Fair Value Measurement

12 Months Ended

Dec. 31, 2020

Fair value measurement

JPMorgan Chase carries a portion of its assets and liabilities at fair value. These assets and liabilities are predominantly carried at fair value on a recurring basis (i.e., assets and liabilities that are measured and reported at fair value on the Firm’s Consolidated balance sheets). Certain assets, liabilities and unfunded lending-related commitments are measured at fair value on a nonrecurring basis; that is, they are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment).

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. Fair value is based on quoted market prices or inputs, where available. If prices or quotes are not available, fair value is based on valuation models and other valuation techniques that consider relevant transaction characteristics (such as maturity) and use, as inputs, observable or unobservable market parameters, including yield curves, interest rates, volatilities, prices (such as commodity, equity or debt prices), correlations, foreign exchange rates and credit curves. Valuation adjustments may be made to ensure that financial instruments are recorded at fair value, as described below.

The level of precision in estimating unobservable market inputs or other factors can affect the amount of gain or loss recorded for a particular position. Furthermore, while the Firm believes its valuation methods are appropriate and consistent with those of other market participants, the methods and assumptions used reflect management judgment and may vary across the Firm’s businesses and portfolios.

The Firm uses various methodologies and assumptions in the determination of fair value. The use of different methodologies or assumptions by other market participants compared with those used by the Firm could result in the Firm deriving a different estimate of fair value at the reporting date.

Valuation process

Risk-taking functions are responsible for providing fair value estimates for assets and liabilities carried on the Consolidated balance sheets at fair value. The Firm’s VCG, which is part of the Firm’s Finance function and independent of the risk-taking functions, is responsible for verifying these estimates and determining any fair value adjustments that may be required to ensure that the Firm’s positions are recorded at fair value. The VGF is composed of senior finance and risk executives and is responsible for overseeing the management of risks arising from valuation activities conducted across the Firm. The Firmwide VGF is chaired by the Firmwide head of the VCG (under the direction of the Firm’s Controller), and includes sub-forums covering the CIB, CCB, CB, AWM and certain corporate functions including Treasury and CIO.

Price verification process

The VCG verifies fair value estimates provided by the risk-taking functions by leveraging independently derived prices, valuation inputs and other market data, where available. Where independent prices or inputs are not available, the VCG performs additional review to ensure the reasonableness of the estimates. The additional review may include evaluating the limited market activity including client unwinds, benchmarking valuation inputs to those used for similar instruments, decomposing the valuation of structured instruments into individual components, comparing expected to actual cash flows, reviewing profit and loss trends, and reviewing trends in collateral valuation. There are also additional levels of management review for more significant or complex positions.

The VCG determines any valuation adjustments that may be required to the estimates provided by the risk-taking functions. No adjustments to quoted prices are applied for instruments classified within level 1 of the fair value hierarchy (refer to the discussion below for further information on the fair value hierarchy). For other positions, judgment is required to assess the need for valuation adjustments to appropriately reflect liquidity considerations, unobservable parameters, and, for certain portfolios that meet specified criteria, the size of the net open risk position. The determination of such adjustments follows a consistent framework across the Firm:

•Liquidity valuation adjustments are considered where an observable external price or valuation parameter exists but is of lower reliability, potentially due to lower market activity. Liquidity valuation adjustments are made based on current market conditions. Factors that may be considered in determining the liquidity adjustment include analysis of: (1) the estimated bid-offer spread for the instrument being traded; (2) alternative pricing points for similar instruments in active markets; and (3) the range of reasonable values that the price or parameter could take.

•The Firm manages certain portfolios of financial instruments on the basis of net open risk exposure and, as permitted by U.S. GAAP, has elected to estimate the fair value of such portfolios on the basis of a transfer of the entire net open risk position in an orderly transaction. Where this is the case, valuation adjustments may be necessary to reflect the cost of exiting a larger-than-normal market-size net open risk position. Where applied, such adjustments are based on factors that a relevant market participant would consider in the transfer of the net open risk position, including the size of the adverse market move that is likely to occur during the period required to reduce the net open risk position to a normal market-size.

•Uncertainty adjustments related to unobservable parameters may be made when positions are valued using prices or input parameters to valuation models

that are unobservable due to a lack of market activity or because they cannot be implied from observable market data. Such prices or parameters must be estimated and are, therefore, subject to management judgment. Adjustments are made to reflect the uncertainty inherent in the resulting valuation estimate.

•Where appropriate, the Firm also applies adjustments to its estimates of fair value in order to appropriately reflect counterparty credit quality (CVA), the Firm’s own creditworthiness (DVA) and the impact of funding (FVA), using a consistent framework across the Firm. Refer to Credit and funding adjustments on page 188 of this Note for more information on such adjustments.

Valuation model review and approval

If prices or quotes are not available for an instrument or a similar instrument, fair value is generally determined using valuation models that consider relevant transaction terms such as maturity and use as inputs market-based or independently sourced parameters. Where this is the case the price verification process described above is applied to the inputs in those models.

Under the Firm’s Estimations and Model Risk Management Policy, the MRGR reviews and approves new models, as well as material changes to existing models, prior to implementation in the operating environment. In certain circumstances exceptions may be granted to the Firm’s policy to allow a model to be used prior to review or approval. The MRGR may also require the user to take appropriate actions to mitigate the model risk if it is to be used in the interim. These actions will depend on the model and may include, for example, limitation of trading activity.

Valuation hierarchy

A three-level valuation hierarchy has been established under U.S. GAAP for disclosure of fair value measurements. The valuation hierarchy is based on the observability of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows.

•Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

•Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

•Level 3 – one or more inputs to the valuation methodology are unobservable and significant to the fair value measurement.

A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of input that is significant to the fair value measurement.

The following table describes the valuation methodologies generally used by the Firm to measure its significant products/instruments at fair value, including the general classification of such instruments pursuant to the valuation hierarchy.

Product/instrument

Valuation methodology

Classifications in the valuation hierarchy

Securities financing agreements

Valuations are based on discounted cash flows, which consider:

Predominantly level 2

• Derivative features: refer to the discussion of derivatives below for further information.

• Market rates for the respective maturity

• Collateral characteristics

Loans and lending-related commitments — wholesale

Loans carried at fair value
(trading loans and non-trading loans) and associated
lending-related commitments

Where observable market data is available, valuations are based on:

Level 2 or 3

• Observed market prices (circumstances are infrequent)

• Relevant broker quotes

• Observed market prices for similar instruments

Where observable market data is unavailable or limited, valuations are based on discounted cash flows, which consider the following:

• Credit spreads derived from the cost of CDS; or benchmark credit curves developed by the Firm, by industry and credit rating

• Prepayment speed

• Collateral characteristics

Loans — consumer

Loans carried at fair value — conforming residential mortgage loans expected to be sold

Fair value is based on observable prices for mortgage-backed securities with similar collateral and incorporates adjustments to these prices to account for differences between the securities and the value of the underlying loans, which include credit characteristics, portfolio composition, and liquidity.

Predominantly level 2

Investment and trading securities

Quoted market prices

Level 1

In the absence of quoted market prices, securities are valued based on:

Level 2 or 3

• Observable market prices for similar securities

• Relevant broker quotes

• Discounted cash flows

In addition, the following inputs to discounted cash flows are used for the following products:

Mortgage- and asset-backed securities specific inputs:

• Collateral characteristics

• Deal-specific payment and loss allocations

• Current market assumptions related to yield, prepayment speed, conditional default rates and loss severity

Collateralized loan obligations (“CLOs”) specific inputs:

• Collateral characteristics

• Deal-specific payment and loss allocations

•Expected prepayment speed, conditional default rates, loss severity

• Credit spreads

• Credit rating data

Physical commodities

Valued using observable market prices or data.

