Derivatives and Hedging Activities (Tables)

12 Months Ended

Dec. 31, 2018

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Fair Values, Volume of Activity and Gain (Loss) Information Related to Derivative Instruments

The following table summarizes the fair values of our derivative instruments on a gross and net basis as of December 31, 2018, and December 31, 2017. The change in the notional amounts of these derivatives by type from December 31, 2017, to December 31, 2018, indicates the volume of our derivative transaction activity during 2018. The notional amounts are not affected by bilateral collateral and master netting agreements. The derivative asset and liability balances are presented on a gross basis, prior to the application of bilateral collateral and master netting agreements. Total derivative assets and liabilities are adjusted to take into account the impact of legally enforceable master netting agreements that allow us to settle all derivative contracts with a single counterparty on a net basis and to offset the net derivative position with the related cash collateral. Where master netting agreements are not in effect or are not enforceable under bankruptcy laws, we do not adjust those derivative assets and liabilities with counterparties. Securities collateral related to legally enforceable master netting agreements is not offset on the balance sheet. Our derivative instruments are included in “accrued income and other assets” or “accrued expenses and other liabilities” on the balance sheet, as indicated in the following table:

	December 31, 2018								December 31, 2017
			Fair Value								Fair Value
in millions	Notional Amount		Derivative Assets			Derivative Liabilities			Notional Amount		Derivative Assets			Derivative Liabilities
Derivatives designated as hedging instruments:
Interest rate	$	28,546	$	50		$	(10	)	$	26,176	$	81		$	46
Foreign exchange	122		2			—			302		1			4
Total	28,668		52			(10		)	26,478		82			50
Derivatives not designated as hedging instruments:
Interest rate	63,454		365			307			61,390		641			474
Foreign exchange	6,829		104			95			8,317		129			120
Commodity	2,002		333			323			1,687		255			246
Credit	226		1			1			315		1			4
Other (a)	1,466		9			7			2,006		4			13
Total	73,977		812			733			73,715		1,030			857
Netting adjustments (b)	—		(333		)	(337		)	—		(443		)	(616		)
Net derivatives in the balance sheet	102,645		531			386			100,193		669			291
Other collateral (c)	—		(2		)	(33		)	—		(5		)	(84		)
Net derivative amounts	$	102,645	$	529		$	353		$	100,193	$	664		$	207

 

(a) Other derivatives include interest rate lock commitments and forward sale commitments related to our residential mortgage banking activities, forward purchase and sales contracts consisting of contractual commitments associated with “to be announced” securities and when issued securities, and when-issued security transactions in connection with an “at-the-market” equity offering program.

(b) Netting adjustments represent the amounts recorded to convert our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance.

(c)

Other collateral represents the amount that cannot be used to offset our derivative assets and liabilities from a gross basis to a net basis in accordance with the applicable accounting guidance. The other collateral consists of securities and is exchanged under bilateral collateral and master netting agreements that allow us to offset the net derivative position with the related collateral. The application of the other collateral cannot reduce the net derivative position below zero. Therefore, excess other collateral, if any, is not reflected above.

Pre-Tax Net Gains (Losses) on Fair Value Hedges

The following table summarizes the amounts that were recorded on the balance sheet as of December 31, 2018, related to cumulative basis adjustments for fair value hedges.

	December 31, 2018
in millions	Balance sheet line item in which the hedge item is included	Carrying amount of hedged item (a)		Hedge accounting basis adjustment (b)
Interest rate contracts	Long-term debt	$	9,363	$	(6	)
Interest rate contracts	Certificate of deposit ($100,000 or more)	343		(1		)
Interest rate contracts	Other time deposits	178		—

(a) The carrying amount represents the portion of the liability designated as the hedged item.

(b) Basis adjustment includes $10 million related to de-designated hedged items no longer in qualifying fair value hedging relationships.

Schedule of Derivatives Instruments Statements of Financial Performance and Financial Position, Location

The following tables summarize the effect of fair value and cash flow hedge accounting on the income statement for the years ended December 31, 2018, December 31, 2017, and December 31, 2016.

