Note 8.

Fair Value Option

Other Financial Assets and Financial Liabilities at Fair Value

In addition to all cash and derivative instruments included in “Financial instruments owned, at fair value” and “Financial instruments sold, but not yet purchased, at fair value,” the firm accounts for certain of its other financial assets and financial liabilities at fair value primarily under the fair value option. The primary reasons for electing the fair value option are to:

•

Reflect economic events in earnings on a timely basis;

•

Mitigate volatility in earnings from using different measurement attributes (e.g., transfers of financial instruments owned accounted for as financings are recorded at fair value whereas the related secured financing would be recorded on an accrual basis absent electing the fair value option); and

•

Address simplification and cost-benefit considerations (e.g., accounting for hybrid financial instruments at fair value in their entirety versus bifurcation of embedded derivatives and hedge accounting for debt hosts).

Hybrid financial instruments are instruments that contain bifurcatable embedded derivatives and do not require settlement by physical delivery of non-financial assets (e.g., physical commodities). If the firm elects to bifurcate the embedded derivative from the associated debt, the derivative is accounted for at fair value and the host contract is accounted for at amortized cost, adjusted for the effective portion of any fair value hedges. If the firm does not elect to bifurcate, the entire hybrid financial instrument is accounted for at fair value under the fair value option.

Other financial assets and financial liabilities accounted for at fair value under the fair value option include:

•

Repurchase agreements and substantially all resale agreements;

•

Securities borrowed and loaned within Fixed Income, Currency and Commodities Client Execution;

•

Substantially all other secured financings, including transfers of assets accounted for as financings rather than sales;

•

Certain unsecured short-term borrowings, consisting of all commercial paper and certain hybrid financial instruments;

•

Certain unsecured long-term borrowings, including certain prepaid commodity transactions and certain hybrid financial instruments;

•

Certain receivables from customers and counterparties, including transfers of assets accounted for as secured loans rather than purchases and certain margin loans;

•

Certain time deposits issued by the firm’s bank subsidiaries (deposits with no stated maturity are not eligible for a fair value option election), including structured certificates of deposit, which are hybrid financial instruments; and

•

Certain subordinated liabilities of consolidated VIEs.

Fair Value of Other Financial Assets and Financial Liabilities by Level

The table below presents, by level within the fair value hierarchy, other financial assets and financial liabilities accounted for at fair value primarily under the fair value option.


$ in millions	Level 1	Level 2		Level 3		Total
As of September 2016
Assets
Securities segregated for regulatory and other purposes	$19,186	$ 16,872		$ —		$ 36,058

Securities purchased under agreements to resell	—	93,352		—		93,352

Securities borrowed	—	78,788		—		78,788

Receivables from customers and counterparties	—	3,242		55		3,297
Total	$19,186	$ 192,254		$ 55		$ 211,495
Liabilities
Deposits	$ —	$ (10,878	)	$ (3,218	)	$ (14,096	)

Securities sold under agreements to repurchase	—	(73,830	)	(75	)	(73,905	)

Securities loaned	—	(1,969	)	—		(1,969	)

Other secured financings	—	(21,390	)	(616	)	(22,006	)

Unsecured borrowings:
Short-term	—	(13,069	)	(3,672	)	(16,741	)

Long-term	—	(22,828	)	(7,438	)	(30,266	)

Other liabilities and accrued expenses	—	(556	)	(109	)	(665	)
Total	$ —	$(144,520	)	$(15,128	)	$(159,648	)
As of December 2015
Assets
Securities segregated for regulatory and other purposes	$19,562	$ 18,942		$ —		$ 38,504

Securities purchased under agreements to resell	—	119,450		—		119,450

Securities borrowed	—	69,801		—		69,801

Receivables from customers and counterparties	—	4,947		45		4,992
Total	$19,562	$ 213,140		$ 45		$ 232,747
Liabilities
Deposits	$ —	$ (12,465	)	$ (2,215	)	$ (14,680	)

Securities sold under agreements to repurchase	—	(85,998	)	(71	)	(86,069	)

Securities loaned	—	(466	)	—		(466	)

Other secured financings	—	(22,658	)	(549	)	(23,207	)

Unsecured borrowings:
Short-term	—	(13,610	)	(4,133	)	(17,743	)

Long-term	—	(18,049	)	(4,224	)	(22,273	)

Other liabilities and accrued expenses	—	(1,201	)	(52	)	(1,253	)
Total	$ —	$(154,447	)	$(11,244	)	$(165,691	)

In the table above:

•

Securities segregated for regulatory and other purposes include segregated securities accounted for at fair value under the fair value option and includes securities borrowed and resale agreements.

•

Level 1 other financial assets at fair value include U.S. Treasury securities segregated for regulatory and other purposes accounted for at fair value under other U.S. GAAP.

•

Other financial assets are shown as positive amounts and other financial liabilities are shown as negative amounts.

