Risk Management. The firm also enters into derivatives to actively manage risk exposures that arise from its market-making and investing and financing activities. The firm’s holdings and exposures are hedged, in many cases, on either a portfolio or risk-specific basis, as opposed to an instrument-by-instrument basis. The offsetting impact of this economic hedging is reflected in the same business segment as the related revenues. In addition, the firm may enter into derivatives designated as hedges under U.S. GAAP. These derivatives are used to manage interest rate exposure of certain fixed-rate unsecured borrowings and deposits and certain U.S. and non-U.S. government securities classified as available-for-sale, foreign exchange risk of certain available-for-sale securities and the net investment in certain non-U.S. operations.

Derivatives are reported on a net-by-counterparty basis (i.e., the net payable or receivable for derivative assets and liabilities for a given counterparty) when a legal right of setoff exists under an enforceable netting agreement (counterparty netting). Derivatives are accounted for at fair value, net of cash collateral received or posted under enforceable credit support agreements (cash collateral netting). Derivative assets are included in trading assets and derivative liabilities are included in trading liabilities. Realized and unrealized gains and losses on derivatives not designated as hedges are included in market making (for derivatives included in Fixed Income, Currency and Commodities (FICC) and Equities within Global Banking & Markets), and other principal transactions (for derivatives included in Investment banking fees and Other within Global Banking & Markets, as well as derivatives in Asset & Wealth Management) in the consolidated statements of earnings. For each of the three and nine months ended September 2023 and September 2022, substantially all of the firm’s derivatives were included in Global Banking & Markets.

The tables below present the gross fair value and the notional amounts of derivative contracts by major product type, the amounts of counterparty and cash collateral netting in the consolidated balance sheets, as well as cash and securities collateral posted and received under enforceable credit support agreements that do not meet the criteria for netting under U.S. GAAP.


	As of September 2023				As of December 2022
$ in millions	Derivative Assets		Derivative Liabilities		Derivative Assets		Derivative Liabilities
Not accounted for as hedges
Exchange-traded	$	466	$	1,122	$	675	$	1,385
OTC-cleared	71,438		70,138		74,297		72,979
Bilateral OTC	192,603		170,748		195,052		174,687
Total interest rates	264,507		242,008		270,024		249,051
OTC-cleared	1,056		1,177		1,516		1,802
Bilateral OTC	11,593		9,123		10,751		9,478
Total credit	12,649		10,300		12,267		11,280
Exchange-traded	78		11		1,041		22
OTC-cleared	1,064		1,021		520		589
Bilateral OTC	100,357		100,324		102,301		111,276
Total currencies	101,499		101,356		103,862		111,887
Exchange-traded	6,719		7,275		9,225		9,542
OTC-cleared	539		620		698		838
Bilateral OTC	13,457		11,971		30,017		22,745
Total commodities	20,715		19,866		39,940		33,125
Exchange-traded	24,340		28,860		26,302		26,607
OTC-cleared	133		203		685		19
Bilateral OTC	24,503		36,578		23,574		30,157
Total equities	48,976		65,641		50,561		56,783
Subtotal	448,346		439,171		476,654		462,126
Accounted for as hedges
OTC-cleared	–		–		–		–
Bilateral OTC	190		18		335		11
Total interest rates	190		18		335		11
OTC-cleared	–		–		29		29
Bilateral OTC	32		121		53		256
Total currencies	32		121		82		285
Subtotal	222		139		417		296
Total gross fair value	$	448,568	$	439,310	$	477,071	$	462,422

Offset in the consolidated balance sheets
Exchange-traded	$	(28,041)	$	(28,041)	$	(31,229)	$	(31,229)
OTC-cleared	(71,745)		(71,745)		(75,349)		(75,349)
Bilateral OTC	(241,284)		(241,284)		(254,304)		(254,304)
Counterparty netting	(341,070)		(341,070)		(360,882)		(360,882)
OTC-cleared	(1,728)		–		(1,388)		(406)
Bilateral OTC	(56,708)		(43,423)		(55,388)		(46,399)
Cash collateral netting	(58,436)		(43,423)		(56,776)		(46,805)
Total amounts offset	$	(399,506)	$	(384,493)	$	(417,658)	$	(407,687)

