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FAIR VALUE MEASUREMENT

12 Months Ended

Dec. 31, 2019

ASC 820-10, Fair Value Measurement, defines fair value, establishes a consistent framework for measuring fair value and requires disclosures about fair value measurements. 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, and therefore represents an exit price. Among other things, the standard requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Under ASC 820-10, the probability of default of a counterparty is factored into the valuation of derivative and other positions as well as the impact of Citigroup’s own credit risk on derivatives and other liabilities measured at fair value.

Fair Value Hierarchy

ASC 820-10 specifies a hierarchy of inputs based on whether the inputs are observable or unobservable. Observable inputs are developed using market data and reflect market participant assumptions, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair value hierarchy:


•	Level 1: Quoted prices for identical instruments in active markets.


•	Level 2: Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.


•	Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

As required under the fair value hierarchy, the Company considers relevant and observable market inputs in its valuations where possible. The frequency of transactions, the size of the bid-ask spread and the amount of adjustment necessary when comparing similar transactions are all factors in determining the relevance of observed prices in those markets.

Determination of Fair Value

For assets and liabilities carried at fair value, the Company measures fair value using the procedures set out below, irrespective of whether the assets and liabilities are measured at fair value as a result of an election or whether they are required to be measured at fair value.

When available, the Company uses quoted market prices to determine fair value and classifies such items as Level 1. In some specific cases where a market price is available, the Company will make use of acceptable practical expedients (such as matrix pricing) to calculate fair value, in which case the items are classified as Level 2.

The Company may also apply a price-based methodology, which utilizes, where available, quoted prices or other market information obtained from recent trading activity in positions with the same or similar characteristics to the position being valued. The frequency and size of transactions are among the factors that are driven by the liquidity of markets and determine the relevance of observed prices in those markets. If relevant and observable prices are available, those valuations may be classified as Level 2. When that is not the case, and there are one or more significant unobservable “price” inputs, then those valuations will be classified as Level 3. Furthermore, when less liquidity exists for a security or loan, a quoted price is stale, a significant adjustment to the price of a similar security is necessary to reflect differences in the terms of the actual security or loan being valued, or prices from independent sources are insufficient to corroborate the valuation, the “price” inputs are considered unobservable and the fair value measurements are classified as Level 3.

If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based parameters, such as interest rates, currency rates and option volatilities. Items valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified as Level 3 even though there may be some significant inputs that are readily observable.

Fair value estimates from internal valuation techniques are verified, where possible, to prices obtained from independent vendors or brokers. Vendors’ and brokers’ valuations may be based on a variety of inputs ranging from observed prices to proprietary valuation models, and the Company assesses the quality and relevance of this information in determining the estimate of fair value. The following section describes the valuation methodologies used by the Company to measure various financial instruments at fair value, including an indication of the level in the fair value hierarchy in which each instrument is generally classified. Where appropriate, the description includes details of the valuation models, the key inputs to those models and any significant assumptions.

Market Valuation Adjustments

Generally, the unit of account for a financial instrument is the individual financial instrument. The Company applies market valuation adjustments that are consistent with the unit of account, which does not include adjustment due to the size of the Company’s position, except as follows. ASC 820-10 permits an exception, through an accounting policy election, to measure the fair value of a portfolio of financial assets and financial liabilities on the basis of the net open risk position when certain criteria are met. Citi has elected to measure certain portfolios of financial instruments that meet those criteria, such as derivatives, on the basis of the net open risk position. The Company applies market valuation adjustments, including adjustments to account for the size of the net open risk position, consistent with market participant assumptions.

Valuation adjustments are applied to items classified as Level 2 or Level 3 in the fair value hierarchy to ensure that the fair value reflects the price at which the net open risk position could be exited. These valuation adjustments are based on the bid/offer spread for an instrument in the market. When Citi has elected to measure certain portfolios of financial investments, such as derivatives, on the basis of the net open risk position, the valuation adjustment may take into account the size of the position.

Credit valuation adjustments (CVA) and funding valuation adjustments (FVA) are applied to the relevant population of over-the-counter (OTC) derivative instruments where adjustments to reflect counterparty credit risk, own credit risk and term funding risk are required to estimate fair value. This principally includes derivatives with a base valuation (e.g., discounted using overnight indexed swap (OIS)) requiring adjustment for these effects, such as uncollateralized interest rate swaps. The CVA represents a portfolio-level adjustment to reflect the risk premium associated with the counterparty’s (assets) or Citi’s (liabilities) non-performance risk.

FVA reflect a market funding risk premium inherent in the uncollateralized portion of a derivative portfolio and in certain collateralized derivative portfolios that do not include standard credit support annexes (CSAs), such as where the CSA does not permit the reuse of collateral received. Citi’s FVA methodology leverages the existing CVA methodology to estimate a funding exposure profile. The calculation of this exposure profile considers collateral agreements in which the terms do not permit the Company to reuse the collateral received, including where counterparties post collateral to third-party custodians.

Citi’s CVA and FVA methodology consists of two steps:

•

First, the exposure profile for each counterparty is determined using the terms of all individual derivative positions and a Monte Carlo simulation or other quantitative analysis to generate a series of expected cash flows at future points in time. The calculation of this exposure profile considers the effect of credit risk mitigants and sources of funding, including pledged cash or other collateral and any legal right of offset that exists with a counterparty through arrangements such as netting agreements. Individual derivative contracts that are subject to an enforceable master netting agreement with a counterparty are aggregated as a netting set for this purpose, since it is those aggregate net cash flows that are subject to nonperformance risk. This process identifies specific, point-in-time future cash flows that are subject to nonperformance risk and unsecured funding, rather than using the current recognized net asset or liability as a basis to measure the CVA and FVA.


•	Second, for CVA, market-based views of default probabilities derived from observed credit spreads in the credit default swap (CDS) market are applied to the expected future cash flows determined in step one. Citi’s own-credit CVA is determined using Citi-specific CDS spreads for the relevant tenor. Generally, counterparty

CVA is determined using CDS spread indices for each credit rating and tenor. For certain identified netting sets where individual analysis is practicable (e.g., exposures to counterparties with liquid CDSs), counterparty-specific CDS spreads are used. For FVA, a term structure of future liquidity spreads is applied to the expected future funding requirement.

The CVA and FVA are designed to incorporate a market view of the credit and funding risk, respectively, inherent in the derivative portfolio. However, most unsecured derivative instruments are negotiated bilateral contracts and are not commonly transferred to third parties. Derivative instruments are normally settled contractually or, if terminated early, are terminated at a value negotiated bilaterally between the counterparties. Thus, the CVA and FVA may not be realized upon a settlement or termination in the normal course of business. In addition, all or a portion of these adjustments may be reversed or otherwise adjusted in future periods in the event of changes in the credit or funding risk associated with the derivative instruments.

The table below summarizes the CVA and FVA applied to the fair value of derivative instruments at December 31, 2019 and 2018:



	Credit and funding valuation adjustments contra-liability (contra-asset)
In millions of dollars	December 31, 2019			December 31, 2018
Counterparty CVA	$	(705	)	$	(1,085	)
Asset FVA	(530		)	(544		)
Citigroup (own-credit) CVA	341			482
Liability FVA	72			135
Total CVA—derivative instruments⁽¹⁾	$	(822	)	$	(1,012	)


(1)	FVA is included with CVA for presentation purposes.

The table below summarizes pretax gains (losses) related to changes in CVA on derivative instruments, net of hedges, FVA on derivatives and debt valuation adjustments (DVA) on Citi’s own fair value option (FVO) liabilities for the years indicated:



	Credit/funding/debt valuation adjustments gain (loss)
In millions of dollars	2019			2018			2017
Counterparty CVA	$	149		$	(109	)	$	276
Asset FVA	13			46			90
Own-credit CVA	(131		)	178			(153		)
Liability FVA	(63		)	56			(15		)
Total CVA—derivative instruments	$	(32	)	$	171		$	198
DVA related to own FVO liabilities⁽¹⁾	$	(1,473	)	$	1,415		$	(680	)
Total CVA and DVA⁽²⁾	$	(1,505	)	$	1,586		$	(482	)


(1)	See Notes 1, 17 and 19 to the Consolidated Financial Statements.


(2)	FVA is included with CVA for presentation purposes.

Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase

No quoted prices exist for these instruments, so fair value is determined using a discounted cash flow technique. Cash flows are estimated based on the terms of the contract, taking into account any embedded derivative or other features. These cash flows are discounted using interest rates appropriate to the maturity of the instrument as well as the nature of the underlying collateral. Generally, when such instruments are recorded at fair value, they are classified within Level 2 of the fair value hierarchy, as the inputs used in the valuation are readily observable. However, certain long-dated positions are classified within Level 3 of the fair value hierarchy.

Trading Account Assets and Liabilities—Trading Securities and Trading Loans

When available, the Company uses quoted market prices in active markets to determine the fair value of trading securities; such items are classified as Level 1 of the fair value hierarchy. Examples include government securities and exchange-traded equity securities.

For bonds and secondary market loans traded over the counter, the Company generally determines fair value utilizing valuation techniques, including discounted cash flows, price-based and internal models. Fair value estimates from these internal valuation techniques are verified, where possible, to prices obtained from independent sources, including third-party vendors. Vendors compile prices from various sources and may apply matrix pricing for similar bonds or loans where no price is observable. A price-based methodology utilizes, where available, quoted prices or other market information obtained from recent trading activity of assets with similar characteristics to the bond or loan being valued. The yields used in discounted cash flow models are derived from the same price information. Trading securities and loans priced using such methods are generally classified as Level 2. However, when less liquidity exists for a security or loan, a quoted price is stale, a significant adjustment to the price of a similar security or loan is necessary to reflect differences in the terms of the actual security or loan being valued, or prices from independent sources are insufficient to corroborate valuation, a loan or security is generally classified as Level 3. The price input used in a price-based methodology may be zero for a security, such as a subprime CDO, that is not receiving any principal or interest and is currently written down to zero.

When the Company’s principal market for a portfolio of loans is the securitization market, the Company uses the securitization price to determine the fair value of the portfolio. The securitization price is determined from the assumed proceeds of a hypothetical securitization in the current market, adjusted for transformation costs (i.e., direct costs other than transaction costs) and securitization uncertainties such as market conditions and liquidity. As a result of the severe reduction in the level of activity in certain securitization markets since the second half of 2007,

observable securitization prices for certain directly comparable portfolios of loans have not been readily available. Therefore, such portfolios of loans are generally classified as Level 3 of the fair value hierarchy. However, for other loan securitization markets, such as commercial real estate loans, price verification of the hypothetical securitizations has been possible, since these markets have remained active. Accordingly, this loan portfolio is classified as Level 2 of the fair value hierarchy.

For most of the lending and structured direct subprime exposures, fair value is determined utilizing observable transactions where available, other market data for similar assets in markets that are not active and other internal valuation techniques. The valuation of certain asset-backed security (ABS) CDO positions utilizes prices based on the underlying assets of the ABS CDO.

Trading Account Assets and Liabilities—Derivatives

Exchange-traded derivatives, measured at fair value using quoted (i.e., exchange) prices in active markets, where available, are classified as Level 1 of the fair value hierarchy.

Derivatives without a quoted price in an active market and derivatives executed over the counter are valued using internal valuation techniques. These derivative instruments are classified as either Level 2 or Level 3 depending on the observability of the significant inputs to the model.

The valuation techniques depend on the type of derivative and the nature of the underlying instrument. The principal techniques used to value these instruments are discounted cash flows and internal models, such as derivative pricing models (e.g., Black-Scholes and Monte Carlo simulations).

The key inputs depend upon the type of derivative and the nature of the underlying instrument and include interest rate yield curves, foreign exchange rates, volatilities and correlation. The Company typically uses OIS curves as fair value measurement inputs for the valuation of certain derivatives.

Investments

The investments category includes available-for-sale debt and marketable equity securities whose fair values are generally determined by utilizing similar procedures described for trading securities above or, in some cases, using vendor pricing as the primary source.

Also included in investments are nonpublic investments in private equity and real estate entities. Determining the fair value of nonpublic securities involves a significant degree of management judgment, as no quoted prices exist and such securities are generally thinly traded. In addition, there may be transfer restrictions on private equity securities. The Company’s process for determining the fair value of such securities utilizes commonly accepted valuation techniques, including comparables analysis. In determining the fair value of nonpublic securities, the Company also considers events such as a proposed sale of the investee company, initial public offerings, equity issuances or other observable transactions. Private equity securities are generally classified as Level 3 of the fair value hierarchy.

In addition, the Company holds investments in certain alternative investment funds that calculate NAV per share, including hedge funds, private equity funds and real estate funds. Investments in funds are generally classified as non-marketable equity securities carried at fair value. The fair values of these investments are estimated using the NAV per share of the Company’s ownership interest in the funds where it is not probable that the investment will be realized at a price other than the NAV. Consistent with the provisions of ASU 2015-07, these investments have not been categorized within the fair value hierarchy and are not included in the tables below. See Note 13 to the Consolidated Financial Statements for additional information.

Short-Term Borrowings and Long-Term Debt

Where fair value accounting has been elected, the fair value of non-structured liabilities is determined by utilizing internal models using the appropriate discount rate for the applicable maturity. Such instruments are generally classified as Level 2 of the fair value hierarchy when all significant inputs are readily observable.

The Company determines the fair value of hybrid financial instruments, including structured liabilities, using the appropriate derivative valuation methodology (described above in “Trading Account Assets and Liabilities—Derivatives”) given the nature of the embedded risk profile. Such instruments are classified as Level 2 or Level 3 depending on the observability of significant inputs to the model.

Items Measured at Fair Value on a Recurring Basis

The following tables present for each of the fair value hierarchy levels the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2019 and 2018. The Company may hedge positions that have been classified in the Level 3 category with other financial

instruments (hedging instruments) that may be classified as Level 3, but also with financial instruments classified as Level 1 or Level 2 of the fair value hierarchy. The effects of these hedges are presented gross in the following tables:

Fair Value Levels



In millions of dollars at December 31, 2019	Level 1		Level 2		Level 3		Gross inventory		Netting⁽¹⁾			Net balance
Assets
Securities borrowed and purchased under agreements to resell	$	—	$	254,253	$	303	$	254,556	$	(101,363	)	$	153,193
Trading non-derivative assets
Trading mortgage-backed securities
U.S. government-sponsored agency guaranteed	—		27,661		10		27,671		—			27,671
Residential	—		573		123		696		—			696
Commercial	—		1,632		61		1,693		—			1,693
Total trading mortgage-backed securities	$	—	$	29,866	$	194	$	30,060	$	—		$	30,060
U.S. Treasury and federal agency securities	$	26,159	$	3,736	$	—	$	29,895	$	—		$	29,895
State and municipal	—		2,573		64		2,637		—			2,637
Foreign government	50,948		20,326		52		71,326		—			71,326
Corporate	1,332		17,246		313		18,891		—			18,891
Equity securities	41,663		9,878		100		51,641		—			51,641
Asset-backed securities	—		1,539		1,177		2,716		—			2,716
Other trading assets⁽²⁾	74		11,412		555		12,041		—			12,041
Total trading non-derivative assets	$	120,176	$	96,576	$	2,455	$	219,207	$	—		$	219,207
Trading derivatives
Interest rate contracts	$	7	$	196,493	$	1,168	$	197,668
Foreign exchange contracts	1		107,022		547		107,570
Equity contracts	83		28,148		240		28,471
Commodity contracts	—		13,498		714		14,212
Credit derivatives	—		9,960		449		10,409
Total trading derivatives	$	91	$	355,121	$	3,118	$	358,330
Cash collateral paid⁽³⁾							$	17,926
Netting agreements									$	(274,970	)
Netting of cash collateral received									(44,353		)
Total trading derivatives	$	91	$	355,121	$	3,118	$	376,256	$	(319,323	)	$	56,933
Investments
Mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	—	$	35,198	$	32	$	35,230	$	—		$	35,230
Residential	—		793		—		793		—			793
Commercial	—		74		—		74		—			74
Total investment mortgage-backed securities	$	—	$	36,065	$	32	$	36,097	$	—		$	36,097
U.S. Treasury and federal agency securities	$	106,103	$	5,315	$	—	$	111,418	$	—		$	111,418
State and municipal	—		4,355		623		4,978		—			4,978
Foreign government	69,957		41,196		96		111,249		—			111,249
Corporate	5,150		6,076		45		11,271		—			11,271
Marketable equity securities	87		371		—		458		—			458
Asset-backed securities	—		500		22		522		—			522
Other debt securities	—		4,730		—		4,730		—			4,730
Non-marketable equity securities⁽⁴⁾	—		93		441		534		—			534
Total investments	$	181,297	$	98,701	$	1,259	$	281,257	$	—		$	281,257

Table continues on the next page.



