Note 10: Guarantees, Pledged Assets and Collateral

Guarantees are contracts that contingently require us to make payments to a guaranteed party based on an event or a change in an underlying asset, liability, rate or index. Guarantees are generally in the form of standby letters of credit, securities lending and other indemnifications, written put options, recourse obligations, and other types of arrangements. For complete descriptions of our guarantees, see Note 14 (Guarantees, Pledged Assets and Collateral) to Financial Statements in our 2014 Form 10-K. The following table shows carrying value, maximum exposure to loss on our guarantees and the related non-investment grade amounts.



	June 30, 2015
			Maximum exposure to loss
(in millions)	Carrying value		Expires in one year or less	Expires after one year through three years	Expires after three years through five years	Expires after five years	Total	Non- investment grade
Standby letters of credit (1)	$	41	16,039	10,109	5,579	682	32,409	8,373
Securities lending and other indemnifications (2)	—		—	—	—	5,697	5,697	—
Written put options (3)	380		7,511	5,863	3,278	2,212	18,864	8,212
Loans and MHFS sold with recourse (4)	63		127	603	703	5,978	7,411	4,577
Factoring guarantees (5)	—		2,914	—	—	—	2,914	2,914
Other guarantees	27		42	51	21	2,274	2,388	69
Total guarantees	$	511	26,633	16,626	9,581	16,843	69,683	24,145
	December 31, 2014
			Maximum exposure to loss
(in millions)	Carrying value		Expires in one year or less	Expires after one year through three years	Expires after three years through five years	Expires after five years	Total	Non- investment grade
Standby letters of credit (1)	$	41	16,271	10,269	6,295	645	33,480	8,447
Securities lending and other indemnifications (2)	—		—	2	2	5,948	5,952	—
Written put options (3)	469		7,644	5,256	2,822	2,409	18,131	7,902
Loans and MHFS sold with recourse (4)	72		131	486	822	5,386	6,825	3,945
Factoring guarantees (5)	—		3,460	—	—	—	3,460	3,460
Other guarantees	24		9	85	22	2,158	2,274	69
Total guarantees	$	606	27,515	16,098	9,963	16,546	70,122	23,823

(1)

Total maximum exposure to loss includes direct pay letters of credit (DPLCs) of $13.1 billion and $15.0 billion at June 30, 2015 and December 31, 2014, respectively. We issue DPLCs to provide credit enhancements for certain bond issuances. Beneficiaries (bond trustees) may draw upon these instruments to make scheduled principal and interest payments, redeem all outstanding bonds because a default event has occurred, or for other reasons as permitted by the agreement. We also originate multipurpose lending commitments under which borrowers have the option to draw on the facility in one of several forms, including as a standby letter of credit. Total maximum exposure to loss includes the portion of these facilities for which we have issued standby letters of credit under the commitments.

(2)

Includes $0 million and $211 million at June 30, 2015 and December 31, 2014, respectively, in debt and equity securities lent from participating institutional client portfolios to third-party borrowers. Also includes indemnifications provided to certain third-party clearing agents. Outstanding customer obligations under these arrangements were $1.1 billion and $950 million with related collateral of $4.9 billion and $5.6 billion at June 30, 2015 and December 31, 2014, respectively. Estimated maximum exposure to loss was $5.7 billion at each date.


(3)	Written put options, which are in the form of derivatives, are also included in the derivative disclosures in Note 12 (Derivatives).


(4)	Represent recourse provided, predominantly to the GSEs, on loans sold under various programs and arrangements. Under these arrangements, we repurchased $2 million and $3 million respectively, of loans associated with these agreements in the second quarter and first half of 2015, and $4 million and $5 million in the same periods of 2014, respectively.


(5)	Consists of guarantees made under certain factoring arrangements to purchase trade receivables from third parties, generally upon their request, if receivable debtors default on their payment obligations.

“Maximum exposure to loss” and “Non-investment grade” are required disclosures under GAAP. Non-investment grade represents those guarantees on which we have a higher risk of being required to perform under the terms of the guarantee. If the underlying assets under the guarantee are non-investment grade (that is, an external rating that is below investment grade or an internal credit default grade that is equivalent to a below investment grade external rating), we consider the risk of performance to be high. Internal credit default grades are determined based upon the same credit policies that we use to evaluate the risk of payment or performance when making loans and other extensions of credit. These credit policies are further described in Note 5 (Loans and Allowance for Credit Losses).

Maximum exposure to loss represents the estimated loss that would be incurred under an assumed hypothetical circumstance, despite what we believe is its extremely remote possibility, where the value of our interests and any associated collateral declines to zero. Maximum exposure to loss estimates in the table above do not reflect economic hedges or collateral we could use to offset or recover losses we may incur under our guarantee agreements. Accordingly, this required disclosure is not an indication of expected loss. We believe the carrying value, which is either fair value for derivative-related products or the allowance for lending-related commitments, is more representative of our exposure to loss than maximum exposure to loss.