Included in the consolidated balance sheets
Exchange-traded	$	3,562	$	9,227	$	6,014	$	6,327
OTC-cleared	757		1,414		1,008		501
Bilateral OTC	44,743		44,176		52,391		47,907
Total	$	49,062	$	54,817	$	59,413	$	54,735

Not offset in the consolidated balance sheets
Cash collateral	$	(414)	$	(1,599)	$	(298)	$	(1,887)
Securities collateral	(15,551)		(4,716)		(15,229)		(4,329)
Total	$	33,097	$	48,502	$	43,886	$	48,519


	Notional Amounts as of
	September		December
$ in millions	2023		2022
Not accounted for as hedges
Exchange-traded	$	3,957,145	$	4,241,937
OTC-cleared	15,047,281		13,104,682
Bilateral OTC	12,296,079		11,137,127
Total interest rates	31,300,505		28,483,746
Exchange-traded	558		369
OTC-cleared	545,342		529,543
Bilateral OTC	651,836		577,542
Total credit	1,197,736		1,107,454
Exchange-traded	5,538		9,012
OTC-cleared	262,313		150,561
Bilateral OTC	6,525,742		5,304,069
Total currencies	6,793,593		5,463,642
Exchange-traded	352,868		341,526
OTC-cleared	3,434		3,188
Bilateral OTC	220,290		255,208
Total commodities	576,592		599,922
Exchange-traded	1,529,392		1,107,659
OTC-cleared	1,716		1,639
Bilateral OTC	1,225,983		1,026,736
Total equities	2,757,091		2,136,034
Subtotal	42,625,517		37,790,798
Accounted for as hedges
OTC-cleared	240,942		257,739
Bilateral OTC	3,009		3,156
Total interest rates	243,951		260,895
OTC-cleared	966		2,048
Bilateral OTC	8,223		7,701
Total currencies	9,189		9,749


Subtotal	253,140		270,644
Total notional amounts	$	42,878,657	$	38,061,442

In the tables above:

•Gross fair values exclude the effects of both counterparty netting and collateral, and therefore are not representative of the firm’s exposure.

•Where the firm has received or posted collateral under credit support agreements, but has not yet determined such agreements are enforceable, the related collateral has not been netted.

•Notional amounts, which represent the sum of gross long and short derivative contracts, provide an indication of the volume of the firm’s derivative activity and do not represent anticipated losses.

•Total gross fair value of derivatives included derivative assets of $9.70 billion as of September 2023 and $10.08 billion as of December 2022, and derivative liabilities of $12.57 billion as of September 2023 and $12.71 billion as of December 2022, which are not subject to an enforceable netting agreement or are subject to a netting agreement that the firm has not yet determined to be enforceable.

OTC Derivatives

The table below presents OTC derivative assets and liabilities by tenor and major product type.


$ in millions	Less than 1 Year		1 - 5 Years		Greater than 5 Years		Total
As of September 2023
Assets
Interest rates	$	10,904	$	14,876	$	53,107	$	78,887
Credit	1,427		2,968		2,159		6,554
Currencies	14,384		8,130		5,733		28,247
Commodities	4,156		3,417		1,563		9,136
Equities	4,121		2,868		2,068		9,057
Counterparty netting in tenors	(3,015)		(2,643)		(4,165)		(9,823)
Subtotal	$	31,977	$	29,616	$	60,465	$	122,058
Cross-tenor counterparty netting							(18,122)
Cash collateral netting							(58,436)
Total OTC derivative assets							$	45,500

Liabilities
Interest rates	$	10,600	$	22,287	$	22,672	$	55,559
Credit	879		2,277		1,050		4,206
Currencies	12,041		8,607		7,635		28,283
Commodities	3,025		3,305		1,381		7,711
Equities	9,462		8,124		3,613		21,199
Counterparty netting in tenors	(3,015)		(2,643)		(4,165)		(9,823)
Subtotal	$	32,992	$	41,957	$	32,186	$	107,135
Cross-tenor counterparty netting							(18,122)
Cash collateral netting							(43,423)
Total OTC derivative liabilities							$	45,590

