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Fair Value Disclosures
12 Months Ended
Dec. 31, 2017
Fair Value Disclosures  
Fair Value Disclosures

3. Fair Values

Fair Value Measurements

Valuation Techniques for Assets and Liabilities Measured at Fair Value on a Recurring Basis

Asset and Liability / Valuation TechniqueValuation Hierarchy Classification
Trading Assets and Trading Liabilities
U.S. Treasury and Agency Securities
U.S. Treasury Securities  Generally Level 1
   Fair value is determined using quoted market prices.
U.S. Agency Securities  Level 1 - non-callable agency-issued debt securities
   Non-callable agency-issued debt securities are generally valued using quoted market prices, and callable agency-issued debt securities are valued by benchmarking model-derived prices to quoted market prices and trade data for comparable instruments.  Generally Level 2 - callable agency-issued debt securities, agency mortgage pass-through pool securities and CMOs
   The fair value of agency mortgage pass-through pool securities is model-driven based on spreads of comparable to-be-announced securities.  Level 3 - in instances where the inputs are unobservable
   CMOs are generally valued using quoted market prices and trade data adjusted by subsequent changes in related indices for comparable instruments.
Other Sovereign Government Obligations  Generally Level 1
   Fair value is determined using quoted prices in active markets when available.  Level 2 - if the market is less active or prices are dispersed
  Level 3 - in instances where the prices are unobservable
State and Municipal Securities  Generally Level 2 – if value based on observable market data for comparable instruments
   Fair value is determined using recently executed transactions, market price quotations or pricing models that factor in, where applicable, interest rates, bond or CDS spreads and volatility and/or volatility skew, adjusted for any basis difference between cash and derivative instruments.
RMBS, CMBS, ABS (collectively known as Mortgage- and Asset-backed securities)   Generally Level 2 - if value based on observable market data for comparable instruments
   Mortgage- and asset-backed securities may be valued based on price or spread data obtained from observed transactions or independent external parties such as vendors or brokers.  Level 3 - if external prices or significant spread inputs are unobservable or if the comparability assessment involves significant subjectivity related to property type differences, cash flows, performance and other inputs
   When position-specific external price data are not observable, the fair value determination may require benchmarking to comparable instruments, and/or analyzing expected credit losses, default and recovery rates, and/or applying discounted cash flow techniques. When evaluating the comparable instruments for use in the valuation of each security, security collateral-specific attributes, including payment priority, credit enhancement levels, type of collateral, delinquency rates and loss severity, are considered. In addition, for RMBS borrowers, FICO scores and the level of documentation for the loan are considered.
   Market standard models, such as Intex, Trepp or others, may be deployed to model the specific collateral composition and cash flow structure of each transaction. Key inputs to these models are market spreads, forecasted credit losses, and default and prepayment rates for each asset category.
   Valuation levels of RMBS and CMBS indices are used as an additional data point for benchmarking purposes or to price outright index positions.
Corporate Bonds  Generally Level 2 - if value based on observable market data for comparable instruments
   Fair value is determined using recently executed transactions, market price quotations, bond spreads, CDS spreads, or at the money volatility and/or volatility skew obtained from independent external parties, such as vendors and brokers, adjusted for any basis difference between cash and derivative instruments.  Level 3 – in instances where prices or significant spread inputs are unobservable
   The spread data used are for the same maturity as the bond. If the spread data do not reference the issuer, then data that reference a comparable issuer are used. When position-specific external price data are not observable, fair value is determined based on either benchmarking to comparable instruments or cash flow models with yield curves, bond or single name CDS spreads and recovery rates as significant inputs.
CDO  Level 2 - when either comparable market transactions are observable or credit correlation input is insignificant
   The Firm holds cash CDOs that typically reference a tranche of an underlying synthetic portfolio of single name CDS spreads collateralized by corporate bonds (CLN) or cash portfolio of ABS/loans (“asset-backed CDOs”).  Level 3 - when either comparable market transactions are unobservable or the credit correlation input is significant
   Credit correlation, a primary input used to determine the fair value of CLNs, is usually unobservable and derived using a benchmarking technique. Other model inputs such as credit spreads, including collateral spreads, and interest rates are typically observable.
   Asset-backed CDOs are valued based on an evaluation of the market and model input parameters sourced from comparable instruments as indicated by market activity. Each asset-backed CDO position is evaluated independently taking into consideration available comparable market levels, underlying collateral performance and pricing, deal structures and liquidity.
Loans and Lending Commitments  Level 2 - if value based on observable market data for comparable instruments
   Fair value of corporate loans is determined using recently executed transactions, market price quotations (where observable), implied yields from comparable debt, market observable CDS spread levels obtained from independent external parties adjusted for any basis difference between cash and derivative instruments, along with proprietary valuation models and default recovery analysis where such transactions and quotations are unobservable.  Level 3 - in instances where prices or significant spread inputs are unobservable
   Fair value of contingent corporate lending commitments is determined by using executed transactions on comparable loans and the anticipated market price based on pricing indications from syndicate banks and customers. The valuation of loans and lending commitments also takes into account fee income that is considered an attribute of the contract.
   Fair value of mortgage loans is determined using observable prices based on transactional data or third-party pricing for comparable instruments, when available.
   Where position-specific external prices are not observable, fair value is estimated based on benchmarking to prices and rates observed in the primary market for similar loan or borrower types or based on the present value of expected future cash flows using its best estimates of the key assumptions, including forecasted credit losses, prepayment rates, forward yield curves and discount rates commensurate with the risks involved or a methodology that utilizes the capital structure and credit spreads of recent comparable securitization transactions.
   Fair value of equity margin loans is determined by discounting future interest cash flows, net of estimated credit losses. The estimated credit losses are derived by benchmarking to market observable CDS spreads, implied debt yields or volatility metrics of the loan collateral company.
For further information on loans and lending commitments, see Note 7.
Corporate Equities  Level 1 - exchange-traded securities and fund units if actively traded
