1,642			(5	)
Corporate debt securities issued by foreign entities		271			(34	)		-			-		-		-			-			-			-		237			(33	)
Equity securities		16			(2	)		-			-		-		-			(2	)		-			-		12			(1	)
Derivatives(2):
Interest rate contracts		3			-			9			-		-		-			-			-			-		12			9
Foreign exchange contracts		1			(2	)		-			-		-		-			-			-			-		(1	)		(1	)
Equity contracts		(29	)		(173	)		-			-		-		-			(30	)		(18	)		94		(156	)		(33	)
Credit contracts		1,069			613			-			-		-		-			(13	)		-			-		1,669			598
Loans(3)		11			-			-			-		-		-			-			-			-		11			-
Other assets, excluding derivatives(4)		363			-			(134	)		-		-		-			8			-			-		237			(133	)
Total assets	$	4,090		$	366		$	(125	)	$	-	$	29	$	-		$	(66	)	$	(18	)	$	94	$	4,370		$	353
Liabilities:
Deposits in domestic offices	$	(4,719	)	$	62		$	-		$	-	$	-	$	(588	)	$	107		$	-		$	207	$	(4,931	)	$	68
Long-term debt		(685	)		113			-			-		-		(22	)		46			-			435		(113	)		10
Total liabilities	$	(5,404	)	$	175		$	-		$	-	$	-	$	(610	)	$	153		$	-		$	642	$	(5,044	)	$	78

				Total Gains and (Losses) Included in(1)
				Trading					Other										Transfers			Transfers						Current Period
	July 1,			Revenue			Other		Comprehensive										Into			Out of			Sept. 30,			Unrealized
	2010			(Loss)			Revenue		Income		Purchases		Issuances			Settlements			Level 3			Level 3			2010			Gains (Losses)
	(in millions)
Assets:
Trading assets, excluding derivatives:
Collateralized debt obligations	$	791		$	11		$	-	$	-	$	34	$	-		$	(32	)	$	-		$	-		$	804		$	1
Asset-backed securities:
Residential mortgages		560			27			-		-		1		-			(196	)		-			(7	)		385			13
Home equity		32			(17	)		-		-		12		-			(12	)		-			-			15			(17	)
Other		13			-			-		-		-		-			-			-			-			13			-
Corporate and other domestic debt securities		717			2			-		-		35		-			-			-			-			754			2
Corporate debt securities issued by foreign entities		197			32			-		-		-		-			-			-			-			229			32
Equity securities		19			(1	)		-		-		-		-			-			-			-			18			(1	)
Derivatives(2):
Foreign exchange contracts		(3	)		1			-		-		-		-			-			-			-			(2	)		1
Equity contracts		(141	)		174			-		-		-		-			(25	)		-			-			8			149
Credit contracts		1,640			(264	)		-		-		-		-			5			(46	)		(3	)		1,332			(262	)
Other		12			-			6		-		-		-			-			-			-			18			6
Securities available-for-sale:
U.S. Treasury, U.S. Government agencies and sponsored enterprises		-			-			-		-		-		-			-			4			-			4			-
Asset-backed securities:
Residential mortgages		274			-			-		2		-		-			(255	)		-			(9	)		12			-
Commercial mortgages		10			-			-		-		-		-			1			-			-			11			-
Home equity		220			-			-		3		-		-			(29	)					(1	)		193			-
Auto		7			-			-		-		-		-			(7	)		-			-			-			-
Student loans		13			-			-		-		-		-			(1	)		-			-			12			-
Other		87			-			-		-		-		-			-						-			87			-
Loans(3)		11			-			-		-		-		-			-			-			-			11			-
Other assets, excluding derivatives(4)		317			-			11		-		-		-			(30	)		-			-			298			11
Total assets	$	4,776		$	(35	)	$	17	$	5	$	82	$	-		$	(581	)	$	(42	)	$	(20	)	$	4,202		$	(65	)
Liabilities:
Deposits in domestic offices	$	(2,381	)	$	(164	)	$	-	$	-	$	-	$	(576	)	$	54		$	-		$	-		$	(3,067	)	$	(158	)
Long-term debt		(201	)		(16	)		-		-		-		(36	)		6			-			-			(247	)		(18	)
Total liabilities	$	(2,582	)	$	(180	)	$	-	$	-	$	-	$	(612	)	$	60		$	-		$	-		$	(3,314	)	$	(176	)

