v3.21.2
Derivatives and Hedging Activities
 6 Months Ended
Jun. 30, 2021
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Hedging Activities
Note 7.
Derivatives and Hedging Activities
Derivative Activities
Derivatives are instruments that derive their value from underlying asset prices, indices, reference rates and other inputs, or a combination of these factors. Derivatives may be traded on an exchange (exchange-traded) or they may be privately negotiated contracts, which are usually referred to as OTC derivatives. Certain of the firm’s OTC derivatives are cleared and settled through central clearing counterparties
(OTC-cleared),
while others are bilateral contracts between two counterparties (bilateral OTC).
Market Making.
As a market maker, the firm enters into derivative transactions to provide liquidity to clients and to facilitate the transfer and hedging of their risks. In this role, the firm typically acts as principal and is required to commit capital to provide execution, and maintains market-making positions in response to, or in anticipation of, client demand.
Risk Management.
The firm also enters into derivatives to actively manage risk exposures that arise from its market-making and investing and financing activities. The firm’s holdings and exposures are hedged, in many cases, on either a portfolio or risk-specific basis, as opposed to an
instrument-by-instrument
basis. The offsetting impact of this economic hedging is reflected in the same business segment as the related revenues. In addition, the firm may enter into derivatives designated as hedges under U.S. GAAP. These derivatives are used to manage interest rate exposure of certain fixed-rate unsecured borrowings and deposits, foreign exchange risk of certain
available-for-sale
securities and the net investment in certain
non-U.S.
operations, and the price risk of certain commodities.
The firm enters into various types of derivatives, including:
 
•  
Futures and Forwards.
Contracts that commit counterparties to purchase or sell financial instruments, commodities or currencies in the future.
 
•  
Swaps.
Contracts that require counterparties to exchange cash flows, such as currency or interest payment streams. The amounts exchanged are based on the specific terms of the contract with reference to specified rates, financial instruments, commodities, currencies or indices.
 
•  
Options.
Contracts in which the option purchaser has the right, but not the obligation, to purchase from or sell to the option writer financial instruments, commodities or currencies within a defined time period for a specified price.
Derivatives are reported on a
net-by-counterparty
basis (i.e., the net payable or receivable for derivative assets and liabilities for a given counterparty) when a legal right of setoff exists under an enforceable netting agreement (counterparty netting). Derivatives are accounted for at fair value, net of cash collateral received or posted under enforceable credit support agreements (cash collateral netting). Derivative assets are included in trading assets and derivative liabilities are included in trading liabilities. Realized and unrealized gains and losses on derivatives not designated as hedges are included in market making (for derivatives included in the Global Markets segment), and other principal transactions (for derivatives included in the remaining business segments) in the consolidated statements of earnings. For each of the three and six months ended June 2021 and June 2020, substantially all of the firm’s derivatives were included in the Global Markets segment.
The tables below present the gross fair value and the notional amounts of derivative contracts by major product type, the amounts of counterparty and cash collateral netting in the consolidated balance sheets, as well as cash and securities collateral posted and received under enforceable credit support agreements that do not meet the criteria for netting under U.S. GAAP.
 
   
As of June 2021
            As of December 2020  
           
$ in millions
  
 
Derivative
Assets
 
 
  
 
Derivative
Liabilities
 
 
  
 
     Derivative
Assets		  
 		     Derivative
Liabilities		  
 
Not accounted for as hedges
 
                            
Exchange-traded
  
 
$
    
     424
 
  
 
$       
    
471
 
         $        665       $        660  
OTC-cleared
  
 
14,991
 
  
 
13,594
 
         18,832       16,809  
Bilateral OTC
  
 
257,863
 
  
 
229,507
 
  
 
     337,998       304,370  
Total interest rates
  
 
273,278
 
  
 
243,572
 
  
 
     357,495       321,839  
OTC-cleared
  
 
5,317
 
  
 
5,745
 
         4,137       4,517  
Bilateral OTC
  
 
12,108
 
  
 
11,159
 
  
 
     12,418       11,551  
Total credit
  
 
17,425
 
  
 
16,904
 
  
 
     16,555       16,068  
Exchange-traded
  
 
592
 
  
 
30
 
         133       22  
OTC-cleared
  
 
329
 
  
 
371
 
         401       631  
Bilateral OTC
  
 
79,205
 
  
 
76,417
 
  
 
     101,830       102,676  
Total currencies
  
 
80,126
 
  
 
76,818
 
  
 
     102,364       103,329  
Exchange-traded
  
 
6,554
 
  
 
6,836
 
         4,476       4,177  
OTC-cleared
  
 
367
 
  
 
313
 
         195       187  
Bilateral OTC
  
 
18,084
 
  
 
18,975
 
  
 
     9,320       13,691  
Total commodities
  
 
25,005
 
  
 
26,124
 
  
 
     13,991       18,055  
Exchange-traded
  
 
34,480
 
  
 
35,011
 
         29,006       31,944  
OTC-cleared
  
 
7
 
  
 
5
 
         –       –  
Bilateral OTC
  
 
43,939
 
  
 
47,550
 
  
 
     47,867       49,072  
Total equities
  
 
78,426
 
  
 
82,566
 
  
 
     76,873       81,016  
Subtotal
  
 
474,260
 
  
 
445,984
 
  
 
     567,278       540,307  
Accounted for as hedges
 
                    
OTC-cleared
  
 
–
 
  
 
–
 
         1       –  
Bilateral OTC
  
 
1,098
 
  
 
–
 
  
 
     1,346       –  
Total interest rates
  
 
1,098
 
  
 
–
 
  
 
     1,347       –  
OTC-cleared
  
 
11
 
  
 
21
 
         –       87  
Bilateral OTC
  
 
110
 
  
 
290
 
  
 
     4       372  
Total currencies
  
 
121
 
  
 
311
 
  
 
     4       459  
Subtotal
  
 
1,219
 
  
 
311
 
  
 
     1,351       459  
Total gross fair value
  
 
$
  
475,479
 
  
 
$
  
446,295
 
  
 
     $ 568,629       $ 540,766  
 
Offset in the consolidated balance sheets
 
                    
Exchange-traded
  
 
$  (36,292
) 
  
 
$  (36,292
) 
         $  (29,549 )      $  (29,549 ) 
OTC-cleared
  
 
(19,452
) 
  
 
(19,452
) 
         (21,315 )      (21,315 ) 
Bilateral OTC
  
 
(291,186
) 
  
 
(291,186
) 
  
 
     (372,142 )      (372,142 ) 
Counterparty netting
  
 
(346,930
) 
  
 
(346,930
) 
  
 
     (423,006 )      (423,006 ) 
OTC-cleared
  
 
(1,321
) 
  
 
(486
) 
         (1,926 )      (720 ) 
Bilateral OTC
  
 
(60,876
) 
  
