Derivatives

6 Months Ended

Jun. 30, 2019

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivatives

Note 15: Derivatives

We use derivatives to manage exposure to market risk, including interest rate risk, credit risk and foreign currency risk, and to assist customers with their risk management objectives. We designate certain derivatives as hedging instruments in a qualifying hedge accounting relationship (fair value or cash flow hedge). Our remaining derivatives consist of economic hedges that do not qualify for hedge accounting, and derivatives held for customer accommodation trading or other purposes. For more information on our derivative activities, see Note 17 (Derivatives) in our 2018 Form 10-K.

Table 15.1 presents the total notional or contractual amounts and fair values for our derivatives. Derivative transactions can be measured in terms of the notional amount, but this amount is not recorded on the balance sheet and is not, when viewed in isolation, a meaningful measure of the risk profile of the instruments. The notional amount is generally not exchanged but is used only as the basis on which interest and other payments are determined.

Table 15.1: Notional or Contractual Amounts and Fair Values of Derivatives

	June 30, 2019							December 31, 2018
	Notional or contractual amount					Fair value		Notional or contractual amount			Fair value
(in millions)			Derivative assets			Derivative liabilities			Derivative assets		Derivative liabilities
Derivatives designated as hedging instruments
Interest rate contracts	$	186,206	2,559			1,368		177,511	2,237		636
Foreign exchange contracts (1)	33,439		540			1,162		34,176	573		1,376
Total derivatives designated as qualifying hedging instruments			3,099			2,530			2,810		2,012
Derivatives not designated as hedging instruments
Economic hedges:
Interest rate contracts (2)	255,760		692			290		173,215	849		369
Equity contracts	17,374		1,213			658		13,920	1,362		79
Foreign exchange contracts	20,829		212			85		19,521	225		80
Credit contracts – protection purchased	220		38			—		100	27		—
Subtotal			2,155			1,033			2,463		528
Customer accommodation trading and other derivatives:
Interest rate contracts	11,130,569		22,302			18,979		9,162,821	15,349		15,303
Commodity contracts	72,255		1,424			1,936		66,173	1,588		2,336
Equity contracts	246,045		6,164			8,520		217,890	6,183		5,931
Foreign exchange contracts	353,918		4,803			5,021		364,982	5,916		5,657
Credit contracts – protection sold	10,507		15			80		11,741	76		182
Credit contracts – protection purchased	20,784		88			17		20,880	175		98
Subtotal			34,796			34,553			29,287		29,507
Total derivatives not designated as hedging instruments			36,951			35,586			31,750		30,035
Total derivatives before netting			40,050			38,116			34,560		32,047
Netting (3)			(26,888		)	(29,717	)		(23,790	)	(23,548	)
Total			$	13,162		8,399			10,770		8,499

(1) The notional amount for foreign exchange contracts at June 30, 2019, and December 31, 2018, excludes $10.0 billion and $11.2 billion, respectively, for certain derivatives that are combined for designation as a hedge on a single instrument.

(2) Includes economic hedge derivatives used to hedge the risk of changes in the fair value of residential MSRs, MLHFS, loans, derivative loan commitments and other interests held.

(3) Represents balance sheet netting of derivative asset and liability balances, related cash collateral and portfolio level counterparty valuation adjustments. See Table 15.2 for further information.

Table 15.2 provides information on the gross fair values of derivative assets and liabilities, the balance sheet netting adjustments and the resulting net fair value amount recorded on our balance sheet, as well as the non-cash collateral associated with such arrangements. We execute substantially all of our derivative transactions under master netting arrangements and reflect all derivative balances and related cash collateral subject to enforceable master netting arrangements on a net basis within the balance sheet. The “Gross amounts recognized” column in the following table includes $35.1 billion and $34.9 billion of gross derivative assets and liabilities, respectively, at June 30, 2019, and $30.9 billion and $28.4 billion, respectively, at December 31, 2018, with counterparties subject to enforceable master netting arrangements that are carried on the balance sheet net of offsetting amounts. The remaining gross derivative assets and liabilities of $5.0 billion and $3.2 billion, respectively, at June 30, 2019, and $3.7 billion and $3.6 billion, respectively, at December 31, 2018, include those with counterparties subject to master netting arrangements for which we have not assessed the enforceability because they are with counterparties where we do not currently have positions to offset, those subject to master netting arrangements where we have not been able to confirm the enforceability and those not subject to master netting arrangements. As such, we do not net derivative balances or collateral within the balance sheet for these counterparties.