				Total Gains and (Losses) Included in(1)
				Trading						Other										Transfers			Transfers					Current Period
	Jan. 1,			Revenue			Other			Comprehensive										Into			Out of		Sept. 30,			Unrealized
	2011			(Loss)			Revenue			Income		Purchases		Issuances			Settlements			Level 3			Level 3		2011			Gains (Losses)
	(in millions)
Assets:
Trading assets, excluding derivatives:
Collateralized debt obligations	$	793		$	(14	)	$	-		$	-	$	100	$	-		$	(172	)	$	-		$	-	$	707		$	(31	)
Corporate and other domestic debt securities		833			-			-			-		814		-			(5	)		-			-		1,642			-
Corporate debt securities issued by foreign entities		243			(6	)		-			-		-		-			-			-			-		237			(6	)
Equity securities		17			(2	)		-			-		-		-			(3	)		-			-		12			(2	)
Derivatives(2):
Interest rate contracts		(1	)		-			13			-		-		-			-			-			-		12			13
Foreign exchange contracts		(4	)		3			-			-		-		-			-			-			-		(1	)		3
Equity contracts		12			(93	)		-			-		-		-			(188	)		33			80		(156	)		(109	)
Credit contracts		1,202			562			-			-		-		-			(157	)		-			62		1,669			441
Loans(3)		11			-			-			-		-		-			-			-			-		11			-
Other assets, excluding derivatives(4)		394			-			(189	)		-		-		-			32			-			-		237			(189	)
Total assets	$	3,500		$	450		$	(176	)	$	-	$	914	$	-		$	(493	)	$	33		$	142	$	4,370		$	120
Liabilities:
Deposits in domestic offices	$	(3,612	)	$	(29	)	$	-		$	-	$	-	$	(1,865	)	$	348		$	(25	)	$	252	$	(4,931	)	$	67
Long-term debt		(301	)		101			-			-		-		(621	)		189			(3	)		521		(114	)		12
Total liabilities	$	(3,913	)	$	72		$	-		$	-	$	-	$	(2,486	)	$	537		$	(28	)	$	773	$	(5,045	)	$	79

				Total Gains and (Losses) Included in(1)
				Trading						Other										Transfers			Transfers						Current Period
	Jan. 1,			Revenue			Other			Comprehensive										Into			Out of			Sept. 30,			Unrealized
	2010			(Loss)			Revenue			Income		Purchases		Issuances			Settlements			Level 3			Level 3			2010			Gains (Losses)
	(in millions)
Assets:
Trading assets, excluding derivatives:
Collateralized debt obligations	$	832		$	(27	)	$	-		$	-	$	269	$	-		$	(270	)	$	-		$	-		$	804		$	(94	)
Asset-backed securities:
Residential mortgages		817			106			-			-		55		-			(607	)		21			(7	)		385			19
Commercial mortgages		4			(4	)		-			-		-		-			-			-			-			-			-
Home equity		24			(65	)		-			-		228		-			(176	)		7			(3	)		15			(16	)
Other		-			-			-			-		-		-			-			13			-			13			-
Corporate and other domestic debt securities		1,202			(23	)		-			-		130		-			(371	)		-			(184	)		754			23
Corporate debt securities issued by foreign entities		195			33			-			-		-		-			1			-			-			229			33
Equity securities		21			(2	)		-			-		-		-			(1	)		-			-			18			(2	)
Derivatives(2):
Foreign exchange contracts		(95	)		(33	)		-			-		-		(3	)		129			-			-			(2	)		-
Equity contracts		81			130			-			-		-		-			(137	)		(75	)		9			8			36
Credit contracts		1,311			(112	)		-			-		-		-			(85	)		178			40			1,332			(270	)
Other		(3	)		-			22			-		-		-			(1	)		-			-			18			18
Securities available-for-sale:
U.S. Treasury, U.S. Government agencies and sponsored enterprises		3			-			-			1		-		-			(1	)		3			(2	)		4			-
Asset-backed securities:
Residential mortgages		515			-			-			17		-		-			(592	)		85			(13	)		12			-
Commercial mortgages		8			-			-			3		-		-			-			-			-			11			3
Home equity		175			-			-			58		-		-			(39	)		-			(1	)		193			47
Auto		43			-			-			-		-		-			(43	)		-			-			-			-
Student loans		-			-			-			1		-		-			(1	)		12			-			12			1
Other		-			-			-			-		-		-			-			87			-			87			-
Loans(3)		4			-			-			-		-		-			(1	)		11			(3	)		11			-
Other assets, excluding derivatives(4)		450			-			(76	)		-		-		-			(76	)		-			-			298			-
Total assets	$	5,587		$	3		$	(54	)	$	80	$	682	$	(3	)	$	(2,271	)	$	342		$	(164	)	$	4,202		$	(202	)
Liabilities:
Deposits in domestic offices	$	(1,643	)	$	(141	)	$	-		$	-	$	-	$	(1,511	)	$	202		$	(164	)	$	190		$	(3,067	)	$	(91	)
Long-term debt		(419	)		12			-			-		-		(257	)		84			(37	)		370			(247	)		-
Total liabilities	$	(2,062	)	$	(129	)	$	-		$	-	$	-	$	(1,768	)	$	286		$	(201	)	$	560		$	(3,314	)	$	(91	)