	Location and amount of net gains (losses) recognized in income on fair value and cash flow hedging relationships (a)
in millions	Interest expense – long-term debt			Interest income – loans			Investment banking and debt placement fees		Interest expense – deposits			Other income
Year ended December 31, 2018
Total amounts presented in the consolidated statement of income	$	(420	)	$	4,023		$	650	$	(517	)	$	176
Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	(5		)	—			—		1			—
Recognized on derivatives designated as hedging instruments	(12		)	—			—		—			—
Net income (expense) recognized on fair value hedges	(17		)	—			—		1			—
Net gain (loss) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from AOCI into net income	(2		)	(68		)	2		—			31
Net income (expense) recognized on cash flow hedges	$	(2	)	$	(68	)	$	2	—			31
Year ended December 31, 2017
Total amounts presented in the consolidated statement of income	$	(319	)	$	3,677		$	603	$	(278	)	$	153
Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	—			—			—		—			107
Recognized on derivatives designated as hedging instruments	49			—			—		—			(103		)
Net income (expense) recognized on fair value hedges	$	49		—			—		—			$	4
Net gain (loss) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from AOCI into net income	$	(4	)	$	19		—		—			—
Gains (losses) (before tax) recognized in income for hedge ineffectiveness	—			—			—		—			—
Net income (expense) recognized on cash flow hedges	$	(4	)	$	19		$	—	—			—
Year ended December 31, 2016
Total amounts presented in the consolidated statement of income	$	(218	)	$	2,773		$	482	$	(171	)	$	114
Net gains (losses) on fair value hedging relationships
Interest contracts
Recognized on hedged items	—			—			—		—			97
Recognized on derivatives designated as hedging instruments	96			—			—		—			(95		)
Net income (expense) recognized on fair value hedges	96			—			—		—			2
Net gain (loss) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from AOCI into net income	(4		)	85			—		—			—
Gains (losses) (before tax) recognized in income for hedge ineffectiveness	—			—			—		—			—
Net income (expense) recognized on cash flow hedges	$	(4	)	$	85		$	—	—			—

(a) Prior period gain or loss amounts were not restated to conform to the new hedge accounting guidance adopted in 2018.

Derivative Instrument Cash Flow Hedge Earning Recognized by Income Statement Location

The following table summarizes the pre-tax net gains (losses) on our cash flow and net investment hedges for the years ended December 31, 2018, December 31, 2017, and December 31, 2016, and where they are recorded on the income statement. The table includes net gains (losses) recognized in OCI during the period and net gains (losses) reclassified from OCI into income during the current period.

in millions	Net Gains (Losses) Recognized in OCI			Income Statement Location of Net Gains (Losses) Reclassified From OCI Into Income	Net Gains (Losses) Reclassified From OCI Into Income(a)			Net Gains (Losses) Recognized in Other Income(a)
Year ended December 31, 2018
Cash Flow Hedges
Interest rate	$	(13	)	Interest income — Loans	$	(68	)	$	—
Interest rate	2			Interest expense — Long-term debt	(2		)	—
Interest rate	1			Investment banking and debt placement fees	2			—
Net Investment Hedges
Foreign exchange contracts	19			Other Income	31			—
Total	$	9			$	(37	)	$	—
Year ended December 31, 2017
Cash Flow Hedges
Interest rate	$	(59	)	Interest income — Loans	$	19		$	—
Interest rate	—			Interest expense — Long-term debt	(4		)	—
Interest rate	(1		)	Investment banking and debt placement fees	—			—
Net Investment Hedges
Foreign exchange contracts	(17		)	Other Income	—			—
Total	$	(77	)		$	15		$	—
Year ended December 31, 2016
Cash Flow Hedges
Interest rate	$	29		Interest income — Loans	$	85		$	—
Interest rate	—			Interest expense — Long-term debt	(4		)	—
Interest rate	1			Investment banking and debt placement fees	—			—
Net Investment Hedges
Foreign exchange contracts	(2		)	Other Income	—			—
Total	$	28			$	81		$	—

(a)

Prior period gain or loss amounts were not restated to conform to the new hedge accounting guidance adopted in 2018.