Level 1 or 2


Product/instrument	Valuation methodology	Classifications in the valuation hierarchy

















Derivatives	Exchange-traded derivatives that are actively traded and valued using the exchange price.	Level 1
	Derivatives that are valued using models such as the Black-Scholes option pricing model, simulation models, or a combination of models that may use observable or unobservable valuation inputs as well as considering the contractual terms. The key valuation inputs used will depend on the type of derivative and the nature of the underlying instruments and may include equity prices, commodity prices, interest rate yield curves, foreign exchange rates, volatilities, correlations, CDS spreads and recovery rates. Additionally, the credit quality of the counterparty and of the Firm as well as market funding levels may also be considered.	Level 2 or 3
	In addition, specific inputs used for derivatives that are valued based on models with significant unobservable inputs are as follows:
	Structured credit derivatives specific inputs include:
	• CDS spreads and recovery rates
	• Credit correlation between the underlying debt instruments
	Equity option specific inputs include:
	• Forward equity price
	• Equity volatility
	• Equity correlation
	• Equity-FX correlation
	• Equity-IR correlation
	Interest rate and FX exotic options specific inputs include:
	• Interest rate volatility
	• Interest rate spread volatility
	• Interest rate correlation
	• Foreign exchange correlation
	• Interest rate-FX correlation
	Commodity derivatives specific inputs include:
	• Commodity volatility
	• Forward commodity price
	• Commodity correlation







	Additionally, adjustments are made to reflect counterparty credit quality (CVA) and the impact of funding (FVA). Refer to page 188 of this Note.


Mortgage servicing rights	Refer to Mortgage servicing rights in Note 15.	Level 3

Private equity direct investments	Fair value is estimated using all available information; the range of potential inputs include:	Level 2 or 3
	• Transaction prices
	• Trading multiples of comparable public companies
	• Operating performance of the underlying portfolio company
	• Adjustments as required, since comparable public companies are not identical to the company being valued, and for company-specific issues and lack of liquidity.
	• Additional available inputs relevant to the investment.
Fund investments (e.g., mutual/collective investment funds, private equity funds, hedge funds, and real estate funds)	Net asset value
	• NAV is supported by the ability to redeem and purchase at the NAV level.	Level 1

	• Adjustments to the NAV as required, for restrictions on redemption (e.g., lock-up periods or withdrawal limitations) or where observable activity is limited.	Level 2 or 3(a)

Beneficial interests issued by consolidated VIEs	Valued using observable market information, where available.	Level 2 or 3
	In the absence of observable market information, valuations are based on the fair value of the underlying assets held by the VIE.

(a)Excludes certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient.

Product/instrument

Valuation methodology

Classification in the valuation hierarchy

Structured notes (included in deposits, short-term borrowings and long-term debt)

• Valuations are based on discounted cash flow analyses that consider the embedded derivative and the terms and payment structure of the note.

• The embedded derivative features are considered using models such as the Black-Scholes option pricing model, simulation models, or a combination of models that may use observable or unobservable valuation inputs, depending on the embedded derivative. The specific inputs used vary according to the nature of the embedded derivative features, as described in the discussion above regarding derivatives valuation. Adjustments are then made to this base valuation to reflect the Firm’s own credit risk (DVA). Refer to page 188 of this Note.

Level 2 or 3

The following table presents the assets and liabilities reported at fair value as of December 31, 2020 and 2019, by major product category and fair value hierarchy.


Assets and liabilities measured at fair value on a recurring basis
	Fair value hierarchy
December 31, 2020 (in millions)	Level 1		Level 2		Level 3		Derivative netting adjustments(g)		Total fair value
Federal funds sold and securities purchased under resale agreements	$	—	$	238,015	$	—	$	—	$	238,015
Securities borrowed	—		52,983		—		—		52,983
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. GSEs and government agencies(a)	—		68,395		449		—		68,844
Residential – nonagency	—		2,138		28		—		2,166
Commercial – nonagency	—		1,327		3		—		1,330
Total mortgage-backed securities	—		71,860		480		—		72,340
U.S. Treasury, GSEs and government agencies(a)	104,263		10,996		—		—		115,259
Obligations of U.S. states and municipalities	—		7,184		8		—		7,192
Certificates of deposit, bankers’ acceptances and commercial paper	—		1,230		—		—		1,230
Non-U.S. government debt securities	26,772		40,671		182		—		67,625
Corporate debt securities	—		21,017		507		—		21,524
Loans(b)	—		6,101		893		—		6,994
Asset-backed securities	—		2,304		28		—		2,332
Total debt instruments	131,035		161,363		2,098		—		294,496
Equity securities	97,035		2,652		179		—		99,866
Physical commodities(c)	6,382		5,189		—		—		11,571
Other	—		17,165		346		—		17,511
Total debt and equity instruments(d)	234,452		186,369		2,623		—		423,444
Derivative receivables:
Interest rate	2,318		386,865		2,307		(355,765)		35,725
Credit	—		12,879		624		(12,823)		680
Foreign exchange	146		205,127		987		(190,479)		15,781
Equity	—		71,279		3,519		(54,125)		20,673
Commodity	—		21,272		231		(14,732)		6,771
Total derivative receivables	2,464		697,422		7,668		(627,924)		79,630
Total trading assets(e)	236,916		883,791		10,291		(627,924)		503,074
Available-for-sale securities:
Mortgage-backed securities:
U.S. GSEs and government agencies(a)	21,018		92,283		—		—		113,301
Residential – nonagency	—		10,233		—		—		10,233
Commercial – nonagency	—		2,856		—		—		2,856
Total mortgage-backed securities	21,018		105,372		—		—		126,390
U.S. Treasury and government agencies	201,951		—		—		—		201,951
Obligations of U.S. states and municipalities	—		20,396		—		—		20,396
Certificates of deposit	—		—		—		—		—
Non-U.S. government debt securities	13,135		9,793		—		—		22,928
Corporate debt securities	—		216		—		—		216
Asset-backed securities:
Collateralized loan obligations	—		10,048		—		—		10,048
Other	—		6,249		—		—		6,249

Total available-for-sale securities	236,104		152,074		—		—		388,178
Loans(b)(f)	—		42,169		2,305		—		44,474
Mortgage servicing rights	—		—		3,276		—		3,276
Other assets(b)(e)	8,110		4,561		538		—		13,209
Total assets measured at fair value on a recurring basis	$	481,130	$	1,373,593	$	16,410	$	(627,924)	$	1,243,209
Deposits	$	—	$	11,571	$	2,913	$	—	$	14,484
Federal funds purchased and securities loaned or sold under repurchase agreements	—		155,735		—		—		155,735
Short-term borrowings	—		14,473		2,420		—		16,893
Trading liabilities:
Debt and equity instruments(d)	82,669		16,838		51		—		99,558
Derivative payables:
Interest rate	2,496		349,082		2,049		(340,615)		13,012
Credit	—		14,344		848		(13,197)		1,995
Foreign exchange	132		214,373		1,421		(194,493)		21,433
Equity	—		74,032		7,381		(55,515)		25,898
Commodity	—		21,767		962		(14,444)		8,285
Total derivative payables	2,628		673,598		12,661		(618,264)		70,623
Total trading liabilities	85,297		690,436		12,712		(618,264)		170,181
Accounts payable and other liabilities	2,895		513		68		—		3,476
Beneficial interests issued by consolidated VIEs	—		41		—		—		41
Long-term debt	—		53,420		23,397		—		76,817
Total liabilities measured at fair value on a recurring basis	$	88,192	$	926,189	$	41,510	$	(618,264)	$	437,627