   Exchange-traded equity securities are generally valued based on quoted prices from the exchange. To the extent these securities are actively traded, valuation adjustments are not applied.  Level 2 - exchange-traded securities if not actively traded or if undergoing a recent mergers and acquisitions event or corporate action
   Unlisted equity securities are generally valued based on an assessment of each underlying security, considering rounds of financing and third-party transactions, discounted cash flow analyses and market-based information, including comparable Firm transactions, trading multiples and changes in market outlook, among other factors.  Level 3 - unlisted equity securities and exchange-traded securities if not actively traded or if marked to an aged mergers and acquisitions event or corporate action
   Listed fund units are generally marked to the exchange-traded price, while listed fund units if not actively traded and unlisted fund units are generally marked to NAV.
Derivative and Other Contracts
Listed Derivative Contracts   Level 1 - listed derivatives that are actively traded
   Listed derivatives that are actively traded are valued based on quoted prices from the exchange.  Level 2 - listed derivatives that are not actively traded
   Listed derivatives that are not actively traded are valued using the same approaches as those applied to OTC derivatives.
OTC Derivative Contracts   Generally Level 2 - OTC derivative products valued using observable inputs, or where the unobservable input is not deemed significant
   OTC derivative contracts include forward, swap and option contracts related to interest rates, foreign currencies, credit standing of reference entities, equity prices or commodity prices.  Level 3 – OTC derivative products for which the unobservable input is deemed significant
   Depending on the product and the terms of the transaction, the fair value of OTC derivative products can be modeled using a series of techniques, including closed-form analytic formulas, such as the Black-Scholes option-pricing model, simulation models or a combination thereof. Many pricing models do not entail material subjectivity as the methodologies employed do not necessitate significant judgment, since model inputs may be observed from actively quoted markets, as is the case for generic interest rate swaps, many equity, commodity and foreign currency option contracts, and certain CDS. In the case of more established derivative products, the pricing models used by the Firm are widely accepted by the financial services industry.
   More complex OTC derivative products are typically less liquid and require more judgment in the implementation of the valuation technique since direct trading activity or quotes are unobservable. This includes certain types of interest rate derivatives with both volatility and correlation exposure, equity, commodity or foreign currency derivatives that are either longer-dated or include exposure to multiple underlyings, and credit derivatives, including CDS on certain mortgage- or asset-backed securities and basket CDS. Where these inputs are unobservable, relationships to observable data points, based on historic and/or implied observations, may be employed as a technique to estimate the model input values.
For further information on the valuation techniques for OTC derivative products, see Note 2.
For further information on derivative instruments and hedging activities, see Note 4.
Investments   Level 1 - exchange-traded direct equity investments in an active market
   Investments include direct investments in equity securities, as well as various investment management funds, which include investments made in connection with certain employee deferred compensation plans. For direct investments, initially, the transaction price is generally considered by the Firm as the exit price and is its best estimate of fair value.  Level 2 - non-exchange-traded direct equity investments and investments in various investment management funds if valued based on rounds of financing or third-party transactions; exchange-traded direct equity investments if not actively traded
   After initial recognition, in determining the fair value of non-exchange-traded internally and externally managed funds, the Firm generally considers the NAV of the fund provided by the fund manager to be the best estimate of fair value. For non-exchange-traded investments either held directly or held within internally managed funds, fair value after initial recognition is based on an assessment of each underlying investment, considering rounds of financing and third-party transactions, discounted cash flow analyses and market-based information, including comparable Firm transactions, trading multiples and changes in market outlook, among other factors. Exchange-traded direct equity investments are generally valued based on quoted prices from the exchange.   Level 3 - non-exchange-traded direct equity investments and investments in various investment management funds where rounds of financing or third-party transactions are not available
Physical Commodities   Generally Level 2 if value based on observable inputs
   The Firm trades various physical commodities, including natural gas and precious metals.
   Fair value is determined using observable inputs, including broker quotations and published indices.
Investment Securities—AFS Securities
   AFS securities are composed of U.S. government and agency securities (e.g., U.S. Treasury securities, agency-issued debt, agency mortgage pass-through securities and CMOs), CMBS, FFELP student loan ABS, auto loan ABS, corporate bonds, CLO and actively traded equity securities.For further information on Valuation Hierarchy Classification, see corresponding Valuation Technique described herein.
For further information on the determination of fair value, refer to the corresponding asset/liability valuation technique described herein.
For further information on AFS securities, see Note 5.
Deposits
Certificates of Deposit   Generally Level 2
   The Firm issues FDIC-insured certificates of deposit that pay either fixed coupons or that have repayment terms linked to the performance of debt or equity securities, indices or currencies. The fair value of these certificates of deposit is determined using valuation models that incorporate observable inputs referencing identical or comparable securities, including prices to which the deposits are linked, interest rate yield curves, option volatility and currency rates, equity prices, and the impact of the Firm’s own credit spreads, adjusted for the impact of the FDIC insurance, which is based on vanilla deposit issuance rates.
Securities Purchased under Agreements to Resell and Securities Sold under Agreements to Repurchase
   Fair value is computed using a standard cash flow discounting methodology.   Generally Level 2
   The inputs to the valuation include contractual cash flows and collateral funding spreads, which are estimated using various benchmarks, interest rate yield curves and option volatilities.   Level 3 - in instances where the unobservable inputs are deemed significant
Borrowings
Structured Notes   Generally Level 2
   The Firm issues structured notes that have coupon or repayment terms linked to the performance of debt or equity securities, indices, currencies or commodities.  Level 3 - in instances where the unobservable inputs are deemed significant
   Fair value of structured notes is determined using valuation models for the derivative and debt portions of the notes. These models incorporate observable inputs referencing identical or comparable securities, including prices to which the notes are linked, interest rate yield curves, option volatility and currency rates, and commodity or equity prices.
   Independent, external and traded prices for the notes are considered as well. The impact of the Firm’s own credit spreads is also included based on observed secondary bond market spreads.