We determine the balance sheet netting adjustments based on the terms specified within each master netting arrangement. We disclose the balance sheet netting amounts within the column titled “Gross amounts offset in consolidated balance sheet.” Balance sheet netting adjustments are determined at the counterparty level for which there may be multiple contract types. For disclosure purposes, we allocate these netting adjustments to the contract type for each counterparty proportionally based upon the “Gross amounts recognized” by counterparty. As a result, the net amounts disclosed by contract type may not represent the actual exposure upon settlement of the contracts.

We do not net non-cash collateral that we receive and pledge on the balance sheet. For disclosure purposes, we present the fair value of this non-cash collateral in the column titled “Gross amounts not offset in consolidated balance sheet (Disclosure-only netting)” within the table. We determine and allocate the Disclosure-only netting amounts in the same manner as balance sheet netting amounts.

The “Net amounts” column within Table 15.2 represents the aggregate of our net exposure to each counterparty after considering the balance sheet and Disclosure-only netting adjustments. We manage derivative exposure by monitoring the credit risk associated with each counterparty using counterparty specific credit risk limits, using master netting arrangements and obtaining collateral. Derivative contracts executed in over-the-counter markets include bilateral contractual arrangements that are not cleared through a central clearing organization but are typically subject to master netting arrangements. The percentage of our bilateral derivative transactions outstanding at period end in such markets, based on gross fair value, is provided within the following table. Other derivative contracts executed in over-the-counter or exchange-traded markets are settled through a central clearing organization and are excluded from this percentage. In addition to the netting amounts included in the table, we also have balance sheet netting related to resale and repurchase agreements that are disclosed within Note 13 (Guarantees, Pledged Assets and Collateral, and Other Commitments).

Table 15.2: Gross Fair Values of Derivative Assets and Liabilities

(in millions)	Gross amounts recognized		Gross amounts offset in consolidated balance sheet (1)		Net amounts in consolidated balance sheet	Gross amounts not offset in consolidated balance sheet (Disclosure-only netting) (2)		Net amounts	Percent exchanged in over-the-counter market (3)
June 30, 2019
Derivative assets
Interest rate contracts	$	25,553	(16,558	)	8,995	(313	)	8,682	95	%
Commodity contracts	1,424		(951	)	473	(1	)	472	73
Equity contracts	7,377		(5,041	)	2,336	(34	)	2,302	71
Foreign exchange contracts	5,555		(4,250	)	1,305	(8	)	1,297	100
Credit contracts – protection sold	15		(9	)	6	—		6	74
Credit contracts – protection purchased	126		(79	)	47	(1	)	46	99
Total derivative assets	$	40,050	(26,888	)	13,162	(357	)	12,805
Derivative liabilities
Interest rate contracts	$	20,637	(18,046	)	2,591	(848	)	1,743	95	%
Commodity contracts	1,936		(738	)	1,198	—		1,198	81
Equity contracts	9,178		(5,934	)	3,244	(214	)	3,030	84
Foreign exchange contracts	6,268		(4,918	)	1,350	(197	)	1,153	100
Credit contracts – protection sold	80		(75	)	5	(3	)	2	99
Credit contracts – protection purchased	17		(6	)	11	—		11	98
Total derivative liabilities	$	38,116	(29,717	)	8,399	(1,262	)	7,137
December 31, 2018
Derivative assets
Interest rate contracts	$	18,435	(12,029	)	6,406	(80	)	6,326	90	%
Commodity contracts	1,588		(849	)	739	(4	)	735	57
Equity contracts	7,545		(5,318	)	2,227	(755	)	1,472	78
Foreign exchange contracts	6,714		(5,355	)	1,359	(35	)	1,324	100
Credit contracts – protection sold	76		(73	)	3	—		3	12
Credit contracts – protection purchased	202		(166	)	36	(1	)	35	78
Total derivative assets	$	34,560	(23,790	)	10,770	(875	)	9,895
Derivative liabilities
Interest rate contracts	$	16,308	(13,152	)	3,156	(567	)	2,589	92	%
Commodity contracts	2,336		(727	)	1,609	(8	)	1,601	85
Equity contracts	6,010		(3,877	)	2,133	(110	)	2,023	75
Foreign exchange contracts	7,113		(5,522	)	1,591	(188	)	1,403	100
Credit contracts – protection sold	182		(180	)	2	(2	)	—	67
Credit contracts – protection purchased	98		(90	)	8	—		8	11
Total derivative liabilities	$	32,047	(23,548	)	8,499	(875	)	7,624