	Fair value hierarchy
December 31, 2019 (in millions)	Level 1		Level 2		Level 3		Derivative netting adjustments(g)		Total fair value
Federal funds sold and securities purchased under resale agreements	$	—	$	14,561	$	—	$	—	$	14,561
Securities borrowed	—		6,237		—		—		6,237
Trading assets:					—
Debt instruments:					—
Mortgage-backed securities:					—
U.S. GSEs and government agencies(a)	—		44,510		797		—		45,307
Residential – nonagency	—		1,977		23		—		2,000
Commercial – nonagency	—		1,486		4		—		1,490
Total mortgage-backed securities	—		47,973		824		—		48,797
U.S. Treasury, GSEs and government agencies(a)	78,289		10,295		—		—		88,584
Obligations of U.S. states and municipalities	—		6,468		10		—		6,478
Certificates of deposit, bankers’ acceptances and commercial paper	—		252		—		—		252
Non-U.S. government debt securities	26,600		27,169		155		—		53,924
Corporate debt securities	—		17,956		558		—		18,514
Loans(b)	—		6,340		673		—		7,013
Asset-backed securities	—		2,593		37		—		2,630
Total debt instruments	104,889		119,046		2,257		—		226,192
Equity securities	71,890		244		196		—		72,330
Physical commodities(c)	3,638		3,579		—		—		7,217
Other	—		13,896		232		—		14,128
Total debt and equity instruments(d)	180,417		136,765		2,685		—		319,867
Derivative receivables:
Interest rate	721		311,173		1,400		(285,873)		27,421
Credit	—		14,252		624		(14,175)		701
Foreign exchange	117		137,938		432		(129,482)		9,005
Equity	—		43,642		2,085		(39,250)		6,477
Commodity	—		17,058		184		(11,080)		6,162
Total derivative receivables	838		524,063		4,725		(479,860)		49,766
Total trading assets(e)	181,255		660,828		7,410		(479,860)		369,633
Available-for-sale securities:
Mortgage-backed securities:
U.S. GSEs and government agencies(a)	—		110,117		—		—		110,117
Residential – nonagency	—		12,989		1		—		12,990
Commercial – nonagency	—		5,188		—		—		5,188
Total mortgage-backed securities	—		128,294		1		—		128,295
U.S. Treasury and government agencies	139,436		—		—		—		139,436
Obligations of U.S. states and municipalities	—		29,810		—		—		29,810
Certificates of deposit	—		77		—		—		77
Non-U.S. government debt securities	12,966		8,821		—		—		21,787
Corporate debt securities	—		845		—		—		845
Asset-backed securities:					—		—		—
Collateralized loan obligations	—		24,991		—		—		24,991
Other	—		5,458		—		—		5,458

Total available-for-sale securities	152,402		198,296		1		—		350,699
Loans(b)(f)	—		44,439		516		—		44,955
Mortgage servicing rights	—		—		4,699		—		4,699
Other assets(b)(e)	7,305		3,824		917		—		12,046
Total assets measured at fair value on a recurring basis	$	340,962	$	928,185	$	13,543	$	(479,860)	$	802,830
Deposits	$	—	$	25,229	$	3,360	$	—	$	28,589
Federal funds purchased and securities loaned or sold under repurchase agreements	—		549		—		—		549
Short-term borrowings	—		4,246		1,674		—		5,920
Trading liabilities:
Debt and equity instruments(d)	59,047		16,481		41		—		75,569
Derivative payables:
Interest rate	795		276,746		1,732		(270,670)		8,603
Credit	—		14,358		763		(13,469)		1,652
Foreign exchange	109		143,960		1,039		(131,950)		13,158
Equity	—		47,261		5,480		(40,204)		12,537
Commodity	—		19,685		200		(12,127)		7,758
Total derivative payables	904		502,010		9,214		(468,420)		43,708
Total trading liabilities	59,951		518,491		9,255		(468,420)		119,277
Accounts payable and other liabilities	3,231		452		45		—		3,728
Beneficial interests issued by consolidated VIEs	—		36		—		—		36
Long-term debt	—		52,406		23,339		—		75,745
Total liabilities measured at fair value on a recurring basis	$	63,182	$	601,409	$	37,673	$	(468,420)	$	233,844

(a)At December 31, 2020 and 2019, included total U.S. GSE obligations of $117.6 billion and $104.5 billion, respectively, which were mortgage-related.

(b)In the third quarter of 2020, the Firm reclassified certain fair value option elected lending-related positions from trading assets to loans and other assets. Prior-period amounts have been revised to conform with the current presentation.

(c)Physical commodities inventories are generally accounted for at the lower of cost or net realizable value. “Net realizable value” is a term defined in U.S. GAAP as not exceeding fair value less costs to sell (“transaction costs”). Transaction costs for the Firm’s physical commodities inventories are either not applicable or immaterial to the value of the inventory. Therefore, net realizable value approximates fair value for the Firm’s physical commodities inventories. When fair value hedging has been applied (or when net realizable value is below cost), the carrying value of physical commodities approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. Refer to Note 5 for a further

discussion of the Firm’s hedge accounting relationships. To provide consistent fair value disclosure information, all physical commodities inventories have been included in each period presented.

(d)Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions).

(e)Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be classified in the fair value hierarchy. At December 31, 2020 and 2019, the fair values of these investments, which include certain hedge funds, private equity funds, real estate and other funds, were $670 million and $684 million, respectively. Included in these balances at December 31, 2020 and 2019, were trading assets of $52 million and $54 million, respectively, and other assets of $618 million and $630 million, respectively.

(f)At December 31, 2020 and 2019, included within loans were $15.1 billion and $19.8 billion, respectively, of residential first-lien mortgages, and $6.3 billion and $8.2 billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with the intent to sell to U.S. GSEs and government agencies of $8.4 billion and $13.6 billion, respectively.

(g)As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally enforceable master netting agreement exists. The level 3 balances would be reduced if netting were applied, including the netting benefit associated with cash collateral.

Level 3 valuations

The Firm has established well-structured processes for determining fair value, including for instruments where fair value is estimated using significant unobservable inputs (level 3). Refer to pages 171-175 of this Note for further information on the Firm’s valuation process and a detailed discussion of the determination of fair value for individual financial instruments.

Estimating fair value requires the application of judgment. The type and level of judgment required is largely dependent on the amount of observable market information available to the Firm. For instruments valued using internally developed valuation models and other valuation techniques that use significant unobservable inputs and are therefore classified within level 3 of the fair value hierarchy, judgments used to estimate fair value are more significant than those required when estimating the fair value of instruments classified within levels 1 and 2.

In arriving at an estimate of fair value for an instrument within level 3, management must first determine the appropriate valuation model or other valuation technique to use. Second, due to the lack of observability of significant inputs, management must assess relevant empirical data in deriving valuation inputs including transaction details, yield curves, interest rates, prepayment speed, default rates, volatilities, correlations, prices (such as commodity, equity or debt prices), valuations of comparable instruments, foreign exchange rates and credit curves.

The following table presents the Firm’s primary level 3 financial instruments, the valuation techniques used to measure the fair value of those financial instruments, the significant unobservable inputs, the range of values for those inputs and the weighted or arithmetic averages of such inputs. While the determination to classify an instrument within level 3 is based on the significance of the unobservable inputs to the overall fair value measurement, level 3 financial instruments typically include observable components (that is, components that are actively quoted and can be validated to external sources) in addition to the unobservable components. The level 1 and/or level 2 inputs are not included in the table. In addition, the Firm manages the risk of the observable components of level 3 financial instruments using securities and derivative positions that are classified within levels 1 or 2 of the fair value hierarchy.

The range of values presented in the table is representative of the highest and lowest level input used to value the significant groups of instruments within a product/instrument classification. Where provided, the weighted averages of the input values presented in the table are calculated based on the fair value of the instruments that the input is being used to value.

In the Firm’s view, the input range, weighted and arithmetic average values do not reflect the degree of input uncertainty or an assessment of the reasonableness of the Firm’s estimates and assumptions. Rather, they reflect the characteristics of the various instruments held by the Firm and the relative distribution of instruments within the range of characteristics. For example, two option contracts may have similar levels of market risk exposure and valuation uncertainty, but may have significantly different implied volatility levels because the option contracts have different underlyings, tenors, or strike prices. The input range and weighted average values will therefore vary from period-to-period and parameter-to-parameter based on the characteristics of the instruments held by the Firm at each balance sheet date.


