v3.4.0.3
Fair Value Disclosures
 3 Months Ended
Mar. 31, 2016
Fair Value Disclosures  
Fair Value Disclosures

3. Fair Values.

Fair Value Measurements.

 

For a description of the valuation techniques applied to the Company’s major categories of assets and liabilities measured at fair value on a recurring basis, see Note 3 to the consolidated financial statements in the 2015 Form 10-K. During the quarter ended March 31, 2016, there were no significant updates made to the Company’s valuation techniques.

Assets and Liabilities Measured at Fair Value on a Recurring Basis.
Level 1Level 2Level 3Counterparty and Cash Collateral NettingBalance at March 31, 2016
(dollars in millions)
Assets at Fair Value
Trading assets:
U.S. government and agency securities:
U.S. Treasury securities $23,545$—$—$—$23,545
U.S. agency securities 1,00420,6628—21,674
Total U.S. government and agency securities24,54920,6628—45,219
Other sovereign government obligations 15,8358,2328—24,075
Corporate and other debt:
State and municipal securities —1,8325—1,837
Residential mortgage-backed securities —1,337292—1,629
Commercial mortgage-backed securities —1,02959—1,088
Asset-backed securities —3354—339
Corporate bonds —9,955224—10,179
Collateralized debt and loan obligations —295348—643
Loans and lending commitments(1)—3,6406,185—9,825
Other debt —1,358527—1,885
Total corporate and other debt —19,7817,644—27,425
Corporate equities(2) 95,676366430—96,472
Derivative and other contracts:
Interest rate contracts507424,4881,170—426,165
Credit contracts—19,563738—20,301
Foreign exchange contracts7773,019224—73,320
Equity contracts76843,027735—44,530
Commodity contracts2,92510,6484,045—17,618
Other—19——19
Netting(3)(3,517)(477,187)(3,606)(61,800)(546,110)
Total derivative and other contracts76093,5773,306(61,800)35,843
Investments(4):
Principal investments2220743—785
Other166324179—669
Total investments188344922—1,454
Physical commodities —274——274
Total trading assets(4)137,008143,23612,318(61,800)230,762
AFS securities32,73135,436——68,167
Securities received as collateral8,8112——8,813
Securities purchased under agreements to resell—555——555
Intangible assets——4—4
Total assets measured at fair value$178,550$179,229$12,322$(61,800)$308,301
Liabilities at Fair Value
Deposits $—$624$23$—$647
Short-term borrowings—697——697
Trading liabilities:
U.S. government and agency securities:
U.S. Treasury securities 10,553———10,553
U.S. agency securities 304162——466
Total U.S. government and agency securities10,857162——11,019
Other sovereign government obligations 12,9613,554——16,515
Corporate and other debt:
Corporate bonds —6,5176—6,523
Lending commitments —21—3
Other debt —314—35
Total corporate and other debt —6,55011—6,561
Corporate equities(2) 48,1836031—48,274
Derivative and other contracts:
Interest rate contracts655397,3941,001—399,050
Credit contracts—19,8061,461—21,267
Foreign exchange contracts4976,89598—77,042
Equity contracts48744,8252,567—47,879
Commodity contracts2,4939,4012,845—14,739
Other—116——116
Netting(3)(3,517)(477,187)(3,606)(42,386)(526,696)
Total derivative and other contracts16771,2504,366(42,386)33,397
Total trading liabilities72,16881,5764,408(42,386)115,766
Obligation to return securities received as collateral 17,98031—17,984
Securities sold under agreements to repurchase—542151—693
Other secured financings —2,169454—2,623
Long-term borrowings —34,2101,798—36,008
Total liabilities measured at fair value$90,148$119,821$6,835$(42,386)$174,418