(1) Represents amounts with counterparties subject to enforceable master netting arrangements that have been offset in the consolidated balance sheet, including related cash collateral and portfolio level counterparty valuation adjustments. Counterparty valuation adjustments were $301 million and $353 million related to derivative assets and $92 million and $152 million related to derivative liabilities at June 30, 2019, and December 31, 2018, respectively. Cash collateral totaled $3.6 billion and $6.6 billion, netted against derivative assets and liabilities, respectively, at June 30, 2019, and $3.7 billion and $3.6 billion, respectively, at December 31, 2018.

(2) Represents the fair value of non-cash collateral pledged and received against derivative assets and liabilities with the same counterparty that are subject to enforceable master netting arrangements. U.S. GAAP does not permit netting of such non-cash collateral balances in the consolidated balance sheet but requires disclosure of these amounts.

(3)

Over-the-counter percentages are calculated based on gross amounts recognized as of the respective balance sheet date.

Fair Value and Cash Flow Hedges

For fair value hedges, we use interest rate swaps to convert certain of our fixed-rate long-term debt and time certificates of deposit to floating rates to hedge our exposure to interest rate risk. We also enter into cross-currency swaps, cross-currency interest rate swaps and forward contracts to hedge our exposure to foreign currency risk and interest rate risk associated with the issuance of non-U.S. dollar denominated long-term debt. In addition, we use interest rate swaps, cross-currency swaps, cross-currency interest rate swaps and forward contracts to hedge against changes in fair value of certain investments in available-for-sale debt securities due to changes in interest rates, foreign currency rates, or both. We also use interest rate swaps to hedge

against changes in fair value for certain mortgage loans held for sale.

For cash flow hedges, we use interest rate swaps to hedge the variability in interest payments received on certain floating-rate commercial loans and paid on certain floating-rate debt due to changes in the contractually specified interest rate.

We estimate $247 million pre-tax of deferred net losses related to cash flow hedges in OCI at June 30, 2019, will be reclassified into net interest income during the next twelve months. The deferred losses expected to be reclassified into net interest income are predominantly related to discontinued hedges of floating rate loans. For cash flow hedges as of June 30, 2019, we are hedging the variability of future cash flows for a maximum of 7 years. For more information on our accounting

hedges, see Note 1 (Summary of Significant Accounting Policies) and Note 16 (Derivatives) in our 2018 Form 10-K.

Table 15.3 shows the net gains (losses) related to derivatives in fair value and cash flow hedging relationships.

Table 15.3: Gains (Losses) Recognized in Consolidated Statement of Income on Fair Value and Cash Flow Hedging Relationships