Assets and Liabilities Measured at Fair Value on a Recurring Basis
At December 31, 2017
$ in millionsLevel 1Level 2Level 3Netting1Total
Assets at fair value
Trading assets:
U.S. Treasury and
agency
securities$22,077$26,888$$$48,965
Other sovereign
government
obligations220,2347,825128,060
State and municipal
securities 3,59283,600
MABS2,3644232,787
Corporate bonds 15,10545615,561
CDO44584529
Loans and lending
commitments34,7915,94510,736
Other debt 1,2871611,448
Corporate equities4149,697492166150,355
Derivative and other contracts:
Interest rate472178,7041,763180,939
Credit7,6024208,022
Foreign exchange5853,7241553,797
Equity1,10140,3593,53044,990
Commodity and
other1,1265,3904,14710,663
Netting1(2,088)(216,764)(1,575)(47,171)(267,598)
Total derivative and
other contracts66969,0158,300(47,171)30,813
Investments52975231,0201,840
Physical commodities 1,0241,024
Total trading assets5192,974133,35116,564(47,171)295,718
Investment securities—
AFS27,52227,68155,203
Intangible assets33
Total assets
at fair value$220,496$161,035$16,564$(47,171)$350,924

At December 31, 2017
$ in millionsLevel 1Level 2Level 3Netting1Total
Liabilities at fair value
Deposits $$157$47$$204
Trading liabilities:
U.S. Treasury and
agency securities17,8022417,826
Other sovereign
government
obligations224,8572,01626,873
Corporate and other
debt7,14137,144
Corporate equities452,653822252,757
Derivative and other contracts:
Interest rate364162,239545163,148
Credit8,1663798,545
Foreign exchange2355,11812755,268
Equity1,00144,6662,32247,989
Commodity and
other1,0325,1562,7018,889
Netting1(2,088)(216,764)(1,575)(36,717)(257,144)
Total derivative and
other contracts33258,5814,499(36,717)26,695
Total trading liabilities95,64467,8444,524(36,717)131,295
Securities sold under
agreements to
repurchase650150800
Other secured
financings 3,6242393,863
Borrowings 43,9282,98446,912
Total liabilities
at fair value$95,644$116,203$7,944$(36,717)$183,074

At December 31, 2016
$ in millionsLevel 1Level 2Level 3Netting1Total
Assets at fair value
Trading assets:
U.S. Treasury and
agency
securities$27,579$20,392$74$$48,045
Other sovereign
government
obligations14,0055,497619,508
State and municipal
securities 2,3552502,605
MABS1,6912171,908
Corporate bonds 11,05123211,283
CDO60263665
Loans and lending
commitments33,5805,1228,702
Other debt 1,3601801,540
Corporate equities4131,574352446132,372
Derivative and other contracts:
Interest rate1,131300,4061,373302,910
Credit11,72750212,229
Foreign exchange23174,9211375,165
Equity1,18535,7361,70838,629
Commodity and
other2,8086,7343,97713,519
Netting1(4,378)(353,543)(1,944)(51,381)(411,246)
Total derivative and
other contracts97775,9815,629(51,381)31,206
Investments52371979581,392
Physical commodities 112112
Total trading assets5174,372123,17013,177(51,381)259,338
Investment securities—
AFS29,12034,05063,170
Securities purchased
under agreements
to resell302302
Intangible assets33
Total assets
at fair value$203,492$157,525$13,177$(51,381)$322,813

At December 31, 2016
$ in millionsLevel 1Level 2Level 3Netting1Total
Liabilities at fair value
Deposits $$21$42$$63
Trading liabilities:
U.S. Treasury and
agency securities11,6366111,697
Other sovereign
government
obligations20,6582,43023,088
Corporate and other
debt 6,121366,157
Corporate equities457,847543557,936
Derivative and other contracts:
Interest rate1,244285,379953287,576
Credit12,55087513,425
Foreign exchange1775,5105675,583
Equity1,16237,8281,52440,514
Commodity and
other2,6636,8452,37711,885
Netting1(4,378)(353,543)(1,944)(39,803)(399,668)
Total derivative and
other contracts70864,5693,841(39,803)29,315
Physical commodities 11
Total trading liabilities90,84973,2363,912(39,803)128,194
Securities sold under
agreements to
repurchase580149729
Other secured
financings 4,6074345,041
Borrowings 4737,0812,01439,142
Total liabilities
at fair value$90,896$115,525$6,551$(39,803)$173,169

MABS—Mortgage- and asset-backed securities

  • For positions with the same counterparty that cross over the levels of the fair value hierarchy, both counterparty netting and cash collateral netting are included in the column titled “Netting.” Positions classified within the same level that are with the same counterparty are netted within that level. For further information on derivative instruments and hedging activities, see Note 4.
  • During 2017, the Firm transferred from Level 2 to Level 1 $1.2 billion and $1.0 billion of Trading assetsOther sovereign government obligations and Trading liabilitiesOther sovereign government obligations, respectively, due to increased market activity in these instruments.
  • For further breakdown by type, see the following Loans and Lending Commitments at Fair Value table.
  • For trading purposes, the Firm holds or sells short equity securities issued by entities in diverse industries and of varying sizes.
  • Amounts exclude certain investments that are measured at fair value using the NAV per share, which are not classified in the fair value hierarchy. For additional disclosure about such investments, see “Fair Value of Investments Measured at Net Asset Value” herein.

Loans and Lending Commitments at Fair Value
$ in millionsAt December 31, 2017At December 31, 2016
Corporate$8,358$7,217
Residential real estate799966
Wholesale real estate1,579519
Total$10,736$8,702

Unsettled Fair Value of Futures Contracts1
$ in millionsAt December 31, 2017At December 31, 2016
Customer and other receivables, net$831$610

  • These contracts are primarily Level 1, actively traded, valued based on quoted prices from the exchange and are excluded from the previous recurring fair value tables.

Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables present additional information about Level 3 assets and liabilities measured at fair value on a recurring basis. Level 3 instruments may be hedged with instruments classified in Level 1 and Level 2. As a result, the realized and unrealized gains (losses) for assets and liabilities within the Level 3 category presented in the following tables do not reflect the related realized and unrealized gains (losses) on hedging instruments that have been classified by the Firm within the Level 1 and/or Level 2 categories.

Additionally, the unrealized gains (losses) during the period for assets and liabilities within the Level 3 category presented in the following tables herein may include changes in fair value during the period that were attributable to both observable and unobservable inputs. Total realized and unrealized gains (losses) are primarily included in Trading revenues in the income statements.