Level 1Level 2Level 3Counterparty and Cash Collateral NettingBalance at December 31, 2015
(dollars in millions)
Assets at Fair Value
Trading assets:
U.S. government and agency securities:
U.S. Treasury securities $17,658$—$—$—$17,658
U.S. agency securities 79717,886——18,683
Total U.S. government and agency securities18,45517,886——36,341
Other sovereign government obligations 13,5597,4004—20,963
Corporate and other debt:
State and municipal securities —1,65119—1,670
Residential mortgage-backed securities —1,456341—1,797
Commercial mortgage-backed securities —1,52072—1,592
Asset-backed securities —49425—519
Corporate bonds —9,959267—10,226
Collateralized debt and loan obligations —284430—714
Loans and lending commitments(1)—4,6825,936—10,618
Other debt —2,263448—2,711
Total corporate and other debt —22,3097,538—29,847
Corporate equities(2) 106,296379433—107,108
Derivative and other contracts:
Interest rate contracts406323,5862,052—326,044
Credit contracts—22,258661—22,919
Foreign exchange contracts5564,608292—64,955
Equity contracts65338,5521,084—40,289
Commodity contracts3,14010,6543,358—17,152
Other—219——219
Netting(3)(3,840)(380,443)(3,120)(55,562)(442,965)
Total derivative and other contracts41479,4344,327(55,562)28,613
Investments(4):
Principal investments2044486—550
Other163310221—694
Total investments183354707—1,244
Physical commodities —321——321
Total trading assets(4)138,907128,08313,009(55,562)224,437
AFS securities34,35132,408——66,759
Securities received as collateral 11,22131—11,225
Securities purchased under agreements to resell—806——806
Intangible assets——5—5
Total assets measured at fair value$184,479$161,300$13,015$(55,562)$303,232
Liabilities at Fair Value
Deposits $—$106$19$—$125
Short-term borrowings —1,6471—1,648
Trading liabilities:
U.S. government and agency securities:
U.S. Treasury securities 12,932———12,932
U.S. agency securities 854127——981
Total U.S. government and agency securities13,786127——13,913
Other sovereign government obligations 10,9702,558——13,528
Corporate and other debt:
Commercial mortgage-backed securities —2——2
Corporate bonds —5,035——5,035
Lending commitments —3——3
Other debt —54—9
Total corporate and other debt —5,0454—5,049
Corporate equities(2) 47,1233517—47,175
Derivative and other contracts:
Interest rate contracts466305,1511,792—307,409
Credit contracts—22,1601,505—23,665
Foreign exchange contracts2265,177151—65,350
Equity contracts57042,4473,115—46,132
Commodity contracts3,0129,4312,308—14,751
Other—43——43
Netting(3)(3,840)(380,443)(3,120)(40,473)(427,876)
Total derivative and other contracts23063,9665,751(40,473)29,474
Total trading liabilities72,10971,7315,772(40,473)109,139
Obligation to return securities received as collateral 19,31231—19,316
Securities sold under agreements to repurchase—532151—683
Other secured financings —2,393461—2,854
Long-term borrowings —31,0581,987—33,045
Total liabilities measured at fair value$91,421$107,470$8,392$(40,473)$166,810

_____________

AFS—Available for sale

(1) At March 31, 2016, Loans and lending commitments held at fair value consisted of $7,455 million of corporate loans, $1,727 million of residential real estate loans and $643 million of wholesale real estate loans. At December 31, 2015, Loans and lending commitments held at fair value consisted of $7,286 million of corporate loans, $1,885 million of residential real estate loans and $1,447 million of wholesale real estate loans.

(2) For trading purposes, the Company holds or sells short equity securities issued by entities in diverse industries and of varying sizes.

(3) 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 “Counterparty and Cash Collateral Netting.” For contracts with the same counterparty, counterparty netting among positions classified within the same level is included within that shared level. For further information on derivative instruments and hedging activities, see Note 4.

(4) Amounts exclude certain investments that are measured at fair value using the net asset value (“NAV”) per share, which are not classified in the fair value hierarchy. At March 31, 2016 and December 31, 2015, the fair value of these investments was $3,388 million and $3,843 million, respectively. For additional disclosure about such investments, see “Fair Value of Investments Measured at Net Asset Value” herein.

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 for the quarters ended March 31, 2016 and 2015, respectively. 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 tables below do not reflect the related realized and unrealized gains (losses) on hedging instruments that have been classified by the Company within the Level 1 and/or Level 2 categories.

Additionally, both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the unrealized gains (losses) during the period for assets and liabilities within the Level 3 category presented in the tables below may include changes in fair value during the period that were attributable to both observable and unobservable inputs.

Roll-forward of Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis.
Beginning Balance at December 31, 2015Total Realized and Unrealized Gains (Losses)Purchases (1)SalesIssuancesSettlementsNet TransfersEnding Balance at March 31, 2016Unrealized Gains (Losses) for Level 3 Assets/ Liabilities Outstanding at March 31, 2016
(dollars in millions)
Assets at Fair Value
Trading assets:
U.S. agency securities $—$5$—$—$—$—$3$8$5
Other sovereign government obligations 4——(2)——68—
Corporate and other debt:
State and municipal securities 19——(15)——15—
Residential mortgage-backed securities 341(24)19(67)——23292(17)
Commercial mortgage-backed securities 72(9)—(15)——1159(9)
Asset-backed securities 25(1)1(17)——(4)4—
Corporate bonds 2674417(98)——(6)22428
Collateralized debt and loan obligations 430(14)114(113)——(69)348(4)
Loans and lending commitments5,936(60)952(319)—(351)276,185(64)
Other debt 448575(9)——85275
Total corporate and other debt 7,538(59)1,178(653)—(351)(9)7,644(61)
Corporate equities 4331178(44)——(48)4306
Net derivative and other contracts(2):
Interest rate contracts 2604705—(14)(30)(522)169411
Credit contracts (844)28———6726(723)24
Foreign exchange contracts 141(61)———(105)151126(38)
Equity contracts(3) (2,031)(135)137—(128)29431(1,832)(12)
Commodity contracts 1,050739—(61)(57)1861,20068
Total net derivative and
other contracts(1,424)375151—(203)169(128)(1,060)453
Investments:
Principal investments486(43)365(29)—(41)5743(43)
Other22112—(25)——(29)17912
Total investments 707(31)365(54)—(41)(24)922(31)
Securities received as collateral 1——(1)—————
Intangible assets 5——(1)———4(1)
Liabilities at Fair Value
Deposits $19$(2)$—$—$2$—$—$23$(2)
Short-term borrowings 1————(1)———
Trading liabilities:
Corporate and other debt:
Corporate bonds —(4)(2)9——(5)6(4)
Lending commitments —(1)—————1(1)
Other debt 47—7———47
Total corporate and other debt 42(2)16——(5)112
Corporate equities 17(4)(15)13——1231(4)
Obligation to return securities
received as collateral 1——————1—
Securities sold under agreements to repurchase151——————151—
Other secured financings 461(18)——47(22)(50)454(18)
Long-term borrowings1,987(46)——72(79)(228)1,798(45)