As of December 2022
Assets
Interest rates	$	5,509	$	16,963	$	53,943	$	76,415
Credit	921		2,622		2,142		5,685
Currencies	12,284		7,819		7,085		27,188
Commodities	10,525		7,513		2,574		20,612
Equities	5,346		4,007		1,782		11,135
Counterparty netting in tenors	(2,661)		(3,942)		(4,830)		(11,433)
Subtotal	$	31,924	$	34,982	$	62,696	$	129,602
Cross-tenor counterparty netting							(19,427)
Cash collateral netting							(56,776)
Total OTC derivative assets							$	53,399

Liabilities
Interest rates	$	9,351	$	23,589	$	21,467	$	54,407
Credit	993		2,635		1,071		4,699
Currencies	18,987		8,736		8,712		36,435
Commodities	6,400		6,135		945		13,480
Equities	7,629		7,249		2,174		17,052
Counterparty netting in tenors	(2,661)		(3,942)		(4,830)		(11,433)
Subtotal	$	40,699	$	44,402	$	29,539	$	114,640
Cross-tenor counterparty netting							(19,427)
Cash collateral netting							(46,805)
Total OTC derivative liabilities							$	48,408

In the table above:

•Tenor is based on remaining contractual maturity.

•Counterparty netting within the same product type and tenor category is included within such product type and tenor category.

•Counterparty netting across product types within the same tenor category is included in counterparty netting in tenors. Where the counterparty netting is across tenor categories, the netting is included in cross-tenor counterparty netting.

See Note 4 for an overview of the firm’s fair value measurement policies, valuation techniques and significant inputs used to determine the fair value of derivatives, and Note 5 for information about derivatives within the fair value hierarchy.

Credit Derivatives

The firm enters into a broad array of credit derivatives to facilitate client transactions and to manage the credit risk associated with market-making and investing and financing activities. Credit derivatives are actively managed based on the firm’s net risk position. Credit derivatives are generally individually negotiated contracts and can have various settlement and payment conventions. Credit events include failure to pay, bankruptcy, acceleration of indebtedness, restructuring, repudiation and dissolution of the reference entity.

The firm enters into the following types of credit derivatives:

•Credit Default Swaps. Single-name credit default swaps protect the buyer against the loss of principal on one or more bonds, loans or mortgages (reference obligations) in the event the issuer of the reference obligations suffers a credit event. The buyer of protection pays an initial or periodic premium to the seller and receives protection for the period of the contract. If there is no credit event, as defined in the contract, the seller of protection makes no payments to the buyer. If a credit event occurs, the seller of protection is required to make a payment to the buyer, calculated according to the terms of the contract.

•Credit Options. In a credit option, the option writer assumes the obligation to purchase or sell a reference obligation at a specified price or credit spread. The option purchaser buys the right, but does not assume the obligation, to sell the reference obligation to, or purchase it from, the option writer. The payments on credit options depend either on a particular credit spread or the price of the reference obligation.

•Credit Indices, Baskets and Tranches. Credit derivatives may reference a basket of single-name credit default swaps or a broad-based index. If a credit event occurs in one of the underlying reference obligations, the protection seller pays the protection buyer. The payment is typically a pro-rata portion of the transaction’s total notional amount based on the underlying defaulted reference obligation. In certain transactions, the credit risk of a basket or index is separated into various portions (tranches), each having different levels of subordination. The most junior tranches cover initial defaults and once losses exceed the notional amount of these junior tranches, any excess loss is covered by the next most senior tranche.

•Total Return Swaps. A total return swap transfers the risks relating to economic performance of a reference obligation from the protection buyer to the protection seller. Typically, the protection buyer receives a floating rate of interest and protection against any reduction in fair value of the reference obligation, and the protection seller receives the cash flows associated with the reference obligation, plus any increase in the fair value of the reference obligation.