(1)	Includes realized and unrealized gains and losses.
(2)	Level 3 net derivatives included derivative assets of $2.8 billion and $2.9 billion and derivative liabilities of $1.3 billion and $1.5 billion as of September 30, 2011 and 2010, respectively.
(3)	Includes Level 3 corporate lending activities risk-managed on a fair value basis for which we have elected the fair value option.
(4)	Represents residential mortgage servicing activities. See Note 9, “Intangible Assets,” for additional information.

Material Additions to and Transfers Into (Out of) Level 3 Measurements During the nine months ended September 30, 2011, we transferred $62 million, of credit derivatives from Level 3 to Level 2 as a result of a qualitative analysis of the foreign exchange and credit correlation attributes of our model used for certain credit default swaps. In addition, during the three and nine months ended September 30, 2011, we transferred $435 million and $521 million, respectively, of long-term debt from Level 3 to Level 2. The long-term debt relates to debt issuances where the embedded derivative is no longer unobservable as the derivative option is closer in maturity and there is more observability in short term volatility.

During the nine months ended September 30, 2010, we transferred $225 million of mortgage and other asset-backed securities from Level 2 to Level 3 as the availability of observable inputs declined and the discrepancy in valuation per independent pricing services increased. During the nine months ended September 30, 2010, we transferred $178 million of credit derivatives from Level 2 to Level 3 as a result of a qualitative analysis of the foreign exchange and credit correlation attributes of our model used for certain credit default swaps. In addition, during the nine months ended September 30, 2010, we transferred $370 million, respectively, of long-term debt from Level 3 to Level 2. The long-term debt relates to medium term debt issuances where the embedded derivative is no longer unobservable as the derivative option is closer in maturity and there is more observability in short term volatility. During the nine months ended September 30, 2010, we transferred $184 million of corporate bonds from Level 3 to Level 2 due to the availability of observable inputs in the market including broker and independent pricing service valuations.

Assets and Liabilities Recorded at Fair Value on a Non-recurring Basis Certain financial and non-financial assets are measured at fair value on a non-recurring basis and therefore, are not included in the tables above. These assets include (a) mortgage and consumer loans classified as held for sale reported at the lower of amortized cost or fair value and (b) impaired loans or assets that are written down to fair value based on the valuation of underlying collateral during the period. These instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustment in certain circumstances (e.g., impairment). The following table presents the fair value hierarchy level within which the fair value of the financial and non-financial assets has been recorded as of September 30, 2011 and 2010. The gains (losses) during the three and nine months ended September 30, 2011 and 2010 are also included.

