v3.22.0.1
Fair Value Option
 12 Months Ended
Dec. 31, 2021
Fair Value Disclosures [Abstract]  
Fair Value Option
Note 10.
Fair Value Option
Other Financial Assets and Liabilities at Fair Value
In addition to trading assets and liabilities, and certain investments and loans, the firm accounts for certain of its other financial assets and liabilities at fair value, substantially all under the fair value option. The primary reasons for electing the fair value option are to:
 
•  
Reflect economic events in earnings on a timely basis;
 
•  
Mitigate volatility in earnings from using different measurement attributes (e.g., transfers of financial assets accounted for as financings are recorded at fair value, whereas the related secured financing would be recorded on an accrual basis absent electing the fair value option); and
 
•  
Address simplification and cost-benefit considerations (e.g., accounting for hybrid financial instruments at fair value in their entirety versus bifurcation of embedded derivatives and hedge accounting for debt hosts).
Hybrid financial instruments are instruments that contain bifurcatable embedded derivatives and do not require settlement by physical delivery of nonfinancial assets (e.g., physical commodities). If the firm elects to bifurcate the embedded derivative from the associated debt, the derivative is accounted for at fair value and the host contract is accounted for at amortized cost, adjusted for the effective portion of any fair value hedges. If the firm does not elect to bifurcate, the entire hybrid financial instrument is accounted for at fair value under the fair value option.
Other financial assets and liabilities accounted for at fair value under the fair value option include:
•  
Resale and repurchase agreements;
 
•  
Certain securities borrowed and loaned transactions;
 
•  
Certain customer and other receivables and certain other liabilities;
 
•  
Certain time deposits (deposits with no stated maturity are not eligible for a fair value option election), including structured certificates of deposit, which are hybrid financial instruments;
 
•  
Substantially all other secured financings, including transfers of assets accounted for as financings; and
 
•  
Certain unsecured short- and long-term borrowings, substantially all of which are hybrid financial instruments.
Fair Value of Other Financial Assets and Liabilities by Level
The table below presents, by level within the fair value hierarchy, other financial assets and liabilities at fair value, substantially all of which are accounted for at fair value under the fair value option.
 
$ in millions
     Level 1       Level 2       Level 3       Total  
As of December 2021
                                
Assets
                                
Resale agreements
  
 
$  –
 
  
 
$ 205,703
 
  
 
$
    
         –
 
  
 
$ 205,703
 
Securities borrowed
  
 
–
 
  
 
39,955
 
  
 
–
 
  
 
39,955
 
Customer and other receivables
  
 
–
 
  
 
42
 
  
 
–
 
  
 
42
 
Total
  
 
$  –
 
  
 
$ 245,700
 
  
 
$
    
         –
 
  
 
$ 245,700
 
 
Liabilities
                                
Deposits
  
 
$  –
 
  
 
$  (31,812
) 
  
 
$  (3,613
) 
  
 
$  (35,425
) 
Repurchase agreements
  
 
–
 
  
 
(165,883
) 
  
 
–
 
  
 
(165,883
) 
Securities loaned
  
 
–
 
  
 
(9,170
) 
  
 
–
 
  
 
(9,170
) 
Other secured financings
  
 
–
 
  
 
(14,508
) 
  
 
(2,566
) 
  
 
(17,074
) 
Unsecured borrowings:
                                
Short-term
  
 
–
 
  
 
(22,003
) 
  
 
(7,829
) 
  
 
(29,832
) 
Long-term
  
 
–
 
  
 
(42,977
) 
  
 
(9,413
) 
  
 
(52,390
) 
Other liabilities
  
 
–
 
  
 
(213
) 
  
 
(146
) 
  
 
(359
) 
Total
  
 
$  –
 
  
 
$(286,566
) 
  
 
$(23,567
) 
  
 
$(310,133
) 
 
As of December 2020
                                
Assets
                                
Resale agreements
     $  –       $
    
108,060		       $
    
         –		       $
  
108,060		  
Securities borrowed
     –       28,898       –       28,898  
Customer and other receivables
     –       82       –       82  
Total
     $  –       $
    
137,040		       $
    
         –		       $
  
137,040		  
 
Liabilities
                                
Deposits
     $  –       $
    
(11,955		 )      $
    
(4,221		 )      $
 
  (16,176		 ) 
Repurchase agreements
     –       (126,569 )      (2 )      (126,571 ) 
Securities loaned
     –       (1,053 )      –       (1,053 ) 
Other secured financings
     –       (20,652 )      (3,474 )      (24,126 ) 
Unsecured borrowings:
                                
Short-term
     –       (19,227 )      (7,523 )      (26,750 ) 
Long-term
     –       (28,335 )      (12,576 )      (40,911 ) 
Other liabilities
     –       (1 )      (262 )      (263 ) 
Total
     $  –       $
 