Beginning Balance at December 31, 2014Total Realized and Unrealized Gains (Losses)Purchases (1)SalesIssuancesSettlementsNet TransfersEnding Balance at March 31, 2015Unrealized Gains (Losses) for Level 3 Assets/ Liabilities Outstanding at March 31, 2015
(dollars in millions)
Assets at Fair Value
Trading assets:
Other sovereign government obligations $41$1$2$(32)$—$—$(1)$11$1
Corporate and other debt:
Residential mortgage-backed securities 1751758(40)——8629612
Commercial mortgage-backed securities 96(2)96(10)———180(2)
Asset-backed securities 76(2)57(29)——(35)673
Corporate bonds 38638129(141)——1242438
Collateralized debt and loan obligations 1,15279241(397)—(253)—8222
Loans and lending commitments5,87441914(213)—(1,807)(20)4,78940
Other debt 285(10)68(1)—(5)1494862
Total corporate and other debt 8,0441611,563(831)—(2,065)1927,06495
Corporate equities 2721930(98)——723012
Net derivative and other contracts(2):
Interest rate contracts (173)1286—(11)65(511)(496)119
Credit contracts (743)(247)14—(30)715(984)(252)
Foreign exchange contracts 15162———97(13)29762
Equity contracts(3) (2,165)(273)33—(176)(54)163(2,472)(324)
Commodity contracts 1,146295———(37)(59)1,345262
Total net derivative and other contracts(1,784)(35)53—(217)78(405)(2,310)(133)
Investments:
Principal investments8351711(34)———8299
Other323(12)2(5)——83391(10)
Total investments1,158513(39)——831,220(1)
Securities received as collateral ——33————33—
Intangible assets 6————(1)—5—
Liabilities at Fair Value
Trading liabilities:
Corporate and other debt:
Corporate bonds $78$(4)$(1)$8$—$—$(66)$23$(4)
Lending commitments 55——————5
Other debt 386(11)5——(3)236
Total corporate and other debt 1217(12)13——(69)467
Corporate equities 451—7——(1)501
Obligation to return securities received as collateral ———33———33—
Securities sold under agreements to repurchase153(1)—————154(1)
Other secured financings 149(8)———(24)—1331
Long-term borrowings1,93417——115(142)(152)1,73810

___________

(1) Loan originations and consolidations of VIEs are included in purchases.

(2) Net derivative and other contracts represent Trading assets—Derivative and other contracts, net of Trading liabilities—Derivative and other contracts. For further information on derivative instruments and hedging activities, see Note 4.

(3) Net liability Level 3 derivative equity contracts increased by $785 million to correct the fair value level assigned to these contracts at December 31, 2014. The total amount of derivative equity contracts remained unchanged at December 31, 2014.

Significant Unobservable Inputs Used in Recurring Level 3 Fair Value Measurements.

The disclosures below 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 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. The following disclosures also include qualitative information on the sensitivity of the fair value measurements to changes in the significant unobservable inputs.