Level 3 inputs(a)
December 31, 2020
Product/Instrument	Fair value (in millions)		Principal valuation technique	Unobservable inputs(g)	Range of input values			Average(i)
Residential mortgage-backed securities and loans(b)	$	1,282	Discounted cash flows	Yield	0%	–	18%	6%
				Prepayment speed	0%	–	46%	10%
				Conditional default rate	0%	–	30%	14%
				Loss severity	0%	–	107%	7%
Commercial mortgage-backed securities and loans(c)	466		Market comparables	Price	$0	–	$101	$84

Corporate debt securities	507		Market comparables	Price	$2	–	$116	$85

Loans(d)	1,930		Market comparables	Price	$10	–	$104	$72




Asset-backed securities	28		Market comparables	Price	$1	–	$97	$57
Net interest rate derivatives	238		Option pricing	Interest rate volatility	7bps	–	513bps	101bps
				Interest rate spread volatility	11bps	–	23bps	15bps
				Interest rate correlation	(65)%	–	99%	35%

				IR-FX correlation	(35)%	–	50%	0%
	20		Discounted cash flows	Prepayment speed	0%	–	30%	8%
Net credit derivatives	(260)		Discounted cash flows	Credit correlation	34%	–	65%	48%
				Credit spread	3bps	–	1,302bps	441bps
				Recovery rate	0%	–	67%	46%


				Conditional default rate	2%	–	100%	58%

				Loss severity	100%			100%

	36		Market comparables	Price	$1	–	$115	$71
Net foreign exchange derivatives	(298)		Option pricing	IR-FX correlation	(40)%	–	65%	18%
	(136)		Discounted cash flows	Prepayment speed	9%			9%
Net equity derivatives	(3,862)		Option pricing	Forward equity price(h)	61%	–	106%	99%
				Equity volatility	5%	–	138%	35%
				Equity correlation	18%	–	99%	60%
				Equity-FX correlation	(79)%	–	55%	(27)%
				Equity-IR correlation	20%	–	50%	28%
Net commodity derivatives	(731)		Option pricing	Oil Commodity Forward	$600 / MT	–	$609 / MT	$605 / MT
				Forward power price	$12 / MWH	–	$55 / MWH	$34 / MWH
				Commodity volatility	1%	–	58%	29%
				Commodity correlation	(49)%	–	95%	23%
MSRs	3,276		Discounted cash flows	Refer to Note 15
Other assets	299		Discounted cash flows	Credit spread	45bps			45bps
				Yield	4%		30%	7%
	585		Market comparables	Price	$29	–	$29	$29

Long-term debt, short-term borrowings, and deposits(e)	27,912		Option pricing	Interest rate volatility	7bps	–	513bps	101bps
				Interest rate correlation	(65)%	–	99%	35%

				IR-FX correlation	(35)%	–	50%	0%
				Equity correlation	18%	–	99%	60%

				Equity-FX correlation	(79)%	–	55%	(27)%
				Equity-IR correlation	20%	–	50%	28%
	818		Discounted cash flows	Credit correlation	34%	–	65%	48%
Other level 3 assets and liabilities, net(f)	250

(a)The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated balance sheets. Furthermore, the inputs presented for each valuation technique in the table are, in some cases, not applicable to every instrument valued using the technique as the characteristics of the instruments can differ.

(b)Comprises U.S. GSE and government agency securities of $449 million, nonagency securities of $28 million and non-trading loans of $805 million.

(c)Comprises nonagency securities of $3 million, trading loans of $43 million and non-trading loans of $420 million.

(d)Comprises trading loans of $850 million and non-trading loans of $1.1 billion.

(e)Long-term debt, short-term borrowings and deposits include structured notes issued by the Firm that are financial instruments that typically contain embedded derivatives. The estimation of the fair value of structured notes includes the derivative features embedded within the instrument. The significant unobservable inputs are broadly consistent with those presented for derivative receivables.

(f)Includes level 3 assets and liabilities that are insignificant both individually and in aggregate.

(g)Price is a significant unobservable input for certain instruments. When quoted market prices are not readily available, reliance is generally placed on price-based internal valuation techniques. The price input is expressed assuming a par value of $100.

(h)Forward equity price is expressed as a percentage of the current equity price.

(i)Amounts represent weighted averages except for derivative related inputs where arithmetic averages are used.

Changes in and ranges of unobservable inputs

The following discussion provides a description of the impact on a fair value measurement of a change in each unobservable input in isolation, and the interrelationship between unobservable inputs, where relevant and significant. The impact of changes in inputs may not be independent, as a change in one unobservable input may give rise to a change in another unobservable input. Where relationships do exist between two unobservable inputs, those relationships are discussed below. Relationships may also exist between observable and unobservable inputs (for example, as observable interest rates rise, unobservable prepayment rates decline); such relationships have not been included in the discussion below. In addition, for each of the individual relationships described below, the inverse relationship would also generally apply.

The following discussion also provides a description of attributes of the underlying instruments and external market factors that affect the range of inputs used in the valuation of the Firm’s positions.

Yield – The yield of an asset is the interest rate used to discount future cash flows in a discounted cash flow calculation. An increase in the yield, in isolation, would result in a decrease in a fair value measurement.

Credit spread – The credit spread is the amount of additional annualized return over the market interest rate that a market participant would demand for taking exposure to the credit risk of an instrument. The credit spread for an instrument forms part of the discount rate used in a discounted cash flow calculation. Generally, an increase in the credit spread would result in a decrease in a fair value measurement.

The yield and the credit spread of a particular mortgage-backed security primarily reflect the risk inherent in the instrument. The yield is also impacted by the absolute level of the coupon paid by the instrument (which may not correspond directly to the level of inherent risk). Therefore, the range of yield and credit spreads reflects the range of risk inherent in various instruments owned by the Firm. The risk inherent in mortgage-backed securities is driven by the subordination of the security being valued and the characteristics of the underlying mortgages within the collateralized pool, including borrower FICO scores, LTV ratios for residential mortgages and the nature of the property and/or any tenants for commercial mortgages. For corporate debt securities, obligations of U.S. states and municipalities and other similar instruments, credit spreads reflect the credit quality of the obligor and the tenor of the obligation.

Prepayment speed – The prepayment speed is a measure of the voluntary unscheduled principal repayments of a prepayable obligation in a collateralized pool. Prepayment speeds generally decline as borrower delinquencies rise. An increase in prepayment speeds, in isolation, would result in a decrease in a fair value measurement of assets valued at a premium to par and an increase in a fair value measurement of assets valued at a discount to par.

Prepayment speeds may vary from collateral pool to collateral pool, and are driven by the type and location of the underlying borrower, and the remaining tenor of the obligation as well as the level and type (e.g., fixed or floating) of interest rate being paid by the borrower. Typically collateral pools with higher borrower credit quality have a higher prepayment rate than those with lower borrower credit quality, all other factors being equal.

Conditional default rate – The conditional default rate is a measure of the reduction in the outstanding collateral balance underlying a collateralized obligation as a result of defaults. While there is typically no direct relationship between conditional default rates and prepayment speeds, collateralized obligations for which the underlying collateral has high prepayment speeds will tend to have lower conditional default rates. An increase in conditional default rates would generally be accompanied by an increase in loss severity and an increase in credit spreads. An increase in the conditional default rate, in isolation, would result in a decrease in a fair value measurement. Conditional default rates reflect the quality of the collateral underlying a securitization and the structure of the securitization itself. Based on the types of securities owned in the Firm’s market-making portfolios, conditional default rates are most typically at the lower end of the range presented.

Loss severity – The loss severity (the inverse concept is the recovery rate) is the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding loan balance. An increase in loss severity is generally accompanied by an increase in conditional default rates. An increase in the loss severity, in isolation, would result in a decrease in a fair value measurement.

The loss severity applied in valuing a mortgage-backed security investment depends on factors relating to the underlying mortgages, including the LTV ratio, the nature of the lender’s lien on the property and other instrument-specific factors.

Correlation – Correlation is a measure of the relationship between the movements of two variables. Correlation is a pricing input for a derivative product where the payoff is driven by one or more underlying risks. Correlation inputs are related to the type of derivative (e.g., interest rate, credit, equity, foreign exchange and commodity) due to the nature of the underlying risks. When parameters are positively correlated, an increase in one parameter will result in an increase in the other parameter. When parameters are negatively correlated, an increase in one parameter will result in a decrease in the other parameter. An increase in correlation can result in an increase or a decrease in a fair value measurement. Given a short correlation position, an increase in correlation, in isolation, would generally result in a decrease in a fair value measurement.

The level of correlation used in the valuation of derivatives with multiple underlying risks depends on a number of factors including the nature of those risks. For example, the correlation between two credit risk exposures would be different than that between two interest rate risk exposures. Similarly, the tenor of the transaction may also impact the correlation input, as the relationship between the underlying risks may be different over different time periods. Furthermore, correlation levels are very much dependent on market conditions and could have a relatively wide range of levels within or across asset classes over time, particularly in volatile market conditions.

Volatility – Volatility is a measure of the variability in possible returns for an instrument, parameter or market index given how much the particular instrument, parameter or index changes in value over time. Volatility is a pricing input for options, including equity options, commodity options, and interest rate options. Generally, the higher the volatility of the underlying, the riskier the instrument. Given a long position in an option, an increase in volatility, in isolation, would generally result in an increase in a fair value measurement.