(207,792		 )      $
 
(28,058		 )      $
 
(235,850		 ) 
In the table above, other financial assets are shown as positive amounts and other financial 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 other financial assets and liabilities.
Significant Unobservable Inputs
See below for information about the significant unobservable inputs used to value level 3 other financial assets and liabilities at fair value as of both December 2021 and December 2020.
Other Secured Financings.
The ranges and weighted averages of significant unobservable inputs used to value level 3 other secured financings are presented below. These ranges and weighted averages exclude unobservable inputs that are only relevant to a single instrument, and therefore are not meaningful.
As of December 2021:
 
•  
Yield: 1.3% to 6.4% (weighted average: 2.1%)
 
•  
Duration: 0.6 to 7.1 years (weighted average: 3.7 years)
As of December 2020:
 
•  
Yield: 1.4% to 7.1% (weighted average: 2.7%)
 
•  
Duration: 1.4 to 8.0 years (weighted average: 4.0 years)
Generally, increases in yield or duration, in isolation, would have resulted in a lower fair value measurement as of
period-end.
Due to the distinctive nature of each of level 3 other secured financings, the interrelationship of inputs is not necessarily uniform across such financings. See Note 11 for further information about other secured financings.
Deposits, Unsecured Borrowings and Other Liabilities.
Substantially all of the firm’s deposits, unsecured short- and long-term borrowings, and other liabilities that are classified in level 3 are hybrid financial instruments. As the significant unobservable inputs used to value hybrid financial instruments primarily relate to the embedded derivative component of these deposits, unsecured borrowings and other liabilities, these unobservable inputs are incorporated in the firm’s derivative disclosures in Note 7. See Note 13 for further information about deposits, Note 14 for further information about unsecured borrowings and Note 15 for further information about other liabilities.
Repurchase Agreements.
As of December 2021, the firm had no level 3 repurchase agreements. As of December 2020, the firm’s level 3 repurchase agreements were not material.
Level 3 Rollforward
The table below presents a summary of the changes in fair value for level 3 other financial liabilities accounted for at fair value.
 
    Year Ended December  
     
$ in millions
  
 
2021
 
      2020  
Beginning balance
  
 
$(28,058
) 
      $(21,036 ) 
Net realized gains/(losses)
  
 
(401
) 
      (317 ) 
Net unrealized gains/(losses)
  
 
825
 
      (1,301 ) 
Issuances
  
 
(12,632
) 
      (18,123 ) 
Settlements
  
 
14,930
 
      15,373  
Transfers into level 3
  
 
(736
) 
      (3,575 ) 
Transfers out of level 3
  
 
2,505
 
      921  
Ending balance
  
 
$(23,567
) 
      $(28,058 ) 
In the table above:
 
•  
Changes in fair value are presented for all other financial liabilities that are classified in level 3 as of the end of the period.
 
•  
Net unrealized gains/(losses) relates to other financial liabilities 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 financial liability was transferred to level 3 during a reporting period, its entire gain or loss for the period is classified in level 3.
 
•  
For level 3 other financial liabilities, increases are shown as negative amounts, while decreases are shown as positive amounts.
 
•  
Level 3 other financial liabilities are frequently economically hedged with trading assets and liabilities. Accordingly, gains or losses that are classified in level 3 can be partially offset by gains or losses attributable to level 1, 2 or 3 trading assets and liabilities. As a result, gains or 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 the consolidated balance sheet line items, for liabilities included in the summary table above.
 
    Year Ended December  
     
$ in millions
  
 
2021
 
      2020  
Deposits
                 
Beginning balance
  
 
$  (4,221
) 
      $  (4,023 ) 
Net realized gains/(losses)
  
 
(28
) 
      1  
Net unrealized gains/(losses)
  
 
(110
) 
      (319 ) 
Issuances
  
 
(473
) 
      (4,049 ) 
Settlements
  
 
1,203
 
      4,168  
Transfers into level 3
  
 
(70
) 
      (57 ) 
Transfers out of level 3
  
 
86
 
      58  
Ending balance
  
 
$  (3,613
) 
      $  (4,221 ) 
 
Repurchase agreements
                 
Beginning balance
  
 
$
    
        (2
) 
      $       (30 ) 
Net unrealized gains/(losses)
  
 
1
 
      (2 ) 
Settlements
  
 
1
 
      30  
Ending balance
  
 
$
    
        –
 
      $         (2 ) 
 
Other secured financings
                 
Beginning balance
  
 
$  (3,474
) 
      $     (386 ) 
Net realized gains/(losses)
  
 
(27
) 
      13  
Net unrealized gains/(losses)
  
 
63
 
      (142 ) 
Issuances
  
 
(145
) 
      (1,195 ) 
Settlements
  
 
779
 
      368  
Transfers into level 3
  
 
(135
) 
      (2,132 ) 
Transfers out of level 3
  
 
373
 
      –  
Ending balance
  
 
$  (2,566
) 
      $  (3,474 ) 
 
