Fair Value Option

3 Months Ended

Mar. 31, 2016

Fair value option

For a discussion of the primary financial instruments for which the fair value option was elected, including the basis for those elections and the determination of instrument-specific credit risk, where relevant, see Note 4 of JPMorgan Chase’s 2015 Annual Report.

Changes in fair value under the fair value option election

The following table presents the changes in fair value included in the Consolidated statements of income for the three months ended March 31, 2016 and 2015, for items for which the fair value option was elected. The profit and loss information presented below only includes the financial instruments that were elected to be measured at fair value; related risk management instruments, which are required to be measured at fair value, are not included in the table.



	Three months ended March 31,
	2016										2015
(in millions)	Principal transactions			All other income				Total changes in fair value recorded			Principal transactions			All other income			Total changes in fair value recorded
Federal funds sold and securities purchased under resale agreements^(a)	$	68		$	—			$	68		$	73		$	—		$	73
Securities borrowed^(a)	(2		)	—				(2		)	(2		)	—			(2		)
Trading assets:
Debt and equity instruments, excluding loans	28			(1		)		27			380			—			380
Loans reported as trading assets^(b):
Changes in instrument-specific credit risk	64			(2		)	^(e)	62			152			3		^(e)	155
Other changes in fair value	116			317			^(e)	433			127			280		^(e)	407
Loans^(b):
Changes in instrument-specific credit risk	13			—				13			1			—			1
Other changes in fair value	7			—				7			—			—			—
Other assets	12			(20		)	^(f)	(8		)	60			6		^(f)	66
Deposits^(c)	(343		)	—				(343		)	(125		)	—			(125		)
Federal funds purchased and securities loaned or sold under repurchase agreements^(a)	(17		)	—				(17		)	(9		)	—			(9		)
Other borrowed funds^(c)	528			—				528			(9		)	—			(9		)
Trading liabilities	4			—				4			(2		)	—			(2		)
Beneficial interests issued by consolidated VIEs	7			—				7			18			—			18
Other liabilities	—			—				—			—			—			—
Long-term debt:
DVA on fair value option elected liabilities^(c)	—			—				—			116			—			116
Other changes in fair value^(d)	(318		)	—				(318		)	(378		)	—			(378		)

(a)

Resale and repurchase agreements, securities borrowed agreements and securities lending agreements: Generally, for these types of agreements, there is a requirement that collateral be maintained with a market value equal to or in excess of the principal amount loaned; as a result, there would be no adjustment or an immaterial adjustment for instrument-specific credit risk related to these agreements.

(b)

Loans and lending-related commitments: For floating-rate instruments, all changes in value are attributed to instrument-specific credit risk. For fixed-rate instruments, an allocation of the changes in value for the period is made between those changes in value that are interest rate-related and changes in value that are credit-related. Allocations are generally based on an analysis of borrower-specific credit spread and recovery information, where available, or benchmarking to similar entities or industries.

(c)

Effective January 1, 2016, unrealized gains (losses) due to instrument-specific credit risk (DVA) for liabilities for which the fair value option has been elected is recorded in other comprehensive income, while realized gains (losses) are recorded in principal transactions revenue. DVA for the three months ended March 31, 2015 was included in principal transactions revenue. See Notes 3 and 19 for further information. The amounts presented for the three months ended March 31, 2015 include the impact of the Firm’s own credit quality on the inception value of liabilities as well as the impact of changes in the Firm’s own credit quality subsequent to issuance.

(d)

Long-term debt measured at fair value predominantly relate to structured notes containing embedded derivatives. Where present, the embedded derivative is the primary driver of risk. Although the risk associated with the structured notes is actively managed, the gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage such risk.


(e)	Reported in mortgage fees and related income.


(f)	Reported in other income.

Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding

The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of March 31, 2016, and December 31, 2015, for loans, long-term debt and long-term beneficial interests for which the fair value option has been elected.



	March 31, 2016								December 31, 2015
(in millions)	Contractual principal outstanding			Fair value		Fair value over/(under) contractual principal outstanding			Contractual principal outstanding			Fair value		Fair value over/(under) contractual principal outstanding
Loans^(a)
Nonaccrual loans
Loans reported as trading assets	$	3,483		$	763	$	(2,720	)	$	3,484		$	631	$	(2,853	)
Loans	7			7		—			7			7		—
Subtotal	3,490			770		(2,720		)	3,491			638		(2,853		)
All other performing loans
Loans reported as trading assets	31,294			28,609		(2,685		)	30,780			28,184		(2,596		)
Loans	1,885			1,879		(6		)	2,771			2,752		(19		)
Total loans	$	36,669		$	31,258	$	(5,411	)	$	37,042		$	31,574	$	(5,468	)
Long-term debt
Principal-protected debt	$	19,129	^(c)	$	17,987	$	(1,142	)	$	17,910	^(c)	$	16,611	$	(1,299	)
Nonprincipal-protected debt^(b)	NA			17,228		NA			NA			16,454		NA
Total long-term debt	NA			$	35,215	NA			NA			$	33,065	NA
Long-term beneficial interests
Nonprincipal-protected debt	NA			$	670	NA			NA			$	787	NA
Total long-term beneficial interests	NA			$	670	NA			NA			$	787	NA


(a)	There were no performing loans that were ninety days or more past due as of March 31, 2016, and December 31, 2015, respectively.