	Net interest income											Noninterest income
(in millions)	Debt securities			Loans		Mortgage loans held for sale		Deposits		Long-term debt		Other		Total
Quarter ended June 30, 2019
Total amounts presented in the consolidated statement of income	$	3,781		11,316		195		(2,213	)	(1,900	)	744		11,923
Gains (losses) on fair value hedging relationships
Interest contracts
Amounts related to interest settlements on derivatives (1)	14			—		—		(7	)	7		—		14
Recognized on derivatives	(1,089		)	—		(25	)	351		2,947		—		2,184
Recognized on hedged items	1,096			—		24		(343	)	(2,890	)	—		(2,113	)
Foreign exchange contracts
Amounts related to interest settlements on derivatives (1)(2)	10			—		—		—		(128	)	—		(118	)
Recognized on derivatives (3)	(5		)	—		—		—		205		326		526
Recognized on hedged items	4			—		—		—		(186	)	(315	)	(497	)
Net income (expense) recognized on fair value hedges	30			—		(1	)	1		(45	)	11		(4	)
Gains (losses) on cash flow hedging relationships
Interest contracts
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)	—			(77	)	—		—		1		—		(76	)
Foreign exchange contracts
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)	$	—		—		—		—		(3	)	—		(3	)
Net income (expense) recognized on cash flow hedges	$	—		(77	)	—		—		(2	)	—		(79	)
Six months ended June 30, 2019
Total amounts presented in the consolidated statement of income	$	7,722		22,670		347		(4,239	)	(3,827	)	1,318		23,991
Gains (losses) on fair value hedging relationships:
Interest contracts
Amounts related to interest settlements on derivatives (1)	30			—		—		(30	)	—		—		—
Recognized on derivatives	(1,903		)	—		(33	)	558		4,933		—		3,555
Recognized on hedged items	1,913			—		31		(533	)	(4,837	)	—		(3,426	)
Foreign exchange contracts
Amounts related to interest settlements on derivatives (1)(2)	20			—		—		—		(270	)	—		(250	)
Recognized on derivatives (3)	(9		)	—		—		—		497		(76	)	412
Recognized on hedged items	9			—		—		—		(452	)	76		(367	)
Net income (expense) recognized on fair value hedges	60			—		(2	)	(5	)	(129	)	—		(76	)
Gains (losses) on cash flow hedging relationships:
Interest contracts
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)	—			(155	)	—		—		1		—		(154	)
Foreign exchange contracts
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)	—			—		—		—		(4	)	—		(4	)
Net income (expense) recognized on cash flow hedges	$	—		(155	)	—		—		(3	)	—		(158	)

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	Net interest income											Noninterest income
(in millions)	Debt securities			Loans		Mortgage loans held for sale		Deposits		Long-term debt		Other		Total
Quarter ended June 30, 2018
Total amounts presented in the consolidated statement of income	$	3,594		10,912		198		(1,268	)	(1,658	)	485		12,263
Gains (losses) on fair value hedging relationships:
Interest contracts
Amounts related to interest settlements on derivatives (1)	(42		)	—		(1	)	(20	)	81		—		18
Recognized on derivatives	356			—		5		(41	)	(819	)	—		(499	)
Recognized on hedged items	(352		)	—		(7	)	31		780		—		452
Foreign exchange contracts
Amounts related to interest settlements on derivatives (1)(2)	10			—		—		—		(102	)	—		(92	)
Recognized on derivatives (3)	2			—		—		—		97		(1,410	)	(1,311	)
Recognized on hedged items	1			—		—		—		(82	)	1,308		1,227
Net income (expense) recognized on fair value hedges	(25		)	—		(3	)	(30	)	(45	)	(102	)	(205	)
Gains (losses) on cash flow hedging relationships:
Interest contracts
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)	—			(77	)	—		—		—		—		(77	)
Foreign exchange contracts
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)	—			—		—		—		—		—		—
Net income (expense) recognized on cash flow hedges	$	—		(77	)	—		—		—		—		(77	)
Six months ended June 30, 2018
Total amounts presented in the consolidated statement of income	$	7,008		21,491		377		(2,358	)	(3,234	)	1,087		24,371
Gains (losses) on fair value hedging relationships:
Interest contracts
Amounts related to interest settlements on derivatives (1)	(124		)	—		(2	)	(25	)	252		—		101
Recognized on derivatives	1,306			1		11		(190	)	(3,212	)	—		(2,084	)
Recognized on hedged items	(1,320		)	(1	)	(15	)	172		3,114		—		1,950
Foreign exchange contracts
Amounts related to interest settlements on derivatives (1)(2)	15			—		—		—		(182	)	—		(167	)
Recognized on derivatives (3)	6			—		—		—		(74	)	(750	)	(818	)
Recognized on hedged items	(2		)	—		—		—		27		681		706
Net income (expense) recognized on fair value hedges	(119		)	—		(6	)	(43	)	(75	)	(69	)	(312	)
Gains (losses) on cash flow hedging relationships:
Interest contracts
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)	—			(137	)	—		—		—		—		(137	)
Foreign exchange contracts
Realized gains (losses) (pre-tax) reclassified from cumulative OCI into net income (4)	—			—		—		—		—		—		—
Net income (expense) recognized on cash flow hedges	$	—		(137	)	—		—		—		—		(137	)

