Fair value measurement

6 Months Ended

Jun. 30, 2020

Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date. A three-level hierarchy for fair value measurements is utilized based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date. BNY Mellon’s own creditworthiness is considered when valuing liabilities. See Note 20 of the Notes to Consolidated Financial Statements in our 2019 Annual Report for

information on how we determine fair value and the fair value hierarchy.

The following tables present the financial instruments carried at fair value at June 30, 2020 and Dec. 31, 2019, by caption on the consolidated balance sheet and by the three-level valuation hierarchy. We have included credit ratings information in certain of the tables because the information indicates the degree of credit risk to which we are exposed, and significant changes in ratings classifications could result in increased risk for us.



Assets measured at fair value on a recurring basis at June 30, 2020													Total carrying value
(dollars in millions)	Level 1			Level 2			Level 3			Netting (a)
Available-for-sale securities:
Agency RMBS	$	—		$	26,437		$	—		$	—		$	26,437
U.S. Treasury	25,137			—			—			—			25,137
Sovereign debt/sovereign guaranteed	8,570			7,317			—			—			15,887
Agency commercial MBS	—			9,988			—			—			9,988
Foreign covered bonds	—			5,519			—			—			5,519
Supranational	—			5,448			—			—			5,448
CLOs	—			4,432			—			—			4,432
Foreign government agencies	—			3,578			—			—			3,578
U.S. government agencies	—			2,806			—			—			2,806
Other ABS	—			2,743			—			—			2,743
Non-agency commercial MBS	—			2,630			—			—			2,630
Commercial paper/CDs	—			1,853			—			—			1,853
Non-agency RMBS (b)	—			1,598			—			—			1,598
State and political subdivisions	—			1,179			—			—			1,179
Corporate bonds	—			831			—			—			831
Other debt securities	—			1			—			—			1
Total available-for-sale securities	33,707			76,360			—			—			110,067
Trading assets:
Debt instruments	4,782			2,775			—			—			7,557
Equity instruments (c)	2,397			—			—			—			2,397
Derivative assets not designated as hedging:
Interest rate	5			5,496			—			(2,436		)	3,065
Foreign exchange	—			4,322			—			(3,204		)	1,118
Equity and other contracts	2			11			—			—			13
Total derivative assets not designated as hedging	7			9,829			—			(5,640		)	4,196
Total trading assets	7,186			12,604			—			(5,640		)	14,150
Other assets:
Derivative assets designated as hedging:
Foreign exchange	—			137			—			—			137
Total derivative assets designated as hedging	—			137			—			—			137
Other assets (d)	52			153			—			—			205
Assets measured at NAV (d)													187
Subtotal assets of operations at fair value	40,945			89,254			—			(5,640		)	124,746
Percentage of assets of operations prior to netting	31		%	69		%	—		%
Assets of consolidated investment management funds	416			44			—			—			460
Total assets	$	41,361		$	89,298		$	—		$	(5,640	)	$	125,206
Percentage of total assets prior to netting	32		%	68		%	—		%



Liabilities measured at fair value on a recurring basis at June 30, 2020													Total carrying value
(dollars in millions)	Level 1			Level 2			Level 3			Netting (a)
Trading liabilities:
Debt instruments	$	2,589		$	75		$	—		$	—		$	2,664
Equity instruments	20			—			—			—			20
Derivative liabilities not designated as hedging:
Interest rate	7			4,661			—			(2,680		)	1,988
Foreign exchange	—			4,036			—			(3,134		)	902
Equity and other contracts	1			23			—			(3		)	21
Total derivative liabilities not designated as hedging	8			8,720			—			(5,817		)	2,911
Total trading liabilities	2,617			8,795			—			(5,817		)	5,595
Long-term debt (c)	—			399			—			—			399
Other liabilities – derivative liabilities designated as hedging:
Interest rate	—			915			—			—			915
Foreign exchange	—			49			—			—			49
Total other liabilities – derivative liabilities designated as hedging	—			964			—			—			964
Subtotal liabilities of operations at fair value	2,617			10,158			—			(5,817		)	6,958
Percentage of liabilities of operations prior to netting	20		%	80		%	—		%
Liabilities of consolidated investment management funds	—			4			—			—			4
Total liabilities	$	2,617		$	10,162		$	—		$	(5,817	)	$	6,962
Percentage of total liabilities prior to netting	20		%	80		%	—		%

(a)

ASC 815, Derivatives and Hedging, permits the netting of derivative receivables and derivative payables under legally enforceable master netting agreements and permits the netting of cash collateral. Netting is applicable to derivatives not designated as hedging instruments included in trading assets or trading liabilities and derivatives designated as hedging instruments included in other assets or other liabilities. Netting is allocated to the derivative products based on the net fair value of each product.