Recurring Level 3 Fair Value Measurements Valuation Techniques and Sensitivity of Unobservable Inputs.
Balance at March 31, 2016Valuation Technique(s) /Significant Unobservable Input(s) /Sensitivity of the Fair Value to Changes in the Unobservable InputsRange(1)Averages(2)
(dollars in millions)
Assets at Fair Value
Trading assets:
Corporate and other debt:
Residential mortgage-backed
securities$292Comparable pricing:
Comparable bond price / (A)0 to 79 points27 points
Commercial mortgage-backed
securities59Comparable pricing:
Comparable bond price / (A)0 to 9 points1 point
Corporate bonds 224Comparable pricing(3):
Comparable bond price / (A)3 to 118 points63 points
Comparable pricing:
EBITDA multiple / (A)5 to 10 times7 times
Collateralized debt and loan
obligations348Comparable pricing(3):
Comparable bond price / (A)55 to 100 points66 points
Correlation model:
Credit correlation / (B)27% to 60%37%
Loans and lending commitments6,185Corporate loan model:
Credit spread / (C)323 to 989 bps581 bps
Margin loan model(3):
Credit spread / (C)(D)30 to 101 bps74 bps
Volatility skew / (C)(D)19% to 53%29%
Discount rate / (C)(D)1% to 9%2%
Option model:
Volatility skew / (C)-1%-1%
Comparable pricing:
Comparable loan price / (A)38 to 100 points90 points
Expected recovery:
Asset coverage / (A)48% to 100%91%
Discounted cash flow:
Implied weighted average cost of capital / (C)(D)6% to 7%7%
Capitalization rate / (C)(D)4% to 10%4%
Other debt527Comparable pricing:
Comparable loan price / (A)4 to 87 points65 points
Comparable pricing:
Comparable bond price / (A)7 points7 points
Option model:
At the money volatility / (C)16% to 53%53%
Margin loan model(3):
Discount rate / (C)1% to 2%2%
Corporate equities430Comparable pricing:
Comparable price / (A)46% to 59%54%
Comparable pricing(3):
Comparable equity price / (A)100%100%
Net derivative and other contracts(4):
Interest rate contracts 169Option model:
Interest rate volatility concentration
liquidity multiple / (C)(D)2 times2 times
Interest rate - Foreign exchange
correlation / (C)(D)25% to 56%42% / 43% (5)
Interest rate volatility skew / (A)(D)31% to 116%66% / 66% (5)
Interest rate quanto correlation / (A)(D)-9% to 35%5% / -7% (5)
Interest rate curve correlation / (C)(D)27% to 96%69% / 75% (5)
Inflation volatility / (A)(D)58% to 60%59% / 59% (5)
Interest rate - Inflation correlation / (A)(D)-40% to 42%-41% / -41% (5)
Credit contracts (723)Comparable pricing:
Cash synthetic basis / (C)(D)5 to 12 points10 points
Comparable bond price / (C)(D)0 to 75 points24 points
Correlation model(3):
Credit correlation / (B)29% to 90%42%
Foreign exchange contracts(6) 126Option model:
Interest rate - Foreign exchange correlation /
(C)(D)25% to 56%42% / 43% (5)
Foreign exchange volatility skew / (C)(D)-11% to 4%0% / 0% (5)
Interest rate volatility skew / (A)(D)31% to 116%66% / 66% (5)
Interest rate curve / (A)(D)0%0% / 0% (5)
Equity contracts(6)(1,832)Option model:
At the money volatility / (A)(D) 7% to 86%33%
Volatility skew / (C)(D)-5% to 0%-1%
Equity - Equity correlation / (A)(D)40% to 97%78%
Equity - Foreign exchange correlation / (C)(D)-60% to -21%-36%
Equity - Interest rate correlation / (C)(D)-29% to 50%17% / 8% (5)
Commodity contracts 1,200Option model:
Forward power price / (C)(D)$1 to $93 per$31 per
megawatt hourmegawatt hour
Commodity volatility / (A)(D)7% to 55%17%
Cross commodity correlation / (C)(D)43% to 99%93%
Investments:
Principal investments743Discounted cash flow:
Implied weighted average cost of capital / (C)(D)12% to 17%14%
Exit multiple / (A)(D)8 to 14 times8 times
Market approach(3):
EBITDA multiple / (A)(D)6 to 26 times11 times
Forward capacity price / (A)(D)$5 to $9$7
Comparable pricing:
Comparable equity price / (A)43% to 100%81%
Other179Discounted cash flow:
Implied weighted average cost of capital / (C)(D)9%9%
Exit multiple / (A)(D)13 times13 times
Market approach:
EBITDA multiple / (A)(D)6 to 14 times12 times
Comparable pricing(3):
Comparable equity price / (A)100%100%
Liabilities at Fair Value
Securities sold under agreements
to repurchase151Discounted cash flow:
Funding spread / (A)104 to 130 bps120 bps
Other secured financings 454Option model:
Volatility skew / (C)-1%-1%
Discounted cash flow(3):
Discount rate / (C)4% to 14%5%
Discounted cash flow:
Funding spread / (A)94 to 130 bps112 bps
Long-term borrowings 1,798Option model(3):
At the money volatility / (C)(D)6% to 55%28%
Volatility skew / (C)(D)-2% to 0%-1%
Equity - Equity correlation / (C)(D)40% to 97%73%
Equity - Foreign exchange correlation / (A)(D)-60% to -13%-28%
Option model:
Interest rate volatility skew / (A)(D)25% to 50%38%
Equity volatility discount / (C)(D)10% to 20%15%
Option model:
Interest rate - Foreign exchange correlation /
(A)(D)25% to 56%42% / 43% (5)
Correlation model:
Credit correlation / (B)29% to 60%42%
Comparable pricing:
Comparable equity price / (A)100%100%