Rollforward of Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for 2017
$ in millionsBeginning Balance at December 31, 2016Realized and Unrealized Gains (Losses)Purchases1Sales and Issuances2Settlements1Net TransfersEnding Balance at December 31, 2017Unrealized Gains (Losses)
Assets at fair value
Trading assets:
U.S. Treasury and agency securities $74$(1)$$(240)$$167$$
Other sovereign government obligations 6(5)1
State and municipal securities 25036(83)(168)8
MABS21747289(158)(37)65423(7)
Corporate bonds 23222381(218)39456(4)
CDO632240(31)(9)(1)8415
Loans and lending commitments5,1221823,616(1,561)(1,463)495,945131
Other debt 1803866(171)4816112
Corporate equities 446(54)173(632)233166(6)
Net derivative and other contracts3:
Interest rate42032229(18)608(143)1,218341
Credit(373)(43)(1)455341(18)
Foreign exchange(43)(108)(1)319(112)(89)
Equity184136988(524)396281,208159
Commodity and other1,60051524(57)(343)(293)1,44620
Total net derivative and other contracts1,7888221,041(601)1,147(396)3,801413
Investments 95896102(57)(78)(1)1,02088
Liabilities at fair value
Deposits $42$(3)$$12$(3)$(7)$47$(3)
Trading liabilities:
Corporate and other debt 36(63)11193
Corporate equities 351(76)95522
Securities sold under agreements to repurchase1491150
Other secured financings 434(35)64(251)(43)239(28)
Borrowings2,014(196)1,968(424)(770)2,984(173)

  • Loan originations and consolidations of VIEs are included in Purchases and deconsolidations of VIEs are included in Settlements.
  • Amounts related to entering into Net derivative and other contracts, Deposits, Other secured financings and Borrowings primarily represent issuances. Amounts for other line items primarily represent sales.
  • Net derivative and other contracts represent Trading assets—Derivative and other contracts, net of Trading liabilities—Derivative and other contracts. Amounts are presented before counterparty netting.

Rollforward of Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for 2016
$ in millionsBeginning Balance at December 31, 2015Realized and Unrealized Gains (Losses)Purchases1Sales and Issuances2Settlements1Net TransfersEnding Balance at December 31, 2016Unrealized Gains (Losses) 
Assets at fair value
Trading assets:
U.S. Treasury and agency securities $$(4)$72$$$6$74$(4)
Other sovereign government obligations 414(7)46
State and municipal securities 19249(18)250
MABS438(69)82(323)89217(77)
Corporate bonds 2679310(357)3232(20)
CDO4301114(300)(92)63(5)
Loans and lending commitments5,936(79)2,261(954)(1,863)(179)5,122(80)
Other debt 4482026(51)(263)180(13)
Corporate equities 434(2)242(154)(74)446
Net derivative and other contracts3:
Interest rate2605291(83)(287)420463
Credit(844)(176)(4)62328(373)(167)
Foreign exchange141(27)(220)63(43)(23)
Equity(2,031)539809(337)1,073131184376
Commodity and other1,05054424(114)(44)1401,600304
Total net derivative and other contracts(1,424)1,409834(455)1,349751,788953
Investments707(32)398(75)(59)19958(50)
Intangible assets 5(5)
Liabilities at fair value
Deposits$19$$$23$$$42$
Trading liabilities:
Corporate and other debt 4(4)(99)145(18)36
Corporate equities 1817(10)89(45)35
Securities sold under agreements to repurchase15121492
Other secured financings 461(5)79(45)(66)434(5)
Borrowings1,988(19)648(305)(336)2,014(30)

  • Loan originations and consolidations of VIEs are included in Purchases and deconsolidations of VIEs are included in Settlements.
  • Amounts related to entering into Net derivative and other contracts, Deposits, Other secured financings and Borrowings primarily represent issuances. Amounts for other line items primarily represent sales.
  • Net derivative and other contracts represent Trading assets—Derivative and other contracts, net of Trading liabilities—Derivative and other contracts. Amounts are presented before counterparty netting.

Rollforward of Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis for 2015
$ in millionsBeginning Balance at December 31, 2014Realized and Unrealized Gains (Losses)Purchases1Sales and Issuances2Settlements1Net TransfersEnding Balance at December 31, 2015Unrealized Gains (Losses)
Assets at fair value
Trading assets:
Other sovereign government obligations $41$(1)$2$(30)$$(8)$4$
State and municipal securities 2314192
MABS347(13)226(136)14438(20)
Corporate bonds 386(44)374(381)(53)(15)267(44)
CDOs1,152123325(798)(344)(28)430(19)
Loans and lending commitments5,874(42)3,216(207)(2,478)(427)5,936(76)
Other debt 285(23)131(5)(81)141448(9)
Corporate equities 272(1)374(333)12243411
Net derivative and other contracts3:
Interest rate (173)(51)58(54)20727326020
Credit (743)(172)19(121)196(23)(844)(179)
Foreign exchange 151534(2)(18)(47)14152
Equity (2,165)16681(311)22176(2,031)62
Commodity and other 1,14643335(222)(116)(226)1,050402
Total net derivative and other contracts(1,784)429197(710)291153(1,424)357
Investments1,158(1)33(139)(188)(156)707(1)
Intangible assets 6(1)5
Liabilities at fair value
Deposits$$(1)$$18$$$19$(1)
Trading liabilities:
Corporate and other debt 1215(20)13(104)(1)45
Corporate equities 4579(86)331051879
Securities sold under agreements to repurchase15321512
Other secured financings 149192327(232)409461181
Borrowings 1,93461882(364)(403)1,98852

  • Loan originations and consolidations of VIEs are included in Purchases and deconsolidations of VIEs are included in Settlements.
  • Amounts related to entering into Net derivative and other contracts, Deposits, Other secured financings and Borrowings primarily represent issuances. Amounts for other line items primarily represent sales.
  • Net derivative and other contracts represent Trading assets—Derivative and other contracts, net of Trading liabilities—Derivative and other contracts. Amounts are presented before counterparty netting.

Significant Unobservable Inputs Used in Recurring and Nonrecurring Level 3 Fair Value Measurements

The following disclosures provide information on the valuation techniques, significant unobservable inputs, and their ranges and averages for each major category of assets and liabilities measured at fair value on a recurring and nonrecurring basis with a significant Level 3 balance. The level of aggregation and breadth of products cause the range of inputs to be wide and not evenly distributed across the inventory. Further, the range of unobservable inputs may differ across firms in the financial services industry because of diversity in the types of products included in each firm’s inventory. There are no predictable relationships between multiple significant unobservable inputs attributable to a given valuation technique. A single amount is disclosed when there is no significant difference between the minimum, maximum and average (weighted average or simple average/median).