(b)	Includes $538 million in Level 2 that was included in the former Grantor Trust.


(c)	Includes certain interests in securitizations.


(d)	Includes seed capital, private equity investments and other assets.



Assets measured at fair value on a recurring basis at Dec. 31, 2019													Total carrying value
(dollars in millions)	Level 1			Level 2			Level 3			Netting (a)
Available-for-sale securities:
Agency RMBS	$	—		$	27,043		$	—		$	—		$	27,043
U.S. Treasury	15,431			—			—			—			15,431
Sovereign debt/sovereign guaranteed	7,784			4,862			—			—			12,646
Agency commercial MBS	—			9,417			—			—			9,417
Foreign covered bonds	—			4,197			—			—			4,197
CLOs	—			4,063			—			—			4,063
Supranational	—			3,709			—			—			3,709
Foreign government agencies	—			2,643			—			—			2,643
Non-agency commercial MBS	—			2,178			—			—			2,178
Other ABS	—			2,143			—			—			2,143
U.S. government agencies	—			1,949			—			—			1,949
Non-agency RMBS (b)	—			1,233			—			—			1,233
State and political subdivisions	—			1,044			—			—			1,044
Corporate bonds	—			853			—			—			853
Other debt securities	—			1			—			—			1
Total available-for-sale securities	23,215			65,335			—			—			88,550
Trading assets:
Debt instruments	1,568			4,243			—			—			5,811
Equity instruments (c)	4,539			—			—			—			4,539
Derivative assets not designated as hedging:
Interest rate	4			3,686			—			(1,792		)	1,898
Foreign exchange	—			5,331			—			(4,021		)	1,310
Equity and other contracts	—			19			—			(6		)	13
Total derivative assets not designated as hedging	4			9,036			—			(5,819		)	3,221
Total trading assets	6,111			13,279			—			(5,819		)	13,571
Other assets:
Derivative assets designated as hedging:
Foreign exchange	—			21			—			—			21
Total derivative assets designated as hedging	—			21			—			—			21
Other assets (d)	38			179			—			—			217
Assets measured at NAV (d)													181
Subtotal assets of operations at fair value	29,364			78,814			—			(5,819		)	102,540
Percentage of assets of operations prior to netting	27		%	73		%	—		%
Assets of consolidated investment management funds	212			33			—			—			245
Total assets	$	29,576		$	78,847		$	—		$	(5,819	)	$	102,785
Percentage of total assets prior to netting	27		%	73		%	—		%



Liabilities measured at fair value on a recurring basis at Dec. 31, 2019													Total carrying value
(dollars in millions)	Level 1			Level 2			Level 3			Netting (a)
Trading liabilities:
Debt instruments	$	1,477		$	107		$	—		$	—		$	1,584
Equity instruments	73			—			—			—			73
Derivative liabilities not designated as hedging:
Interest rate	6			3,244			—			(1,986		)	1,264
Foreign exchange	—			5,340			—			(3,428		)	1,912
Equity and other contracts	3			6			—			(1		)	8
Total derivative liabilities not designated as hedging	9			8,590			—			(5,415		)	3,184
Total trading liabilities	1,559			8,697			—			(5,415		)	4,841
Long-term debt (c)	—			387			—			—			387
Other liabilities – derivative liabilities designated as hedging:
Interest rate	—			350			—			—			350
Foreign exchange	—			257			—			—			257
Total other liabilities – derivative liabilities designated as hedging	—			607			—			—			607
Subtotal liabilities of operations at fair value	1,559			9,691			—			(5,415		)	5,835
Percentage of liabilities of operations prior to netting	14		%	86		%	—		%
Liabilities of consolidated investment management funds	1			—			—			—			1
Total liabilities	$	1,560		$	9,691		$	—		$	(5,415	)	$	5,836
Percentage of total liabilities prior to netting	14		%	86		%	—		%

(a)


(b)	Includes $640 million in Level 2 that was included in the former Grantor Trust.


(c)	Includes certain interests in securitizations.