									Total Gains			Total Gains
									(Losses)			(Losses)
	Non-Recurring Fair Value Measurements								For the			For the
	as of September 30, 2011								Three Months Ended			Nine Months Ended
	Level 1		Level 2		Level 3		Total		September 30, 2011			September 30, 2011
	(in millions)
Residential mortgage loans held for sale(1)	$	-	$	5	$	228	$	233	$	(10	)	$	(16	)
Other consumer loans held for sale(1)		-		-		71		71		-			-
Impaired loans(2)		-		-		415		415		(8	)		44
Real estate owned(3)		-		28		-		28		(1	)		(4	)
Commercial loans held for sale		-		32		-		32		-			-
Impairment of certain previously capitalized software development costs(4)		-		-		-		-		-			(94	)
Building held for sale		-		-		-		-		-			(5	)
Total assets at fair value on a non-recurring basis	$	-	$	65	$	714	$	779	$	(19	)	$	(75	)

									Total Gains			Total Gains
									(Losses)			(Losses)
	Non-Recurring Fair Value Measurements								For the			For the
	as of September 30, 2010								Three Months Ended			Nine Months Ended
	Level 1		Level 2		Level 3		Total		September 30, 2010			September 30, 2010
	(in millions)
Residential mortgage loans held for sale(1)	$	-	$	10	$	433	$	443	$	(10	)	$	(42	)
Other consumer loans held for sale(1)		-		-		28		28		-			-
Impaired loans(2)		-		-		572		572		59			150
Real estate owned(3)		-		70		-		70		3			9
Commercial loans held for sale		-		32		-		32		-			-
Held to maturity asset-backed securities held by consolidated VIE(5)		-		123		128		251		(1	)		(4	)
Building held for use		-		-		15		15		-			-
Total assets at fair value on a non-recurring basis	$	-	$	235	$	1,176	$	1,411	$	51		$	113

(1)	As of September 30, 2011 and 2010, the fair value of the loans held for sale was below cost. Certain residential mortgage loans held for sale have been classified as a Level 3 fair value measurement within the fair value hierarchy as the underlying real estate properties which determine fair value are illiquid assets as a result of market conditions and significant inputs in estimating fair value were unobservable. Additionally, the fair value of these properties is affected by, among other things, the location, the payment history and the completeness of the loan documentation.
(2)	Represents impaired commercial loans. Certain commercial loans have undergone troubled debt restructurings and are considered impaired. As a matter of practical expedient, we measure the credit impairment of a collateral-dependent loan based on the fair value of the collateral asset. The collateral often involves real estate properties that are illiquid due to market conditions. As a result, these commercial loans are classified as a Level 3 fair value measurement within the fair value hierarchy.
(3)	Real estate owned are required to be reported on the balance sheet net of transactions costs. The real estate owned amounts in the table above reflect the fair value unadjusted for transaction costs.
(4)	In the first quarter of 2011 it was determined that certain previously capitalized software development costs were no longer realizable as a result of the decision to cancel certain projects and, therefore, we recorded an impairment charge of $78 million representing the full amount of the developed software capitalized associated with these projects. During the second quarter of 2011, HSBC completed a comprehensive review of all platforms currently under development which resulted in additional projects being cancelled. As a result, we recorded an additional charge of $16 million relating to the impairment of certain previously capitalized software development costs relating to these projects which were determined to be no longer realizable. The impairment charges were recorded in other expenses in our consolidated statement of income and is included in the results of our segments principally in RBWM and CMB.
(5)	Represent held-to-maturity securities which were held at fair value at September 30, 2010. See Note 18, “Variable Interest Entities,” for additional information.

Valuation Techniques Following is a description of valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair value for those financial instruments not recorded at fair value for which fair value disclosure is required.

Short-term financial assets and liabilities – The carrying amount of certain financial assets and liabilities recorded at cost is considered to approximate fair value because they are short-term in nature, bear interest rates that approximate market rates, and generally have negligible credit risk. These items include cash and due from banks, interest bearing deposits with banks, accrued interest receivable, customer acceptance assets and liabilities and short-term borrowings.