Valuation Techniques and Sensitivity of Unobservable Inputs Used in Recurring and Nonrecurring Level 3 Fair Value Measurements
Predominant Valuation Techniques/Significant Unobservable InputsRange (Weighted Average or Simple Average/Median)1
$ in millions, except inputsAt December 31, 2017At December 31, 2016
Recurring Fair Value Measurement
Assets at fair value
U.S. Treasury and agency securities ($— and $74)
Comparable pricing:Comparable bond priceN/A96 to 105 points (102 points)
State and municipal securities ($8 and $250)
Comparable pricing:Comparable bond priceN/M53 to 100 points (91 points)
MABS ($423 and $217)
Comparable pricing:Comparable bond price0 to 95 points (26 points)0 to 86 points (27 points)
Predominant Valuation Techniques/Significant Unobservable InputsRange (Weighted Average or Simple Average/Median)1
$ in millions, except inputsAt December 31, 2017At December 31, 2016
Corporate bonds ($456 and $232)
Comparable pricing:Comparable bond price3 to 134 points (59 points)3 to 130 points (70 points)
Discounted cash flow:Recovery rate6% to 36% (27%)N/A
CDO ($84 and $63)
Comparable pricing:Comparable bond price16 to 101 points (67 points)0 to 103 points (50 points)
Loans and lending commitments ($5,945 and $5,122)
Expected recovery:Asset coverageN/M43% to 100% (83%)
Margin loan model:Discount rate0% to 3% (1%)2% to 8% (3%)
Volatility skew7% to 41% (22%)21% to 63% (33%)
Comparable pricing:Comparable loan price55 to 102 points (95 points)45 to 100 points (84 points)
Discounted cash flow:WACCN/M5%
Capitalization rateN/M4% to 10% (4%)
Other debt ($161 and $180)
Option model:At the money volatility17% to 52% (52%)16% to 52% (52%)
Discounted cash flow:Discount rate7% to 20% (14%)7% to 12% (11%)
Comparable pricing:Comparable loan priceN/M1 to 74 points (23 points)
Corporate equities ($166 and $446)
Comparable pricing:Comparable equity price100%100%
Net derivative and other contracts2:
Interest rate ($1,218 and $420)
Option model:Interest rate - Foreign exchange correlationN/M28% to 58% (44% / 43%)
Interest rate volatility skew31% to 97% (41% / 47%)19% to 117% (55% / 56%)
Interest rate quanto correlationN/M-17% to 31% (1% / -5%)
Interest rate curve correlationN/M28% to 96% (68% / 72%)
Inflation volatility23% to 63% (44% / 41%)23% to 55% (40% / 39%)
Interest rate curve2%N/M
Credit ($41 and $(373))
Comparable pricing:Cash synthetic basis12 to 13 points (12 points)5 to 12 points (11 points)
Comparable bond price0 to 75 points (25 points)0 to 70 points (23 points)
Correlation model:Credit correlation38% to 100% (48%)32% to 70% (45%)
Foreign exchange3 ($(112) and $(43))
Option model:Interest rate - Foreign exchange correlation54% to 57% (56% / 56%)28% to 58% (44% / 43%)
Interest rate volatility skew31% to 97% (41% / 47%)34% to 117% (55% / 56%)
Contingency probability95% to 100% (96% / 95%)N/M
Interest rate quanto correlationN/M-17% to 31% (1% / -5%)
Equity3 ($1,208 and $184)
Option model:At the money volatility7% to 54% (32%)7% to 66% (33%)
Volatility skew-5% to 0% (-1%)-4% to 0% (-1%)
Equity - Equity correlation5% to 99% (76%)25% to 99% (73%)
Equity - Foreign exchange correlation-55% to 40% (36%)-63% to 30% (-43%)
Equity - Interest rate correlation-7% to 49% (18% / 20%)-8% to 52% (12% / 4%)
Commodity and other ($1,446 and $1,600)
Option model:Forward power price$4 to $102 ($31) per MWh$7 to $90 ($32) per MWh
Commodity volatility7% to 205% (17%)6% to 130% (18%)
Cross-commodity correlation5% to 99% (92%)5% to 99% (92%)
Investments ($1,020 and $958)
Discounted cash flow:WACC8% to 15% (9%)10%
Exit multiple8 to 11 times (10 times)10 to 24 times (11 times)
Market approach:EBITDA multiple6 to 25 times (11 times)6 to 24 times (12 times)
Comparable pricing:Comparable equity price45% to 100% (92%) 75% to 100% (93%)
Predominant Valuation Techniques/Significant Unobservable InputsRange (Weighted Average or Simple Average/Median)1
$ in millions, except inputsAt December 31, 2017At December 31, 2016
Liabilities at Fair Value
Securities sold under agreements to repurchase ($150 and $149)
Discounted cash flow:Funding spread107 to 126 bps (120 bps)118 to 127 bps (121 bps)
Other secured financings ($239 and $434)
Discounted cash flow:Funding spread39 to 76 bps (57 bps)63 to 92 bps (78 bps)
Option model:Volatility skew-1%-1%
At the money volatility10% to 40% (26%)N/M
Discounted cash flow:Discount rateN/M4%
Borrowings ($2,984 and $2,014)
Option model:At the money volatility5% to 35% (22%)7% to 42% (30%)
Volatility skew-2% to 0% (0%)-2% to 0% (-1%)
Equity - Equity correlation39% to 95% (86%)35% to 99% (84%)
Equity - Foreign exchange correlation-55% to 10% (-18%)-63% to 13% (-40%)
Option model:Equity volatility discountN/M7% to 11% (10% / 10%)
Nonrecurring Fair Value Measurement
Assets at fair value
Loans ($924 and $2,443)
Corporate loan model:Credit spread93 to 563 bps (239 bps)90 to 487 bps (208 bps)
Expected recovery:Asset coverage95% to 99% (95%) 73% to 99% (97%)

Points—Percentage of par

  • Amounts represent weighted averages except where simple averages and the median of the inputs are provided when more relevant.
  • CVA and FVA are included in the balance but excluded from the Valuation Technique(s) and Significant Unobservable Inputs. CVA is a Level 3 input when the underlying counterparty credit curve is unobservable. FVA is a Level 3 input in its entirety given the lack of observability of funding spreads in the principal market.
  • Includes derivative contracts with multiple risks (i.e., hybrid products).