(d)	Includes seed capital, private equity investments and other assets.



Details of certain available-for-sale securities measured at fair value on a recurring basis	June 30, 2020											Dec. 31, 2019
	Total carrying value			Ratings (a)								Total carrying value			Ratings (a)
				AAA/ AA-		A+/ A-		BBB+/ BBB-		BB+ and lower					AAA/ AA-		A+/ A-		BBB+/ BBB-		BB+ and lower
(dollars in millions)			(b)	AAA/ AA-		A+/ A-		BBB+/ BBB-		BB+ and lower				(b)	AAA/ AA-		A+/ A-		BBB+/ BBB-		BB+ and lower
Non-agency RMBS (c), originated in:
2007-2020	$	938		82	%	1	%	—	%	17	%	$	464		55	%	1	%	—	%	44	%
2006	250			—		22		—		78		291			—		21		—		79
2005	262			5		2		7		86		305			5		2		8		85
2004 and earlier	148			21		22		8		49		173			22		24		4		50
Total non-agency RMBS	$	1,598		51	%	6	%	2	%	41	%	$	1,233		25	%	9	%	3	%	63	%
Non-agency commercial MBS originated in:
2009-2020	$	2,630		100	%	—	%	—	%	—	%	$	2,178		98	%	2	%	—	%	—	%
Foreign covered bonds:
Canada	$	2,241		100	%	—	%	—	%	—	%	$	1,798		100	%	—	%	—	%	—	%
UK	1,093			100		—		—		—		984			100		—		—		—
Australia	750			100		—		—		—		431			100		—		—		—
Norway	533			100		—		—		—		287			100		—		—		—
Germany	407			100		—		—		—		357			100		—		—		—
Other	495			100		—		—		—		340			100		—		—		—
Total foreign covered bonds	$	5,519		100	%	—	%	—	%	—	%	$	4,197		100	%	—	%	—	%	—	%
Sovereign debt/sovereign guaranteed:
UK	$	3,773		100	%	—	%	—	%	—	%	$	3,318		100	%	—	%	—	%	—	%
Germany	2,346			100		—		—		—		1,997			100		—		—		—
France	2,238			100		—		—		—		1,272			100		—		—		—
Spain	1,961			—		4		96		—		1,453			—		6		94		—
Italy	1,069			—		—		100		—		1,260			—		—		100		—
Singapore	931			100		—		—		—		742			100		—		—		—
Ireland	676			29		71		—		—		301			—		100		—		—
Netherlands	564			100		—		—		—		791			100		—		—		—
Canada	502			100		—		—		—		271			100		—		—		—
Japan	434			—		100		—		—		274			—		100		—		—
Belgium	411			100		—		—		—		79			100		—		—		—
Austria	331			100		—		—		—		240			100		—		—		—
Hong Kong	330			100		—		—		—		411			100		—		—		—
Other (d)	321			45		—		21		34		237			39		4		—		57
Total sovereign debt/sovereign guaranteed	$	15,887		74	%	6	%	19	%	1	%	$	12,646		73	%	5	%	21	%	1	%
Foreign government agencies:
Germany	$	1,398		100	%	—	%	—	%	—	%	$	1,131		100	%	—	%	—	%	—	%
Netherlands	730			100		—		—		—		678			100		—		—		—
Canada	321			62		38		—		—		71			—		100		—		—
France	281			100		—		—		—		42			100		—		—		—
Sweden	276			100		—		—		—		202			100		—		—		—
Finland	241			100		—		—		—		245			100		—		—		—
Other	331			84		16		—		—		274			79		21		—		—
Total foreign government agencies	$	3,578		95	%	5	%	—	%	—	%	$	2,643		95	%	5	%	—	%	—	%


(a)	Represents ratings by S&P or the equivalent.


(b)	At June 30, 2020 and Dec. 31, 2019, sovereign debt/sovereign guaranteed securities were included in Level 1 and Level 2 in the valuation hierarchy. All other assets in the table are Level 2 assets in the valuation hierarchy.


(c)	Includes $538 million at June 30, 2020 and $640 million at Dec. 31, 2019 that were included in the former Grantor Trust.

(d)

Includes non-investment grade sovereign debt/sovereign guaranteed securities related to Brazil of $109 million at June 30, 2020 and $134 million at Dec. 31, 2019.