The level of volatility used in the valuation of a particular option-based derivative depends on a number of factors, including the nature of the risk underlying the option (e.g., the volatility of a particular equity security may be significantly different from that of a particular commodity index), the tenor of the derivative as well as the strike price of the option.

Forward price - Forward price is the price at which the buyer agrees to purchase the asset underlying a forward contract on the predetermined future delivery date, and is such that the value of the contract is zero at inception.

The forward price is used as an input in the valuation of certain derivatives and depends on a number of factors including interest rates, the current price of the underlying asset, and the expected income to be received and costs to be incurred by the seller as a result of holding that asset until the delivery date. An increase in the forward can result in an increase or a decrease in a fair value measurement.

Changes in level 3 recurring fair value measurements

The following tables include a rollforward of the Consolidated balance sheets amounts (including changes in fair value) for financial instruments classified by the Firm within level 3 of the fair value hierarchy for the years ended December 31, 2020, 2019 and 2018. When a determination is made to classify a financial instrument within level 3, the determination is based on the significance of the unobservable inputs to the overall fair value measurement. However, level 3 financial instruments typically include, in addition to the unobservable or level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources); accordingly, the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology. Also, the Firm risk-manages the observable components of level 3 financial instruments using securities and derivative positions that are classified within level 1 or 2 of the fair value hierarchy; as these level 1 and level 2 risk management instruments are not included below, the gains or losses in the following tables do not reflect the effect of the Firm’s risk management activities related to such level 3 instruments.


	Fair value measurements using significant unobservable inputs
Year ended December 31, 2020 (in millions)	Fair value at January 1, 2020		Total realized/unrealized gains/(losses)											Transfers into level 3(i)		Transfers (out of) level 3(i)		Fair value at Dec. 31, 2020		Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2020
						Purchases(g)		Sales				Settlements(h)
Assets:(a)
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. GSEs and government agencies	$	797	$	(172)		$	134	$	(149)			$	(161)	$	—	$	—	$	449	$	(150)
Residential – nonagency	23		2			15		(5)				(4)		—		(3)		28		(1)
Commercial – nonagency	4		—			1		—				(1)		2		(3)		3		—
Total mortgage-backed securities	824		(170)			150		(154)				(166)		2		(6)		480		(151)
U.S. Treasury, GSEs and government agencies	—		—			—		—				—		—		—		—		—
Obligations of U.S. states and municipalities	10		—			—		(1)				(1)		—		—		8		—
Non-U.S. government debt securities	155		21			281		(245)				(7)		—		(23)		182		11
Corporate debt securities	558		(23)			582		(205)				(236)		411		(580)		507		(25)
Loans(b)	673		(73)			1,112		(484)				(182)		791		(944)		893		(40)
Asset-backed securities	37		(3)			44		(40)				(9)		9		(10)		28		(4)
Total debt instruments	2,257		(248)			2,169		(1,129)				(601)		1,213		(1,563)		2,098		(209)
Equity securities	196		(75)			53		(376)				(1)		535		(153)		179		(20)

Other	232		271			245		(9)				(154)		6		(245)		346		206
Total trading assets – debt and equity instruments	2,685		(52)		(d)	2,467		(1,514)				(756)		1,754		(1,961)		2,623		(23)		(d)
Net derivative receivables:(c)
Interest rate	(332)		2,682			308		(148)				(2,228)		(332)		308		258		325
Credit	(139)		(212)			73		(154)				181		59		(32)		(224)		(110)
Foreign exchange	(607)		49			49		(24)				83		13		3		(434)		116
Equity	(3,395)		(65)			1,664		(2,317)				1,162		(935)		24		(3,862)		(556)
Commodity	(16)		(546)			27		(241)				356		(310)		(1)		(731)		267
Total net derivative receivables	(4,489)		1,908		(d)	2,121		(2,884)				(446)		(1,505)		302		(4,993)		42		(d)
Available-for-sale securities:
Mortgage-backed securities	1		—			—		—				(1)		—		—		—		—
Asset-backed securities	—		—			—		—				—		—		—		—		—
Total available-for-sale securities	1		—			—		—				(1)		—		—		—		—
Loans(b)	516		(243)		(d)	962		(84)				(733)		2,571		(684)		2,305		(18)		(d)
Mortgage servicing rights	4,699		(1,540)		(e)	1,192		(176)				(899)		—		—		3,276		(1,540)		(e)
Other assets(b)	917		(63)		(d)	75		(104)				(320)		40		(7)		538		(3)		(d)

	Fair value measurements using significant unobservable inputs
Year ended December 31, 2020 (in millions)	Fair value at January 1, 2020		Total realized/unrealized (gains)/losses													Transfers (out of) level 3(i)		Fair value at Dec. 31, 2020		Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2020
						Purchases		Sales		Issuances		Settlements(h)		Transfers into level 3(i)
Liabilities:(a)
Deposits	$	3,360	$	165	(d)(f)	$	—	$	—	$	671	$	(605)	$	265	$	(943)	$	2,913	$	455	(d)(f)

Short-term borrowings	1,674		(338)		(d)(f)	—		—		5,140		(4,115)		105		(46)		2,420		143		(d)(f)
Trading liabilities – debt and equity instruments	41		(2)		(d)	(126)		14		—		(4)		136		(8)		51		(1)		(d)
Accounts payable and other liabilities	45		33		(d)	(87)		37		—		—		47		(7)		68		28		(d)
Beneficial interests issued by consolidated VIEs	—		—			—		—		—		—		—		—		—		—
Long-term debt	23,339		40		(d)(f)	—		—		9,883		(9,833)		1,250		(1,282)		23,397		1,920		(d)(f)


	Fair value measurements using significant unobservable inputs
Year ended December 31, 2019 (in millions)	Fair value at January 1, 2019		Total realized/unrealized gains/(losses)													Transfers (out of) level 3(i)				Fair value at Dec. 31, 2019			Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2019
						Purchases(g)	Sales						Settlements(h)	Transfers into level 3(i)
Assets:(a)
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. GSEs and government agencies	$	549		$	(62)		$	773	$	(310)				$	(134)	$	1	$	(20)		$	797		$	(58)
Residential – nonagency	64			25			83		(86)					(20)		15		(58)			23			2
Commercial – nonagency	11			2			20		(26)					(14)		15		(4)			4			1
Total mortgage-backed securities	624			(35)			876		(422)					(168)		31		(82)			824			(55)
U.S. Treasury, GSEs and government agencies	—			—			—		—					—		—		—			—			—
Obligations of U.S. states and municipalities	689			13			85		(159)					(8)		—		(610)			10			13
Non-U.S. government debt securities	155			1			290		(287)					—		14		(18)			155			4
Corporate debt securities	334			47			437		(247)					(52)		112		(73)			558			40
Loans(b)	738			29			456		(519)					(82)		437		(386)			673			13
Asset-backed securities	127			—			37		(93)					(40)		28		(22)			37			(3)
Total debt instruments	2,667			55			2,181		(1,727)					(350)		622		(1,191)			2,257			12
Equity securities	232			(41)			58		(103)					(22)		181		(109)			196			(18)
Other	301			(36)			50		(26)					(54)		2		(5)			232			91
Total trading assets – debt and equity instruments	3,200			(22)		(d)	2,289		(1,856)					(426)		805		(1,305)			2,685			85		(d)
Net derivative receivables:(c)
Interest rate	(38)			(394)			109		(125)					5		(7)		118			(332)			(599)
Credit	(107)			(36)			20		(9)					8		29		(44)			(139)			(127)
Foreign exchange	(297)			(551)			17		(67)					312		(22)		1			(607)			(380)
Equity	(2,225)			(310)			397		(573)					(503)		(405)		224			(3,395)			(1,608)
Commodity	(1,129)			497			36		(348)					89		(6)		845			(16)			130
Total net derivative receivables	(3,796)			(794)		(d)	579		(1,122)					(89)		(411)		1,144			(4,489)			(2,584)		(d)
Available-for-sale securities:
Mortgage-backed securities	1			—			—		—					—		—		—			1			—
Asset-backed securities	—			—			—		—					—		—		—			—			—
Total available-for-sale securities	1			—			—		—					—		—		—			1			—
Loans(b)	856			59		(d)	236		(188)					(482)		188		(153)			516			38		(d)
Mortgage servicing rights	6,130			(1,180)		(e)	1,489		(789)					(951)		—		—			4,699			(1,180)		(e)
Other assets(b)	1,161			(150)		(d)	229		(166)					(156)		6		(7)			917			(180)		(d)