The firm economically hedges its exposure to written credit derivatives primarily by entering into offsetting purchased credit derivatives with identical underliers. Substantially all of the firm’s purchased credit derivative transactions are with financial institutions and are subject to stringent collateral thresholds. In addition, upon the occurrence of a specified trigger event, the firm may take possession of the reference obligations underlying a particular written credit derivative, and consequently may, upon liquidation of the reference obligations, recover amounts on the underlying reference obligations in the event of default.

As of September 2023, written credit derivatives had a total gross notional amount of $565.33 billion and purchased credit derivatives had a total gross notional amount of $632.41 billion, for total net notional purchased protection of $67.08 billion. As of December 2022, written credit derivatives had a total gross notional amount of $528.31 billion and purchased credit derivatives had a total gross notional amount of $579.14 billion, for total net notional purchased protection of $50.83 billion. The firm’s written and purchased credit derivatives primarily consist of credit default swaps.

The table below presents information about credit derivatives.


	Credit Spread on Underlier (basis points)
$ in millions	0 - 250		251 - 500		501 - 1,000		Greater than 1,000		Total
As of September 2023
Maximum Payout/Notional Amount of Written Credit Derivatives by Tenor
Less than 1 year	$	127,828	$	9,876	$	885	$	3,750	$	142,339
1 - 5 years	308,826		18,554		8,957		6,922		343,259
Greater than 5 years	69,235		6,560		2,883		1,052		79,730
Total	$	505,889	$	34,990	$	12,725	$	11,724	$	565,328

Maximum Payout/Notional Amount of Purchased Credit Derivatives
Offsetting	$	420,373	$	25,763	$	11,309	$	10,175	$	467,620
Other	$	152,511	$	8,037	$	2,189	$	2,051	$	164,788
Fair Value of Written Credit Derivatives
Asset	$	8,701	$	638	$	262	$	121	$	9,722
Liability	1,190		774		633		2,312		4,909
Net asset/(liability)	$	7,511	$	(136)	$	(371)	$	(2,191)	$	4,813
As of December 2022
Maximum Payout/Notional Amount of Written Credit Derivatives by Tenor
Less than 1 year	$	108,703	$	12,166	$	1,879	$	4,135	$	126,883
1 - 5 years	306,484		28,188		13,724		9,092		357,488
Greater than 5 years	39,302		2,916		1,416		305		43,939
Total	$	454,489	$	43,270	$	17,019	$	13,532	$	528,310

Maximum Payout/Notional Amount of Purchased Credit Derivatives
Offsetting	$	372,360	$	33,149	$	14,817	$	11,757	$	432,083
Other	$	128,828	$	13,211	$	2,615	$	2,407	$	147,061
Fair Value of Written Credit Derivatives
Asset	$	5,405	$	460	$	132	$	84	$	6,081
Liability	681		1,081		1,027		2,673		5,462
Net asset/(liability)	$	4,724	$	(621)	$	(895)	$	(2,589)	$	619

In the table above:

•Fair values exclude the effects of both netting of receivable balances with payable balances under enforceable netting agreements, and netting of cash received or posted under enforceable credit support agreements, and therefore are not representative of the firm’s credit exposure.

•Tenor is based on remaining contractual maturity.

•The credit spread on the underlier, together with the tenor of the contract, are indicators of payment/performance risk. The firm is less likely to pay or otherwise be required to perform where the credit spread and the tenor are lower.

•Offsetting purchased credit derivatives represent the notional amount of purchased credit derivatives that economically hedge written credit derivatives with identical underliers.

•Other purchased credit derivatives represent the notional amount of all other purchased credit derivatives not included in offsetting.

Impact of Credit and Funding Spreads on Derivatives

The firm realizes gains or losses on its derivative contracts. These gains or losses include credit valuation adjustments (CVA) relating to uncollateralized derivative assets and liabilities, which represent the gains or losses (including hedges) attributable to the impact of changes in credit exposure, counterparty credit spreads, liability funding spreads (which include the firm’s own credit), probability of default and assumed recovery. These gains or losses also include funding valuation adjustments (FVA) relating to uncollateralized derivative assets, which represent the gains or losses (including hedges) attributable to the impact of changes in expected funding exposures and funding spreads.