 
(50,185
) 
  
 
     (74,116 )      (58,449 ) 
Cash collateral netting
  
 
(62,197
) 
  
 
(50,671
) 
  
 
     (76,042 )      (59,169 ) 
Total amounts offset
  
 
$(409,127
) 
  
 
$(397,601
) 
  
 
     $(499,048 )      $(482,175 ) 
 
Included in the consolidated balance sheets
                
Exchange-traded
  
 
$     5,758
 
  
 
$     6,056
 
         $     4,731       $     7,254  
OTC-cleared
  
 
249
 
  
 
111
 
         325       196  
Bilateral OTC
  
 
60,345
 
  
 
42,527
 
  
 
     64,525       51,141  
Total
  
 
$   66,352
 
  
 
$   48,694
 
  
 
     $   69,581       $   58,591  
 
Not offset in the consolidated balance sheets
 
        
Cash collateral
  
 
$       (614
) 
  
 
$    (1,501
) 
         $       (979 )      $    (2,427 ) 
Securities collateral
  
 
(16,249
) 
  
 
(7,510
) 
  
 
     (17,297 )      (9,943 ) 
Total
  
 
$   49,489
 
  
 
$   39,683
 
  
 
     $   51,305       $   46,221  
    Notional Amounts as of  
$ in millions
  
 
June
2021
 
 
     
December
2020
  
 
Not accounted for as hedges
                 
Exchange-traded
  
 
$  3,580,979
 
      $  3,722,558  
OTC-cleared
  
 
16,456,302
 
      13,789,571  
Bilateral OTC
  
 
12,395,407
 
      11,076,460  
Total interest rates
  
 
32,432,688
 
      28,588,589  
Exchange-traded
  
 
43
 
      –  
OTC-cleared
  
 
584,383
 
      515,197  
Bilateral OTC
  
 
565,326
 
      558,813  
Total credit
  
 
1,149,752
 
      1,074,010  
Exchange-traded
  
 
17,881
 
      7,413  
OTC-cleared
  
 
177,166
 
      157,687  
Bilateral OTC
  
 
6,538,109
 
      6,041,663  
Total currencies
  
 
6,733,156
 
      6,206,763  
Exchange-traded
  
 
308,636
 
      242,193  
OTC-cleared
  
 
2,010
 
      2,315  
Bilateral OTC
  
 
224,315
 
      206,253  
Total commodities
  
 
534,961
 
      450,761  
Exchange-traded
  
 
1,204,111
 
      948,937  
OTC-cleared
  
 
179
 
      –  
Bilateral OTC
  
 
1,312,771
 
      1,126,572  
Total equities
  
 
2,517,061
 
      2,075,509  
Subtotal
  
 
43,367,618
 
      38,395,632  
Accounted for as hedges
                 
OTC-cleared
  
 
203,427
 
      182,311  
Bilateral OTC
  
 
5,507
 
      6,641  
Total interest rates
  
 
208,934
 
      188,952  
OTC-cleared
  
 
2,164
 
      1,767  
Bilateral OTC
  
 
18,242
 
      14,055  
Total currencies
  
 
20,406
 
      15,822  
Exchange-traded
  
 
2,086
 
      –  
Total commodities
  
 
2,086
 
      –  
Subtotal
  
 
231,426
 
      204,774  
Total notional amounts
  
 
$43,599,044
 
      $38,600,406  
In the tables above:
 
•  
Gross fair values exclude the effects of both counterparty netting and collateral, and therefore are not representative of the firm’s exposure.
 
•  
Where the firm has received or posted collateral under credit support agreements, but has not yet determined such agreements are enforceable, the related collateral has not been netted.
 
•  
Notional amounts, which represent the sum of gross long and short derivative contracts, provide an indication of the volume of the firm’s derivative activity and do not represent anticipated losses.
 
•  
Total gross fair value of derivatives included derivative assets of $18.04 billion as of June 2021 and $20.60 billion as of December 2020, and derivative liabilities of $17.49 billion as of June 2021 and $22.98 billion as of December 2020, which are not subject to an enforceable netting agreement or are subject to a netting agreement that the firm has not yet determined to be enforceable.
Fair Value of Derivatives by Level
The table below presents derivatives on a gross basis by level and product type, as well as the impact of netting.
 
$ in millions
     Level 1       Level 2       Level 3       Total  
As of June 2021
                                
Assets
                                
Interest rates
  
 
$
 
177
 
  
 
$ 273,265
 
  
 
$    
  
934
 
  
 
$ 274,376
 
Credit
  
 
1
 
  
 
14,210
 
  
 
3,214
 
  
 
17,425
 
Currencies
  
 
–
 
  
 
80,033
 
  
 
214
 
  
 
80,247
 
Commodities
  
 
–
 
  
 
24,265
 
  
 
740
 
  
 
25,005
 
Equities
  
 
17
 
  
 
76,931
 
  
 
1,478
 
  
 
78,426
 
Gross fair value
  
 
195
 
  
 
468,704
 
  
 
6,580
 
  
 
475,479
 
Counterparty netting in levels
  
 
–
 
  
 
(344,650
 )  
 
(822
 )  
 
(345,472
) 
Subtotal
  
 
$
 
195
 
  
 
$ 124,054
 
  
 
$
 
 
5,758
 
  
 
$ 130,007
 
Cross-level counterparty netting
                          
 
(1,458
 )
Cash collateral netting
  
 
 
 
  
 
 
 
  
 
 
 
  
 
(62,197
) 
Net fair value
  
 
 
 
  
 
 
 
  
 
 
 
  
 
$   66,352
 
 
Liabilities
                                
Interest rates
  
 
$  
  
(6
) 
  
 
$(242,940
) 
  
 
$  
 
(626
) 
  
 
$(243,572
) 
Credit
  
 
–
 
  
 
(15,440
) 
  
 
(1,464
) 
  
 
(16,904
) 
Currencies
  
 
–
 
  
 
(76,681
) 
  
 
(448
) 
  
 
(77,129
) 
Commodities
  
 
–
 
  
 
(25,650
) 
  
 
(474
) 
  
 
(26,124
) 
Equities
  
 
(65
) 
  
 
(79,500
) 
  
 
(3,001
) 
  
 
(82,566
) 
Gross fair value
  
 
(71
) 
  
 
(440,211
) 
  
 
(6,013
) 
  
 
(446,295
) 
Counterparty netting in levels
  
 
–
 
  
 
344,650
 
  
 
822
 
  
 
345,472
 
Subtotal
  
 
$
  
(71
) 
  
 
$  (95,561
) 
  
 
$(5,191
 )  
 
$(100,823
) 
Cross-level counterparty netting
                          
 
1,458
 
Cash collateral netting
  
 
 
 
  
 
 
 
  
 
 
 
  
 
50,671
 
Net fair value
  
 
 
 
  
 
 
 
  