	Fair value measurements using significant unobservable inputs
Year ended December 31, 2019 (in millions)	Fair value at January 1, 2019			Total realized/unrealized (gains)/losses														Transfers (out of) level 3(i)			Fair value at Dec. 31, 2019			Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2019
			Purchases				Sales		Issuances				Settlements(h)	Transfers into level 3(i)
Liabilities:(a)
Deposits	$	4,169		$	278	(d)(f)	$	—	$	—	$	916		$	(806)	$	12	$	(1,209)		$	3,360		$	307	(d)(f)

Short-term borrowings	1,523			229		(d)(f)	—		—		3,441			(3,356)		85		(248)			1,674			155		(d)(f)
Trading liabilities – debt and equity instruments	50			2		(d)	(22)		41		—			1		16		(47)			41			3		(d)
Accounts payable and other liabilities	10			(2)		(d)	(84)		115		—			—		6		—			45			29		(d)
Beneficial interests issued by consolidated VIEs	1			(1)		(d)	—		—		—			—		—		—			—			—
Long-term debt	19,418			2,815		(d)(f)	—		—		10,441			(8,538)		651		(1,448)			23,339			2,822		(d)(f)


	Fair value measurements using significant unobservable inputs
Year ended December 31, 2018 (in millions)	Fair value at January 1, 2018		Total realized/unrealized gains/(losses)													Transfers (out of) level 3(i)		Fair value at Dec. 31, 2018		Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2018
						Purchases(g)		Sales				Settlements(h)		Transfers into level 3(i)
Assets:(a)
Trading assets:
Debt instruments:
Mortgage-backed securities:
U.S. GSEs and government agencies	$	307	$	(23)		$	478	$	(164)			$	(73)	$	94	$	(70)	$	549	$	(21)
Residential – nonagency	60		(2)			78		(50)				(7)		59		(74)		64		1
Commercial – nonagency	11		2			18		(18)				(17)		36		(21)		11		(2)
Total mortgage-backed securities	378		(23)			574		(232)				(97)		189		(165)		624		(22)
U.S. Treasury, GSEs and government agencies	1		—			—		—				—		—		(1)		—		—
Obligations of U.S. states and municipalities	744		(17)			112		(70)				(80)		—		—		689		(17)
Non-U.S. government debt securities	78		(22)			459		(277)				(12)		23		(94)		155		(9)
Corporate debt securities	312		(18)			364		(309)				(48)		262		(229)		334		(1)
Loans(b)	612		1			941		(536)				(219)		619		(680)		738		(13)
Asset-backed securities	153		28			98		(41)				(55)		45		(101)		127		22
Total debt instruments	2,278		(51)			2,548		(1,465)				(511)		1,138		(1,270)		2,667		(40)
Equity securities	295		(40)			118		(120)				(1)		107		(127)		232		9

Other	690		(285)			55		(40)				(118)		3		(4)		301		(301)
Total trading assets – debt and equity instruments	3,263		(376)		(d)	2,721		(1,625)				(630)		1,248		(1,401)		3,200		(332)		(d)
Net derivative receivables:(c)
Interest rate	264		150			107		(133)				(430)		(15)		19		(38)		187
Credit	(35)		(40)			5		(7)				(57)		4		23		(107)		(28)
Foreign exchange	(396)		103			52		(20)				30		(108)		42		(297)		(63)
Equity	(3,409)		198			1,676		(2,208)				1,805		(617)		330		(2,225)		561
Commodity	(674)		(73)			1		(72)				(301)		7		(17)		(1,129)		146
Total net derivative receivables	(4,250)		338		(d)	1,841		(2,440)				1,047		(729)		397		(3,796)		803		(d)
Available-for-sale securities:																		—
Mortgage-backed securities	1		—			—		—				—		—		—		1		—
Asset-backed securities	276		1			—		—				(277)		—		—		—		—
Total available-for-sale securities	277		1		(j)	—		—				(277)		—		—		1		—
Loans(b)	2,152		9		(d)	412		(1,256)				(496)		194		(159)		856		(4)		(d)
Mortgage servicing rights	6,030		230		(e)	1,246		(636)				(740)		—		—		6,130		230		(e)
Other assets(b)	1,496		(319)		(d)	195		(38)				(176)		4		(1)		1,161		(331)		(d)

	Fair value measurements using significant unobservable inputs
Year ended December 31, 2018 (in millions)	Fair value at January 1, 2018		Total realized/unrealized (gains)/losses											Transfers into level 3(i)		Transfers (out of) level 3(i)		Fair value at Dec. 31, 2018		Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2018
						Purchases		Sales		Issuances		Settlements(h)
Liabilities:(a)
Deposits	$	4,142	$	(136)	(d)(f)	$	—	$	—	$	1,437	$	(736)	$	2	$	(540)	$	4,169	$	(204)	(d)(f)

Short-term borrowings	1,665		(329)		(d)(f)	—		—		3,455		(3,388)		272		(152)		1,523		(131)		(d)(f)
Trading liabilities – debt and equity instruments	39		19		(d)	(99)		114		—		(1)		14		(36)		50		16		(d)
Accounts payable and other liabilities	13		—			(12)		5		—		—		4		—		10		—
Beneficial interests issued by consolidated VIEs	39		—			—		1		—		(39)		—		—		1		—
Long-term debt	16,125		(1,169)		(d)(f)	—		—		11,919		(7,769)		1,143		(831)		19,418		(1,385)		(d)(f)

(a)Level 3 assets at fair value as a percentage of total Firm assets accounted for at fair value (including assets measured at fair value on a nonrecurring basis) were 1%, 2% and 3% at December 31, 2020, 2019 and 2018, respectively. Level 3 liabilities at fair value as a percentage of total Firm liabilities at fair value (including liabilities measured at fair value on a nonrecurring basis) were 9%, 16% and 15% at December 31, 2020, 2019 and 2018, respectively.

(c)All level 3 derivatives are presented on a net basis, irrespective of underlying counterparty.

(d)Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans, and lending-related commitments originated with the intent to sell, and mortgage loan purchase commitments, which are reported in mortgage fees and related income.

(e)Changes in fair value for MSRs are reported in mortgage fees and related income.

(f)Realized (gains)/losses due to DVA for fair value option elected liabilities are reported in principal transactions revenue, and they were not material for the years ended December 31, 2020, 2019 and 2018, respectively. Unrealized (gains)/losses are reported in OCI, and they were $221 million, $319 million and $(277) million for the years ended December 31, 2020, 2019 and 2018, respectively.

(g)Loan originations are included in purchases.

(h)Includes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, deconsolidation associated with beneficial interests in VIEs and other items.

(i)All transfers into and/or out of level 3 are based on changes in the observability and/or significance of the valuation inputs and are assumed to occur at the beginning of the quarterly reporting period in which they occur.

(j)Realized gains/(losses) on AFS securities, as well as other-than-temporary impairment (“OTTI”) losses that are recorded in earnings, are reported in investment securities gains/(losses). Unrealized gains/(losses) are reported in OCI. There were no realized gains/(losses) and foreign exchange hedge accounting adjustments recorded in income on AFS securities for the years ended December 31, 2020 and 2019, respectively and $1 million recorded for the year ended December 31, 2018. There were no material unrealized gains/(losses) recorded on AFS securities in OCI for the years ended December 31, 2020, 2019 and 2018 respectively.

Level 3 analysis

Consolidated balance sheets changes

Level 3 assets at fair value including assets measured at fair value on a nonrecurring basis were 0.5% of total Firm assets at December 31, 2020. The following describes significant changes to level 3 assets since December 31, 2019, for those items measured at fair value on a recurring basis. Refer to Assets and liabilities measured at fair value on a nonrecurring basis on page 189 for further information on changes impacting items measured at fair value on a nonrecurring basis.

For the year ended December 31, 2020

Level 3 assets were $16.4 billion at December 31, 2020, reflecting an increase of $2.9 billion from December 31, 2019.

The increase for the year ended December 31, 2020 was driven by:

•$907 million increase in gross interest rate derivative receivables and $1.4 billion increase in gross equity derivative receivables largely due to gains net of settlements.