Unsecured short-term borrowings
                 
Beginning balance
  
 
$  (7,523
) 
      $  (5,707 ) 
Net realized gains/(losses)
  
 
(134
) 
      (132 ) 
Net unrealized gains/(losses)
  
 
374
 
      (215 ) 
Issuances
  
 
(7,878
) 
      (6,634 ) 
Settlements
  
 
7,188
 
      5,029  
Transfers into level 3
  
 
(163
) 
      (629 ) 
Transfers out of level 3
  
 
307
 
      765  
Ending balance
  
 
$  (7,829
) 
      $  (7,523 ) 
 
Unsecured long-term borrowings
                 
Beginning balance
  
 
$(12,576
) 
      $(10,741 ) 
Net realized gains/(losses)
  
 
(212
) 
      (229 ) 
Net unrealized gains/(losses)
  
 
381
 
      (510 ) 
Issuances
  
 
(4,136
) 
      (6,215 ) 
Settlements
  
 
5,759
 
      5,778  
Transfers into level 3
  
 
(368
) 
      (757 ) 
Transfers out of level 3
  
 
1,739
 
      98  
Ending balance
  
 
$  (9,413
) 
      $(12,576 ) 
 
Other liabilities
                 
Beginning balance
  
 
$
    
    (262
) 
      $     (149 ) 
Net realized gains/(losses)
  
 
–
 
      30  
Net unrealized gains/(losses)
  
 
116
 
      (113 ) 
Issuances
  
 
–
 
      (30 ) 
Ending balance
  
 
$
    
    (146
) 
      $     (262 ) 
Level 3 Rollforward Commentary
Year Ended December 2021.
The net realized and unrealized gains on level 3 other financial liabilities of $424 million (reflecting $401 million of net realized losses and $825 million of net unrealized gains) for 2021 included gains/(losses) of $355 million reported in market making, $32 million reported in other principal transactions and $(20) million reported in interest expense in the consolidated statements of earnings, and $57 million reported in debt valuation adjustment in the consolidated statements of comprehensive income.
The net unrealized gains on level 3 other financial liabilities for 2021 primarily reflected gains on certain hybrid financial instruments included in unsecured long- and short-term borrowings (principally due to an increase in interest rates).
Transfers into level 3 other financial liabilities during 2021 primarily reflected transfers of certain hybrid financial instruments included in unsecured long- and short-term borrowings from level 2 (principally due to reduced price transparency of certain volatility and correlation inputs used to value these instruments) and certain other secured financings from level 2 (principally due to reduced price transparency of certain yield and duration inputs used to value these instruments).
Transfers out of level 3 other financial liabilities during 2021 primarily reflected transfers of certain hybrid financial instruments included in unsecured long- and short-term borrow
in
gs to level 2 (principally due to increased price transparency of certain volatility and correlation inputs used to value these instruments, and certain unobservable volatility inputs no longer being significant to the valuation of these instruments) and certain other secured financings to level 2 (principally due to increased price transparency of certain yield and duration inputs used to value these instruments).
Year Ended December 2020.
The net realized and unrealized losses on level 3 other financial liabilities of $1.62 billion (reflecting $317 million of net realized losses and $1.30 billion of net unrealized losses) for 2020 included losses of $1.44 billion reported in market making, $28 million reported in other principal transactions and $15 million reported in interest expense in the consolidated statements of earnings, and $139 million reported in debt valuation adjustment in the consolidated statements of comprehensive income.
The net unrealized losses on level 3 other financial liabilities for 2020 primarily reflected losses on certain hybrid financial instruments included in unsecured long- and short-term borrowings (principally due to an increase in global equity prices), and losses on certain hybrid financial instruments included in deposits (principally due to an increase in the market value of the underlying assets).
Transfers into level 3 other financial liabilities during 2020 primarily reflected transfers of certain other secured financings from level 2 (principally due to reduced price transparency of certain yield and duration inputs used to value these instruments), and certain hybrid financial instruments included in unsecured long- and short-term borrowings from level 2 (principally due to reduced price transparency of certain volatility and correlation inputs used to value these instruments).
Transfers out of level 3 other financial liabilities during 2020 primarily reflected transfers of certain hybrid financial instruments included in unsecured short-term borrowings to level 2 (principally due to increased price transparency of certain volatility and correlation inputs used to value these instruments).
Gains and Losses on Other Financial Assets and Liabilities Accounted for at Fair Value Under the Fair Value Option
The table below presents the gains and losses recognized in earnings as a result of the election to apply the fair value option to certain financial assets and liabilities.
 