 
 
 
  
 
$  (48,694
) 
 
As of December 2020
                                
Assets
                                
Interest rates
     $ 297       $
  
357,568		       $    
 
977		       $
  
358,842		  
Credit
     –       13,104       3,451       16,555  
Currencies
     –       102,221       147       102,368  
Commodities
     –       13,285       706       13,991  
Equities
     75       75,054       1,744       76,873  
Gross fair value
     372       561,232       7,025       568,629  
Counterparty netting in levels
     (135 )      (420,685 )      (1,058 )      (421,878 ) 
Subtotal
     $ 237       $
  
140,547		       $ 
 
5,967		       $
  
146,751		  
Cross-level counterparty netting
                             (1,128 ) 
Cash collateral netting
  
 
 
 
  
 
 
 
  
 
 
 
     (76,042 ) 
Net fair value
  
 
 
 
  
 
 
 
  
 
 
 
     $  
  
69,581		  
 
Liabilities
                                
Interest rates
     $(229 )      $
 
(320,900		 )      $   
 
(710		 )      $
 
(321,839		 ) 
Credit
     –       (14,395 )      (1,673 )      (16,068 ) 
Currencies
     –       (103,303 )      (485 )      (103,788 ) 
Commodities
     –       (17,649 )      (406 )      (18,055 ) 
Equities
     (318 )      (78,122 )      (2,576 )      (81,016 ) 
Gross fair value
     (547 )      (534,369 )      (5,850 )      (540,766 ) 
Counterparty netting in levels
     135       420,685       1,058       421,878  
Subtotal
     $(412 )      $
 
(113,684		 )      $
 
(4,792		 )      $
 
(118,888		 ) 
Cross-level counterparty netting
                             1,128  
Cash collateral netting
  
 
 
 
  
 
 
 
  
 
 
 
     59,169  
Net fair value
  
 
 
 
  
 
 
 
  
 
 
 
     $  
 
(58,591		 ) 
In the table above:
 
•  
Gross fair values exclude the effects of both counterparty netting and collateral netting, and therefore are not representative of the firm’s exposure.
 
•  
Counterparty netting is reflected in each level to the extent that receivable and payable balances are netted within the same level and is included in counterparty netting in levels. Where the counterparty netting is across levels, the netting is included in cross-level counterparty netting.
•  
Derivative assets are shown as positive amounts and derivative liabilities are shown as negative amounts.
See Note 4 for an overview of the firm’s fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of derivatives.
Significant Unobservable Inputs
The table below presents the amount of level 3 derivative assets (liabilities), and ranges, averages and medians of significant unobservable inputs used to value level 3 derivatives.
 
       
As of June 2021
         As of December 2020  
$ in millions, except inputs
  
 
Amount or
Range
 
 
  
 
Average/
Median
 
 
  
    
  
 
Amount or
Range
 
 
  
 
Average/
Median
 
 
Interest rates, net
      
 
$308 
 
                 $267          
Correlation
      
 
22% to 81%
 
  
 
62%/60%
 
         (8)% to 81%       56%/60%  
Volatility (bps)
  
 
  
 
31 to 150 
 
  
 
64/54 
 
  
 
     31 to 150       65/53  
Credit, net
      
 
$1,750 
 
                 $1,778          
Credit spreads (bps)
  
 
2 to 568 
 
  
 
100/78 
 
         2 to 699       109/74  
Upfront credit points
  
 
6 to 100 
 
  
 
44/30 
 
         7 to 90       40/30  
Recovery rates
  
 
  
 
20% to 90%
 
  
 
53%/40%
 
  
 
     25% to 90%       46%/40%  
Currencies, net
      
 
$(234)
 
                 $(338)          
Correlation
      
 
20% to 70%
 
  
 
39%/41%
 
         20% to 70%       39%/41%  
Volatility
  
 
  
 
18% to 19%
 
  
 
18%/18%
 
  
 
     18% to 18%       18%/18%  
Commodities, net
      
 
$266 
 
                 $300          
Volatility
      
 
15% to 75%
 
  
 
32%/31%
 
         15% to 87%       32%/30%  
 
Natural gas spread
      
 
 
 
$(1.59) to 
$3.92 
 
 
 
  
 
$(0.12)/
$(0.07)
 
 
        
$(1.00) to
$2.13
  
 
    
$(0.13)/
$(0.09)
  
 
 
Oil spread
      
 
 
 
$7.62 to 
$12.53 
 
 
 
  
 
$9.55/
$9.13
 
 
        
$8.30 to
$11.20
  
 
    
$9.73/
$9.55
  
 
 
Electricity price
  
 
  
 
 
 
$15.37 to 
$67.44 
 
 
 
  
 
$33.55/
$33.16
 
 
  
 
  
 
 
 
N/A
 
 
  
 
 
 
N/A
 
 
Equities, net
      
 
$(1,523)
 
                 $(832)          
Correlation
      
 
(70)% to 100%
 
  
 
54%/58%
 
         (70)% to 100%       52%/55%  
Volatility
  
 
  
 
3% to 154%
 
  
 
18%/16%
 
  
 
     3% to 129%       14%/7%  
In the table above:
 
•  
Derivative assets are shown as positive amounts and derivative liabilities are shown as negative amounts.
 
•  
Ranges represent the significant unobservable inputs that were used in the valuation of each type of derivative.
 
•  
Averages represent the arithmetic average of the inputs and are not weighted by the relative fair value or notional amount of the respective financial instruments. An average greater than the median indicates that the majority of inputs are below the average. For example, the difference between the average and the median for credit spreads indicates that the majority of the inputs fall in the lower end of the range.
•  
The ranges, averages and medians of these inputs are not representative of the appropriate inputs to use when calculating the fair value of any one derivative. For example, the highest correlation for interest rate derivatives is appropriate for valuing a specific interest rate derivative but may not be appropriate for valuing any other interest rate derivative. Accordingly, the ranges of inputs do not represent uncertainty in, or possible ranges of, fair value measurements of level 3 derivatives.
 
•  
Interest rates, currencies and equities derivatives are valued using option pricing models, credit derivatives are valued using option pricing, correlation and discounted cash flow models, and commodities derivatives are valued using option pricing and discounted cash flow models.
 
•  
The fair value of any one instrument may be determined using multiple valuation techniques. For example, option pricing models and discounted cash flow models are typically used together to determine fair value. Therefore, the level 3 balance encompasses both of these techniques.
 
•  
Correlation within currencies and equities includes cross-product type correlation.
 
•  
Natural gas spread represents the spread per million British thermal units of natural gas.
 
•  
Oil spread represents the spread per barrel of oil and refined products.
 