In millions of dollars at December 31, 2019	Level 1			Level 2			Level 3			Gross inventory		Netting⁽¹⁾			Net balance
Loans	$	—		$	3,683		$	402		$	4,085	$	—		$	4,085
Mortgage servicing rights	—			—			495			495		—			495
Non-trading derivatives and other financial assets measured on a recurring basis	$	5,628		$	7,201		$	1		$	12,830	$	—		$	12,830
Total assets	$	307,192		$	815,535		$	8,033		$	1,148,686	$	(420,686	)	$	728,000
Total as a percentage of gross assets⁽⁵⁾	27.2		%	72.1		%	0.7		%
Liabilities
Interest-bearing deposits	$	—		$	2,104		$	215		$	2,319	$	—		$	2,319
Securities loaned and sold under agreements to repurchase	—			111,567			757			112,324		(71,673		)	40,651
Trading account liabilities
Securities sold, not yet purchased	60,429			11,965			48			72,442		—			72,442
Other trading liabilities	—			24			—			24		—			24
Total trading liabilities	$	60,429		$	11,989		$	48		$	72,466	$	—		$	72,466
Trading derivatives
Interest rate contracts	$	8		$	176,480		$	1,167		$	177,655
Foreign exchange contracts	—			110,180			552			110,732
Equity contracts	144			28,506			1,836			30,486
Commodity contracts	—			16,542			773			17,315
Credit derivatives	—			10,233			505			10,738
Total trading derivatives	$	152		$	341,941		$	4,833		$	346,926
Cash collateral received⁽⁶⁾										$	14,391
Netting agreements												$	(274,970	)
Netting of cash collateral paid												(38,919		)
Total trading derivatives	$	152		$	341,941		$	4,833		$	361,317	$	(313,889	)	$	47,428
Short-term borrowings	$	—		$	4,933		$	13		$	4,946	$	—		$	4,946
Long-term debt	—			38,614			17,169			55,783		—			55,783
Total non-trading derivatives and other financial liabilities measured on a recurring basis	$	6,280		$	63		$	—		$	6,343	$	—		$	6,343
Total liabilities	$	66,861		$	511,211		$	23,035		$	615,498	$	(385,562	)	$	229,936
Total as a percentage of gross liabilities⁽⁵⁾	11.1		%	85.0		%	3.8		%


(1)	Represents netting of (i) the amounts due under securities purchased under agreements to resell and the amounts owed under securities sold under agreements to repurchase and (ii) derivative exposures covered by a qualifying master netting agreement and cash collateral offsetting.


(2)	Includes positions related to investments in unallocated precious metals, as discussed in Note 25 to the Consolidated Financial Statements. Also includes physical commodities accounted for at the lower of cost or fair value and unfunded credit products.


(3)	Reflects the net amount of $56,845 million of gross cash collateral paid, of which $38,919 million was used to offset trading derivative liabilities.


(4)	Amounts exclude $0.2 billion of investments measured at net asset value (NAV) in accordance with ASU No. 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).


(5)	Because the amount of the cash collateral paid/received has not been allocated to the Level 1, 2 and 3 subtotals, these percentages are calculated based on total assets and liabilities measured at fair value on a recurring basis, excluding the cash collateral paid/received on derivatives.


(6)	Reflects the net amount of $58,744 million of gross cash collateral received, of which $44,353 million was used to offset trading derivative assets.

Fair Value Levels



In millions of dollars at December 31, 2018	Level 1		Level 2		Level 3		Gross inventory		Netting⁽¹⁾			Net balance
Assets
Securities borrowed and purchased under agreements to resell	$	—	$	214,570	$	115	$	214,685	$	(66,984	)	$	147,701
Trading non-derivative assets
Trading mortgage-backed securities
U.S. government-sponsored agency guaranteed	—		24,090		156		24,246		—			24,246
Residential	—		709		268		977		—			977
Commercial	—		1,323		77		1,400		—			1,400
Total trading mortgage-backed securities	$	—	$	26,122	$	501	$	26,623	$	—		$	26,623
U.S. Treasury and federal agency securities	$	26,439	$	4,802	$	1	$	31,242	$	—		$	31,242
State and municipal	—		3,782		200		3,982		—			3,982
Foreign government	43,309		21,179		31		64,519		—			64,519
Corporate	1,026		14,510		360		15,896		—			15,896
Equity securities	36,342		7,308		153		43,803		—			43,803
Asset-backed securities	—		1,429		1,484		2,913		—			2,913
Other trading assets⁽²⁾	3		12,198		818		13,019		—			13,019
Total trading non-derivative assets	$	107,119	$	91,330	$	3,548	$	201,997	$	—		$	201,997
Trading derivatives
Interest rate contracts	$	101	$	169,860	$	1,671	$	171,632
Foreign exchange contracts	—		162,108		346		162,454
Equity contracts	647		28,903		343		29,893
Commodity contracts	—		16,788		767		17,555
Credit derivatives	—		9,839		926		10,765
Total trading derivatives	$	748	$	387,498	$	4,053	$	392,299
Cash collateral paid⁽³⁾							$	11,518
Netting agreements									$	(311,089	)
Netting of cash collateral received									(38,608		)
Total trading derivatives	$	748	$	387,498	$	4,053	$	403,817	$	(349,697	)	$	54,120
Investments
Mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	—	$	42,988	$	32	$	43,020	$	—		$	43,020
Residential	—		1,313		—		1,313		—			1,313
Commercial	—		172		—		172		—			172
Total investment mortgage-backed securities	$	—	$	44,473	$	32	$	44,505	$	—		$	44,505
U.S. Treasury and federal agency securities	$	107,577	$	9,645	$	—	$	117,222	$	—		$	117,222
State and municipal	—		8,498		708		9,206		—			9,206
Foreign government	58,252		42,371		68		100,691		—			100,691
Corporate	4,410		7,033		156		11,599		—			11,599
Marketable equity securities	206		14		—		220		—			220
Asset-backed securities	—		656		187		843		—			843
Other debt securities	—		3,972		—		3,972		—			3,972
Non-marketable equity securities⁽⁴⁾	—		96		586		682		—			682
Total investments	$	170,445	$	116,758	$	1,737	$	288,940	$	—		$	288,940

Table continues on the next page.



In millions of dollars at December 31, 2018	Level 1			Level 2			Level 3			Gross inventory		Netting⁽¹⁾			Net balance
Loans	$	—		$	2,946		$	277		$	3,223	$	—		$	3,223
Mortgage servicing rights	—			—			584			584		—			584
Non-trading derivatives and other financial assets measured on a recurring basis	$	15,839		$	4,949		$	—		$	20,788	$	—		$	20,788
Total assets	$	294,151		$	818,051		$	10,314		$	1,134,034	$	(416,681	)	$	717,353
Total as a percentage of gross assets⁽⁵⁾	26.2		%	72.9		%	0.9		%
Liabilities
Interest-bearing deposits	$	—		$	980		$	495		$	1,475	$	—		$	1,475
Securities loaned and sold under agreements to repurchase	—			110,511			983			111,494		(66,984		)	44,510
Trading account liabilities
Securities sold, not yet purchased	78,872			11,364			586			90,822		—			90,822
Other trading liabilities	—			1,547			—			1,547		—			1,547
Total trading liabilities	$	78,872		$	12,911		$	586		$	92,369	$	—		$	92,369
Trading account derivatives
Interest rate contracts	$	71		$	152,931		$	1,825		$	154,827
Foreign exchange contracts	—			159,003			352			159,355
Equity contracts	351			32,330			1,127			33,808
Commodity contracts	—			19,904			785			20,689
Credit derivatives	—			9,486			865			10,351
Total trading derivatives	$	422		$	373,654		$	4,954		$	379,030
Cash collateral received⁽⁶⁾										$	13,906
Netting agreements												$	(311,089	)
Netting of cash collateral paid												(29,911		)
Total trading derivatives	$	422		$	373,654		$	4,954		$	392,936	$	(341,000	)	$	51,936
Short-term borrowings	$	—		$	4,446		$	37		$	4,483	$	—		$	4,483
Long-term debt	—			25,659			12,570			38,229		—			38,229
Non-trading derivatives and other financial liabilities measured on a recurring basis	$	15,839		$	67		$	—		$	15,906	$	—		$	15,906
Total liabilities	$	95,133		$	528,228		$	19,625		$	656,892	$	(407,984	)	$	248,908
Total as a percentage of gross liabilities⁽⁵⁾	14.8		%	82.1		%	3.1		%


(1)	Represents netting of (i) the amounts due under securities purchased under agreements to resell and the amounts owed under securities sold under agreements to repurchase and (ii) derivative exposures covered by a qualifying master netting agreement and cash collateral offsetting.