(1) Includes changes in fair value due to the passage of time associated with the non-zero fair value amount at hedge inception.

(2) The second quarter and first half of 2019 included $7 million and $14 million, respectively, and the second quarter and first half of 2018 both included $2 million of the time value component recognized as net interest income (expense) on forward derivatives hedging foreign currency debt securities and long-term debt that were excluded from the assessment of hedge effectiveness.

(3) For certain fair value hedges of foreign currency risk, changes in fair value of cross-currency swaps attributable to changes in cross-currency basis spreads are excluded from the assessment of hedge effectiveness and recorded in other comprehensive income. See Note 21 (Other Comprehensive Income) for the amounts recognized in other comprehensive income.

(4) See Note 21 (Other Comprehensive Income) for details of amounts reclassified to net income.

Table 15.4 shows the carrying amount and associated cumulative basis adjustment related to the application of hedge accounting that is included in the carrying amount of hedged assets and liabilities in fair value hedging relationships.

Table 15.4: Hedged Items in Fair Value Hedging Relationship

	Hedged Items Currently Designated					Hedged Items No Longer Designated (1)
(in millions)	Carrying Amount of Assets/(Liabilities) (2)(4)			Hedge Accounting Basis Adjustment Assets/(Liabilities) (3)		Carrying Amount of Assets/(Liabilities) (4)		Hedge Accounting Basis Adjustment Assets/(Liabilities)
June 30, 2019
Available-for-sale debt securities (5)	$	39,478		1,226		5,704		110
Mortgage loans held for sale	852			16		388		4
Deposits	(56,584		)	(425	)	—		—
Long-term debt	(115,922		)	(5,999	)	(25,638	)	270
December 31, 2018
Available-for-sale debt securities (5)	37,857			(157	)	4,938		238
Mortgage loans held for sale	448			7		—		—
Deposits	(56,535		)	115		—		—
Long-term debt	(104,341		)	(742	)	(25,539	)	366

(1) Represents hedged items no longer designated in qualifying fair value hedging relationships for which an associated basis adjustment exists at the balance sheet date.

(2) Does not include the carrying amount of hedged items where only foreign currency risk is the designated hedged risk. The carrying amount excluded $1.5 billion for debt securities and $(5.7) billion for long-term debt as of June 30, 2019, and $1.6 billion for debt securities and $(6.3) billion for long-term debt as of December 31, 2018.

(3) The balance includes $828 million and $99 million of debt securities and long-term debt cumulative basis adjustments, respectively, as of June 30, 2019, and $1.4 billion and $66 million of debt securities and long-term debt cumulative basis adjustments,respectively, as of December 31, 2018, on terminated hedges whereby the hedged items have subsequently been re-designated into existing hedges.

(4) Represents the full carrying amount of the hedged asset or liability item as of the balance sheet date, except for circumstances in which only a portion of the asset or liability was designated as the hedged item in which case only the portion designated is presented.

(5) Carrying amount represents the amortized cost.