•  
Electricity price represents the price per megawatt hour of electricity.
Range of Significant Unobservable Inputs
The following provides information about the ranges of significant unobservable inputs used to value the firm’s level 3 derivative instruments:
 
•  
Correlation.
Ranges for correlation cover a variety of underliers both within one product type (e.g., equity index and equity single stock names) and across product types (e.g., correlation of an interest rate and a currency), as well as across regions. Generally, cross-product type correlation inputs are used to value more complex instruments and are lower than correlation inputs on assets within the same derivative product type.
 
•  
Volatility.
Ranges for volatility cover numerous underliers across a variety of markets, maturities and strike prices. For example, volatility of equity indices is generally lower than volatility of single stocks.
•  
Credit spreads, upfront credit points and recovery rates.
The ranges for credit spreads, upfront credit points and recovery rates cover a variety of underliers (index and single names), regions, sectors, maturities and credit qualities (high-yield and investment-grade). The broad range of this population gives rise to the width of the ranges of significant unobservable inputs.
 
•  
Commodity prices and spreads.
The ranges for commodity prices and spreads cover variability in products, maturities and delivery locations.
Sensitivity of Fair Value Measurement to Changes in Significant Unobservable Inputs
The following is a description of the directional sensitivity of the firm’s level 3 fair value measurements to changes in significant unobservable inputs, in isolation, as of each
period-end:
 
•  
Correlation.
In general, for contracts where the holder benefits from the convergence of the underlying asset or index prices (e.g., interest rates, credit spreads, foreign exchange rates, inflation rates and equity prices), an increase in correlation results in a higher fair value measurement.
 
•  
Volatility.
In general, for purchased options, an increase in volatility results in a higher fair value measurement.
 
•  
Credit spreads, upfront credit points and recovery rates.
In general, the fair value of purchased credit protection increases as credit spreads or upfront credit points increase or recovery rates decrease. Credit spreads, upfront credit points and recovery rates are strongly related to distinctive risk factors of the underlying reference obligations, which include reference entity-specific factors, such as leverage, volatility and industry, market-based risk factors, such as borrowing costs or liquidity of the underlying reference obligation, and macroeconomic conditions.
 
•  
Commodity prices and spreads.
In general, for contracts where the holder is receiving a commodity, an increase in the spread (price difference from a benchmark index due to differences in quality or delivery location) or price results in a higher fair value measurement.
Due to the distinctive nature of each of the firm’s level 3 derivatives, the interrelationship of inputs is not necessarily uniform within each product type.
Level 3 Rollforward
The table below presents a summary of the changes in fair value for level 3 derivatives.
 
    Three Months
Ended June		               
Six Months
Ended June
  
$ in millions
  
 
2021
 
      2020    
 
  
 
2021
 
      2020  
Total level 3 derivatives, net
                                      
Beginning balance
  
 
$ 645
 
      $1,660        
 
$1,175
 
      $     25  
Net realized gains/(losses)
  
 
119
 
      70        
 
73
 
      136  
Net unrealized gains/(losses)
  
 
(408
) 
      (76 )       
 
(458
) 
      2,110  
Purchases
  
 
29
 
      157        
 
134
 
      326  
Sales
  
 
(294
) 
      (264 )       
 
(756
) 
      (516 ) 
Settlements
  
 
568
 
      1,557        
 
509
 
      945  
Transfers into level 3
  
 
(260
) 
      (17 )       
 
(181
) 
      (36 ) 
Transfers out of level 3
  
 
168
 
      (27 )   
 
  
 
71
 
      70  
Ending balance
  
 
$ 567
 
      $3,060    
 
  
 
$  
 
567
 
      $3,060  
In the table above:
 
•  
Changes in fair value are presented for all derivative assets and liabilities that are classified in level 3 as of the end of the period.
 
•  
Net unrealized gains/(losses) relates to instruments that were still held at
period-end.
 
•  
Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. If a derivative was transferred into level 3 during a reporting period, its entire gain or loss for the period is classified in level 3.
 
•  
Positive amounts for transfers into level 3 and negative amounts for transfers out of level 3 represent net transfers of derivative assets. Negative amounts for transfers into level 3 and positive amounts for transfers out of level 3 represent net transfers of derivative liabilities.
 
•  
A derivative with level 1 and/or level 2 inputs is classified in level 3 in its entirety if it has at least one significant level 3 input.
 
•  
If there is one significant level 3 input, the entire gain or loss from adjusting only observable inputs (i.e., level 1 and level 2 inputs) is classified in level 3.
 
•  
Gains or losses that have been classified in level 3 resulting from changes in level 1 or level 2 inputs are frequently offset by gains or losses attributable to level 1 or level 2 derivatives and/or level 1, level 2 and level 3 trading cash instruments. As a result, gains/(losses) included in the level 3 rollforward below do not necessarily represent the overall impact on the firm’s results of operations, liquidity or capital resources.
The table below presents information, by product type, for derivatives included in the summary table above.
 
    Three Months
Ended June		               
Six Months
Ended June
  
$ in millions
  
 
2021
 
     2020    
 
  
 
2021
 
     2020  
Interest rates, net
                                    
Beginning balance
  
 
$
  
  319
 
     $    266        
 
$
  
  267
 
     $      89  
Net realized gains/(losses)
  
 
33
 
     1        
 
56
 
     15  
Net unrealized gains/(losses)
  
 
(42
) 
     (12 )       
 
97
 
     170  
Purchases
  
 
–
 
     19        
 
2
 
     21  
Sales
  
 
(33
) 
     (8 )       
 
(55
) 
     (17 ) 
Settlements
  
 
60
 
     26        
 
6
 
     23  
Transfers into level 3
  
 
(1
) 
     6        
 
2
 
     8  
Transfers out of level 3
  
 
(28
) 
     13    
 
  
 
(67
) 
     2  
Ending balance
  
 
$
  
  308
 
     $    311    
 
  
 
$
  
  308
 
     $    311  
 
Credit, net
                                    
Beginning balance
  
 
$ 1,875
 
     $ 2,518        
 
$ 1,778
 
     $ 1,877  
Net realized gains/(losses)
  
 
5
 
     14        
 
(14
) 
     (1 ) 
Net unrealized gains/(losses)
  
 
18
 
     (152 )       
 
29
 
     366  
Purchases
  
 
10
 
     44        
 
8
 
     75  
Sales
  
 
(26
) 
     (47 )       
 
(28
) 
     (52 ) 
Settlements
  
 
6
 
     101        
 
49
 
     41  
Transfers into level 3
  
 
(82
) 
     (94 )       
 
(36
) 
     10  
Transfers out of level 3
  
 
(56
) 
     (57 )   
 
  
 
(36
) 
     11  
Ending balance
  
 
$ 1,750
 
     $ 2,327    
 
  
 
$ 1,750
 
     $ 2,327  
 
Currencies, net
                                    
Beginning balance
  
 
$
  
 (289
) 
     $      61        
 
$
  
 (338
) 
     $   (211 ) 
Net realized gains/(losses)
  