Valuation Technique(s) /
Significant Unobservable Input(s) /
Balance at Sensitivity of the Fair Value to Changes
December 31, 2015 in the Unobservable InputsRange(1)Averages(2)
(dollars in millions)
Assets at Fair Value
Trading assets:
Corporate and other debt:
Residential mortgage-backed
securities$341Comparable pricing:
Comparable bond price / (A)0 to 75 points32 points
Commercial mortgage-backed
securities72Comparable pricing:
Comparable bond price / (A)0 to 9 points2 point
Corporate bonds 267Comparable pricing(3):
Comparable bond price / (A)3 to 119 points90 points
Comparable pricing:
EBITDA multiple / (A)7 to 9 times8 times
Structured bond model:
Discount rate / (C)15%15%
Collateralized debt and loan
obligations430Comparable pricing(3):
Comparable bond price / (A)47 to 103 points67 points
Correlation model:
Credit correlation / (B)39% to 60%49%
Loans and lending commitments5,936Corporate loan model:
Credit spread / (C)250 to 866 bps531 bps
Margin loan model(3):
Credit spread / (C)(D)62 to 499 bps145 bps
Volatility skew / (C)(D)14% to 70%33%
Discount rate / (C)(D)1% to 4%2%
Option model:
Volatility skew / (C)-1%-1%
Comparable pricing:
Comparable loan price / (A)35 to 100 points88 points
Discounted cash flow:
Implied weighted average cost of capital / (C)(D)6% to 8%7%
Capitalization rate / (C)(D)4% to 10%4%
Other debt448Comparable pricing:
Comparable loan price / (A)4 to 84 points59 points
Comparable pricing:
Comparable bond price / (A)8 points8 points
Option model:
At the money volatility / (C)16% to 53%53%
Margin loan model(3):
Discount rate / (C)1%1%
Corporate equities433Comparable pricing:
Comparable price / (A)50% to 80%72%
Comparable pricing(3):
Comparable equity price / (A)100%100%
Market approach:
EBITDA multiple / (A)9 times9 times
Net derivative and other contracts(4):
Interest rate contracts 260Option model:
Interest rate volatility concentration
liquidity multiple / (C)(D)0 to 3 times2 times
Interest rate - Foreign exchange
correlation / (C)(D)25% to 62%43% / 43%(5)
Interest rate volatility skew / (A)(D)29% to 82%43% / 40%(5)
Interest rate quanto correlation / (A)(D)-8% to 36%5% / -6%(5)
Interest rate curve correlation / (C)(D)24% to 95%60% / 69%(5)
Inflation volatility / (A)(D)58%58% / 58%(5)
Interest rate - Inflation correlation / (A)(D)-41% to -39%-41% / -41%(5)
Credit contracts (844)Comparable pricing:
Cash synthetic basis / (C)(D)5 to 12 points9 points
Comparable bond price / (C)(D)0 to 75 points24 points
Correlation model(3):
Credit correlation / (B)39% to 97%57%
Foreign exchange contracts(6) 141Option model:
Interest rate - Foreign exchange correlation
/ (C)(D)25% to 62%43% / 43%(5)
Interest rate volatility skew / (A)(D)29% to 82%43% / 40 %(5)
Interest rate curve / (A)(D)0%0% / 0%(5)
Equity contracts(6)(2,031)Option model:
At the money volatility / (A)(D) 16% to 65%32%
Volatility skew / (A)(D)-3% to 0%-1%
Equity - Equity correlation / (C)(D)40% to 99%71%
Equity - Foreign exchange correlation / (A)(D)-60% to -11%-39%
Equity - Interest rate correlation / (C)(D)-29% to 50%16% / 8%(5)
Commodity contracts 1,050Option model:
Forward power price / (C)(D)$3 to $91 per$32 per
megawatt hourmegawatt hour
Commodity volatility / (A)(D)10% to 92%18%
Cross commodity correlation / (C)(D)43% to 99%93%
Investments:
Principal investments486Discounted cash flow:
Implied weighted average cost of capital / (C)(D)16%16%
Exit multiple / (A)(D)8 to 14 times9 times
Capitalization rate / (C)(D) 5% to 9%6%
Equity discount rate / (C)(D)20% to 35%26%
Market approach(3):
EBITDA multiple / (A)(D)8 to 20 times11 times
Forward capacity price / (A)(D)$5 to $9$7
Comparable pricing:
Comparable equity price / (A)43% to 100%81%
Other221Discounted cash flow:
Implied weighted average cost of capital / (C)(D)10%10%
Exit multiple / (A)(D)13 times13 times
Market approach:
EBITDA multiple / (A)7 to 14 times12 times
Comparable pricing(3):
Comparable equity price / (A)100%100%
Liabilities at Fair Value
Securities sold under agreements
to repurchase$151Discounted cash flow:
Funding spread / (A)86 to 116 bps105 bps
Other secured financings 461Option model:
Volatility skew / (C)-1%-1%
Discounted cash flow(3):
Discount rate / (C)4% to 13%4%
Discounted cash flow:
Funding spread / (A)95 to 113 bps104 bps
Long-term borrowings 1,987Option model(3):
At the money volatility / (C)(D)20% to 50%29%
Volatility skew / (A)(D)-1% to 0%-1%
Equity - Equity correlation / (A)(D)40% to 97%77%
Equity - Foreign exchange correlation / (C)(D)-70% to -11%-39%
Option model:
Interest rate volatility skew / (A)(D)50%50%
Equity volatility discount / (A)(D)10%10%
Correlation model:
Credit correlation / (B)40% to 60%52%
Comparable pricing:
Comparable equity price / (A)100%100%

________________

bps—Basis points.