    Year Ended December  
       
$ in millions
  
 
2021
 
      2020        2019  
Unsecured short-term borrowings
  
 
$(1,016
) 
      $    206        $(3,365 ) 
Unsecured long-term borrowings
  
 
(2,393
) 
      (2,804 )       (5,251 ) 
Other
  
 
(135
) 
      (563 )       (883 ) 
Total
  
 
$(3,544
) 
      $(3,161 )       $(9,499 ) 
In the table above:
 
•  
Gains/(losses) were substantially all included in market making.
 
•  
Gains/(losses) exclude contractual interest, which is included in interest income and interest expense, for all instruments other than hybrid financial instruments. See Note 23 for further information about interest income and interest expense.
 
•  
Gains/(losses) included in unsecured short- and long-term borrowings were substantially all related to the embedded derivative component of hybrid financial instruments for 2021, 2020 and 2019. These gains and losses would have been recognized under other U.S. GAAP even if the firm had not elected to account for the entire hybrid financial instrument at fair value.
 
•  
Other primarily consists of gains/(losses) on customer and other receivables, deposits, other secured financings and other liabilities.
 
•  
Other financial assets and liabilities at fair value are frequently economically hedged with trading assets and liabilities. Accordingly, gains or losses on such other financial assets and liabilities can be partially offset by gains or losses on trading assets and liabilities. As a result, gains or losses on other financial assets and liabilities do not necessarily represent the overall impact on the firm’s results of operations, liquidity or capital resources.
See Note 8 for information about gains/(losses) on equity securities and Note 9 for information about gains/(losses) on loans which are accounted for at fair value under the fair value option. Gains/(losses) on trading assets and liabilities accounted for at fair value under the fair value option are included in market making. See Note 5 for further information about gains/(losses) from market making.
Long-Term Debt Instruments
The difference between the aggregate contractual principal amount and the related fair value of long-term other secured financings, for which the fair value option was elected, was not material as of both December 2021 and December 2020.
The difference between the aggregate contractual principal amount and the related fair value of unsecured long-term borrowings, for which the fair value option was elected, was not material as of December 2021, and the fair value exceeded the aggregate contractual principal amount by $445 million as of December 2020. The amount above includes both principal-protected and
non-principal-protected
long-term borrowings.
Debt Valuation Adjustment
The firm calculates the fair value of financial liabilities for which the fair value option is elected by discounting future cash flows at a rate which incorporates the firm’s credit spreads.
The table below presents information about the net debt valuation adjustment (DVA) gains/(losses) on financial liabilities for which the fair value option was elected.
 
    Year Ended December  
       
$ in millions
  
 
2021
 
      2020        2019  
Pre-tax DVA
  
 
$433
 
      $(347 )       $(2,763 ) 
After tax DVA
  
 
$322
 
      $(261 )       $(2,079 ) 
In the table above:
 
•  
After tax DVA is included in debt valuation adjustment in the consolidated statements of comprehensive income.
 
•  
The gains/(losses) reclassified to market making in the consolidated statements of earnings from accumulated other comprehensive income/(loss) upon extinguishment of such financial liabilities were not material for 2021, 2020 and 2019.
Loans and Lending Commitments
The table below presents the difference between the aggregate fair value and the aggregate contractual principal amount for loans (included in trading assets and loans in the consolidated balance sheets) for which the fair value option was elected.
 
    As of December  
     
$ in millions
  
 
2021
 
      2020  
Performing loans
                 
Aggregate contractual principal in excess of fair value
    
$1,373
      
$     958
  
 
Loans on nonaccrual status and/or more than 90 days past due
  
Aggregate contractual principal in excess of fair value
    
$8,600
      
$10,526
  
Aggregate fair value
    
$3,559
      
$  3,519
  
In the table above, the aggregate contractual principal amount of loans on nonaccrual status and/or more than 90 days past due (which excludes loans carried at zero fair value and considered uncollectible) exceeds the related fair value primarily because the firm regularly purchases loans, such as distressed loans, at values significantly below the contractual principal amounts.
The fair value of unfunded lending commitments for which the fair value option was elected was a liability of $20 million as of December 2021 and $25 million as of December 2020, and the related total contractual amount of these lending commitments was $611 million as of December 2021 and $1.64 billion as of December 2020. See Note 18 for further information about lending commitments.
Impact of Credit Spreads on Loans and Lending Commitments
The estimated net gain/(loss) attributable to changes in instrument-specific credit spreads on loans and lending commitments for which the fair value option was elected was $277 million for 2021, $(106) million for 2020 and $134 million for 2019. The firm generally calculates the fair value of loans and lending commitments for which the fair value option is elected by discounting future cash flows at a rate which incorporates the instrument-specific credit spreads. For floating-rate loans and lending commitments, substantially all changes in fair value are attributable to changes in instrument-specific credit spreads, whereas for fixed-rate loans and lending commitments, changes in fair value are also attributable to changes in interest rates.