(2)	Includes positions related to investments in unallocated precious metals, as discussed in Note 25 to the Consolidated Financial Statements. Also includes physical commodities accounted for at the lower of cost or fair value and unfunded credit products.


(3)	Reflects the net amount of $41,429 million of gross cash collateral paid, of which $29,911 million was used to offset trading derivative liabilities.


(4)	Amounts exclude $0.2 billion of investments measured at net asset value (NAV) in accordance with ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).


(5)	Because the amount of the cash collateral paid/received has not been allocated to the Level 1, 2 and 3 subtotals, these percentages are calculated based on total assets and liabilities measured at fair value on a recurring basis, excluding the cash collateral paid/received on derivatives.

(6)

Reflects the net amount of $52,514 million of gross cash collateral received, of which $38,608 million was used to offset trading derivative assets.

Changes in Level 3 Fair Value Category

The following tables present the changes in the Level 3 fair value category for the years ended December 31, 2019 and 2018. The gains and losses presented below include changes in the fair value related to both observable and unobservable inputs.

The Company often hedges positions with offsetting positions that are classified in a different level. For example, the gains and losses for assets and liabilities in the Level 3

category presented in the tables below do not reflect the effect of offsetting losses and gains on hedging instruments that may be classified in the Level 1 and Level 2 categories. In addition, the Company hedges items classified in the Level 3 category with instruments also classified in Level 3 of the fair value hierarchy. The hedged items and related hedges are presented gross in the following tables:

Level 3 Fair Value Rollforward



				Net realized/unrealized gains/losses included in					Transfers																					Unrealized gains/ losses still held⁽³⁾
In millions of dollars	Dec. 31, 2018			Principal transactions			Other⁽¹⁾⁽²⁾		into Level 3			out of Level 3			Purchases			Issuances			Sales			Settlements			Dec. 31, 2019
Assets
Securities borrowed and purchased under agreements to resell	$	115		$	(5	)	$	—	$	191		$	(4	)	$	195		$	—		$	—		$	(189	)	$	303		$	3
Trading non-derivative assets
Trading mortgage-backed securities
U.S. government-sponsored agency guaranteed	156			—			—		54			(72		)	160			(1		)	(287		)	—			10			1
Residential	268			15			—		86			(80		)	227			—			(393		)	—			123			10
Commercial	77			14			—		150			(105		)	136			—			(211		)	—			61			(4		)
Total trading mortgage-backed securities	$	501		$	29		$	—	$	290		$	(257	)	$	523		$	(1	)	$	(891	)	$	—		$	194		$	7
U.S. Treasury and federal agency securities	$	1		$	(9	)	$	—	$	—		$	—		$	20		$	—		$	(11	)	$	(1	)	$	—		$	—
State and municipal	200			(2		)	—		1			(19		)	2			—			(118		)	—			64			(2		)
Foreign government	31			28			—		12			(7		)	88			—			(100		)	—			52			1
Corporate	360			284			—		213			(86		)	323			(29		)	(742		)	(10		)	313			(11		)
Marketable equity securities	153			(21		)	—		13			(19		)	117			—			(143		)	—			100			(51		)
Asset-backed securities	1,484			(65		)	—		51			(127		)	738			—			(904		)	—			1,177			29
Other trading assets	818			(52		)	—		97			(283		)	598			36			(630		)	(29		)	555			(257		)
Total trading non-derivative assets	$	3,548		$	192		$	—	$	677		$	(798	)	$	2,409		$	6		$	(3,539	)	$	(40	)	$	2,455		$	(284	)
Trading derivatives, net⁽⁴⁾
Interest rate contracts	$	(154	)	$	116		$	—	$	(129	)	$	172		$	154		$	45		$	(1	)	$	(202	)	$	1		$	2,194
Foreign exchange contracts	(6		)	(73		)	—		152			(97		)	113			—			(114		)	20			(5		)	(134		)
Equity contracts	(784		)	(425		)	—		(213		)	274			(111		)	(147		)	(8		)	(182		)	(1,596		)	(422		)
Commodity contracts	(18		)	(121		)	—		(15		)	(15		)	252			—			(133		)	(9		)	(59		)	(33		)
Credit derivatives	61			(412		)	—		(114		)	204			—			—			14			191			(56		)	(289		)
Total trading derivatives, net⁽⁴⁾	$	(901	)	$	(915	)	$	—	$	(319	)	$	538		$	408		$	(102	)	$	(242	)	$	(182	)	$	(1,715	)	$	1,316

Table continues on the next page.



			Net realized/unrealized gains/losses included in						Transfers																	Unrealized gains/ losses still held⁽³⁾
In millions of dollars	Dec. 31, 2018		Principal transactions			Other⁽¹⁾⁽²⁾			into Level 3		out of Level 3			Purchases		Issuances		Sales			Settlements			Dec. 31, 2019
Investments
Mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	32	$	—		$	—		$	—	$	—		$	—	$	—	$	—		$	—		$	32	$	(1	)
Residential	—		—			—			—		—			—		—		—			—			—		—
Commercial	—		—			—			—		—			—		—		—			—			—		—
Total investment mortgage-backed securities	$	32	$	—		$	—		$	—	$	—		$	—	$	—	$	—		$	—		$	32	$	(1	)
U.S. Treasury and federal agency securities	$	—	$	—		$	—		$	—	$	—		$	—	$	—	$	—		$	—		$	—	$	—
State and municipal	708		—			86			14		(318		)	430		—		(297		)	—			623		82
Foreign government	68		—			2			—		—			145		—		(119		)	—			96		2
Corporate	156		—			(14		)	3		(94		)	—		—		(6		)	—			45		—
Marketable equity securities	—		—			—			—		—			—		—		—			—			—		—
Asset-backed securities	187		—			(11		)	122		(612		)	550		—		(214		)	—			22		13
Other debt securities	—		—			—			—		—			—		—		—			—			—		—
Non-marketable equity securities	586		—			(11		)	39		(1		)	11		—		(151		)	(32		)	441		16
Total investments	$	1,737	$	—		$	52		$	178	$	(1,025	)	$	1,136	$	—	$	(787	)	$	(32	)	$	1,259	$	112
Loans	$	277	$	—		$	192		$	148	$	(189	)	$	16	$	—	$	(40	)	$	(2	)	$	402	$	186
Mortgage servicing rights	584		—			(84		)	—		—			—		70		—			(75		)	495		(68		)
Other financial assets measured on a recurring basis	—		—			96			6		(2		)	2		32		(21		)	(112		)	1		18
Liabilities
Interest-bearing deposits	$	495	$	—		$	(16	)	$	10	$	(783	)	$	—	$	843	$	—		$	(366	)	$	215	$	(25	)
Securities loaned and sold under agreements to repurchase	983		121			—			1		4			—		—		(168		)	58			757		(26		)
Trading account liabilities
Securities sold, not yet purchased	586		122			—			68		(443		)	19		—		(12		)	(48		)	48		3
Other trading liabilities	—		—			—			—		—			—		—		—			—			—		—
Short-term borrowings	37		32			—			13		(42		)	—		168		—			(131		)	13		(1		)
Long-term debt	12,570		(2,140		)	—			3,892		(5,188		)	23		8,262		(5		)	(4,525		)	17,169		(3,300		)
Other financial liabilities measured on a recurring basis	—		—			4			5		—			—		4		—			(5		)	—		—


(1)	Changes in fair value of available-for-sale investments are recorded in AOCI, unless related to other-than-temporary impairment, while gains and losses from sales are recorded in Realized gains (losses) from sales of investments in the Consolidated Statement of Income.


(2)	Unrealized gains (losses) on MSRs are recorded in Other revenue in the Consolidated Statement of Income.


(3)	Represents the amount of total gains or losses for the period, included in earnings (and AOCI for changes in fair value of available-for-sale investments), attributable to the change in fair value relating to assets and liabilities classified as Level 3 that are still held at December 31, 2019.