The table below presents information about CVA and FVA.



	Three Months Ended September				Nine Months Ended September
$ in millions	2023		2022		2023		2022
CVA, net of hedges	$	101	$	223	$	(72)	$	523
FVA, net of hedges	(53)		(74)		22		(465)
Total	$	48	$	149	$	(50)	$	58

Bifurcated Embedded Derivatives

The table below presents the fair value and the notional amount of derivatives that have been bifurcated from their related borrowings.


	As of
	September		December
$ in millions	2023		2022
Fair value of assets	$	332	$	288
Fair value of liabilities	(271)		(392)
Net asset/(liability)	$	61	$	(104)
Notional amount	$	7,383	$	8,892

In the table above, derivatives that have been bifurcated from their related borrowings are recorded at fair value and primarily consist of interest rate, equity and commodity products. These derivatives are included in unsecured short- and long-term borrowings, as well as other secured financings, with the related borrowings.

Derivatives with Credit-Related Contingent Features

Certain of the firm’s derivatives have been transacted under bilateral agreements with counterparties who may require the firm to post collateral or terminate the transactions based on changes in the firm’s credit ratings. The firm assesses the impact of these bilateral agreements by determining the collateral or termination payments that would occur assuming a downgrade by all rating agencies. A downgrade by any one rating agency, depending on the agency’s relative ratings of the firm at the time of the downgrade, may have an impact which is comparable to the impact of a downgrade by all rating agencies.

The table below presents information about net derivative liabilities under bilateral agreements (excluding collateral posted), the fair value of collateral posted and additional collateral or termination payments that could have been called by counterparties in the event of a one- or two-notch downgrade in the firm’s credit ratings.


	As of
	September		December
$ in millions	2023		2022
Net derivative liabilities under bilateral agreements	$	30,530	$	33,059
Collateral posted	$	26,546	$	27,657
Additional collateral or termination payments:
One-notch downgrade	$	374	$	343
Two-notch downgrade	$	1,288	$	1,115

Hedge Accounting

The firm applies hedge accounting for (i) interest rate swaps used to manage the interest rate exposure of certain fixed-rate unsecured long- and short-term borrowings, certain fixed-rate certificates of deposit and certain U.S. and non-U.S. government securities classified as available-for-sale, (ii) foreign currency forward contracts used to manage the foreign exchange risk of certain securities classified as available-for-sale and (iii) foreign currency forward contracts and foreign currency-denominated debt used to manage foreign exchange risk on the firm’s net investment in certain non-U.S. operations.

To qualify for hedge accounting, the hedging instrument must be highly effective at reducing the risk from the exposure being hedged. Additionally, the firm must formally document the hedging relationship at inception and assess the hedging relationship at least on a quarterly basis to ensure the hedging instrument continues to be highly effective over the life of the hedging relationship.

Fair Value Hedges

The firm designates interest rate swaps as fair value hedges of certain fixed-rate unsecured long- and short-term debt and fixed-rate certificates of deposit and of certain U.S. and non-U.S. government securities classified as available-for-sale. These interest rate swaps hedge changes in fair value attributable to the designated benchmark interest rate (e.g., Secured Overnight Financing Rate (SOFR), Overnight Index Swap Rate or Sterling Overnight Index Average), effectively converting a substantial portion of these fixed-rate financial instruments into floating-rate financial instruments.

The firm applies a statistical method that utilizes regression analysis when assessing the effectiveness of these hedging relationships in achieving offsetting changes in the fair values of the hedging instrument and the risk being hedged (i.e., interest rate risk). An interest rate swap is considered highly effective in offsetting changes in fair value attributable to changes in the hedged risk when the regression analysis results in a coefficient of determination of 80% or greater and a slope between 80% and 125%.