EBITDA—Earnings before interest, taxes, depreciation and amortization.

(1) The range of significant unobservable inputs is represented in points, percentages, basis points, times or megawatt hours. Points are a percentage of par; for example, 79 points would be 79% of par. A basis point equals 1/100th of 1%; for example, 989 bps would equal 9.89%. 

(2) Amounts represent weighted averages except where simple averages and the median of the inputs are provided (see footnote 5 below). Weighted averages are calculated by weighting each input by the fair value of the respective financial instruments except for collateralized debt and loan obligations, principal investments, other debt, corporate bonds, long-term borrowings and derivative instruments where some or all inputs are weighted by risk.

(3) This is the predominant valuation technique for this major asset or liability class.

(4) Credit valuation adjustments (“CVA”) and funding valuation adjustments (“FVA”) are included in the balance but excluded from the Valuation Technique(s) and Significant Unobservable Input(s) in the table above. 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.

(5) The data structure of the significant unobservable inputs used in valuing interest rate contracts, foreign exchange contracts and certain equity contracts may be in a multi-dimensional form, such as a curve or surface, with risk distributed across the structure. Therefore, a simple average and median, together with the range of data inputs, may be more appropriate measurements than a single point weighted average.

(6) Includes derivative contracts with multiple risks (i.e., hybrid products).

Sensitivity of the fair value to changes in the unobservable inputs:

(A) Significant increase (decrease) in the unobservable input in isolation would result in a significantly higher (lower) fair value measurement.

(B) Significant changes in credit correlation may result in a significantly higher or lower fair value measurement. Increasing (decreasing) correlation drives a redistribution of risk within the capital structure such that junior tranches become less (more) risky and senior tranches become more (less) risky.

(C) Significant increase (decrease) in the unobservable input in isolation would result in a significantly lower (higher) fair value measurement.

(D) There are no predictable relationships between the significant unobservable inputs.

For a description of the Company’s significant unobservable inputs included in the March 31, 2016 and December 31, 2015 tables above for all major categories of assets and liabilities, see Note 3 to the consolidated financial statements in the 2015 Form 10-K. The following provides a description of an update to significant unobservable inputs included in the 2015 Form 10-K.

  • 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).

During the quarter ended March 31, 2016, there were no other significant updates made to the Company’s significant unobservable inputs.

Fair Value of Investments Measured at Net Asset Value.

For a description of the Company’s investments in private equity funds, real estate funds and hedge funds measured at fair value based on NAV, see Note 3 to the consolidated financial statements in the 2015 Form 10-K.

Investments in Certain Funds Measured at NAV per Share.
At March 31, 2016At December 31, 2015
Fair ValueCommitmentFair ValueCommitment
(dollars in millions)
Private equity funds$1,768$467$1,917$538
Real estate funds1,2741131,337128
Hedge funds:
Long-short equity hedge funds193─422─
Fixed income/credit-related hedge funds52─71─
Event-driven hedge funds2─2─
Multi-strategy hedge funds994944
Total$3,388$584$3,843$670

Private Equity Funds and Real Estate Funds.

Investments in these 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.

Fair Value of Certain Funds by Projected Liquidation Timing.

At March 31, 2016
Fund TypeLess than 5 years5-10 yearsOver 10 yearsTotal
(dollars in millions)
Private equity funds$141$926$701$1,768
Real estate funds977084691,274

Hedge Funds.

Investments in hedge funds may be subject to initial period lock-up restrictions or gates. A hedge fund lock-up provision is a provision that provides that, during a certain initial period, an investor may not make a withdrawal from the fund. The purpose of a gate is to restrict the level of redemptions that an investor in a particular hedge fund can demand on any redemption date.

Fixed income/credit-related hedge funds, event-driven hedge funds and multi-strategy hedge funds are redeemable at least on a three-month period basis, primarily with a notice period of 90 days or less. At March 31, 2016, approximately 34% of the fair value amount of long-short equity hedge funds was redeemable at least quarterly, 33% is redeemable every six months and 33% of these funds have a redemption frequency of greater than six months. At December 31, 2015, approximately 34% of the fair value amount of long-short equity hedge funds was redeemable at least quarterly, 51% is redeemable every six months and 15% of these funds have a redemption frequency of greater than six months. The notice period for long-short equity hedge funds at March 31, 2016 and December 31, 2015 was primarily greater than six months.

Lock-up Restrictions and Gates by Hedge Fund Type

At March 31, 2016
Fair ValueGate RestrictionsRemaining Exit Restriction Period
(dollars in millions)
Long-short equity$19326%Indefinite
Fixed income/credit-related5273%Indefinite
Event-driven2N/AN/A
Multi-strategy(1)99N/AN/A

(1) Approximately 21% of the fair value of multi-strategy investments is subject to lock-up restrictions, which have remaining periods primarily over three years at March 31, 2016.