Assets and liabilities measured at fair value on a nonrecurring basis

Under certain circumstances, we make adjustments to the fair value of our assets, liabilities and unfunded lending-related commitments although they are not measured at fair value on an ongoing basis.

Examples would be the recording of an impairment of an asset and non-readily marketable equity securities carried at cost with upward or downward adjustments.

The following table presents the financial instruments carried on the consolidated balance sheet by caption and level in the fair value hierarchy as of June 30, 2020 and Dec. 31, 2019.



Assets measured at fair value on a nonrecurring basis	June 30, 2020								Dec. 31, 2019
Assets measured at fair value on a nonrecurring basis							Total carrying value								Total carrying value
(in millions)	Level 1		Level 2		Level 3		Total carrying value		Level 1		Level 2		Level 3		Total carrying value
Loans (a)	$	—	$	53	$	—	$	53	$	—	$	58	$	—	$	58
Other assets (b)	—		107		—		107		—		64		—		64
Total assets at fair value on a nonrecurring basis	$	—	$	160	$	—	$	160	$	—	$	122	$	—	$	122


(a)	The fair value of these loans decreased less than $1 million in the second quarter of 2020 and the fourth quarter of 2019, based on the fair value of the underlying collateral, as required by guidance in ASC 326, Financial Instruments – Credit Losses, with an offset to the allowance for credit losses.

(b)

Includes non-readily marketable equity securities carried at cost with upward or downward adjustments and other assets received in satisfaction of debt.

Estimated fair value of financial instruments

The following tables present the estimated fair value and the carrying amount of financial instruments not carried at fair value on the consolidated balance sheet at June 30, 2020 and Dec. 31, 2019, by caption on the consolidated balance sheet and by the valuation hierarchy.



Summary of financial instruments	June 30, 2020
(in millions)	Level 1		Level 2		Level 3		Total estimated fair value		Carrying amount
Assets:
Interest-bearing deposits with the Federal Reserve and other central banks	$	—	$	112,728	$	—	$	112,728	$	112,728
Interest-bearing deposits with banks	—		18,063		—		18,063		18,045
Federal funds sold and securities purchased under resale agreements	—		36,638		—		36,638		36,638
Securities held-to-maturity	5,815		40,168		—		45,983		44,615
Loans (a)	—		54,377		—		54,377		54,067
Other financial assets	4,776		1,165		—		5,941		5,941
Total	$	10,591	$	263,139	$	—	$	273,730	$	272,034
Liabilities:
Noninterest-bearing deposits	$	—	$	78,100	$	—	$	78,100	$	78,100
Interest-bearing deposits	—		226,917		—		226,917		227,370
Federal funds purchased and securities sold under repurchase agreements	—		14,512		—		14,512		14,512
Payables to customers and broker-dealers	—		25,012		—		25,012		25,012
Commercial paper	—		665		—		665		665
Borrowings	—		1,852		—		1,852		1,852
Long-term debt	—		28,875		—		28,875		27,167
Total	$	—	$	375,933	$	—	$	375,933	$	374,678


(a)	Does not include the leasing portfolio.



Summary of financial instruments	Dec. 31, 2019
(in millions)	Level 1		Level 2		Level 3		Total estimated fair value		Carrying amount
Assets:
Interest-bearing deposits with the Federal Reserve and other central banks	$	—	$	95,042	$	—	$	95,042	$	95,042
Interest-bearing deposits with banks	—		14,832		—		14,832		14,811
Federal funds sold and securities purchased under resale agreements	—		30,182		—		30,182		30,182
Securities held-to-maturity	4,630		30,175		—		34,805		34,483
Loans (a)	—		54,194		—		54,194		53,718
Other financial assets	4,830		1,233		—		6,063		6,063
Total	$	9,460	$	225,658	$	—	$	235,118	$	234,299
Liabilities:
Noninterest-bearing deposits	$	—	$	57,630	$	—	$	57,630	$	57,630
Interest-bearing deposits	—		200,846		—		200,846		201,836
Federal funds purchased and securities sold under repurchase agreements	—		11,401		—		11,401		11,401
Payables to customers and broker-dealers	—		18,758		—		18,758		18,758
Commercial paper	—		3,959		—		3,959		3,959
Borrowings	—		917		—		917		917
Long-term debt	—		27,858		—		27,858		27,114
Total	$	—	$	321,369	$	—	$	321,369	$	321,615

(a)

Does not include the leasing portfolio.