Significant Unobservable Inputs — DescriptionSensitivity
Asset coverage - The ratio of a borrower's underlying pledged assets less applicable costs relative to their outstanding debt (while considering the loan's principal and the seniority and security of the loan commitment).In general, an increase (decrease) to the asset coverage for an asset would result in a higher (lower) fair value.
Capitalization rate - The ratio between net operating income produced by an asset and its market value at the projected disposition date.In general, an increase (decrease) to the capitalization rate for an asset would result in a lower (higher) fair value.
Cash synthetic basis - The measure of the price differential between cash financial instruments and their synthetic derivative-based equivalents. The range disclosed in the table above signifies the number of points by which the synthetic bond equivalent price is higher than the quoted price of the underlying cash bonds.In general, an increase (decrease) to the cash synthetic basis for an asset would result in a lower (higher) fair value.
Comparable bond or loan price - A pricing input used when prices for the identical instrument are not available. Significant subjectivity may be involved when fair value is determined using pricing data available for comparable instruments. Valuation using comparable instruments can be done by calculating an implied yield (or spread over a liquid benchmark) from the price of a comparable bond or loan, then adjusting that yield (or spread) to derive a value for the bond or loan. The adjustment to yield (or spread) should account for relevant differences in the bonds or loans such as maturity or credit quality. In general, an increase (decrease) to the comparable bond or loan price for an asset would result in a higher (lower) fair value.
Alternatively, a price-to-price basis can be assumed between the comparable instrument and the bond or loan being valued in order to establish the value of the bond or loan. Additionally, as the probability of default increases for a given bond or loan (i.e., as the bond or loan becomes more distressed), the valuation of that bond or loan will increasingly reflect its expected recovery level assuming default. The decision to use price-to-price or yield/spread comparisons largely reflects trading market convention for the financial instruments in question. Price-to-price comparisons are primarily employed for RMBS, CMBS, ABS, CDOs, CLOs, Other debt, interest rate contracts, foreign exchange contracts, Other secured financings and distressed corporate bonds. Implied yield (or spread over a liquid benchmark) is utilized predominately for non-distressed corporate bonds, loans and credit contracts.
Comparable equity price - A price derived from equity raises, share buybacks and external bid levels, etc. A discount or premium may be included in the fair value estimate.In general, an increase (decrease) to the comparable equity price of an asset would result in a higher (lower) fair value.
Contingency probability - Probability associated with the realization of an underlying event upon which the value of an asset is contingent.In general, an increase (decrease) to the contingency probability for an asset would result in a higher (lower) fair value.
Correlation - A pricing input where the payoff is driven by more than one underlying risk. Correlation is a measure of the relationship between the movement of two variables (i.e., how the change in one variable influences a change in the other variable). Credit correlation, for example, is the factor that describes the relationship between the probability of individual entities to default on obligations and the joint probability of multiple entities to default on obligations.In general, an increase (decrease) to the correlation would result in an impact to the fair value, but the magnitude and direction of the impact would depend on whether the Firm is long or short the exposure.
Credit spread - The difference in yield between different securities due to differences in credit quality. The credit spread reflects the additional net yield an investor can earn from a security with more credit risk relative to one with less credit risk. The credit spread of a particular security is often quoted in relation to the yield on a credit risk-free benchmark security or reference rate, typically either U.S. Treasury or LIBOR.In general, an increase (decrease) to the credit spread of an asset would result in a lower (higher) fair value.
EBITDA multiple / Exit multiple - The ratio of the Enterprise Value to EBITDA, where the Enterprise Value is the aggregate value of equity and debt minus cash and cash equivalents. The EBITDA multiple reflects the value of the company in terms of its full-year EBITDA, whereas the exit multiple reflects the value of the company in terms of its full-year expected EBITDA at exit. Either multiple allows comparison between companies from an operational perspective as the effect of capital structure, taxation and depreciation/amortization is excluded.In general, an increase (decrease) to the EBITDA or Exit multiple of an asset would result in a higher (lower) fair value.
Funding spread - The difference between the general collateral rate (which refers to the rate applicable to a broad class of U.S. Treasury issuances) and the specific collateral rate (which refers to the rate applicable to a specific type of security pledged as collateral, such as a municipal bond). Repurchase agreements and certain other secured financings are discounted based on collateral curves. The curves are constructed as spreads over the corresponding OIS or LIBOR curves, with the short end of the curve representing spreads over the corresponding OIS curves and the long end of the curve representing spreads over LIBOR.In general, an increase (decrease) to the funding spread of an asset would result in a lower (higher) fair value.
WACC - The WACC implied by the current value of equity in a discounted cash flow model. The model assumes that the cash flow assumptions, including projections, are fully reflected in the current equity value, while the debt to equity ratio is held constant. The WACC theoretically represents the required rate of return to debt and equity investors.In general, an increase (decrease) to the Implied weighted cost of capital of an asset would result in a lower (higher) fair value.
Interest rate curve - The term structure of interest rates (relationship between interest rates and the time to maturity) and a market’s measure of future interest rates at the time of observation. An interest rate curve is used to set interest rate and foreign exchange derivative cash flows and is a pricing input used in the discounting of any OTC derivative cash flow.In general, an increase (decrease) to the interest rate curve would result in an impact to the fair value, but the magnitude and direction of the impact would depend on whether the Firm is long or short the exposure.
Recovery rate - Amount expressed as a percentage of par that is expected to be received when a credit event occurs.In general, an increase (decrease) to the recovery rate for an asset would result in a higher (lower) fair value.
Volatility - The measure of the variability in possible returns for an instrument given how much that instrument changes in value over time. Volatility is a pricing input for options and, generally, the lower the volatility, the less risky the option. The level of volatility used in the valuation of a particular option depends on a number of factors, including the nature of the risk underlying that option (e.g., the volatility of a particular underlying equity security may be significantly different from that of a particular underlying commodity index), the tenor and the strike price of the option.In general, an increase (decrease) to the volatility would result in an impact to the fair value, but the magnitude and direction of the impact would depend on whether the Firm is long or short the exposure.
Volatility skew - The measure of the difference in implied volatility for options with identical underliers and expiry dates but with different strikes. The implied volatility for an option with a strike price that is above or below the current price of an underlying asset will typically deviate from the implied volatility for an option with a strike price equal to the current price of that same underlying asset.In general, an increase (decrease) to the volatility skew would result in an impact to the fair value, but the magnitude and direction of the impact would depend on whether the Firm is long or short the exposure.