Pre-Tax Net Gains (Losses) on Derivatives Not Designated as Hedging Instruments

The following table summarizes the pre-tax net gains (losses) on our derivatives that are not designated as hedging instruments for the years ended December 31, 2018, December 31, 2017, and December 31, 2016, and where they are recorded on the income statement.

	2018											2017											2016
Year ended December 31, in millions	Corporate Services Income		Consumer Mortgage Income			Other Income			Total			Corporate Services Income		Consumer Mortgage Income			Other Income			Total			Corporate Services Income		Consumer Mortgage Income		Other Income			Total
NET GAINS (LOSSES)
Interest rate	$	38	—			$	(1	)	$	37		$	29	—			$	(1	)	$	28		$	30	—		$	1		$	31
Foreign exchange	42		—			—			42			41		—			—			41			40		—		—			40
Commodity	8		—			—			8			6		—			—			6			4		—		—			4
Credit	2		—			(30		)	(28		)	2		—			(21		)	(19		)	1		—		(16		)	(15		)
Other	—		$	(1	)	12			11			—		$	(1	)	(6		)	(7		)	—		$	1	—			1
Total net gains (losses)	$	90	$	(1	)	$	(19	)	$	70		$	78	$	(1	)	$	(28	)	$	49		$	75	$	1	$	(15	)	$	61

Fair Value of Derivative Assets by Type

The following table summarizes the fair value of our derivative assets by type at the dates indicated. These assets represent our gross exposure to potential loss after taking into account the effects of bilateral collateral and master netting agreements and other means used to mitigate risk.

December 31, in millions	2018		2017
Interest rate	$	308	$	401
Foreign exchange	60		77
Commodity	187		163
Credit	—		1
Other	9		4
Derivative assets before collateral	564		646
Less: Related collateral	33		(23		)
Total derivative assets	$	531	$	669

Credit Derivatives Sold and Held

The following table provides information on the types of credit derivatives sold by us and held on the balance sheet at December 31, 2018, and December 31, 2017. The notional amount represents the maximum amount that the seller could be required to pay. The payment/performance risk assessment is based on the default probabilities for the underlying reference entities’ debt obligations using a Moody’s credit ratings matrix known as Moody’s “Idealized” Cumulative Default Rates. The payment/performance risk shown in the table represents a weighted-average of the default probabilities for all reference entities in the respective portfolios. These default probabilities are directly correlated to the probability that we will have to make a payment under the credit derivative contracts. 

	2018					2017
December 31, dollars in millions	Notional Amount		Average Term (Years)	Payment / Performance Risk		Notional Amount		Average Term (Years)	Payment / Performance Risk
Other	$	22	13.43	17.18	%	$	15	3.08	6.64	%
Total credit derivatives sold	$	22	—	—		$	15	—	—

Credit Risk Contingent Feature

The following table summarizes the additional cash and securities collateral that KeyBank would have been required to deliver under the ISDA Master Agreements had the credit risk contingent features been triggered for the derivative contracts in a net liability position as of December 31, 2018, and December 31, 2017. The additional collateral amounts were calculated based on scenarios under which KeyBank’s ratings are downgraded one, two, or three ratings as of December 31, 2018, and December 31, 2017, and take into account all collateral already posted. A similar calculation was performed for KeyCorp, and no additional collateral would have been required at December 31, 2018, or December 31, 2017.

December 31, in millions	2018				2017
	Moody’s		S&P		Moody’s		S&P
KeyBank’s long-term senior unsecured credit ratings	A3		A-		A3		A-
One rating downgrade	$	2	$	2	$	2	$	2
Two rating downgrades	2		2		2		2
Three rating downgrades	2		2		2		2