 
28
 
     6        
 
28
 
     (4 ) 
Net unrealized gains/(losses)
  
 
(169
) 
     (53 )       
 
(90
) 
     17  
Purchases
  
 
1
 
     9        
 
4
 
     9  
Sales
  
 
(30
) 
     (5 )       
 
(36
) 
     (5 ) 
Settlements
  
 
272
 
     (106 )       
 
245
 
     105  
Transfers into level 3
  
 
(57
) 
     (1 )       
 
(70
) 
     (3 ) 
Transfers out of level 3
  
 
10
 
     (5 )   
 
  
 
23
 
     (2 ) 
Ending balance
  
 
$
  
 (234
) 
     $     (94 )   
 
  
 
$
  
 (234
) 
     $     (94 ) 
 
Commodities, net
                                    
Beginning balance
  
 
$
  
  212
 
     $    388        
 
$
  
  300
 
     $    247  
Net realized gains/(losses)
  
 
9
 
     5        
 
(59
) 
     7  
Net unrealized gains/(losses)
  
 
135
 
     49        
 
129
 
     154  
Purchases
  
 
4
 
     2        
 
16
 
     32  
Sales
  
 
(2
) 
     (2 )       
 
(8
) 
     (5 ) 
Settlements
  
 
(67
) 
     (84 )       
 
(84
) 
     (57 ) 
Transfers into level 3
  
 
(3
) 
     (18 )       
 
(17
) 
     (30 ) 
Transfers out of level 3
  
 
(22
) 
     (9 )   
 
  
 
(11
) 
     (17 ) 
Ending balance
  
 
$
  
  266
 
     $    331    
 
  
 
$
  
  266
 
     $    331  
 
Equities, net
                                    
Beginning balance
  
 
$(1,472
) 
     $(1,573 )       
 
$
  
 (832
) 
     $(1,977 ) 
Net realized gains/(losses)
  
 
44
 
     44        
 
62
 
     119  
Net unrealized gains/(losses)
  
 
(350
) 
     92        
 
(623
) 
     1,403  
Purchases
  
 
14
 
     83        
 
104
 
     189  
Sales
  
 
(203
) 
     (202 )       
 
(629
) 
     (437 ) 
Settlements
  
 
297
 
     1,620        
 
293
 
     833  
Transfers into level 3
  
 
(117
) 
     90        
 
(60
) 
     (21 ) 
Transfers out of level 3
  
 
264
 
     31    
 
  
 
162
 
     76  
Ending balance
  
 
$(1,523
) 
     $    185    
 
  
 
$(1,523
) 
     $    185  
Level 3 Rollforward Commentary
Three Months Ended June 2021.
The net realized and unrealized losses on level 3 derivatives of $289 million (reflecting $119 million of net realized gains and $408 million of net unrealized losses) for the three months ended June 2021 included gains/(losses) of $(307) million reported in market making and $18 million reported in other principal transactions.
The net unrealized losses on level 3 derivatives for the three months ended June 2021 were primarily attributable to losses on certain equity derivatives (primarily reflecting the impact of an increase in equity prices) and losses on certain currency derivatives (primarily reflecting the impact of changes in foreign exchange rates), partially offset by gains on certain commodity derivatives (primarily reflecting the impact of an increase in commodity prices).
Transfers into level 3 derivatives during the three months ended June 2021 primarily reflected transfers of certain equity derivative liabilities from level 2 (principally due to reduced transparency of certain volatility inputs used to value these derivatives) and transfers of certain credit derivative liabilities from level 2 (principally due to certain unobservable credit spread inputs becoming significant to the valuation of these derivatives).
Transfers out of level 3 derivatives during the three months ended June 2021 primarily reflected transfers of certain equity derivative liabilities to level 2 (principally due to increased transparency of certain volatility inputs used to value these derivatives).
Six Months Ended June 2021.
The net realized and unrealized losses on level 3 derivatives of $385 million (reflecting $73 million of net realized gains and $458 million of net unrealized losses) for the six months ended June 2021 included gains/(losses) of $(407) million reported in market making and $22 million reported in other principal transactions.
The net unrealized losses on level 3 derivatives for the six months ended June 2021 were primarily attributable to losses on certain equity derivatives (primarily reflecting the impact of an increase in equity prices), partially offset by gains on certain commodity derivatives (primarily reflecting the impact of an increase in commodity prices).
The drivers of transfers into level 3 derivatives during the six months ended June 2021 were not material.
Transfers out of level 3 derivatives during the six months ended June 2021 primarily reflected transfers of certain equity derivative liabilities to level 2 (principally due to increased transparency of certain volatility inputs used to value these derivatives), partially offset by transfers of certain interest rate derivative assets to level 2 (principally due to certain unobservable inputs no longer being significant to the valuation of these derivatives).
Three Months Ended June 2020.
The net realized and unrealized losses on level 3 derivatives of $6 million (reflecting $70 million of net realized gains and $76 million of net unrealized losses) for the three months ended June 2020 included gains/(losses) of $55 million reported in market making and $(61) million reported in other principal transactions.
The drivers of the net unrealized losses on level 3 derivatives for the three months ended June 2020 were primarily attributable to losses on certain credit derivatives (primarily reflecting the tightening of certain credit spreads), partially offset by gains on certain equity derivatives (primarily reflecting changes in underlying equity prices).
The drivers of both transfers into level 3 derivatives and transfers out of level 3 derivatives during the three months ended June 2020 were not material.
Six Months Ended June 2020.
The net realized and unrealized gains on level 3 derivatives of $2.25 billion (reflecting $136 million of net realized gains and $2.11 billion of net unrealized gains) for the six months ended June 2020 included gains/(losses) of $2.29 billion reported in market making and $(45) million reported in other principal transactions.
The net unrealized gains on level 3 derivatives for the six months ended June 2020 were primarily attributable to gains on certain equity derivatives (primarily reflecting the impact of a decrease in underlying equity prices) and gains on certain credit derivatives (primarily reflecting the impact of a decrease in interest rates).
The drivers of both transfers into level 3 derivatives and transfers out of level 3 derivatives during the six months ended June 2020 were not material.
OTC Derivatives
The table below presents OTC derivative assets and liabilities by tenor and major product type.
 