Federal funds sold and purchased and securities purchased and sold under resale and repurchase agreements – Federal funds sold and purchased and securities purchased and sold under resale and repurchase agreements are recorded at cost. A significant majority of these transactions are short-term in nature and, as such, the recorded amounts approximate fair value. For transactions with long-dated maturities, fair value is based on dealer quotes for instruments with similar terms and collateral.

Loans – Except for leveraged loans, selected residential mortgage loans and certain foreign currency denominated commercial loans, we do not record loans at fair value on a recurring basis. From time to time, we record on a non-recurring basis negative adjustment to loans. The write-downs can be based on observable market price of the loan or the underlying collateral value. In addition, fair value estimates are determined based on the product type, financial characteristics, pricing features and maturity. Where applicable, similar loans are grouped based on loan types and maturities and fair values are estimated on a portfolio basis.

•  Mortgage Loans Held for Sale – Certain residential mortgage loans are classified as held for sale and are recorded at the lower of amortized cost or fair value. The fair value of these mortgage loans is determined based on the valuation information observed in alternative exit markets, such as the whole loan market, adjusted for portfolio specific factors. These factors include the location of the collateral, the loan-to-value ratio, the estimated rate and timing of default, the probability of default or foreclosure and loss severity if foreclosure does occur.

•  Leveraged Loans – We record leveraged loans and revolvers held for sale at fair value. Where available, market consensus pricing obtained from independent sources is used to estimate the fair value of the leveraged loans and revolvers. In determining the fair value, we take into consideration the number of participants submitting pricing information, the range of pricing information and distribution, the methodology applied by the pricing services to cleanse the data and market liquidity. Where consensus pricing information is not available, fair value is estimated using observable market prices of similar instruments or inputs, including bonds, credit derivatives, and loans with similar characteristics. Where observable market parameters are not available, fair value is determined based on contractual cash flows, adjusted for the probability of default and estimated recoveries where applicable, discounted at the rate demanded by market participants under current market conditions. In those cases, we also consider the loan specific attributes and inherent credit risk and risk mitigating factors such as collateral arrangements in determining fair value.

•  Commercial Loans – Commercial loans and commercial real estate loans are valued by discounting the contractual cash flows, adjusted for prepayments and the borrower’s credit risk, using a discount rate that reflects the current rates offered to borrowers of similar credit standing for the remaining term to maturity and our own estimate of liquidity premium.

•  Commercial impaired loans – Fair value is determined based on the pricing quotes obtained from an independent third party appraisal.

•  Consumer Loans – The estimated fair value of our consumer loans were determined by developing an approximate range of value from a mix of various sources as appropriate for the respective pool of assets. These sources included, among other things, value estimates from an HSBC affiliate which reflect over-the-counter trading activity, forward looking discounted cash flow models using assumptions we believe are consistent with those which would be used by market participants in valuing such receivables; trading input from other market participants which includes observed primary and secondary trades; where appropriate, the impact of current estimated rating agency credit tranching levels with the associated benchmark credit spreads; and general discussions held directly with potential investors. For revolving products, the estimated fair value excludes future draws on the available credit line as well as other items and, therefore, does not include the fair value of the entire relationship.

Valuation inputs include estimates of future interest rates, prepayment speeds, default and loss curves, estimated collateral value and market discount rates reflecting management’s estimate of the rate that would be required by investors in the current market given the specific characteristics and inherent credit risk of the receivables. Some of these inputs are influenced by collateral value changes and unemployment rates. To the extent available, such inputs are derived principally from or corroborated by observable market data by correlation and other means. We perform periodic validations of our valuation methodologies and assumptions based on the results of actual sales of such receivables. In addition, from time to time, we may engage a third party valuation specialist to measure the fair value of a pool of receivables. Portfolio risk management personnel provide further validation through discussions with third party brokers and other market participants. Since an active market for these receivables does not exist, the fair value measurement process uses unobservable significant inputs specific to the performance characteristics of the various receivable portfolios.