Pledged Assets

As part of our liquidity management strategy, we pledge assets to secure trust and public deposits, borrowings and letters of credit from the FHLB and FRB, securities sold under agreements to repurchase (repurchase agreements), and for other purposes as required or permitted by law or insurance statutory requirements. The types of collateral we pledge include securities issued by federal agencies, GSEs, domestic and foreign companies and various commercial and consumer loans. The following table provides the total carrying amount of pledged assets by asset type. The table excludes pledged consolidated VIE assets of $6.2 billion and $5.8 billion at June 30, 2015, and December 31, 2014, respectively, which can only be used to settle the liabilities of those entities. The table also excludes $7.7 billion and $10.1 billion in assets pledged in transactions accounted for as secured borrowings at June 30, 2015 and December 31, 2014, respectively. See Note 7 (Securitizations and Variable Interest Entities) for additional information on consolidated VIE assets and secured borrowings.



(in millions)	Jun 30, 2015		Dec 31, 2014
Trading assets and other (1)	$	72,030	49,685
Investment securities (2)	101,266		101,997
Mortgages held for sale and Loans (3)	437,697		418,338
Total pledged assets	$	610,993	570,020


(1)	Represent assets pledged to collateralize repurchase agreements and other securities financings. Balance includes $71.5 billion and $49.4 billion at June 30, 2015, and December 31, 2014, respectively, under agreements that permit the secured parties to sell or repledge the collateral.

(2)

Includes carrying value of $6.8 billion and $6.6 billion (fair value of $6.8 billion for both periods) in collateral for repurchase agreements at June 30, 2015, and December 31, 2014, respectively, which are pledged under agreements that do not permit the secured parties to sell or repledge the collateral. Also includes $7.8 billion and $164 million in collateral pledged under repurchase agreements at June 30, 2015, and December 31, 2014, respectively, that permit the secured parties to sell or repledge the collateral.

(3)

Includes mortgages held for sale of $14.1 billion and $8.7 billion at June 30, 2015 and December 31, 2014, respectively. Balance consists of mortgages held for sale and loans that are pledged under agreements that do not permit the secured parties to sell or repledge the collateral. Amounts exclude $1.2 billion and $1.7 billion at June 30, 2015 and December 31, 2014, respectively, of pledged loans recorded on our balance sheet representing certain delinquent loans that are eligible for repurchase primarily from GNMA loan securitizations. See Note 7 (Securitizations and Variable Interest Entities) for additional information.

Securities Financing Activities

We enter into resale and repurchase agreements and securities borrowing and lending agreements (collectively, “securities financing activities”) primarily to finance inventory positions, acquire securities to cover short trading positions, accommodate customers’ financing needs, and settle other securities obligations. These activities are conducted through our broker dealer subsidiaries and to a lesser extent through other bank entities. The majority of our securities financing activities involve high quality, liquid securities such as U.S. Treasury securities and government agency securities, and to a lesser extent, less liquid securities, including equity securities, corporate bonds and asset-backed securities. We account for these transactions as collateralized financings in which we typically receive or pledge securities as collateral. We believe these financing transactions generally do not have material credit risk given the collateral provided and the related monitoring processes.

OFFSETTING OF RESALE AND REPURCHASE AGREEMENTS AND SECURITIES BORROWING AND LENDING AGREEMENTS The table below presents resale and repurchase agreements subject to master repurchase agreements (MRA) and securities borrowing and lending agreements subject to master securities lending agreements (MSLA). We account for transactions subject to these agreements as collateralized financings, and those with a single counterparty are presented net on our balance sheet, provided certain criteria are met that permit balance sheet netting. Most transactions subject to these agreements do not meet those criteria and thus are not eligible for balance sheet netting.

Collateral we pledged consists of non-cash instruments, such as securities or loans, and is not netted on the balance sheet against the related liability. Collateral we received includes securities or loans and is not recognized on our balance sheet. Collateral pledged or received may be increased or decreased over time to maintain certain contractual thresholds as the assets underlying each arrangement fluctuate in value. Generally, these agreements require collateral to exceed the asset or liability recognized on the balance sheet. The following table includes the amount of collateral pledged or received related to exposures subject to enforceable MRAs or MSLAs. While these agreements are typically over-collateralized, U.S. GAAP requires disclosure in this table to limit the amount of such collateral to the amount of the related recognized asset or liability for each counterparty.

In addition to the amounts included in the table below, we also have balance sheet netting related to derivatives that is disclosed within Note 12 (Derivatives).