(4)	Total Level 3 trading derivative assets and liabilities have been netted in these tables for presentation purposes only.



				Net realized/unrealized gains (losses) included in						Transfers																				Unrealized gains (losses) still held⁽³⁾
In millions of dollars	Dec. 31, 2017			Principal transactions			Other⁽¹⁾⁽²⁾			into Level 3			out of Level 3			Purchases		Issuances			Sales			Settlements			Dec. 31, 2018
Assets
Securities borrowed and purchased under agreements to resell	$	16		$	17		$	—		$	50		$	—		$	95	$	—		$	16		$	(79	)	$	115		$	9
Trading non-derivative assets
Trading mortgage-backed securities
U.S. government-sponsored agency guaranteed	163			5			—			92			(107		)	281		—			(278		)	—			156			186
Residential	164			112			—			124			(133		)	154		—			(153		)	—			268			4
Commercial	57			(7		)	—			24			(49		)	110		—			(58		)	—			77			—
Total trading mortgage-backed securities	$	384		$	110		$	—		$	240		$	(289	)	$	545	$	—		$	(489	)	$	—		$	501		$	190
U.S. Treasury and federal agency securities	$	—		$	—		$	—		$	6		$	(4	)	$	1	$	—		$	—		$	(2	)	$	1		$	—
State and municipal	274			22			—			—			(96		)	45		—			(45		)	—			200			9
Foreign government	16			(2		)	—			5			(13		)	75		—			(50		)	—			31			(28		)
Corporate	275			(72		)	—			138			(122		)	596		(40		)	(415		)	—			360			(32		)
Marketable equity securities	120			2			—			25			(62		)	290		—			(222		)	—			153			(56		)
Asset-backed securities	1,590			28			—			77			(90		)	1,238		—			(1,359		)	—			1,484			(21		)
Other trading assets	615			276			—			197			(82		)	598		8			(777		)	(17		)	818			91
Total trading non-derivative assets	$	3,274		$	364		$	—		$	688		$	(758	)	$	3,388	$	(32	)	$	(3,357	)	$	(19	)	$	3,548		$	153
Trading derivatives, net⁽⁴⁾
Interest rate contracts	$	(422	)	$	414		$	—		$	(6	)	$	(193	)	$	8	$	17		$	(32	)	$	60		$	(154	)	$	336
Foreign exchange contracts	130			(99		)	—			(29		)	77			11		—			(89		)	(7		)	(6		)	(72		)
Equity contracts	(2,027		)	479			—			(131		)	1,114			25		(44		)	(17		)	(183		)	(784		)	52
Commodity contracts	(1,861		)	(505		)	—			(32		)	2,180			62		—			(19		)	157			(18		)	(171		)
Credit derivatives	(799		)	261			—			(7		)	391			2		—			1			212			61			87
Total trading derivatives, net⁽⁴⁾	$	(4,979	)	$	550		$	—		$	(205	)	$	3,569		$	108	$	(27	)	$	(156	)	$	239		$	(901	)	$	232
Investments
Mortgage-backed securities
U.S. government-sponsored agency guaranteed	$	24		$	—		$	10		$	—		$	—		$	—	$	—		$	(2	)	$	—		$	32		$	14
Residential	—			—			—			—			—			—		—			—			—			—			—
Commercial	3			—			2			1			(1		)	—		—			(5		)	—			—			—
Total investment mortgage-backed securities	$	27		$	—		$	12		$	1		$	(1	)	$	—	$	—		$	(7	)	$	—		$	32		$	14
U.S. Treasury and federal agency securities	$	—		$	—		$	—		$	—		$	—		$	—	$	—		$	—		$	—		$	—		$	—
State and municipal	737			—			(20		)	—			(18		)	211		—			(202		)	—			708			(29		)
Foreign government	92			—			(3		)	3			(4		)	141		—			(161		)	—			68			4
Corporate	71			—			(1		)	61			(66		)	101		—			(10		)	—			156			—
Marketable equity securities	2			—			1			—			—			—		—			(2		)	(1		)	—			—
Asset-backed securities	827			—			(21		)	10			(524		)	63		—			(168		)	—			187			—
Other debt securities	—			—			—			—			—			—		—			—			—			—			—
Non-marketable equity securities	681			—			(95		)	193			—			91		—			(234		)	(50		)	586			55
Total investments	$	2,437		$	—		$	(127	)	$	268		$	(613	)	$	607	$	—		$	(784	)	$	(51	)	$	1,737		$	44

Table continues on the next page.



			Net realized/unrealized gains (losses) included in						Transfers																		Unrealized gains (losses) still held⁽³⁾
In millions of dollars	Dec. 31, 2017		Principal transactions			Other⁽¹⁾⁽²⁾			into Level 3		out of Level 3			Purchases		Issuances			Sales			Settlements			Dec. 31, 2018
Loans	$	550	$	—		$	(319	)	$	—	$	13		$	140	$	—		$	(103	)	$	(4	)	$	277	$	236
Mortgage servicing rights	558		—			54			—		—			—		58			(18		)	(68		)	584		59
Other financial assets measured on a recurring basis	16		—			51			—		(11		)	4		12			(12		)	(60		)	—		63
Liabilities
Interest-bearing deposits	$	286	$	—		$	14		$	13	$	(1	)	$	—	$	215		$	—		$	(4	)	$	495	$	(355	)
Securities loaned and sold under agreements to repurchase	726		(8		)	—			1		—			—		243			(31		)	36			983		24
Trading account liabilities
Securities sold, not yet purchased	22		(454		)	—			187		(172		)	7		226			(39		)	(99		)	586		(238		)
Other trading liabilities	5		5			—			—		—			—		—			—			—			—		—
Short-term borrowings	18		53			—			72		(46		)	—		86			—			(40		)	37		25
Long-term debt	13,082		(182		)	—			2,850		(3,514		)	36		(18		)	(45		)	(3		)	12,570		(2,871		)
Other financial liabilities measured on a recurring basis	8		—			(2		)	1		(10		)	—		2			—			(3		)	—		(8		)


(1)	Changes in fair value of available-for-sale debt securities are recorded in AOCI, unless related to other-than-temporary impairment, while gains and losses from sales are recorded in Realized gains (losses) from sales of investments in the Consolidated Statement of Income.


(2)	Unrealized gains (losses) on MSRs are recorded in Other revenue in the Consolidated Statement of Income.


(3)	Represents the amount of total gains or losses for the period, included in earnings (and AOCI for changes in fair value of available-for-sale debt securities), attributable to the change in fair value relating to assets and liabilities classified as Level 3 that are still held at December 31, 2018.


(4)	Total Level 3 derivative assets and liabilities have been netted in these tables for presentation purposes only.

Level 3 Fair Value Rollforward

The following were the significant Level 3 transfers for the period December 31, 2018 to December 31, 2019:


•	Transfers of Long-Term Debt of $3.9 billion from Level 2 to Level 3, and of $5.2 billion from Level 3 to Level 2, mainly related to structured debt, reflecting changes in the significance of unobservable inputs as well as certain underlying market inputs becoming less or more observable.

The following were the significant Level 3 transfers for the period December 31, 2017 to December 31, 2018:


•	Transfers of Equity Contract Derivatives of $1.1 billion from Level 3 to Level 2, related to equity derivatives where the unobservable components were deemed insignificant.


•	Transfers of Commodity Contract Derivatives of $2.2 billion from Level 3 to Level 2, related to commodity derivatives where the unobservable component of the derivatives were deemed insignificant.

•

Transfers of Long-term debt of $2.9 billion from Level 2 to Level 3, and of $3.5 billion from Level 3 to Level 2, mainly related to structured debt, reflecting changes in the significance of unobservable inputs as well as certain underlying market inputs becoming less or more observable.

Valuation Techniques and Inputs for Level 3 Fair

Value Measurements

The Company’s Level 3 inventory consists of both cash

instruments and derivatives of varying complexity. The

valuation methodologies used to measure the fair value of

these positions include discounted cash flow analysis, internal

models and comparative analysis. A position is classified

within Level 3 of the fair value hierarchy when at least one

input is unobservable and is considered significant to its

valuation. The specific reason an input is deemed

unobservable varies; for example, at least one significant

input to the pricing model is not observable in the market, at

least one significant input has been adjusted to make it more

representative of the position being valued or the price quote

available does not reflect sufficient trading activities.