For qualifying interest rate fair value hedges, gains or losses on derivatives are included in interest income/expense. The change in fair value of the hedged items attributable to the risk being hedged is reported as an adjustment to its carrying value (hedging adjustment) and is also included in interest income/expense. When a derivative is no longer designated as a hedge, any remaining difference between the carrying value and par value of the hedged item is amortized in interest income/expense over the remaining life of the hedged item using the effective interest method. See Note 23 for further information about interest income and interest expense.

The table below presents the gains/(losses) from interest rate derivatives accounted for as hedges and the related hedged items.



	Three Months Ended September				Nine Months Ended September
$ in millions	2023		2022		2023		2022
Investments
Interest rate hedges	$	85	$	427	$	266	$	372
Hedged investments	(94)		(409)		(271)		(357)
Gains/(losses)	$	(9)	$	18	$	(5)	$	15

Borrowings and deposits
Interest rate hedges	$	(2,735)	$	(7,820)	$	(2,583)	$	(22,629)
Hedged borrowings and deposits	2,543		7,741		2,127		22,279
Gains/(losses)	$	(192)	$	(79)	$	(456)	$	(350)

The table below presents the carrying value of investments, deposits and unsecured borrowings that are designated in an interest rate hedging relationship and the related cumulative hedging adjustment (increase/(decrease)) from current and prior hedging relationships included in such carrying values.


$ in millions	Carrying Value		Cumulative Hedging Adjustment
As of September 2023
Assets
Investments	$	14,768	$	(568)

Liabilities
Deposits	$	3,493	$	(190)
Unsecured short-term borrowings	$	12,202	$	(177)
Unsecured long-term borrowings	$	127,643	$	(17,025)

As of December 2022
Assets
Investments	$	10,804	$	(350)

Liabilities
Deposits	$	6,311	$	(280)
Unsecured short-term borrowings	$	7,295	$	(47)
Unsecured long-term borrowings	$	151,215	$	(15,134)

In the table above:

•Cumulative hedging adjustment included $(5.85) billion as of September 2023 and $5.09 billion as of December 2022 of hedging adjustments from prior hedging relationships that were de-designated and substantially all were related to unsecured long-term borrowings.

•The amortized cost of investments was $15.82 billion as of September 2023 and $11.49 billion as of December 2022.

In addition, cumulative hedging adjustments for items no longer designated in a hedging relationship were $50 million as of September 2023 and $111 million as of December 2022 and were primarily related to unsecured long-term borrowings.

The firm designates foreign currency forward contracts as fair value hedges of the foreign exchange risk of non-U.S. government securities classified as available-for-sale. See Note 8 for information about the amortized cost and fair value of such securities. The effectiveness of such hedges is assessed based on changes in spot rates. The gains/(losses) on the hedges (relating to both spot and forward points) and the foreign exchange gains/(losses) on the related available-for-sale securities are included in market making. The gross and net gains/(losses) on hedges and the related hedged available-for-sale securities were not material for both the three and nine months ended September 2023. The net gains/(losses) on hedges and related available-for-sale securities were $3 million (reflecting a gain of $189 million related to hedges and a loss of $186 million on the related hedged available-for-sale securities) for the three months ended September 2022 and were $(25) million (reflecting a gain of $425 million related to hedges and a loss of $450 million on the related hedged available-for-sale securities) for the nine months ended September 2022.

Net Investment Hedges

The firm seeks to reduce the impact of fluctuations in foreign exchange rates on its net investments in certain non-U.S. operations through the use of foreign currency forward contracts and foreign currency-denominated debt. For foreign currency forward contracts designated as hedges, the effectiveness of the hedge is assessed based on the overall changes in the fair value of the forward contracts (i.e., based on changes in forward rates). For foreign currency-denominated debt designated as a hedge, the effectiveness of the hedge is assessed based on changes in spot rates. For qualifying net investment hedges, all gains or losses on the hedging instruments are included in currency translation.

The table below presents the gains/(losses) from net investment hedging.



	Three Months Ended September				Nine Months Ended September
$ in millions	2023		2022		2023		2022
Hedges:
Foreign currency forward contract	$	112	$	1,097	$	(25)	$	2,310
Foreign currency-denominated debt	$	839	$	551	$	631	$	1,147