•$1.8 billion increase in non-trading loans due to net transfers.

partially offset by

•$1.4 billion decrease in MSRs due to losses and settlements partially offset by purchases.

Refer to the sections below for additional information.

Transfers between levels for instruments carried at

fair value on a recurring basis

During the year ended December 31, 2020, significant transfers from level 2 into level 3 included the following:

•$1.8 billion of total debt and equity instruments, predominantly equity securities and trading loans, driven by a decrease in observability.

•$2.6 billion of gross equity derivative receivables and $3.5 billion of gross equity derivative payables as a result

of a decrease in observability and an increase in the significance of unobservable inputs.

•$880 million of gross interest rate derivative payables as a result of a decrease in observability and an increase in the significance of unobservable inputs.

•$2.6 billion of non-trading loans driven by a decrease in observability.

•$1.2 billion of long-term debt driven by a decrease in observability and an increase in the significance of unobservable inputs for structured notes.

During the year ended December 31, 2020, significant transfers from level 3 into level 2 included the following:

•$2.0 billion of total debt and equity instruments, predominantly due to corporate debt and trading loans, driven by an increase in observability.

•$2.4 billion of gross equity derivative receivables and $2.4 billion of gross equity derivative payables as a result of an increase in observability and a decrease in the significance of unobservable inputs.

•$943 million of deposits as a result of an increase in observability and a decrease in the significance of unobservable inputs.

•$1.3 billion of long-term debt driven by an increase in observability and a decrease in the significance of unobservable inputs for structured notes.

During the year ended December 31, 2019, significant transfers from level 2 into level 3 included the following:

•$993 million of total debt and equity instruments, the majority of which were trading loans, driven by a decrease in observability.

•$904 million of gross equity derivative payables as a result of a decrease in observability and an increase in the significance of unobservable inputs.

During the year ended December 31, 2019, significant transfers from level 3 into level 2 included the following:

•$1.5 billion of total debt and equity instruments, the majority of which were obligations of U.S. states and municipalities and trading loans, driven by an increase in observability.

•$1.1 billion of gross equity derivative receivables and $1.3 billion of gross equity derivative payables as a result of an increase in observability and a decrease in the significance of unobservable inputs.

•$962 million of gross commodities derivative payables as a result of an increase in observability.

•$1.2 billion of deposits as a result of an increase in observability and a decrease in the significance of unobservable inputs.

•$1.4 billion of long-term debt as a result of an increase in observability and a decrease in the significance of unobservable inputs.

During the year ended December 31, 2018, significant transfers from level 2 into level 3 included the following:

•$1.4 billion of total debt and equity instruments, the majority of which were trading loans, driven by a decrease in observability.

•$1.0 billion of gross equity derivative receivables and $1.6 billion of gross equity derivative payables as a result of a decrease in observability and an increase in the significance of unobservable inputs.

•$1.1 billion of long-term debt driven by a decrease in observability and an increase in the significance of unobservable inputs for certain structured notes.

During the year ended December 31, 2018, significant transfers from level 3 into level 2 included the following:

•$1.5 billion of total debt and equity instruments, the majority of which were trading loans, driven by an increase in observability.

•$1.2 billion of gross equity derivative receivables and $1.5 billion of gross equity derivative payables as a result of an increase in observability and a decrease in the significance of unobservable inputs.

All transfers are based on changes in the observability and/or significance of the valuation inputs and are assumed to occur at the beginning of the quarterly reporting period in which they occur.

Gains and losses

The following describes significant components of total realized/unrealized gains/(losses) for instruments measured at fair value on a recurring basis for the years ended December 31, 2020, 2019 and 2018. These amounts exclude any effects of the Firm’s risk management activities where the financial instruments are classified as level 1 and 2 of the fair value hierarchy. Refer to Changes in level 3 recurring fair value measurements rollforward tables on pages 182-186 for further information on these instruments.

2020

•$10 million of net gains on assets driven by gains in net interest rate derivative receivables due to market movements largely offset by losses in MSRs reflecting faster prepayment speeds on lower rates. Refer to Note 15 for additional information on MSRs.

•$102 million of net gains on liabilities driven by market movements in short-term borrowings.

2019

•$2.1 billion of net losses on assets largely due to MSRs reflecting faster prepayment speeds on lower rates. Refer to Note 15 for additional information on MSRs.

•$3.3 billion of net losses on liabilities predominantly driven by market movements in long-term debt.

2018

•$1.6 billion of net gains on liabilities largely driven by market movements in long-term debt.

Credit and funding adjustments – derivatives

Derivatives are generally valued using models that use as their basis observable market parameters. These market parameters generally do not consider factors such as counterparty nonperformance risk, the Firm’s own credit quality, and funding costs. Therefore, it is generally necessary to make adjustments to the base estimate of fair value to reflect these factors.

CVA represents the adjustment, relative to the relevant benchmark interest rate, necessary to reflect counterparty nonperformance risk. The Firm estimates CVA using a scenario analysis to estimate the expected positive credit exposure across all of the Firm’s existing positions with each counterparty, and then estimates losses based on the probability of default and estimated recovery rate as a result of a counterparty credit event considering contractual factors designed to mitigate the Firm’s credit exposure, such as collateral and legal rights of offset. The key inputs to this methodology are (i) the probability of a default event occurring for each counterparty, as derived from observed or estimated CDS spreads; and (ii) estimated recovery rates implied by CDS spreads, adjusted to consider the differences in recovery rates as a derivative creditor relative to those reflected in CDS spreads, which generally reflect senior unsecured creditor risk.

FVA represents the adjustment to reflect the impact of funding and is recognized where there is evidence that a market participant in the principal market would incorporate it in a transfer of the instrument. The Firm’s FVA framework, applied to uncollateralized (including partially collateralized) over-the-counter (“OTC”) derivatives incorporates key inputs such as: (i) the expected funding requirements arising from the Firm’s positions with

each counterparty and collateral arrangements; and (ii) the estimated market funding cost in the principal market which, for derivative liabilities, considers the Firm’s credit risk (DVA). For collateralized derivatives, the fair value is estimated by discounting expected future cash flows at the relevant overnight indexed swap rate given the underlying collateral agreement with the counterparty, and therefore a separate FVA is not necessary.

The following table provides the impact of credit and funding adjustments on principal transactions revenue in the respective periods, excluding the effect of any associated hedging activities. The FVA presented below includes 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 over time.


Year ended December 31, (in millions)	2020		2019		2018
Credit and funding adjustments:
Derivatives CVA	$	(337)	$	241	$	193
Derivatives FVA	(64)		199		(74)

Valuation adjustments on fair value option elected liabilities

The valuation of the Firm’s liabilities for which the fair value option has been elected requires consideration of the Firm’s own credit risk. DVA on fair value option elected liabilities reflects changes (subsequent to the issuance of the liability) in the Firm’s probability of default and LGD, which are estimated based on changes in the Firm’s credit spread observed in the bond market. Realized (gains)/losses due to DVA for fair value option elected liabilities are reported in principal transactions revenue. Unrealized (gains)/losses are reported in OCI. Refer to page 186 in this Note and Note 24 for further information.

Assets and liabilities measured at fair value on a nonrecurring basis

The following tables present the assets and liabilities held as of December 31, 2020 and 2019, respectively, for which nonrecurring fair value adjustments were recorded during the years ended December 31, 2020 and 2019, respectively, by major product category and fair value hierarchy.


	Fair value hierarchy								Total fair value
December 31, 2020 (in millions)	Level 1		Level 2			Level 3
Loans	$	—	$	1,611	(c)	$	972	(d)	$	2,583
Other assets(a)	—		5			979			984
Total assets measured at fair value on a nonrecurring basis	$	—	$	1,616		$	1,951		$	3,567
Accounts payable and other liabilities(b)	—		—			12			12
Total liabilities measured at fair value on a nonrecurring basis	$	—	$	—		$	12		$	12


	Fair value hierarchy								Total fair value
December 31, 2019 (in millions)	Level 1		Level 2			Level 3
Loans	$	—	$	3,462	(c)	$	269		$	3,731
Other assets	—		14			1,043		(e)	1,057
Total assets measured at fair value on a nonrecurring basis	$	—	$	3,476		$	1,312		$	4,788

(a) Primarily includes equity securities without readily determinable fair values that were adjusted based on observable price changes in orderly transactions from an identical or similar investment of the same issuer (measurement alternative). Of the $979 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2020, $535 million related to equity securities adjusted based on the measurement alternative. These equity securities are classified as level 3 due to the infrequency of the observable prices and/or the restrictions on the shares.