(b)

Remaining contractual principal is not applicable to nonprincipal-protected notes. Unlike principal-protected structured notes, for which the Firm is obligated to return a stated amount of principal at the maturity of the note, nonprincipal-protected structured notes do not obligate the Firm to return a stated amount of principal at maturity, but to return an amount based on the performance of an underlying variable or derivative feature embedded in the note. However, investors are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal protected notes.


(c)	Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if applicable, the contractual principal payment at the Firm’s next call date.

At March 31, 2016, and December 31, 2015, the contractual amount of letters of credit for which the fair value option was elected was $4.6 billion and $4.6 billion, respectively, with a corresponding fair value of $(88) million and $(94) million, respectively. For further information regarding off-balance sheet lending-related financial instruments, see Note 29 of JPMorgan Chase’s 2015 Annual Report, and Note 21 of this Form 10-Q.

Structured note products by balance sheet classification and risk component

The table below presents the fair value of the structured notes issued by the Firm, by balance sheet classification and the primary risk to which the structured notes’ embedded derivative relates.



	March 31, 2016								December 31, 2015
(in millions)	Long-term debt		Other borrowed funds		Deposits		Total		Long-term debt		Other borrowed funds		Deposits		Total
Risk exposure
Interest rate	$	14,225	$	118	$	2,682	$	17,025	$	12,531	$	58	$	3,340	$	15,929
Credit	3,421		733		—		4,154		3,195		547		—		3,742
Foreign exchange	2,457		329		11		2,797		1,765		77		11		1,853
Equity	14,277		7,503		5,161		26,941		14,293		8,447		4,993		27,733
Commodity	640		38		1,779		2,457		640		50		1,981		2,671
Total structured notes	$	35,020	$	8,721	$	9,633	$	53,374	$	32,424	$	9,179	$	10,325	$	51,928

- Definition

The entire disclosure for a company's election to apply the fair value option for measurement and reporting of eligible financial assets and liabilities (as defined), as well as certain other eligible items (as defined) included in the statement of financial position, whether such option is elected for a single eligible item or a group of similar eligible items and is in addition to other disclosures concerning fair value which the company may be required to provide. Such disclosure might be expected to include: (1) for items included in the statement of financial position: (a) the reasons for electing a fair value option for each eligible item or group of similar eligible items; (b) if the fair value option is elected for some but not all eligible items within a group of similar eligible items: (i) a description of those similar items and the reasons for partial election and (ii) information of how the group of similar items relates to individual balance sheet line items; (c) for each line item in the statement of financial position that includes an item or items for which the fair value option has been elected: (i) information of how each line item in the statement of financial position relates to major categories of assets and liabilities presented in accordance with other fair value disclosures and (ii) the aggregate carrying amount of ineligible items included in each line item in the balance sheet, if any; (d) the difference between the aggregate fair value and the aggregate unpaid principal balance (assuming contractual principal amounts and fair value option elected) of: (i) loans and long-term receivables (other than securities otherwise reported at fair value) and (ii) long-term debt instruments; (e) for loans held as assets for which the fair value option has been elected: (i) the aggregate fair value of loans that are 90 days or more past due, (ii) if the policy is to recognize interest income separately from other changes in fair value, the aggregate fair value of loans in nonaccrual status, and (iii) the difference between the aggregate fair value and the aggregate unpaid principal balance for loans that are 90 days or more past due, in nonaccrual status, or both; (f) for investments that would have been accounted for under the equity method if the entity had not chosen to apply the fair value option, the information required for such investments, if material either individually or in the aggregate; (2) for items included in the income statement: (a) the amounts of gains and losses from fair value changes included in earnings and in which line in the income statement those gains and losses are reported whether or not combined with gains and losses from items required to be accounted for at fair value; (b) a description of how interest and dividends are measured and where they are reported in the income statement; (c) for loans and other receivables held as assets: (i) the estimated amount of gains or losses included in earnings attributable to changes in instrument-specific credit risk and (ii) how the gains or losses attributable to changes in instrument-specific credit risk were determined; (d) for liabilities with fair values that have been significantly affected during the reporting period by changes in the instrument-specific credit risk: (i) the estimated amount of gains and losses from fair value changes included in earnings that are attributable to changes in the instrument-specific credit risk, (ii) qualitative information about the reasons for those changes, and (iii) how the gains and losses attributable to changes in instrument-specific credit risk were determined; and (3) certain other disclosures as required or determined to be provided.

+ References + Details