Fair Value of Investments Measured at Net Asset Value

Investments in Certain Funds Measured at NAV per Share
At December 31, 2017At December 31, 2016
$ in millionsFair ValueCommitmentFair ValueCommitment
Private equity$1,674$308$1,566$335
Real estate8001831,103136
Hedge19041474
Total$2,564$495$2,816$475

  • Investments in hedge funds may be subject to initial period lock-up or gate provisions, which restrict an investor from withdrawing from the fund during a certain initial period or restrict the redemption amount on any redemption date, respectively.

Private Equity Funds.    Funds that pursue multiple strategies, including leveraged buyouts, venture capital, infrastructure growth capital, distressed investments and mezzanine capital. In addition, the funds may be structured with a focus on specific domestic or foreign geographic regions.

Real Estate Funds.    Funds that invest in real estate assets such as commercial office buildings, retail properties, multi-family residential properties, developments or hotels. In addition, the funds may be structured with a focus on specific geographic domestic or foreign regions. 

Investments in private equity and real estate funds generally are not redeemable due to the closed-ended nature of these funds. Instead, distributions from each fund will be received as the underlying investments of the funds are disposed and monetized.

Hedge Funds.    Funds that pursue various investment strategies, including long-short equity, fixed income/credit, event-driven and multi-strategy.

Nonredeemable Funds by Contractual Maturity
Fair Value at December 31, 2017
$ in millionsPrivate EquityReal Estate
Less than 5 years$473$62
5-10 years1,033499
Over 10 years168239
Total$1,674$800

Fair Value Option

The Firm elected the fair value option for certain eligible instruments that are risk managed on a fair value basis to mitigate income statement volatility caused by measurement basis differences between the elected instruments and their associated risk management transactions or to eliminate complexities of applying certain accounting models.

Earnings Impact of Instruments under the Fair Value Option
Interest
TradingIncomeNet
$ in millionsRevenues(Expense)Revenues
2017
Securities purchased under
agreements to resell$(2)$3$1
Deposits(3)(3)
Securities sold under
agreements to repurchase110(18)(8)
Borrowings1(4,507)(443)(4,950)

2016
Securities purchased under
agreements to resell$(3)$7$4
Deposits(1)(1)(2)
Securities sold under
agreements to repurchase16(13)(7)
Borrowings1(707)(483)(1,190)

2015
Securities purchased under
agreements to resell$(6)$10$4
Securities sold under
agreements to repurchase113(6)7
Borrowings12,467(528)1,939

1. In 2017 and 2016, unrealized DVA gains (losses) are recorded in OCI and, when realized, in Trading revenues. In 2015, realized and unrealized DVA gains (losses) were recorded in Trading revenues. See Note 15 for further information.

Gains (losses) are mainly attributable to changes in foreign currency rates or interest rates or movements in the reference price or index for Borrowings before the impact of related hedges.

The amounts in the previous table are included within Net revenues and do not reflect any gains or losses on related hedging instruments. In addition to the amounts in the previous table, as discussed in Note 2, instruments within Trading assets or Trading liabilities are measured at fair value.

Gains (Losses) Due to Changes in Instrument-Specific Credit Risk
$ in millionsTrading RevenuesOCI
2017
Loans and other debt1$159$
Lending commitments2(2)
Securities sold under agreements to repurchase3(7)
Borrowings3(12)(903)
2016
Loans and other debt1$(71)$
Lending commitments24
Borrowings331(460)
2015
Loans and other debt1$(193)$
Lending commitments212
Borrowings3618

$ in millionsAt December 31, 2017At December 31, 2016
Cumulative pre-tax DVA gain
(loss) recognized in AOCI$(1,831)$(921)

1. Loans and other debt instrument-specific credit gains (losses) were determined by excluding the non-credit components of gains and losses.

2. Gains (losses) on lending commitments were generally determined based on the difference between estimated expected client yields and contractual yields at each respective period-end.

3. In 2017 and 2016, unrealized DVA gains (losses) are recorded in OCI and, when realized, in Trading revenues. In 2015, realized and unrealized DVA gains (losses) were recorded in Trading revenues. See Note 15 for further information.

Borrowings Measured at Fair Value on a Recurring Basis
AtAt
December 31,December 31,
$ in millions20172016
Business Unit Responsible for Risk Management
Equity$25,903$21,066
Interest rates19,23016,051
Foreign exchange6661,114
Credit815647
Commodities298264
Total$46,912$39,142

Excess of Contractual Principal Amount Over Fair Value
AtAt
December 31,December 31,
$ in millions20172016
Loans and other debt1$13,481$13,495
Loans 90 or more days past due
and/or on nonaccrual status111,25311,502
Borrowings271720

1. The majority of the difference between principal and fair value amounts for loans and other debt relates to distressed debt positions purchased at amounts well below par.

2. Borrowings do not include structured notes where the repayment of the initial principal amount fluctuates based on changes in a reference price or index.

Fair Value Loans on Nonaccrual Status
AtAt
December 31,December 31,
$ in millions20172016
Nonaccrual loans$1,240$1,536
Nonaccrual loans 90 or more
days past due$779$787

The previous tables exclude non-recourse debt from consolidated VIEs, liabilities related to failed sales of financial assets, pledged commodities and other liabilities that have specified assets attributable to them.

Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis

Carrying and Fair Values

At December 31, 2017
Fair Value
$ in millionsLevel 2Level 31Total
Assets
Loans$1,394$924$2,318
Other assets—Other
investments144144
Total $1,394$1,068$2,462
Liabilities
Other liabilities and
accrued expenses—
Lending commitments$158$38$196
Total $158$38$196

At December 31, 2016
Fair Value
$ in millionsLevel 2Level 31Total
Assets
Loans$2,470$2,443$4,913
Other assets—Other
investments123123
Other assets—Premises,
equipment and
software costs22325
Total $2,492$2,569$5,061
Liabilities
Other liabilities and
accrued expenses—
Lending commitments$166$60$226
Total $166$60$226

  • For significant Level 3 balances, refer to “Significant Unobservable Inputs Used in Recurring and Nonrecurring Level 3 Fair Value Measurements” section herein for details of the significant unobservable inputs used for nonrecurring fair value measurement.

Gains (Losses)1
$ in millions201720162015
Assets
Loans2$18$40$(220)
Other assets—Other
investments3(66)(52)(3)
Other assets—Premises,
equipment and
software costs4(25)(76)(44)
Intangible assets5(2)
Other assets6(22)
Total$(73)$(90)$(289)
Liabilities
Other liabilities and
accrued expenses
Lending commitments2$75$121$(207)
Total$75$121$(207)

  • Gains and losses for Loans and Other assets—Other investments are classified in Other revenues. For other items, gains and losses are recorded in Other revenues if the item is held for sale, otherwise in Other expenses.
  • Nonrecurring changes in the fair value of loans and lending commitments were calculated as follows: for the held for investment category, based on the value of the underlying collateral; and for the held for sale category, based on recently executed transactions, market price quotations, valuation models that incorporate market observable inputs where possible, such as comparable loan or debt prices and CDS spread levels adjusted for any basis difference between cash and derivative instruments, or default recovery analysis where such transactions and quotations are unobservable.
  • Losses related to Other assets—Other investments were determined using techniques that included discounted cash flow models, methodologies that incorporate multiples of certain comparable companies and recently executed transactions.
  • Losses related to Other assets—Premises, equipment and software costs were determined using techniques that included a default recovery analysis and recently executed transactions.
  • Losses related to Intangible assets were determined using techniques that included discounted cash flow models and methodologies that incorporate multiples of certain comparable companies.
  • Losses related to Other assets were determined primarily using a default recovery analysis.

Valuation Techniques for Assets and Liabilities Not Measured at Fair Value
Investment Securities—HTM securities
• Fair value is determined using quoted market prices.
Securities purchased under agreements to resell/Securities sold under agreements to repurchase, Securities borrowed/Securities loaned, and Other secured financings
• Typically longer dated instruments for which the fair value is determined using standard cash flow discounting methodology.
• The inputs to the valuation include contractual cash flows and collateral funding spreads, which are estimated using various benchmarks and interest rate yield curves.
Customer and other receivables
• For the portion of the customer and other receivables where fair value does not equal carrying value, the fair value is determined using collateral information, historical resolution and recovery rates and employee termination data. The cash flow is then discounted using a market observable spread over LIBOR.
Loans
• The fair value of consumer and residential real estate loans and lending commitments where position-specific external price data are not observable is determined based on the credit risks of the borrower using a probability of default and loss given default method, discounted at the estimated external cost of funding level.
• The fair value of corporate loans and lending commitments is determined using recently executed transactions, market price quotations (where observable), implied yields from comparable debt, market observable CDS spread levels along with proprietary valuation models and default recovery analysis where such transactions and quotations are unobservable.
Borrowings
• The fair value is generally determined based on transactional data or third-party pricing for identical or comparable instruments, when available. Where position-specific external prices are not observable, fair value is determined based on current interest rates and credit spreads for debt instruments with similar terms and maturity.
The carrying value of the remaining assets and liabilities not measured at fair value in the following tables approximate fair value due to their short-term nature.

Financial Instruments Not Measured at Fair Value

At December 31, 2017
CarryingFair Value
$ in millionsValueLevel 1Level 2Level 3Total
Financial Assets
Cash and cash equivalents:
Cash and due
from banks$24,816$24,816$$$24,816
Interest bearing
deposits with
banks21,34821,34821,348
Restricted cash 34,23134,23134,231
Investment securities—
HTM23,59911,11911,67328923,081
Securities purchased
under agreements
to resell84,25878,2395,97884,217
Securities borrowed124,010124,0181124,019
Customer and other
receivables151,26947,1593,98451,143
Loans2104,12621,29082,928104,218
Other assets433433433
Financial Liabilities
Deposits$159,232$$159,232$$159,232
Securities sold
under agreements
to repurchase55,62451,7523,86755,619
Securities loaned13,59213,19140113,592
Other secured
financings7,4085,9871,4317,418
Customer and
other payables1188,464188,464188,464
Borrowings145,670151,69230151,722

At December 31, 2016
CarryingFair Value
$ in millionsValueLevel 1Level 2Level 3Total
Financial Assets
Cash and cash equivalents:
Cash and due
from banks$22,017$22,017$$$22,017
Interest bearing
deposits with
banks21,36421,36421,364
Restricted cash 33,97933,97933,979
Investment securities—
HTM16,9225,55710,89616,453
Securities purchased
under agreements
to resell101,65397,8253,830101,655
Securities borrowed125,236125,093147125,240
Customer and other
receivables141,67936,9624,57541,537
Loans294,24820,90674,12195,027
Financial Liabilities
Deposits$155,800$$155,800$$155,800
Securities sold
under agreements
to repurchase53,89950,9412,97253,913
Securities loaned15,84415,85315,853
Other secured
financings6,0774,7921,2906,082
Customer and
other payables1187,497187,497187,497
Borrowings 126,574130,36151130,412

  • Accrued interest, fees, and dividend receivables and payables where carrying value approximates fair value have been excluded.
  • Amounts include loans measured at fair value on a nonrecurring basis.

Lending Commitments—Held for Investment and Held for Sale
CommitmentFair Value
$ in millionsAmount1Level 2Level 3Total
December 31, 2017$100,151$620$174$794
December 31, 201697,4099732681,241

  • For further discussion on lending commitments, see Note 12.

The previous tables exclude certain financial instruments such as equity method investments and all non-financial assets and liabilities such as the value of the long-term relationships with the Firm’s deposit customers.