(in millions)	Jun 30, 2015			Dec 31, 2014
Assets:
Resale and securities borrowing agreements
Gross amounts recognized	$	72,792		58,148
Gross amounts offset in consolidated balance sheet (1)	(12,558		)	(6,477	)
Net amounts in consolidated balance sheet (2)	60,234			51,671
Collateral not recognized in consolidated balance sheet (3)	(59,917		)	(51,624	)
Net amount (4)	$	317		47
Liabilities:
Repurchase and securities lending agreements
Gross amounts recognized (5)	$	83,403		56,583
Gross amounts offset in consolidated balance sheet (1)	(12,558		)	(6,477	)
Net amounts in consolidated balance sheet (6)	70,845			50,106
Collateral pledged but not netted in consolidated balance sheet (7)	(70,435		)	(49,713	)
Net amount (8)	$	410		393


(1)	Represents recognized amount of resale and repurchase agreements with counterparties subject to enforceable MRAs or MSLAs that have been offset in the consolidated balance sheet.


(2)	At June 30, 2015 and December 31, 2014, includes $41.2 billion and $36.8 billion, respectively, classified on our consolidated balance sheet in Federal funds sold, securities purchased under resale agreements and other short-term investments and $19.0 billion and $14.9 billion, respectively, in Loans.

(3)

Represents the fair value of collateral we have received under enforceable MRAs or MSLAs, limited for table presentation purposes to the amount of the recognized asset due from each counterparty. At June 30, 2015 and December 31, 2014, we have received total collateral with a fair value of $84.8 billion and $64.5 billion, respectively, all of which, we have the right to sell or repledge. These amounts include securities we have sold or repledged to others with a fair value of $49.5 billion at June 30, 2015 and $40.8 billion at December 31, 2014.


(4)	Represents the amount of our exposure that is not collateralized and/or is not subject to an enforceable MRA or MSLA.


(5)	For additional information on underlying collateral and contractual maturities, see the "Repurchase and Securities Lending Agreements" section in this Note.


(6)	Amount is classified in Short-term borrowings on our consolidated balance sheet.

(7)

Represents the fair value of collateral we have pledged, related to enforceable MRAs or MSLAs, limited for table presentation purposes to the amount of the recognized liability owed to each counterparty. At June 30, 2015 and December 31, 2014, we have pledged total collateral with a fair value of $86.6 billion and $56.5 billion, respectively, of which, the counterparty does not have the right to sell or repledge $7.3 billion as of June 30, 2015 and $6.9 billion as of December 31, 2014.


(8)	Represents the amount of our obligation that is not covered by pledged collateral and/or is not subject to an enforceable MRA or MSLA.

REPURCHASE AND SECURITIES LENDING AGREEMENTS Securities sold under repurchase agreements and securities lending arrangements are effectively short-term collateralized borrowings. In these transactions, we receive cash in exchange for transferring securities as collateral and recognize an obligation to reacquire the securities for cash at the transaction's maturity. These types of transactions create risks, including (1) the counterparty may fail to return the securities at maturity, (2) the fair value of the securities transferred may decline below the amount of our obligation to reacquire the securities, and therefore create an obligation for us to pledge additional amounts, and (3) the counterparty may accelerate the maturity on demand requiring us to reacquire the security prior to contractual maturity. We attempt to mitigate these risks by the fact that the majority of our securities financing activities involve highly liquid securities, we underwrite and monitor the financial strength of our counterparties, we monitor the fair value of collateral pledged relative to contractually required repurchase amounts, and we monitor that our collateral is properly returned through the clearing and settlement process in advance of our cash repayment. The following table provides the underlying collateral types of our gross obligations under repurchase and securities lending agreements.



	June 30, 2015
(in millions)	Total Gross Obligation
Repurchase agreements:
Securities of U.S. Treasury and federal agencies	$	27,724
Securities of U.S. States and political subdivisions	77
Federal agency mortgage-backed securities	35,139
Non-agency mortgage-backed securities	2,053
Corporate debt securities	4,963
Asset-backed securities	2,502
Equity securities	707
Other	348
Total repurchases	73,513
Securities lending:
Securities of U.S. Treasury and federal agencies	103
Federal agency mortgage-backed securities	52
Corporate debt securities	752
Equity securities (1)	8,983
Total securities lending	9,890
Total repurchases and securities lending	$	83,403


(1)	Equity securities are generally exchange traded and either re-hypothecated under margin lending agreements or obtained through contemporaneous securities borrowing transactions with other counterparties.

The following table provides the contractual maturities of our gross obligations under repurchase and securities lending agreements.



	June 30, 2015
(in millions)	Overnight/Continuous		Up to 30 days	30-90 days	>90 days	Total Gross Obligation
Repurchase agreements	$	47,667	19,169	5,902	775	73,513
Securities lending	8,865		753	272	—	9,890
Total repurchases and securities lending (1)	$	56,532	19,922	6,174	775	83,403


(1)	Repurchase and securities lending transactions are primarily conducted under enforceable master lending agreements that allow either party to terminate the transaction on demand. These transactions have been reported as continuous obligations unless the MRA or MSLA has been modified with an overriding agreement that specifies an alternative termination date.