Derivatives Not Designated as Hedging Instruments

We use economic hedge derivatives to hedge the risk of changes in the fair value of certain residential MLHFS, residential MSRs measured at fair value, derivative loan commitments and other interests held. We also use economic hedge derivatives to mitigate the periodic earnings volatility caused by mismatches between the changes in fair value of the hedged item and hedging instrument recognized on our fair value accounting hedges. The resulting gain or loss on these economic hedge derivatives is reflected in mortgage banking noninterest income, net gains (losses) from equity investments and other noninterest income.

The derivatives used to hedge MSRs measured at fair value, resulted in net derivative gains (losses) of $1.2 billion and $2.1 billion in the second quarter and first half of 2019, respectively, and $(319) million and $(1.5) billion in the second quarter and first half of 2018, respectively, which are included in mortgage banking noninterest income. The aggregate fair value of these derivatives was a net asset of $602 million at June 30, 2019, and net asset of $757 million at December 31, 2018. The change in fair value of these derivatives for each period end is due to changes in the underlying market indices and interest rates as well as the purchase and sale of derivative financial instruments throughout the period as part of our dynamic MSR risk management process.

Loan commitments for mortgage loans that we intend to sell are considered derivatives. The aggregate fair value of derivative loan commitments on the balance sheet was a net positive fair value of $94 million at June 30, 2019 and a net positive fair value of $60 million at December 31, 2018, and is included in the caption “Interest rate contracts” under “Customer accommodation trading and other derivatives” in Table 15.1 in this Note.

For more information on economic hedges and other derivatives, see Note 16 (Derivatives) to Financial Statements in our 2018 Form 10-K. Table 15.5 shows the net gains (losses) recognized by income statement lines, related to derivatives not designated as hedging instruments. 

Table 15.5: Gains (Losses) on Derivatives Not Designated as Hedging Instruments

	Noninterest income
(in millions)	Mortgage banking		Net gains (losses) from equity securities		Net gains (losses) from trading activities		Other		Total
Quarter ended June 30, 2019
Net gains (losses) recognized on economic hedges derivatives:
Interest contracts (1)	$	872	—		—		2		874
Equity contracts	—		(658	)	—		(7	)	(665	)
Foreign exchange contracts	—		—		—		164		164
Credit contracts	—		—		—		(5	)	(5	)
Subtotal (2)	872		(658	)	—		154		368
Net gains (losses) recognized on customer accommodation trading and other derivatives:
Interest contracts (3)	179		—		(222	)	—		(43	)
Commodity contracts	—		—		27		—		27
Equity contracts	—		—		(1,110	)	(133	)	(1,243	)
Foreign exchange contracts	—		—		(83	)	—		(83	)
Credit contracts	—		—		(16	)	—		(16	)
Subtotal	179		—		(1,404	)	(133	)	(1,358	)
Net gains (losses) recognized related to derivatives not designated as hedging instruments	$	1,051	(658	)	(1,404	)	21		(990	)
Six months ended June 30, 2019
Net gains (losses) recognized on economic hedges derivatives:
Interest contracts (1)	$	1,683	—		—		7		1,690
Equity contracts	—		(1,543	)	—		—		(1,543	)
Foreign exchange contracts	—		—		—		140		140
Credit contracts	—		—		—		10		10
Subtotal (2)	1,683		(1,543	)	—		157		297
Net gains (losses) recognized on customer accommodation trading and other derivatives:
Interest contracts (3)	297		—		(506	)	—		(209	)
Commodity contracts	—		—		78		—		78
Equity contracts	—		—		(3,259	)	(406	)	(3,665	)
Foreign exchange contracts	—		—		(69	)	—		(69	)
Credit contracts	—		—		(60	)	—		(60	)
Subtotal	297		—		(3,816	)	(406	)	(3,925	)
Net gains (losses) recognized related to derivatives not designated as hedging instruments	$	1,980	(1,543	)	(3,816	)	(249	)	(3,628	)