(b) There were no liabilities measured at fair value on a nonrecurring basis at December 31, 2019.

(d) Of the $972 million in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2020, $602 million related to residential real estate loans carried at the net realizable value of the underlying collateral (e.g., collateral-dependent loans). These amounts are classified as level 3 as they are valued using information from broker’s price opinions, appraisals and automated valuation models and discounted based upon the Firm’s experience with actual liquidation values. These discounts ranged from 13% to 46% with a weighted average of 27%.

(e) Prior-period amounts have been revised to conform with the current presentation.

Nonrecurring fair value changes

The following table presents the total change in value of assets and liabilities for which fair value adjustments have been recognized for the years ended December 31, 2020, 2019 and 2018, related to assets and liabilities held at those dates.


December 31, (in millions)	2020		2019			2018
Loans(a)	$	(393)	$	(274)		$	(68)
Other assets(b)	(529)		182		(c)	132
Accounts payable and other liabilities	(11)		—			—
Total nonrecurring fair value gains/(losses)	$	(933)	$	(92)		$	64

(a)Includes the impact of certain mortgage loans that were reclassified to held-for-sale.

(b)Included $(134) million, $201 million and $149 million for the years ended December 31, 2020, 2019 and 2018, respectively,of net (losses)/gains as a result of the measurement alternative.

(c)Prior-period amounts have been revised to conform with the current presentation.

Refer to Note 12 for further information about the measurement of collateral-dependent loans.

Equity securities without readily determinable fair values

The Firm measures certain equity securities without readily determinable fair values at cost less impairment (if any), plus or minus observable price changes from an identical or similar investment of the same issuer, with such changes recognized in other income.

In its determination of the new carrying values upon observable price changes, the Firm may adjust the prices if deemed necessary to arrive at the Firm’s estimated fair values. Such adjustments may include adjustments to reflect the different rights and obligations of similar securities, and other adjustments that are consistent with the Firm’s valuation techniques for private equity direct investments.

The following table presents the carrying value of equity securities without readily determinable fair values held as of December 31, 2020 and 2019, that are measured under the measurement alternative and the related adjustments recorded during the periods presented for those securities with observable price changes. These securities are included in the nonrecurring fair value tables when applicable price changes are observable.


As of or for the year ended December 31,
(in millions)	2020		2019
Other assets
Carrying value(a)	$	2,368	$	2,441
Upward carrying value changes(b)	167		243		(d)
Downward carrying value changes/impairment(c)	(301)		(42)

(a)The period-end carrying values reflect cumulative purchases and sales in addition to upward and downward carrying value changes.

(b)The cumulative upward carrying value changes between January 1, 2018 and December 31, 2020 were $708 million.

(c)The cumulative downward carrying value changes/impairment between January 1, 2018 and December 31, 2020 were $(430) million.

(d)Prior-period amounts have been revised to conform with the current presentation.

Included in other assets above is the Firm’s interest in approximately 40 million Visa Class B common shares, recorded at a nominal carrying value. These shares are subject to certain transfer restrictions currently and will be convertible into Visa Class A common shares upon final resolution of certain litigation matters involving Visa. The conversion rate of Visa Class B common shares into Visa Class A common shares is 1.6228 at December 31, 2020, and may be adjusted by Visa depending on developments related to the litigation matters.

Additional disclosures about the fair value of financial instruments that are not carried on the Consolidated balance sheets at fair value

U.S. GAAP requires disclosure of the estimated fair value of certain financial instruments, which are included in the following table. However, this table does not include other items, such as nonfinancial assets, intangible assets, certain financial instruments, and customer relationships. In the opinion of management, these items, in the aggregate, add significant value to JPMorgan Chase, but their fair value is not disclosed in this table.

Financial instruments for which carrying value approximates fair value

Certain financial instruments that are not carried at fair value on the Consolidated balance sheets are carried at amounts that approximate fair value, due to their short-term nature and generally negligible credit risk. These instruments include cash and due from banks, deposits with banks, federal funds sold, securities purchased under resale agreements and securities borrowed, short-term receivables and accrued interest receivable, short-term borrowings, federal funds purchased, securities loaned and sold under repurchase agreements, accounts payable, and accrued liabilities. In addition, U.S. GAAP requires that the fair value of deposit liabilities with no stated maturity (i.e., demand, savings and certain money market deposits) be equal to their carrying value; recognition of the inherent funding value of these instruments is not permitted.

The following table presents by fair value hierarchy classification the carrying values and estimated fair values at December 31, 2020 and 2019, of financial assets and liabilities, excluding financial instruments that are carried at fair value on a recurring basis, and their classification within the fair value hierarchy.


	December 31, 2020										December 31, 2019
			Estimated fair value hierarchy										Estimated fair value hierarchy
(in billions)	Carrying value		Level 1		Level 2		Level 3		Total estimated fair value		Carrying value		Level 1		Level 2		Level 3		Total estimated fair value
Financial assets
Cash and due from banks	$	24.9	$	24.9	$	—	$	—	$	24.9	$	21.7	$	21.7	$	—	$	—	$	21.7
Deposits with banks	502.7		502.7		—		—		502.7		241.9		241.9		—		—		241.9
Accrued interest and accounts receivable	89.4		—		89.3		0.1		89.4		71.3		—		71.2		0.1		71.3
Federal funds sold and securities purchased under resale agreements	58.3		—		58.3		—		58.3		234.6		—		234.6		—		234.6
Securities borrowed	107.7		—		107.7		—		107.7		133.5		—		133.5		—		133.5
Investment securities, held-to-maturity	201.8		53.2		152.3		—		205.5		47.5		0.1		48.8		—		48.9
Loans, net of allowance for loan losses(a)	940.1		—		210.9		755.6		966.5		939.5		—		214.1		734.9		949.0
Other	81.8		—		80.0		1.9		81.9		61.3		—		60.6		0.8		61.4
Financial liabilities
Deposits	$	2,129.8	$	—	$	2,128.9	$	—	$	2,128.9	$	1,533.8	$	—	$	1,534.1	$	—	$	1,534.1
Federal funds purchased and securities loaned or sold under repurchase agreements	59.5		—		59.5		—		59.5		183.1		—		183.1		—		183.1
Short-term borrowings	28.3		—		28.3		—		28.3		35.0		—		35.0		—		35.0
Accounts payable and other liabilities	186.6		—		181.9		4.3		186.2		164.0		0.1		160.0		3.5		163.6
Beneficial interests issued by consolidated VIEs	17.5		—		17.6		—		17.6		17.8		—		17.9		—		17.9
Long-term debt	204.8		—		209.2		3.2		212.4		215.5		—		218.3		3.5		221.8

(a)Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal, contractual interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and primary origination or secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. Carrying value of the loan takes into account the loan’s allowance for loan losses, which represents the loan’s expected credit losses over its remaining expected life. The difference between the estimated fair value and carrying value of a loan is generally attributable to changes in market interest rates, including credit spreads, market liquidity premiums and other factors that affect the fair value of a loan but do not affect its carrying value.

The majority of the Firm’s lending-related commitments are not carried at fair value on a recurring basis on the Consolidated balance sheets. The carrying value and the estimated fair value of these wholesale lending-related commitments were as follows for the periods indicated.


	December 31, 2020										December 31, 2019
			Estimated fair value hierarchy										Estimated fair value hierarchy
(in billions)	Carrying value(a)(b)		Level 1		Level 2		Level 3		Total estimated fair value		Carrying value(a)(b)		Level 1		Level 2		Level 3		Total estimated fair value
Wholesale lending-related commitments	$	2.2	$	—	$	—	$	2.1	$	2.1	$	1.2	$	—	$	—	$	1.9	$	1.9

(a)Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which is recognized at fair value at the inception of the guarantees.

(b)Includes the wholesale allowance for lending-related commitments.

The Firm does not estimate the fair value of consumer off-balance sheet lending-related commitments. In many cases, the Firm can reduce or cancel these commitments by providing the borrower notice or, in some cases as permitted by law, without notice. Refer to page 173 of this Note for a further discussion of the valuation of lending-related commitments.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

+ References + Details