The following tables present the valuation techniques covering the majority of Level 3 inventory and the most significant unobservable inputs used in Level 3 fair value measurements. Differences between this table and amounts presented in the Level 3 Fair Value Rollforward table represent individually immaterial items that have been measured using a variety of valuation techniques other than those listed.



As of December 31, 2019	Fair value⁽¹⁾ (in millions)		Methodology	Input	Low⁽²⁾⁽³⁾			High⁽²⁾⁽³⁾			Weighted average⁽⁴⁾
Assets
Securities borrowed and purchased under agreements to resell	$	303	Model-based	Credit spread	15 bps			15 bps			15 bps
				Interest rate	1.59		%	3.67		%	2.72		%
Mortgage-backed securities	$	196	Price-based	Price	$	36		$	505		$	97
	22		Model-based
State and municipal, foreign government, corporate and other debt securities	$	880	Model-based	Price	$	—		$	1,238		$	90
	677		Price-based	Credit spread	35 bps			295 bps			209 bps
Marketable equity securities⁽⁵⁾	$	70	Price-based	Price	$	—		$	38,500		$	2,979
	30		Model-based	WAL	1.48 years			1.48 years			1.48 years
				Recovery (in millions)	$	5,450		$	5,450		$	5,450
Asset-backed securities	$	812	Price-based	Price	$	4		$	103		$	60
	$	368	Yield analysis	Yield	0.61		%	23.38		%	8.88		%
Non-marketable equities	$	316	Comparables analysis	EBITDA multiples	7.00x			17.95x			10.34x
\	97		Price-based	Appraised value (in thousands)	$	397		$	33,246		$	8,446
				Price	$	3		$	2,019		$	1,020
				PE ratio	14.70x			28.70x			20.54x
				Price to book ratio	1.50x			3.00x			1.88x
				Discount to price	—		%	10.00		%	2.32		%
Derivatives—gross⁽⁶⁾
Interest rate contracts (gross)	$	2,196	Model-based	Inflation volatility	0.21		%	2.74		%	0.79		%
				Mean reversion	1.00		%	20.00		%	10.50		%
				IR normal volatility	0.09		%	0.66		%	0.53		%
Foreign exchange contracts (gross)	$	1,099	Model-based	FX volatility	1.27		%	12.16		%	9.17		%
				IR normal volatility	0.27		%	0.66		%	0.58		%
				FX rate	37.39		%	586.84		%	80.64		%
				Interest rate	2.72		%	56.14		%	13.11		%
				IR-IR correlation	(51.00		)%	40.00		%	32.00		%
				IR-FX correlation	40.00		%	60.00		%	50.00		%
Equity contracts (gross)⁽⁷⁾	$	2,076	Model-based	Equity volatility	3.16		%	52.80		%	28.43		%
				Forward price	62.60		%	112.69		%	98.46		%
				WAL	1.48 years			1.48 years			1.48 years
				Recovery (in millions)	$	5,450		$	5,450		$	5,450



As of December 31, 2019	Fair value⁽¹⁾ (in millions)		Methodology	Input	Low⁽²⁾⁽³⁾			High⁽²⁾⁽³⁾			Weighted average⁽⁴⁾
Commodity and other contracts (gross)	$	1,487	Model-based	Forward price	37.62		%	362.57		%	119.32		%
				Commodity volatility	5.25		%	93.63		%	23.55		%
				Commodity correlation	(39.65		)%	87.81		%	41.80		%
Credit derivatives (gross)	$	613	Model-based	Credit spread	8 bps			283 bps			80 bps
	341		Price-based	Upfront points	2.59		%	99.94		%	59.41		%
				Price	$	12		$	100		$	87
				Credit correlation	25.00		%	87.00		%	48.57		%
				Recovery rate	20.00		%	65.00		%	48.00		%
Loans and leases	$	378	Model-based	Credit spread	9 bps			52 bps			48 bps
				Equity volatility	32.00		%	32.00		%	32.00		%
Mortgage servicing rights	$	418	Cash flow	Yield	1.78		%	12.00		%	9.49		%
	77		Model-based	WAL	4.07 years			8.13 years			6.61 years
Liabilities
Interest-bearing deposits	$	215	Model-based	Mean reversion	1.00		%	20.00		%	10.50		%
				Forward price	97.59		%	111.06		%	102.96		%
Securities loaned and sold under agreements to repurchase	$	757	Model-based	Interest rate	1.59		%	2.38		%	1.95		%
Trading account liabilities
Securities sold, not yet purchased	$	46	Price-based	Price	$	—		$	866		$	96
Short-term borrowings and long-term debt	$	17,182	Model-based	Mean reversion	1.00		%	20.00		%	10.50		%
				IR normal volatility	0.09		%	0.66		%	0.46		%
				Forward price	37.62		%	362.57		%	97.52		%
				Equity-IR Correlation	15.00		%	44.00		%	32.66		%



As of December 31, 2018	Fair value⁽¹⁾ (in millions)		Methodology	Input	Low⁽²⁾⁽³⁾			High⁽²⁾⁽³⁾			Weighted average⁽⁴⁾
Assets
Securities borrowed and purchased under agreements to resell	$	115	Model-based	Interest rate	2.52		%	7.43		%	5.08		%
Mortgage-backed securities	$	313	Price-based	Price	$	11		$	110		$	90
	198		Yield analysis	Yield	2.27		%	8.70		%	3.74		%
State and municipal, foreign government, corporate and other debt securities	$	1,212	Price-based	Price	$	—		$	104		$	91
	938		Model-based	Credit spread	35 bps			446 bps			238 bps
Marketable equity securities(5)	$	108	Price-based	Price	$	—		$	20,255		$	1,248
	45		Model-based	WAL	1.47 years			1.47 years			1.47 years
Asset-backed securities	$	1,608	Price-based	Price	$	3		$	101		$	66
Non-marketable equities	$	293	Comparables analysis	Discount to price	—		%	100.00		%	0.66		%
	255		Price-based	EBITDA multiples	5.00x			34.00x			9.73x
				Net operating income multiple	24.70x			24.70x			24.70x
				Price	$	2		$	1,074		$	420
				Revenue multiple	2.25x			16.50x			7.06x
Derivatives—gross(6)



As of December 31, 2018	Fair value⁽¹⁾ (in millions)		Methodology	Input	Low⁽²⁾⁽³⁾			High⁽²⁾⁽³⁾			Weighted average⁽⁴⁾
Interest rate contracts (gross)	$	3,467	Model-based	Mean reversion	1.00		%	20.00		%	10.50		%
				Inflation volatility	0.22		%	2.65		%	0.77		%
				IR normal volatility	0.16		%	0.86		%	0.56		%
Foreign exchange contracts (gross)	$	626	Model-based	Foreign exchange (FX) volatility	3.15		%	17.35		%	11.37		%
	73		Cash flow	IR-IR correlation	(51.00		)%	40.00		%	32.69		%
				IR-FX correlation	40.00		%	60.00		%	50.00		%
				Credit spread	39 bps			676 bps			423 bps
				IR basis	(0.65		)%	0.11		%	(0.17		)%
				Yield	6.98		%	7.48		%	7.23		%
Equity contracts (gross)(7)	$	1,467	Model-based	Equity volatility	3.00		%	78.39		%	37.53		%
				Forward price	64.66		%	144.45		%	98.55		%
				Equity-Equity correlation	(81.39		)%	100.00		%	35.49		%
				Equity-FX correlation	(86.27		)%	70.00		%	(1.20		)%
				WAL	1.47 years			1.47 years			1.47 years
Commodity and other contracts (gross)	$	1,552	Model-based	Forward price	15.30		%	585.07		%	145.08		%
				Commodity volatility	8.92		%	59.86		%	20.34		%
				Commodity correlation	(51.90		)%	92.11		%	40.71		%
Credit derivatives (gross)	$	1,089	Model-based	Credit correlation	5.00		%	85.00		%	41.06		%
	701		Price-based	Upfront points	7.41		%	99.04		%	58.95		%
				Credit spread	2 bps			1,127 bps			87 bps
				Recovery rate	5.00		%	65.00		%	46.40		%
				Price	$	17		$	98		$	81
Loans and leases	$	248	Model-based	Credit spread	138 bps			255 bps			147 bps
	29		Price-based	Yield	0.30		%	0.47		%	0.32		%
				Price	$	56		$	110		$	92
Mortgage servicing rights	$	501	Cash flow	Yield	4.60		%	12.00		%	7.79		%
	84		Model-based	WAL	3.55 years			7.45 years			6.39 years
Liabilities
Interest-bearing deposits	$	495	Model-based	Mean reversion	1.00		%	20.00		%	10.50		%
				Forward price	64.66		%	144.45		%	98.55		%
				Equity volatility	3.00		%	78.39		%	43.49		%
Securities loaned and sold under agreements to repurchase	$	983	Model-based	Interest rate	2.52		%	3.21		%	2.87		%
Trading account liabilities
Securities sold, not yet purchased	$	509	Model-based	Forward price	15.30		%	585.07		%	105.69		%
	77		Price-based	Equity volatility	3.00		%	78.39		%	43.49		%
				Equity-Equity correlation	(81.39		)%	100.00		%	34.04		%
				Equity-FX correlation	(86.27		)%	70.00		%	(1.20		)%
				Commodity volatility	8.92		%	59.86		%	20.34		%
				Commodity correlation	(51.90		)%	92.11		%	40.71		%
				Equity-IR correlation	(40.00		)%	70.37		%	30.80		%
Short-term borrowings and long-term debt	$	12,289	Model-based	Mean reversion	1.00		%	20.00		%	10.50		%
				Forward price	64.66		%	144.45		%	98.58		%
				Equity volatility	3.00		%	78.39		%	43.24		%