Lending-related commitments – The fair value of commitments to extend credit, standby letters of credit and financial guarantees are not included in the table. The majority of the lending related commitments are not carried at fair value on a recurring basis nor are they actively traded. These instruments generate fees, which approximate those currently charged to originate similar commitments, which are recognized over the term of the commitment period. Deferred fees on commitments and standby letters of credit totaled $44 million and $47 million at September 30, 2011 and December 31, 2010, respectively.

Precious metals trading – Precious metals trading primarily include physical inventory which are valued using spot prices.

Securities – Where available, debt and equity securities are valued based on quoted market prices. If a quoted market price for the identical security is not available, the security is valued based on quotes from similar securities, where possible. For certain securities, internally developed valuation models are used to determine fair values or validate quotes obtained from pricing services. The following summarizes the valuation methodology used for our major security classes:

•  U.S. Treasury, U.S. Government agency issued or guaranteed and Obligations of U.S. state and political subdivisions – As these securities transact in an active market, fair value measurements are based on quoted prices for the identical security or quoted prices for similar securities with adjustments as necessary made using observable inputs which are market corroborated.

•  U.S. Government sponsored enterprises – For certain government sponsored mortgage-backed securities which transact in an active market, fair value measurements are based on quoted prices for the identical security or quoted prices for similar securities with adjustments as necessary made using observable inputs which are market corroborated. For government sponsored mortgage-backed securities which do not transact in an active market, fair value is determined primarily based on pricing information obtained from pricing services and is verified by internal review processes.

•  Asset-backed securities, including collateralized debt obligations – Fair value is primarily determined based on pricing information obtained from independent pricing services adjusted for the characteristics and the performance of the underlying collateral.

Additional information relating to asset-backed securities and collateralized debt obligations is presented in the following tables:

Trading asset-backed securities and related collateral:

		Prime				Alt-A				Sub-prime
Rating of Securities:	Collateral Type:	Level 2		Level 3		Level 2		Level 3		Level 2		Level 3		Total
	(in millions)
AAA -A	Residential mortgages	$	3	$	-	$	76	$	-	$	203	$	-	$	282
	Home equity		-		-		1		-		-		-		1
	Student loans		-		-		2		-		-		-		2
	Other		-		-		-		-		-		-		-
	Total AAA -A		3		-		79		-		203		-		285
BBB -B	Residential mortgages		-		-		2		-		-		-		2
	Home equity		-		-		-		-		-		-		-
	Total BBB -B		-		-		2		-		-		-		2
CCC-Unrated	Residential mortgages		-		-		-		-		3		-		3
	Home equity		-		-		-		-		-		-		-
	Other		-		-		-		-		-		-		-
	Total CCC -Unrated		-		-		-		-		3		-		3
		$	3	$	-	$	81	$	-	$	206	$	-	$	290

Trading collateralized debt obligations and related collateral:

Rating of Securities:	Collateral Type:	Level 3
	(in millions)
AAA -A	Commercial mortgages	$	-
	Residential mortgages		-
	Other		-
	Total AAA -A		-
BBB -B	Commercial mortgages		160
	Corporate loans		346
	Other		145
	Total BBB -B		651
CCC -Unrated	Commercial mortgages		56
	Corporate loans		-
	Residential mortgages		-
	Other		-
	Total CCC -Unrated		56
		$	707

Available-for-sale securities backed by collateral:

		Commercial
		Mortgages				Prime				Alt-A				Sub-prime
Rating of Securities:	Collateral Type:	Level 2		Level 3		Level 2		Level 3		Level 2		Level 3		Level 2		Level 3		Total
		(in millions)
AAA -A	Residential mortgages	$	-	$	-	$	-	$	-	$	4	$	-	$	-	$	-	$	4
	Commercial mortgages		478		-		-		-		-		-		-		-		478
	Home equity		-		-		-		-		126		-		2		-		128
	Student loans		-		-		-		-		23		-		-		-		23
	Other		-		-		-		-		96		-		-		-		96
	Total AAA -A		478		-		-		-		249		-		2		-		729
BBB -B	Residential mortgages		-		-		-		-		2		-		-		-		2
	Home equity		-		-		-		-		90		-		1		-		91
	Total BBB -B		-		-		-		-		92		-		1		-		93
CCC -Unrated	Residential mortgages		-		-		-		-		3		-		-		-		3
	Home equity		-		-		-		-		75		-		-		-		75
	Total CCC -Unrated		-		-		-		-		78		-		-		-		78
		$	478	$	-	$	-	$	-	$	419	$	-	$	3	$	-	$	900