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	Noninterest income
(in millions)	Mortgage banking			Net gains (losses) from equity securities		Net gains (losses) from trading activities		Other		Total
Quarter ended June 30, 2018
Net gains (losses) recognized on economic hedges derivatives:
Interest contracts (1)	$	(185	)	—		—		(3	)	(188	)
Equity contracts	—			(540	)	—		5		(535	)
Foreign exchange contracts	—			—		—		486		486
Credit contracts	—			—		—		(10	)	(10	)
Subtotal (2)	(185		)	(540	)	—		478		(247	)
Net gains (losses) recognized on customer accommodation trading and other derivatives:
Interest contracts (3)	(46		)	—		182		—		136
Commodity contracts	—			—		35		—		35
Equity contracts	—			—		655		(71	)	584
Foreign exchange contracts	—			—		91		—		91
Credit contracts	—			—		(4	)	—		(4	)
Subtotal	(46		)	—		959		(71	)	842
Net gains (losses) recognized related to derivatives not designated as hedging instruments	$	(231	)	(540	)	959		407		595
Six months ended June 30, 2018
Net gains (losses) recognized on economic hedges derivatives:
Interest contracts (1)	$	(780	)	—		—		6		(774	)
Equity contracts	—			(598	)	—		5		(593	)
Foreign exchange contracts	—			—		—		327		327
Credit contracts	—			—		—		(6	)	(6	)
Subtotal (2)	(780		)	(598	)	—		332		(1,046	)
Net gains (losses) recognized on customer accommodation trading and other derivatives:
Interest contracts (3)	(305		)	—		567		—		262
Commodity contracts	—			—		74		—		74
Equity contracts	—			—		1,114		(266	)	848
Foreign exchange contracts	—			—		401		—		401
Credit contracts	—			—		6		—		6
Subtotal	(305		)	—		2,162		(266	)	1,591
Net gains (losses) recognized related to derivatives not designated as hedging instruments	$	(1,085	)	(598	)	2,162		66		545

(1) Mortgage banking amounts for the second quarter and first half of 2019 are comprised of gains (losses) of $1.2 billion and $2.1 billion, respectively, related to derivatives used as economic hedges of MSRs measured at fair value offset by gains (losses) of $(283) million and $(434) million related to derivatives used as economic hedges of mortgage loans held for sale and derivative loan commitments. The corresponding amounts for the second quarter and first half of 2018 are comprised of gains (losses) of $(319) million and $(1.5) billion offset by gains (losses) of $134 million and $759 million, respectively.

(2) Includes hedging gains (losses) of $(18) million and $(36) million for the second quarter and first half of 2019, respectively, and $8 million and $36 million for the second quarter and first half of 2018, respectively, which partially offset hedge accounting ineffectiveness.

(3) Amounts presented in mortgage banking noninterest income are gains (losses) on derivative loan commitments.

Credit Derivatives

Credit derivative contracts are arrangements whose value is derived from the transfer of credit risk of a reference asset or entity from one party (the purchaser of credit protection) to another party (the seller of credit protection). We use credit derivatives to assist customers with their risk management objectives. We may also use credit derivatives in structured product transactions or liquidity agreements written to special purpose vehicles. The maximum exposure of sold credit derivatives is managed through posted collateral, purchased credit derivatives and similar products in order to achieve our desired credit risk profile. This credit risk management provides

an ability to recover a significant portion of any amounts that would be paid under the sold credit derivatives. We would be

required to perform under sold credit derivatives in the event of default by the referenced obligors. Events of default include events such as bankruptcy, capital restructuring or lack of principal and/or interest payment. In certain cases, other triggers may exist, such as the credit downgrade of the referenced obligors or the inability of the special purpose vehicle for which we have provided liquidity to obtain funding.

Table 15.6 provides details of sold and purchased credit derivatives.