(1)	The fair value amounts presented in these tables represent the primary valuation technique or techniques for each class of assets or liabilities.


(2)	Some inputs are shown as zero due to rounding.


(3)	When the low and high inputs are the same, there is either a constant input applied to all positions, or the methodology involving the input applies to only one large position.


(4)	Weighted averages are calculated based on the fair values of the instruments.


(5)	For equity securities, the price inputs are expressed on an absolute basis, not as a percentage of the notional amount.


(6)	Both trading and nontrading account derivatives—assets and liabilities—are presented on a gross absolute value basis.


(7)	Includes hybrid products.

Uncertainty of Fair Value Measurements Relating to Unobservable Inputs

Valuation uncertainty arises when there is insufficient or disperse market data to allow a precise determination of the exit value of a fair-valued position or portfolio in today’s market. This is especially prevalent in Level 3 fair value instruments, where uncertainty exists in valuation inputs that may be both unobservable and significant to the instrument’s (or portfolio’s) overall fair value measurement. The uncertainties associated with key unobservable inputs on the Level 3 fair value measurements may not be independent of one another. In addition, the amount and direction of the uncertainty on a fair value measurement for a given change in an unobservable input depends on the nature of the instrument as well as whether the Company holds the instrument as an asset or a liability. For certain instruments, the pricing, hedging and risk management are sensitive to the correlation between various inputs rather than on the analysis and aggregation of the individual inputs.

The following section describes some of the most significant unobservable inputs used by the Company in Level 3 fair value measurements.

Correlation

Correlation is a measure of the extent to which two or more variables change in relation to each other. A variety of correlation-related assumptions are required for a wide range of instruments, including equity and credit baskets, foreign exchange options, CDOs backed by loans or bonds, mortgages, subprime mortgages and many other instruments. For almost all of these instruments, correlations are not directly observable in the market and must be calculated using alternative sources, including historical information. Estimating correlation can be especially difficult where it may vary over time, and calculating correlation information from market data requires significant assumptions regarding the informational efficiency of the market (e.g., swaption markets). Uncertainty therefore exists when an estimate of the appropriate level of correlation as an input into some fair value measurements is required.

Changes in correlation levels can have a substantial impact, favorable or unfavorable, on the value of an instrument, depending on its nature. A change in the default correlation of the fair value of the underlying bonds comprising a CDO structure would affect the fair value of the senior tranche. For example, an increase in the default correlation of the underlying bonds would reduce the fair value of the senior tranche, because highly correlated instruments produce greater losses in the event of default and a portion of these losses would become attributable to the senior tranche. That same change in default correlation would

have a different impact on junior tranches of the same structure.

Volatility

Volatility represents the speed and severity of market price changes and is a key factor in pricing options. Volatility generally depends on the tenor of the underlying instrument and the strike price or level defined in the contract. Volatilities for certain combinations of tenor and strike are not observable and need to be estimated using alternative methods, such as using comparable instruments, historical analysis or other sources of market information. This leads to uncertainty around the final fair value measurement of instruments with unobservable volatilities.

The general relationship between changes in the value of a portfolio to changes in volatility also depends on changes in interest rates and the level of the underlying index. Generally, long option positions (assets) benefit from increases in volatility, whereas short option positions (liabilities) will suffer losses. Some instruments are more sensitive to changes in volatility than others. For example, an at-the-money option would experience a greater percentage change in its fair value than a deep-in-the-money option. In addition, the fair value of an option with more than one underlying security (e.g., an option on a basket of bonds) depends on the volatility of the individual underlying securities as well as their correlations.

Yield

In some circumstances, the yield of an instrument is not observable in the market and must be estimated from historical data or from yields of similar securities. This estimated yield may need to be adjusted to capture the characteristics of the security being valued. In other situations, the estimated yield may not represent sufficient market liquidity and must be adjusted as well. Whenever the amount of the adjustment is significant to the value of the security, the fair value measurement is classified as Level 3.

Adjusted yield is generally used to discount the projected future principal and interest cash flows on instruments, such as asset-backed securities. Adjusted yield is impacted by changes in the interest rate environment and relevant credit spreads.

Prepayment

Voluntary unscheduled payments (prepayments) change the future cash flows for the investor and thereby change the fair value of the security. The effect of prepayments is more pronounced for residential mortgage-backed securities. An increase in prepayments—in speed or magnitude—generally creates losses for the holder of these securities. Prepayment is generally negatively correlated with delinquency and interest rate. A combination of low prepayment and high delinquencies amplifies each input’s negative impact on mortgage securities’ valuation. As prepayment speeds change, the weighted

average life of the security changes, which impacts the valuation either positively or negatively, depending upon the nature of the security and the direction of the change in the weighted average life.

Recovery

Recovery is the proportion of the total outstanding balance of a bond or loan that is expected to be collected in a liquidation scenario. For many credit securities (such as asset-backed securities), there is no directly observable market input for recovery, but indications of recovery levels are available from pricing services. The assumed recovery of a security may differ from its actual recovery that will be observable in the future. The recovery rate impacts the valuation of credit securities. Generally, an increase in the recovery rate assumption increases the fair value of the security. An increase in loss severity, the inverse of the recovery rate, reduces the amount of principal available for distribution and, as a result, decreases the fair value of the security.

Credit Spread

Credit spread is a component of the security representing its credit quality. Credit spread reflects the market perception of changes in prepayment, delinquency and recovery rates, therefore capturing the impact of other variables on the fair value. Changes in credit spread affect the fair value of

securities differently depending on the characteristics and maturity profile of the security. For example, credit spread is a more significant driver of the fair value measurement of a high yield bond as compared to an investment grade bond. Generally, the credit spread for an investment grade bond is also more observable and less volatile than its high yield counterpart.

Items Measured at Fair Value on a Nonrecurring Basis

Certain assets and liabilities are measured at fair value on a nonrecurring basis and, therefore, are not included in the tables above. These include assets measured at cost that have been written down to fair value during the periods as a result of an impairment. These also include non-marketable equity securities that have been measured using the measurement alternative and are either (i) written down to fair value during the periods as a result of an impairment or (ii) adjusted upward or downward to fair value as a result of a transaction observed during the periods for the identical or similar investment of the same issuer. In addition, these assets include loans held-for-sale and other real estate owned that are measured at the lower of cost or market value.

The following tables present the carrying amounts of all assets that were still held for which a nonrecurring fair value measurement was recorded:



In millions of dollars	Fair value		Level 2		Level 3
December 31, 2019
Loans HFS⁽¹⁾	$	4,579	$	3,249	$	1,330
Other real estate owned	20		6		14
Loans⁽²⁾	344		93		251
Non-marketable equity securities measured using the measurement alternative	249		249		—
Total assets at fair value on a nonrecurring basis	$	5,192	$	3,597	$	1,595



In millions of dollars	Fair value		Level 2		Level 3
December 31, 2018
Loans HFS⁽¹⁾	$	5,055	$	3,261	$	1,794
Other real estate owned	78		62		16
Loans⁽²⁾	390		139		251
Non-marketable equity securities measured using the measurement alternative	261		192		69
Total assets at fair value on a nonrecurring basis	$	5,784	$	3,654	$	2,130


(1)	Net of fair value amounts on the unfunded portion of loans HFS recognized as Other liabilities on the Consolidated Balance Sheet.