Fair Value Option.

The Company 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.

Impact on Earnings of Transactions Under the Fair Value Option Election.
InterestGains (Losses)
TradingIncomeIncluded in
Revenues(Expense)Net Revenues
(dollars in millions)
Three Months Ended March 31, 2016
Securities purchased under agreements to resell$─$2$2
Deposits(1) (2)─(2)
Short-term borrowings(1)45─45
Securities sold under agreements to repurchase(1)(9)(2)(11)
Long-term borrowings(1)(965)(139)(1,104)
Three Months Ended March 31, 2015
Securities purchased under agreements to resell$(1)$─$(1)
Short-term borrowings(2) (40)─(40)
Securities sold under agreements to repurchase(2)(2)(1)(3)
Long-term borrowings(2)937(132)805

  • Gains (losses) are mainly attributable to changes in foreign currency rates or interest rates or movements in the reference price or index for short-term and long-term borrowings before the impact of related hedges. In accordance with the early adoption of a provision of the accounting update Recognition and Measurement of Financial Assets and Financial Liabilities, unrealized DVA gains of $323 million are recorded within OCI in the condensed consolidated statements of comprehensive income and not included in the above table for the quarter ended March 31, 2016. See Notes 2 and 14 for further information.
  • Gains (losses) recorded in Trading revenues for the quarter ended March 31, 2015 are attributable to DVA and the respective remainder is attributable to changes in foreign currency rates or interest rates or movements in the reference price or index for structured notes before the impact of related hedges.

In addition to the amounts in the above table, as discussed in Note 2 to the consolidated financial statements in the 2015 Form 10-K, instruments within Trading assets or Trading liabilities are measured at fair value. The amounts in the above table are included within Net revenues and do not reflect gains or losses on related hedging instruments, if any.

Short-Term and Long-Term Borrowings Measured at Fair Value on a Recurring Basis

Business Unit Responsible for Risk ManagementAt March 31, 2016At December 31, 2015
(dollars in millions)
Equity$19,006$17,789
Interest rates15,65714,255
Credit and foreign exchange1,7042,266
Commodities338383
Total$36,705$34,693

Gains (Losses) due to Changes in Instrument-Specific Credit Risk.
Three Months Ended
March 31,
20162015
Trading RevenuesOCITrading RevenuesOCI
(dollars in millions)
Short-term and long-term borrowings(1)$41$319$125$─
Securities sold under agreements to repurchase(1)─4──
Loans and other debt(2)(100)─77─
Lending commitments(3)1─9─

_____________

(1) In accordance with the early adoption of a provision of the accounting update, Recognition and Measurement of Financial Assets and Financial Liabilities, for the quarter ended March 31, 2016 DVA gains (losses) are recorded in OCI when unrealized and in Trading revenues when realized. In the quarter ended March 31, 2015, the realized and unrealized DVA gains (losses) are recorded in Trading revenues. The cumulative impact of changes in the Company’s DVA and the pre-tax amount recognized in AOCI is a loss of $138 million at March 31, 2016. See Notes 2 and 14 for further information.

(2) Loans and other debt instrument-specific credit gains (losses) were determined by excluding the non-credit components of gains and losses, such as those due to changes in interest rates.

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

Net Difference of Contractual Principal Amount Over Fair Value.
At March 31, 2016At December 31, 2015
(dollars in millions)
Loans and other debt(1)$14,353$14,095
Loans 90 or more days past due and/or on nonaccrual status(1)(2)12,17711,651
Short-term and long-term borrowings(3)344508

_____________

(1) The majority of the difference between principal and fair value amounts for loans and other debt emanates from the distressed debt trading business, which purchases distressed debt at amounts well below par.

(2) The aggregate fair value of loans that were in nonaccrual status was $2,267 million and $1,853 million at March 31, 2016 and December 31, 2015, respectively, which includes all loans 90 or more days past due of $887 million and $885 million at March 31, 2016 and December 31, 2015, respectively.

(3) Short-term and long-term borrowings do not include structured notes where the repayment of the initial principal amount fluctuates based on changes in the reference price or index.

The tables above 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 Non-Recurring Basis.