Table 15.6: Sold and Purchased Credit Derivatives

			Notional amount
(in millions)	Fair value liability		Protection sold (A)	Protection sold – non- investment grade	Protection purchased with identical underlyings (B)	Net protection sold (A) - (B)	Other protection purchased	Range of maturities
June 30, 2019
Credit default swaps on:
Corporate bonds	$	1	1,995	472	1,362	633	2,021	2019 - 2029
Structured products	31		138	133	109	29	113	2022 - 2047
Credit protection on:
Default swap index	—		1,897	194	163	1,734	3,923	2019 - 2029
Commercial mortgage-backed securities index	38		342	87	316	26	51	2047 - 2058
Asset-backed securities index	8		41	41	41	—	1	2045 - 2046
Other	2		6,094	5,796	—	6,094	12,904	2019 - 2048
Total credit derivatives	$	80	10,507	6,723	1,991	8,516	19,013
December 31, 2018
Credit default swaps on:
Corporate bonds	$	59	2,037	441	1,374	663	1,460	2019 - 2027
Structured products	62		133	128	121	12	113	2022 - 2047
Credit protection on:
Default swap index	1		3,618	582	1,998	1,620	2,896	2019 - 2028
Commercial mortgage-backed securities index	49		389	109	363	26	51	2047 - 2058
Asset-backed securities index	9		42	42	42	—	1	2045 - 2046
Other	2		5,522	5,327	—	5,522	12,561	2018 - 2048
Total credit derivatives	$	182	11,741	6,629	3,898	7,843	17,082

Protection sold represents the estimated maximum exposure to loss that would be incurred under an assumed hypothetical circumstance, where the value of our interests and any associated collateral declines to zero, without any consideration of recovery or offset from any economic hedges. We believe this hypothetical circumstance to be a remote possibility and accordingly, this required disclosure is not an indication of expected loss. The amounts under non-investment grade represent the notional amounts of those credit derivatives on which we have a higher risk of being required to perform under the terms of the credit derivative and are a function of the underlying assets.

We consider the risk of performance to be high if the underlying assets under the credit derivative have an external rating that is below investment grade or an internal credit default grade that is equivalent thereto. We believe the net protection sold, which is representative of the net notional amount of protection sold and purchased with identical underlyings, in combination with other protection purchased, is more representative of our exposure to loss than either non-investment grade or protection sold. Other protection purchased represents additional protection, which may offset the exposure to loss for protection sold, that was not purchased with an identical underlying of the protection sold.

Credit-Risk Contingent Features

Certain of our derivative contracts contain provisions whereby if the credit rating of our debt were to be downgraded by certain major credit rating agencies, the counterparty could demand additional collateral or require termination or replacement of derivative instruments in a net liability position. The aggregate fair value of all derivative instruments with such credit-risk-related contingent features that are in a net liability position was $10.7 billion at June 30, 2019, and $7.4 billion at December 31, 2018, for which we posted $9.2 billion and $5.6 billion, respectively, in collateral in the normal course of business. A credit rating below investment grade is the credit-risk-related contingent feature that if triggered requires the maximum amount of collateral to be posted. If the credit rating of our debt had been downgraded below investment grade, on June 30, 2019, or December 31, 2018, we would have been required to post additional collateral of $1.5 billion or $1.8 billion, respectively, or potentially settle the contract in an amount equal to its fair value. Some contracts require that we provide more collateral than the fair value of derivatives that are in a net liability position if a downgrade occurs.

Counterparty Credit Risk

By using derivatives, we are exposed to counterparty credit risk if counterparties to the derivative contracts do not perform as expected. If a counterparty fails to perform, our counterparty credit risk is equal to the amount reported as a derivative asset on our balance sheet. The amounts reported as a derivative asset are derivative contracts in a gain position, and to the extent subject to legally enforceable master netting arrangements, net of derivatives in a loss position with the same counterparty and cash collateral received. We minimize counterparty credit risk through credit approvals, limits, monitoring procedures, executing master netting arrangements and obtaining collateral, where appropriate. To the extent the master netting arrangements and other criteria meet the applicable requirements, including determining the legal enforceability of the arrangement, it is our policy to present derivative balances and related cash collateral amounts net on the balance sheet. We incorporate credit valuation adjustments (CVA) to reflect counterparty credit risk in determining the fair value of our derivatives. Such adjustments, which consider the effects of enforceable master netting agreements and collateral arrangements, reflect market-based views of the credit quality of each counterparty. Our CVA calculation is determined based on observed credit spreads in the credit default swap market and indices indicative of the credit quality of the counterparties to our derivatives.