$ in millions
    
Less than
1 Year
  
 
    
1 - 5
Years
  
 
    
Greater than
5 Years
  
 
     Total  
As of June 2021
                                
Assets
                                
Interest rates
  
 
$  6,045
 
  
 
$14,080
 
  
 
$62,553
 
  
 
$  82,678
 
Credit
  
 
1,645
 
  
 
2,376
 
  
 
3,046
 
  
 
7,067
 
Currencies
  
 
13,930
 
  
 
6,595
 
  
 
6,832
 
  
 
27,357
 
Commodities
  
 
7,222
 
  
 
4,150
 
  
 
459
 
  
 
11,831
 
Equities
  
 
8,111
 
  
 
11,005
 
  
 
2,833
 
  
 
21,949
 
Counterparty netting in tenors
  
 
(3,767
) 
  
 
(3,367
) 
  
 
(2,613
) 
  
 
(9,747
) 
Subtotal
  
 
$33,186
 
  
 
$34,839
 
  
 
$73,110
 
  
 
$141,135
 
Cross-tenor counterparty netting
                          
 
(18,344
) 
Cash collateral netting
  
 
 
 
  
 
 
 
  
 
 
 
  
 
(62,197
) 
Total OTC derivative assets
  
 
 
 
  
 
 
 
  
 
 
 
  
 
$  60,594
 
 
Liabilities
                                
Interest rates
  
 
$  4,624
 
  
 
$10,615
 
  
 
$36,588
 
  
 
$  51,827
 
Credit
  
 
1,513
 
  
 
3,262
 
  
 
1,771
 
  
 
6,546
 
Currencies
  
 
14,269
 
  
 
5,522
 
  
 
5,010
 
  
 
24,801
 
Commodities
  
 
5,989
 
  
 
3,426
 
  
 
3,253
 
  
 
12,668
 
Equities
  
 
8,384
 
  
 
13,621
 
  
 
3,553
 
  
 
25,558
 
Counterparty netting in tenors
  
 
(3,767
) 
  
 
(3,367
) 
  
 
(2,613
) 
  
 
(9,747
) 
Subtotal
  
 
$31,012
 
  
 
$33,079
 
  
 
$47,562
 
  
 
$111,653
 
Cross-tenor counterparty netting
                          
 
(18,344
) 
Cash collateral netting
  
 
 
 
  
 
 
 
  
 
 
 
  
 
(50,671
) 
Total OTC derivative liabilities
  
 
 
 
  
 
 
 
  
 
 
 
  
 
$  42,638
 
 
As of December 2020
                                
Assets
                                
Interest rates
     $  8,913       $20,145       $74,893       $103,951  
Credit
     822       3,270       3,302       7,394  
Currencies
     13,887       7,400       9,303       30,590  
Commodities
     2,998       1,466       488       4,952  
Equities
     12,182       12,590       1,807       26,579  
Counterparty netting in tenors
     (3,963 )      (4,458 )      (3,182 )      (11,603 ) 
Subtotal
     $34,839       $40,413       $86,611       $161,863  
Cross-tenor counterparty netting
                             (20,971 ) 
Cash collateral netting
  
 
 
 
  
 
 
 
  
 
 
 
     (76,042 ) 
Total OTC derivative assets
  
 
 
 
  
 
 
 
  
 
 
 
     $  64,850  
 
Liabilities
                                
Interest rates
     $  5,687       $11,967       $49,301       $  66,955  
Credit
     1,268       3,462       2,177       6,907  
Currencies
     18,770       7,575       5,775       32,120  
Commodities
     3,455       1,545       4,315       9,315  
Equities
     9,702       14,095       3,986       27,783  
Counterparty netting in tenors
     (3,963 )      (4,458 )      (3,182 )      (11,603 ) 
Subtotal
     $34,919       $34,186       $62,372       $131,477  
Cross-tenor counterparty netting
                             (20,971 ) 
Cash collateral netting
  
 
 
 
  
 
 
 
  
 
 
 
     (59,169 ) 
Total OTC derivative liabilities
  
 
 
 
  
 
 
 
  
 
 
 
     $  51,337  
In the table above:
 
•  
Tenor is based on remaining contractual maturity.
 
•  
Counterparty netting within the same product type and tenor category is included within such product type and tenor category.
 
•  
Counterparty netting across product types within the same tenor category is included in counterparty netting in tenors. Where the counterparty netting is across tenor categories, the netting is included in cross-tenor counterparty netting.
Credit Derivatives
The firm enters into a broad array of credit derivatives to facilitate client transactions and to manage the credit risk associated with market-making and investing and financing activities. Credit derivatives are actively managed based on the firm’s net risk position. Credit derivatives are generally individually negotiated contracts and can have various settlement and payment conventions. Credit events include failure to pay, bankruptcy, acceleration of indebtedness, restructuring, repudiation and dissolution of the reference entity.
The firm enters into the following types of credit derivatives:
 
•  
Credit Default Swaps.
Single-name credit default swaps protect the buyer against the loss of principal on one or more bonds, loans or mortgages (reference obligations) in the event the issuer of the reference obligations suffers a credit event. The buyer of protection pays an initial or periodic premium to the seller and receives protection for the period of the contract. If there is no credit event, as defined in the contract, the seller of protection makes no payments to the buyer. If a credit event occurs, the seller of protection is required to make a payment to the buyer, calculated according to the terms of the contract.
 
•  
Credit Options.
In a credit option, the option writer assumes the obligation to purchase or sell a reference obligation at a specified price or credit spread. The option purchaser buys the right, but does not assume the obligation, to sell the reference obligation to, or purchase it from, the option writer. The payments on credit options depend either on a particular credit spread or the price of the reference obligation.
•  
Credit Indices, Baskets and Tranches.
Credit derivatives may reference a basket of single-name credit default swaps or a broad-based index. If a credit event occurs in one of the underlying reference obligations, the protection seller pays the protection buyer. The payment is typically a
pro-rata
portion of the transaction’s total notional amount based on the underlying defaulted reference obligation. In certain transactions, the credit risk of a basket or index is separated into various portions (tranches), each having different levels of subordination. The most junior tranches cover initial defaults and once losses exceed the notional amount of these junior tranches, any excess loss is covered by the next most senior tranche.
 
•  
Total Return Swaps.
A total return swap transfers the risks relating to economic performance of a reference obligation from the protection buyer to the protection seller. Typically, the protection buyer receives a floating rate of interest and protection against any reduction in fair value of the reference obligation, and the protection seller receives the cash flows associated with the reference obligation, plus any increase in the fair value of the reference obligation.
The firm economically hedges its exposure to written credit derivatives primarily by entering into offsetting purchased credit derivatives with identical underliers. Substantially all of the firm’s purchased credit derivative transactions are with financial institutions and are subject to stringent collateral thresholds. In addition, upon the occurrence of a specified trigger event, the firm may take possession of the reference obligations underlying a particular written credit derivative, and consequently may, upon liquidation of the reference obligations, recover amounts on the underlying reference obligations in the event of default.
As of June 2021, written credit derivatives had a total gross notional amount of $553.09 billion and purchased credit derivatives had a total gross notional amount of $597.83 billion, for total net notional purchased protection of $44.74 billion. As of December 2020, written credit derivatives had a total gross notional amount of $515.85 billion and purchased credit derivatives had a total gross notional amount of $558.18 billion, for total net notional purchased protection of $42.33 billion. The firm’s written and purchased credit derivatives primarily consist of credit default swaps.
The table below presents information about credit derivatives.
 