(2)	Represents impaired loans held for investment whose carrying amount is based on the fair value of the underlying collateral less costs to sell, primarily real estate.

The fair value of loans HFS is determined where possible using quoted secondary-market prices. If no such quoted price exists, the fair value of a loan is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan. Fair value for the other real estate owned is based on appraisals. For loans whose carrying amount is based on the fair value of the underlying collateral, the fair values depend on the type of collateral. Fair value of the collateral is typically estimated based on quoted market prices if available, appraisals or other internal valuation techniques.

Where the fair value of the related collateral is based on an unadjusted appraised value, the loan is generally classified as Level 2. Where significant adjustments are made to the appraised value, the loan is classified as Level 3. In addition, for corporate loans, appraisals of the collateral are often based on sales of similar assets; however, because the prices of similar assets require significant adjustments to reflect the unique features of the underlying collateral, these fair value measurements are generally classified as Level 3.

The fair value of non-marketable equity securities under the measurement alternative is based on observed transaction prices for the identical or similar investment of the same issuer, or an internal valuation technique in the case of an impairment. Where significant adjustments are made to the observed transaction price or when an internal valuation technique is used, the security is classified as Level 3. Fair value may differ from the observed transaction price due to a number of factors, including marketability adjustments and differences in rights and obligations when the observed transaction is not for the identical investment held by Citi.

Valuation Techniques and Inputs for Level 3 Nonrecurring Fair Value Measurements

The following tables present the valuation techniques covering the majority of Level 3 nonrecurring fair value measurements and the most significant unobservable inputs used in those measurements:



As of December 31, 2019	Fair value⁽¹⁾ (in millions)		Methodology	Input	Low⁽²⁾			High			Weighted average⁽³⁾
Loans HFS	$	1,320	Price-based	Price	$	86		$	100		$	99
Other real estate owned	$	11	Price-based	Appraised value⁽⁴⁾	$	2,297,358		$	8,394,102		$	5,615,884
	$	5	Recovery analysis
Loans⁽⁶⁾	$	100	Recovery analysis	Recovery rate	0.57		%	100.00		%	64.78		%
	54		Cash flow	Price	$	2		$	54		$	27
	47		Price-based	Cost of capital	0.10		%	100.00		%	54.84		%
	29		Price-based	Appraised value⁽⁴⁾	$	17,521,218		$	43,646,426		$	30,583,822



As of December 31, 2018	Fair value⁽¹⁾ (in millions)		Methodology	Input	Low⁽²⁾			High			Weighted average⁽³⁾
Loans HFS	$	1,729	Price-based	Price	$	81		$	100		$	98
Other real estate owned	$	15	Price-based	Appraised value⁽⁴⁾	$	8,394,102		$	8,394,102		$	8,394,102
	2		Recovery analysis	Discount to price	13.00		%	13.00		%	13.00		%
				Price	$	56		$	83		$	58
Loans⁽⁶⁾	$	251	Recovery analysis	Recovery rate	30.60		%	100.00		%	50.51		%
				Price	$	3		$	85		$	28
Non-marketable equity securities measured using the measurement alternative	$	66	Price-based	Price	$	46		$	1,514		$	570


(1)	The fair value amounts presented in this table represent the primary valuation technique or techniques for each class of assets or liabilities.


(2)	Some inputs are shown as zero due to rounding.


(3)	Weighted averages are calculated based on the fair values of the instruments.


(4)	Appraised values are disclosed in whole dollars.


(5)	Includes estimated costs to sell.


(6)	Represents impaired loans held for investment whose carrying amounts are based on the fair value of the underlying collateral, primarily real estate secured loans.

Nonrecurring Fair Value Changes

The following tables present total nonrecurring fair value measurements for the period, included in earnings, attributable to the change in fair value relating to assets that were still held:



	Year ended December 31,
In millions of dollars	2019
Loans HFS	$	—
Other real estate owned	(1		)
Loans⁽¹⁾	(56		)
Non-marketable equity securities measured using the measurement alternative	99
Total nonrecurring fair value gains (losses)	$	42



	Year ended December 31,
In millions of dollars	2018
Loans HFS	$	(13	)
Other real estate owned	(2		)
Loans⁽¹⁾	(22		)
Non-marketable equity securities measured using the measurement alternative	194
Total nonrecurring fair value gains (losses)	$	157

(1)

Represents loans held for investment whose carrying amount is based on the fair value of the underlying collateral, primarily real estate.

Estimated Fair Value of Financial Instruments Not Carried at Fair Value

The following tables present the carrying value and fair value of Citigroup’s financial instruments that are not carried at fair value. The tables below therefore exclude items measured at fair value on a recurring basis presented in the tables above.

The disclosure also excludes leases, affiliate investments, pension and benefit obligations, certain insurance contracts and tax-related items. Also, as required, the disclosure excludes the effect of taxes, any premium or discount that could result from offering for sale at one time the entire holdings of a particular instrument, excess fair value associated with deposits with no fixed maturity and other expenses that would be incurred in a market transaction. In addition, the tables exclude the values of non-financial assets and liabilities, as well as a wide range of franchise, relationship and intangible values, which are integral to a full assessment of Citigroup’s financial position and the value of its net assets.

Fair values vary from period to period based on changes in a wide range of factors, including interest rates, credit quality and market perceptions of value, and as existing assets and liabilities run off and new transactions are entered into.



	December 31, 2019				Estimated fair value
	Carrying value		Estimated fair value
In billions of dollars					Level 1		Level 2		Level 3
Assets
Investments	$	86.4	$	87.8	$	1.9	$	83.8	$	2.1
Securities borrowed and purchased under agreements to resell	98.1		98.1		—		98.1		—
Loans⁽¹⁾⁽²⁾	681.2		677.7		—		4.7		673.0
Other financial assets⁽²⁾⁽³⁾	262.4		262.4		177.6		16.3		68.5
Liabilities
Deposits	$	1,068.3	$	1,066.7	$	—	$	875.5	$	191.2
Securities loaned and sold under agreements to repurchase	125.7		125.7		—		125.7		—
Long-term debt⁽⁴⁾	193.0		203.8		—		187.3		16.5
Other financial liabilities⁽⁵⁾	110.2		110.2		—		37.5		72.7



	December 31, 2018				Estimated fair value
	Carrying value		Estimated fair value
In billions of dollars					Level 1		Level 2		Level 3
Assets
Investments	$	68.9	$	68.5	$	1.0	$	65.4	$	2.1
Securities borrowed and purchased under agreements to resell	123.0		123.0		—		121.6		1.4
Loans⁽¹⁾⁽²⁾	667.1		666.9		—		5.6		661.3
Other financial assets⁽²⁾⁽³⁾	249.7		250.1		172.3		15.8		62.0
Liabilities
Deposits	$	1,011.7	$	1,009.5	$	—	$	847.1	$	162.4
Securities loaned and sold under agreements to repurchase	133.3		133.3		—		133.3		—
Long-term debt⁽⁴⁾	193.8		193.7		—		178.4		15.3
Other financial liabilities⁽⁵⁾	103.8		103.8		—		17.2		86.6


(1)	The carrying value of loans is net of the Allowance for loan losses of $12.8 billion for December 31, 2019 and $12.3 billion for December 31, 2018. In addition, the carrying values exclude $1.4 billion and $1.6 billion of lease finance receivables at December 31, 2019 and 2018, respectively.


(2)	Includes items measured at fair value on a nonrecurring basis.


(3)	Includes cash and due from banks, deposits with banks, brokerage receivables, reinsurance recoverables and other financial instruments included in Other assets on the Consolidated Balance Sheet, for all of which the carrying value is a reasonable estimate of fair value.


(4)	The carrying value includes long-term debt balances under qualifying fair value hedges.


(5)	Includes brokerage payables, separate and variable accounts, short-term borrowings (carried at cost) and other financial instruments included in Other liabilities on the Consolidated Balance Sheet, for all of which the carrying value is a reasonable estimate of fair value.

The estimated fair values of the Company’s corporate unfunded lending commitments at December 31, 2019 and 2018 were liabilities of $5.1 billion and $7.8 billion, respectively, substantially all of which are classified as Level 3. The Company does not estimate the fair values of consumer unfunded lending commitments, which are generally cancelable by providing notice to the borrower.

- 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