•  Other domestic debt and foreign debt securities (corporate and government) – For non-callable corporate securities, a credit spread scale is created for each issuer. These spreads are then added to the equivalent maturity U.S. Treasury yield to determine current pricing. Credit spreads are obtained from the new market, secondary trading levels and dealer quotes. For securities with early redemption features, an option adjusted spread (“OAS”) model is incorporated to adjust the spreads determined above. Additionally, we survey the broker/dealer community to obtain relevant trade data including benchmark quotes and updated spreads.

•  Equity securities – Since most of our securities are transacted in active markets, fair value measurements are determined based on quoted prices for the identical security. For mutual fund investments, we receive monthly statements from the investment manager with the estimated fair value.

We perform validations of the fair values obtained from independent pricing services. Such validations primarily include sourcing security prices from other independent pricing services or broker quotes. As the pricing for mortgage and other asset-backed securities became less transparent during the credit crisis, we further developed internal valuation techniques to validate the fair value. The internal validation techniques utilize inputs derived from observable market data, incorporate external analysts’ estimates of probability of default, loss recovery and prepayments speeds and apply the discount rates that would be demanded by market participants under the current market conditions. Depending on the results of the validation, additional information may be gathered from other market participants to support the fair value measurements. A determination is made as to whether adjustments to the observable inputs are necessary after investigations and inquiries about the reasonableness of the inputs used and the methodologies employed by the independent pricing services.

Derivatives – Derivatives are recorded at fair value. Asset and liability positions in individual derivatives that are covered by legally enforceable master netting agreements, including cash collateral are offset and presented net in accordance with accounting principles which allow the offsetting of amounts relating to certain contracts.

Derivatives traded on an exchange are valued using quoted prices. OTC derivatives, which comprise a majority of derivative contract positions, are valued using valuation techniques. The fair value for the majority of our derivative instruments are determined based on internally developed models that utilize independently corroborated market parameters, including interest rate yield curves, option volatilities, and currency rates. For complex or long-dated derivative products where market data is not available, fair value may be affected by the choice of valuation model and the underlying assumptions about, among other things, the timing of cash flows and credit spreads. The fair values of certain structured derivative products are sensitive to unobservable inputs such as default correlations of the referenced credit and volatilities of embedded options. These estimates are susceptible to significant change in future periods as market conditions change.

Significant inputs related to derivative classes are broken down as follows:

•  Credit Derivatives – Use credit default curves and recovery rates which are generally provided by broker quotes and various pricing services. Certain credit derivatives may also use correlation inputs in their model valuation. Correlation is derived using market quotes from brokers and various pricing services.

•  Interest Rate Derivatives – Swaps use interest rate curves based on currency that are actively quoted by brokers and other pricing services. Options will also use volatility inputs which are also quoted in the broker market.

•  Foreign Exchange (“FX”) Derivatives – FX transactions use spot and forward FX rates which are quoted in the broker market.

•  Equity Derivatives – Use listed equity security pricing and implied volatilities from equity traded options position.

•  Precious Metal Derivative – Use spot and forward metal rates which are quoted in the broker market.

We may adjust valuations derived using the methods described above in order to ensure that those values represent appropriate estimates of fair value. These adjustments, which are applied consistently over time, are generally required to reflect factors such as bid-ask spreads and counterparty credit risk that can affect prices in arms-length transactions with unrelated third parties. Such adjustments are based on management judgment and may not be observable.

Real estate owned – Fair value is determined based on third party appraisals obtained at the time we take title to the property and, if less than the carrying amount of the loan, the carrying amount of the loan is adjusted to the fair value. The carrying amount of the property is further reduced, if necessary, not less than once every 45 days to reflect observable local market data including local area sales data.