    Credit Spread on Underlier (basis points)  
           
$ in millions
    
0 - 250
       251 -
500		  
 		     501 -
1,000		  
 		    
Greater
than
1,000
  
 
 
     Total  
As of June 2021
 
                                
Maximum Payout/Notional Amount of Written Credit Derivatives by Tenor
 
Less than 1 year
  
 
$105,146
 
  
 
$  9,126
 
  
 
$1,600
 
  
 
$ 4,052
 
  
 
$119,924
 
1 – 5 years
  
 
355,832
 
  
 
20,831
 
  
 
5,693
 
  
 
2,531
 
  
 
384,887
 
Greater than 5 years
  
 
42,588
 
  
 
5,391
 
  
 
234
 
  
 
67
 
  
 
48,280
 
Total
  
 
$503,566
 
  
 
$35,348
 
  
 
$7,527
 
  
 
$ 6,650
 
  
 
$553,091
 
 
Maximum Payout/Notional Amount of Purchased Credit Derivatives
 
Offsetting
  
 
$439,352
 
  
 
$24,603
 
  
 
$6,772
 
  
 
$ 5,637
 
  
 
$476,364
 
Other
  
 
$107,788
 
  
 
$10,195
 
  
 
$2,859
 
  
 
$   
 
628
 
  
 
$121,470
 
Fair Value of Written Credit Derivatives
 
Asset
  
 
$  11,557
 
  
 
$    
 
966
 
  
 
$  
 
262
 
  
 
$     
 
39
 
  
 
$  12,824
 
Liability
  
 
925
 
  
 
1,161
 
  
 
307
 
  
 
1,825
 
  
 
4,218
 
Net asset/(liability)
  
 
$  10,632
 
  
 
$  
  
(195
) 
  
 
$
  
  (45
) 
  
 
$(1,786
) 
  
 
$    8,606
 
 
As of December 2020
 
                                
Maximum Payout/Notional Amount of Written Credit Derivatives by Tenor
 
Less than 1 year
     $  96,049       $  5,826       $   450       $
 
2,403		       $104,728  
1 – 5 years
     331,145       17,913       8,801       4,932       362,791  
Greater than 5 years
     44,132       3,839       272       88       48,331  
Total
     $471,326       $27,578       $9,523       $
 
7,423		       $515,850  
 
Maximum Payout/Notional Amount of Purchased Credit Derivatives
 
Offsetting
     $407,315       $19,822       $8,679       $
 
7,091		       $442,907  
Other
     $103,604       $  7,272       $3,619       $  
 
 776		       $115,271  
Fair Value of Written Credit Derivatives
 
                
Asset
     $  10,302       $    
    
638		       $   256       $
 
   118		       $  11,314  
Liability
     1,112       1,119       387       2,001       4,619  
Net asset/(liability)
     $    9,190       $    (481 )      $  (131 )      $
 
(1,883		 )      $    6,695  
In the table above:
 
•  
Fair values exclude the effects of both netting of receivable balances with payable balances under enforceable netting agreements, and netting of cash received or posted under enforceable credit support agreements, and therefore are not representative of the firm’s credit exposure.
 
•  
Tenor is based on remaining contractual maturity.
 
•  
The credit spread on the underlier, together with the tenor of the contract, are indicators of payment/performance risk. The firm is less likely to pay or otherwise be required to perform where the credit spread and the tenor are lower.
 
•  
Offsetting purchased credit derivatives represent the notional amount of purchased credit derivatives that economically hedge written credit derivatives with identical underliers.
 
•  
Other purchased credit derivatives represent the notional amount of all other purchased credit derivatives not included in offsetting.
Impact of Credit and Funding Spreads on Derivatives
The firm realizes gains or losses on its derivative contracts. These gains or losses include credit valuation adjustments (CVA) relating to uncollateralized derivative assets and liabilities, which represents the gains or losses (including hedges) attributable to the impact of changes in credit exposure, counterparty credit spreads, liability funding spreads (which includes the firm’s own credit), probability of default and assumed recovery. These gains or losses also include funding valuation adjustments (FVA) relating to uncollateralized derivative assets, which represents the gains or losses (including hedges) attributable to the impact of changes in expected funding exposures and funding spreads.
The table below presents information about CVA and FVA.
 
   
Three Months
Ended June
        
Six Months
Ended June
  
           
$ in millions
  
2021
      2020               
2021
      2020  
CVA, net of hedges
  
 
$45
 
      $(322 )       
 
$(63
) 
      $  (51 ) 
FVA, net of hedges
  
 
25
 
      580    
 
  
 
37
 
      (179 ) 
Total
  
 
$70
 
      $ 258    
 
  
 
$(26
) 
      $(230 ) 
Bifurcated Embedded Derivatives
The table below presents the fair value and the notional amount of derivatives that have been bifurcated from their related borrowings.
 
    As of  
$ in millions
  
June
2021
     
December
2020
  
Fair value of assets
  
 
$  1,061
 
      $  1,450  
Fair value of liabilities
  
 
(1,285
) 
      (1,220 ) 
Net asset/(liability)
  
 
$  
 
 (224
) 
      $     230  
 
Notional amount
  
 
$11,856
 
      $12,548  
In the table above, derivatives that have been bifurcated from their related borrowings are recorded at fair value and primarily consist of interest rate, equity and commodity products. These derivatives are included in unsecured short- and long-term borrowings, as well as other secured financings, with the related borrowings.
Derivatives with Credit-Related Contingent Features
Certain of the firm’s derivatives have been transacted under bilateral agreements with counterparties who may require the firm to post collateral or terminate the transactions based on changes in the firm’s credit ratings. The firm assesses the impact of these bilateral agreements by determining the collateral or termination payments that would occur assuming a downgrade by all rating agencies. A downgrade by any one rating agency, depending on the agency’s relative ratings of the firm at the time of the downgrade, may have an impact which is comparable to the impact of a downgrade by all rating agencies.
The table below presents information about net derivative liabilities under bilateral agreements (excluding collateral posted), the fair value of collateral posted and additional collateral or termination payments that could have been called by counterparties in the event of a
one-
or
two-notch
downgrade in the firm’s credit ratings.
 