Certain assets and liabilities were measured at fair value on a non-recurring basis and are not included in the tables above.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis.
Fair Value by Level
Total
Gains (Losses)
Carrying for the
Value atThree Months Ended
March 31,March 31,
2016Level 1Level 2Level 32016(1)
(dollars in millions)
Assets:
Loans(2)$6,515$─$3,359$3,156$(80)
Other assets—Other investments(3)27──27(3)
Other assets—Premises, equipment
and software costs(4)────(5)
Total assets$6,542$─$3,359$3,183$(88)
Liabilities:
Other liabilities and accrued
expenses(2)$459$─$379$80$(20)
Total liabilities$459$─$379$80$(20)

Fair Value by Level
Total
Gains (Losses)
Carryingfor the
Value atThree Months Ended
March 31,March 31,
2015Level 1Level 2Level 32015(1)
(dollars in millions)
Assets:
Loans(2)$3,346$─$2,521$825$(24)
Other assets—Other investments(3)35──35(2)
Other assets—Premises, equipment
and software costs(4) software costs(5)────(19)
Total assets$3,381$─$2,521$860$(45)
Liabilities:
Other liabilities and accrued
expenses(2)$245$─$203$42$(7)
Total liabilities$245$─$203$42$(7)

___________________

(1) Changes in the fair value of Loans and losses related to Other assets—Other investments are recorded within Other revenues in the condensed consolidated statements of income. Losses related to Other assets—Premises, equipment and software costs are recorded within Other expenses if not held for sale and within Other revenues if held for sale. Changes in the fair value of lending commitments reported in Other liabilities and accrued expenses that are designated as held for sale are recorded within Other revenues, whereas, changes in the fair value related to held for investment lending commitments are recorded within Other expenses.

(2) Non-recurring changes in the fair value of loans and lending commitments held for investment were calculated using the value of the underlying collateral. Loans and lending commitments held for sale were calculated using recently executed transactions; market price quotations; valuation models that incorporate market observable inputs where possible, such as comparable loan or debt prices and credit default swap spread levels adjusted for any basis difference between cash and derivative instruments; or default recovery analysis where such transactions and quotations are unobservable.

(3) Losses related to Other assets—Other investments were determined primarily using discounted cash flow models and methodologies that incorporate multiples of certain comparable companies.

(4) Losses related to Other assets—Premises, equipment and software costs were determined primarily using a default recovery analysis.

Financial Instruments Not Measured at Fair Value.

For a further discussion of financial instruments not measured at fair value, see Note 3 to the consolidated financial statements in the 2015 Form 10-K.

The carrying values of the remaining assets and liabilities not measured at fair value in the tables below approximate fair value due to their short-term nature.

Financial Instruments Not Measured at Fair Value.

The tables below 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 our deposit customers.

At March 31, 2016Fair Value by Level
Carrying Value Fair Value Level 1Level 2Level 3
(dollars in millions)
Financial Assets:
Cash and due from banks$22,797$22,797$22,797$—$—
Interest bearing deposits with banks30,84130,84130,841——
Investment securities—HTM securities9,4259,4781,9637,515—
Securities purchased under agreements to resell98,21998,246—97,727519
Securities borrowed140,413140,416—140,314102
Customer and other receivables(1)40,93540,823—36,2274,596
Loans(2) 88,80289,831—21,85867,973
Other assets—Cash deposited with clearing organizations or
segregated under federal and other regulations or requirements31,80831,80831,808——
Financial Liabilities:
Deposits$156,944$158,238$—$158,238$—
Short-term borrowings412412—412—
Securities sold under agreements to repurchase40,61240,684—38,7011,983
Securities loaned17,14017,160—17,160—
Other secured financings6,6936,704—5,3551,349
Customer and other payables(1)191,137191,137—191,137—
Long-term borrowings126,796128,520—128,520—

At December 31, 2015Fair Value by Level
Carrying Value Fair Value Level 1Level 2Level 3
(dollars in millions)
Financial Assets:
Cash and due from banks$19,827$19,827$19,827$—$—
Interest bearing deposits with banks34,25634,25634,256——
Investment securities—HTM securities5,2445,1889984,190—
Securities purchased under agreements to resell86,85186,837—86,186651
Securities borrowed142,416142,414—142,266148
Customer and other receivables(1)41,67641,576—36,7524,824
Loans(2) 85,75986,423—19,24167,182
Other assets—Cash deposited with clearing organizations or
segregated under federal and other regulations or requirements31,46931,46931,469——
Financial Liabilities:
Deposits$155,909$156,163$—$156,163$—
Short-term borrowings525525—525—
Securities sold under agreements to repurchase36,00936,060—34,1501,910
Securities loaned19,35819,382—19,192190
Other secured financings6,6106,610—5,3331,277
Customer and other payables(1)183,895183,895—183,895—
Long-term borrowings120,723123,219—123,219—

___________________

HTM—Held to maturity.

(1) Accrued interest, fees, and dividend receivables and payables where carrying value approximates fair value have been excluded.

(2) Amounts include all loans measured at fair value on a non-recurring basis.

At March 31, 2016 and December 31, 2015, notional amounts of approximately $98.1 billion and $99.5 billion, respectively, of the Company’s lending commitments were held for investment and held for sale, which are not included in the above table. The estimated fair value of such lending commitments was a liability of $2,062 million and $2,172 million, respectively, at March 31, 2016 and December 31, 2015. Had these commitments been accounted for at fair value, $1,660 million would have been categorized in Level 2 and $402 million in Level 3 at March 31, 2016, and $1,791 million would have been categorized in Level 2 and $381 million in Level 3 at December 31, 2015.