Repossessed autos – Fair value is determined based on current Black Book values, which represent current observable prices in the wholesale auto auction market.

Mortgage servicing rights – We elected to measure residential mortgage servicing rights, which are classified as intangible assets, at fair value. The fair value for the residential mortgage servicing rights is determined based on an option adjusted approach which involves discounting servicing cash flows under various interest rate projections at risk-adjusted rates. The valuation model also incorporates our best estimate of the prepayment speed of the mortgage loans, current cost to service and discount rates which are unobservable. As changes in interest rates is a key factor affecting the prepayment speed and hence the fair value of the mortgage servicing rights, we use various interest rate derivatives and forward purchase contracts of mortgage-backed securities to risk-manage the mortgage servicing rights.

Structured notes – Certain structured notes were elected to be measured at fair value in their entirety under fair value option accounting principles. As a result, derivative features embedded in the structured notes are included in the valuation of fair value. The valuation of embedded derivatives may include significant unobservable inputs such as correlation of the referenced credit names or volatility of the embedded option. Other significant inputs include interest rates (yield curve), time to maturity, expected loss and loss severity.

Cash flows of the funded notes are discounted at the appropriate rate for the applicable duration of the instrument adjusted for our own credit spreads. The credit spreads applied to these instruments are derived from the spreads at which institutions of similar credit standing would offer for issuing similar structured instruments as of the measurement date. The market spreads for structured notes are generally lower than the credit spreads observed for plain vanilla debt or in the credit default swap market.

Long-term debt – We elected to apply fair value option to certain own debt issuances for which fair value hedge accounting otherwise would have been applied. These own debt issuances elected under FVO are traded in secondary markets and, as such, the fair value is determined based on observed prices for the specific instrument. The observed market price of these instruments reflects the effect of our own credit spreads. The credit spreads applied to these instruments were derived from the spreads recognized in the secondary market for similar debt as of the measurement date.

For long-term debt recorded at cost, fair value is determined based on quoted market prices where available. If quoted market prices are not available, fair value is based on dealer quotes, quoted prices of similar instruments, or internally developed valuation models adjusted for own credit risks.

Deposits – For fair value disclosure purposes, the carrying amount of deposits with no stated maturity (e.g., demand, savings, and certain money market deposits), which represents the amount payable upon demand, is considered to approximate fair value. For deposits with fixed maturities, fair value is estimated by discounting cash flows using market interest rates currently offered on deposits with similar characteristics and maturities.

Valuation adjustments – Where applicable, we make valuation adjustments to the measurements of financial instruments to ensure that they are recorded at fair value. Management judgment is required in determining the appropriate level of valuation adjustments. The level of valuation adjustments reflects the risks and the characteristics of a specific type of product, related contractual terms and the liquidity associated with the product and the market in which the product transacts. Valuation adjustments for complex instruments are unobservable. Such valuation adjustments, which have been consistently applied, include the following:

•  Credit risk adjustment – an adjustment to reflect the creditworthiness of the counterparty for OTC products where the market parameters may not be indicative of the creditworthiness of the counterparty. For derivative instruments, the market price implies parties to the transaction have credit ratings equivalent to AA. Therefore, we will make an appropriate credit risk adjustment to reflect the counterparty credit risk if different from an AA credit rating.

•  Market data/model uncertainty – an adjustment to reflect uncertainties in the fair value measurements determined based on unobservable market data inputs. Since one or more significant parameters may be unobservable and must be estimated, the resultant fair value estimates have inherent measurement risk. In addition, the values derived from valuation techniques are affected by the choice of valuation model. When different valuation techniques are available, the choice of valuation model can be subjective and in those cases, an additional valuation adjustment may be applied to mitigate the potential risk of measurement error. In most cases, we perform analysis on key unobservable inputs to determine the appropriate parameters to use in estimating the fair value adjustments.

•  Liquidity adjustment – a type of bid-offer adjustment to reflect the difference between the mark-to-market valuation of all open positions in the portfolio and the close out cost. The liquidity adjustment is a portfolio level adjustment and is a function of the liquidity and volatility of the underlying risk positions.