    As of  
     
$ in millions
  
 
June
2021
 
 
    
December
2020
  
 
Net derivative liabilities under bilateral agreements
  
 
$33,896
 
     $43,368  
Collateral posted
  
 
$27,986
 
     $35,296  
Additional collateral or termination payments:
                
One-notch
downgrade
  
 
$    
 
283
 
     $     481  
Two-notch
downgrade
  
 
$  1,074
 
     $  1,388  
Hedge Accounting
The firm applies hedge accounting for (i) interest rate swaps used to manage the interest rate exposure of certain fixed-rate unsecured long- and short-term borrowings and certain fixed-rate certificates of deposit, (ii) foreign exchange forward contracts used to manage the foreign exchange risk of certain
available-for-sale
securities, (iii) foreign currency forward contracts and foreign currency-denominated debt used to manage foreign currency exposures on the firm’s net investment in certain
non-U.S.
operations and (iv) commodity futures contracts used to manage the price risk of certain commodities.
To qualify for hedge accounting, the hedging instrument must be highly effective at reducing the risk from the exposure being hedged. Additionally, the firm must formally document the hedging relationship at inception and assess the hedging relationship at least on a quarterly basis to ensure the hedging instrument continues to be highly effective over the life of the hedging relationship.
Fair Value Hedges
The firm designates interest rate swaps as fair value hedges of certain fixed-rate unsecured long- and short-term debt and fixed-rate certificates of deposit. These interest rate swaps hedge changes in fair value attributable to the designated benchmark interest rate (e.g., London Interbank Offered Rate (LIBOR), Secured Overnight Financing Rate or Overnight Index Swap Rate), effectively converting a substantial portion of fixed-rate obligations into floating-rate obligations.
The firm applies a statistical method that utilizes regression analysis when assessing the effectiveness of these hedging relationships in achieving offsetting changes in the fair values of the hedging instrument and the risk being hedged (i.e., interest rate risk). An interest rate swap is considered highly effective in offsetting changes in fair value attributable to changes in the hedged risk when the regression analysis results in a coefficient of determination of 80% or greater and a slope between 80% and 125%.
For qualifying interest rate fair value hedges, gains or losses on derivatives are included in interest expense. The change in fair value of the hedged item attributable to the risk being hedged is reported as an adjustment to its carrying value (hedging adjustment) and is also included in interest expense. When a derivative is no longer designated as a hedge, any remaining difference between the carrying value and par value of the hedged item is amortized to interest expense over the remaining life of the hedged item using the effective interest method. See Note 23 for further information about interest income and interest expense.
The table below presents the gains/(losses) from interest rate derivatives accounted for as hedges and the related hedged borrowings and deposits, and total interest expense.
 
   
Three Months
Ended June
           
Six Months
Ended June
  
           
$ in millions
  
 
2021
 
     2020    
 
  
 
2021
 
     2020  
Interest rate hedges
  
 
$ 1,475
 
     $   353        
 
$(3,930
) 
     $ 6,939  
Hedged borrowings and deposits
  
 
$(1,559
) 
     $  (564 )       
 
$ 3,626
 
     $(7,243 ) 
Interest expense
  
 
$ 1,310
 
     $2,090    
 
  
 
$ 2,882
 
     $ 5,527  
The table below presents the carrying value of deposits and unsecured borrowings that are designated in a hedging relationship and the related cumulative hedging adjustment (increase/(decrease)) from current and prior hedging relationships included in such carrying values.
 
$ in millions
    
Carrying
Value
  
 
     
Cumulative
Hedging
Adjustment
  
 
 
As of June 2021
                 
Deposits
  
 
$  15,707
 
   
 
$    
 
456
 
Unsecured short-term borrowings
  
 
$    2,474
 
   
 
$      
 
21
 
Unsecured long-term borrowings
  
 
$134,135
 
   
 
$  8,217
 
 
As of December 2020
                 
Deposits
     $  17,303        $    
    
649		  
Unsecured short-term borrowings
     $    5,976        $    
    
  53		  
Unsecured long-term borrowings
     $115,242        $11,624  
In the table above, cumulative hedging adjustment included $6.34 billion as of both June 2021 and December 2020 of hedging adjustments from prior hedging relationships that were
de-designated
and substantially all were related to unsecured long-term borrowings.
In addition,
cumulative hedging adjustments for items no longer designated in a hedging relationship were $221 million as of June 2021 and $489 million as of December 2020 and substantially all were related to unsecured long-term borrowings.
In the third quarter of 2020, the firm designated foreign exchange forward contracts as fair value hedges of the foreign exchange risk of
non-U.S.
government securities classified as
available-for-sale.
See Note 8 for information about the amortized cost and fair value of such securities. The effectiveness of such hedges is assessed based on changes in spot rates. The losses on the hedges (relating to both spot and forward points) and the foreign exchange gains on the related
available-for-sale
securities were included in market making and were not material for both the three and six months ended June 2021.
During the second quarter of 2021, the firm designated commodity futures contracts as fair value hedges of the price risk of certain precious metals included in commodities within trading assets. As of June 2021, the carrying value of such commodities was $2.03 billion and the amortized cost was $2.09 billion. Changes in spot rates of such commodities are reflected as an adjustment to their carrying value, and the related gains/(losses) on both the commodities and the designated futures contracts are included in market making. The contractual forward points on the designated futures contracts are amortized into earnings ratably over the life of the contract and other gains/(losses) as a result of changes in the forward points are included in other comprehensive income/(loss). The cumulative hedging adjustment was not material as of June 2021 and the related gains/(losses) were not material for the three months ended June 2021.
Net Investment Hedges
The firm seeks to reduce the impact of fluctuations in foreign exchange rates on its net investments in certain
non-U.S.
operations through the use of foreign currency forward contracts and foreign currency-denominated debt. For foreign currency forward contracts designated as hedges, the effectiveness of the hedge is assessed based on the overall changes in the fair value of the forward contracts (i.e., based on changes in forward rates). For foreign currency-denominated debt designated as a hedge, the effectiveness of the hedge is assessed based on changes in spot rates. For qualifying net investment hedges, all gains or losses on the hedging instruments are included in currency translation.
The table below presents the gains/(losses) from net investment hedging.
 
   
Three Months
Ended June
           
Six Months
Ended June
  
           
$ in millions
  
 
2021
 
      2020    
 
  
 
2021
 
      2020  
Hedges:
                                      
Foreign currency forward contract
  
 
$(233
) 
      $(114 )       
 
$227
 
      $642  
Foreign currency-denominated debt
  
 
$    (6
) 
      $    (9 )   
 
  
 
$259
 
      $
    
(30		 ) 
Gains or losses on individual net investments in
non-U.S.
operations are reclassified to earnings from accumulated other comprehensive income/(loss) when such net investments are sold or substantially liquidated. The gross and net gains and losses on hedges and the related net investments in
non-U.S.
operations reclassified to earnings from accumulated other comprehensive income/(loss) were not material for both the three and six months ended June 2021. The net gain reclassified to earnings from accumulated other comprehensive income/(loss) was $57 million (reflecting a gain of $208 million related to hedges and a loss of $151 million on the related net investments in non-U.S. operations) for both the three and six months ended June 2020.
The firm had designated $5.25 billion as of June 2021 and $4.97 billion as of December 2020 of foreign currency-denominated debt, included in unsecured long- and short-term borrowings, as hedges of net investments in
non-U.S.
subsidiaries.