Valuation Techniques and Significant Inputs

Other financial assets and financial liabilities at fair value are generally valued based on discounted cash flow techniques, which incorporate inputs with reasonable levels of price transparency, and are generally classified as level 2 because the inputs are observable. Valuation adjustments may be made for liquidity and for counterparty and the firm’s credit quality.

See below for information about the significant inputs used to value other financial assets and financial liabilities at fair value, including the ranges of significant unobservable inputs used to value the level 3 instruments within these categories. These ranges represent the significant unobservable inputs that were used in the valuation of each type of other financial assets and financial liabilities at fair value. The ranges and weighted averages of these inputs are not representative of the appropriate inputs to use when calculating the fair value of any one instrument. For example, the highest yield presented below for other secured financings is appropriate for valuing a specific agreement in that category but may not be appropriate for valuing any other agreements in that category. Accordingly, the ranges of inputs presented below do not represent uncertainty in, or possible ranges of, fair value measurements of the firm’s level 3 other financial assets and financial liabilities.

Resale and Repurchase Agreements and Securities Borrowed and Loaned. The significant inputs to the valuation of resale and repurchase agreements and securities borrowed and loaned are funding spreads, the amount and timing of expected future cash flows and interest rates. As of both September 2016 and December 2015, the firm had no level 3 resale agreements, securities borrowed or securities loaned. As of both September 2016 and December 2015, the firm’s level 3 repurchase agreements were not material. See Note 10 for further information about collateralized agreements and financings.

Other Secured Financings. The significant inputs to the valuation of other secured financings at fair value are the amount and timing of expected future cash flows, interest rates, funding spreads, the fair value of the collateral delivered by the firm (which is determined using the amount and timing of expected future cash flows, market prices, market yields and recovery assumptions) and the frequency of additional collateral calls. The ranges of significant unobservable inputs used to value level 3 other secured financings are as follows:

As of September 2016:

•

Yield: 0.5% to 12.8% (weighted average: 3.1%)

•

Duration: 1.3 to 8.1 years (weighted average: 3.0 years)

As of December 2015:

•

Yield: 0.6% to 10.0% (weighted average: 2.7%)

•

Duration: 1.6 to 8.8 years (weighted average: 2.8 years)

Generally, increases in funding spreads, yield or duration, in isolation, would result in a lower fair value measurement. Due to the distinctive nature of each of the firm’s level 3 other secured financings, the interrelationship of inputs is not necessarily uniform across such financings. See Note 10 for further information about collateralized agreements and financings.

Unsecured Short-term and Long-term Borrowings. The significant inputs to the valuation of unsecured short-term and long-term borrowings at fair value are the amount and timing of expected future cash flows, interest rates, the credit spreads of the firm, as well as commodity prices in the case of prepaid commodity transactions. The inputs used to value the embedded derivative component of hybrid financial instruments are consistent with the inputs used to value the firm’s other derivative instruments. See Note 7 for further information about derivatives. See Notes 15 and 16 for further information about unsecured short-term and long-term borrowings, respectively.

Certain of the firm’s unsecured short-term and long-term borrowings are included in level 3, substantially all of which are hybrid financial instruments. As the significant unobservable inputs used to value hybrid financial instruments primarily relate to the embedded derivative component of these borrowings, these inputs are incorporated in the firm’s derivative disclosures related to unobservable inputs in Note 7.

Receivables from Customers and Counterparties. Receivables from customers and counterparties at fair value are primarily comprised of transfers of assets accounted for as secured loans rather than purchases. The significant inputs to the valuation of such receivables are commodity prices, interest rates, the amount and timing of expected future cash flows and funding spreads. As of both September 2016 and December 2015, the firm’s level 3 receivables from customers and counterparties were not material.

Deposits. The significant inputs to the valuation of time deposits are interest rates and the amount and timing of future cash flows. The inputs used to value the embedded derivative component of hybrid financial instruments are consistent with the inputs used to value the firm’s other derivative instruments. See Note 7 for further information about derivatives. See Note 14 for further information about deposits.

The firm’s deposits that are included in level 3 are hybrid financial instruments. As the significant unobservable inputs used to value hybrid financial instruments primarily relate to the embedded derivative component of these deposits, these inputs are incorporated in the firm’s derivative disclosures related to unobservable inputs in Note 7.

Transfers Between Levels of the Fair Value Hierarchy

Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. There were no transfers of other financial assets and financial liabilities between level 1 and level 2 during the three and nine months ended September 2016 and September 2015. The table below presents information about transfers between level 2 and level 3.

Level 3 Rollforward

The table below presents changes in fair value for other financial assets and financial liabilities accounted for at fair value categorized as level 3 as of the end of the period. In the table below:

•

If a financial asset or financial liability was transferred to level 3 during a reporting period, its entire gain or loss for the period is included in level 3. For level 3 other financial assets, increases are shown as positive amounts, while decreases are shown as negative amounts. For level 3 other financial liabilities, increases are shown as negative amounts, while decreases are shown as positive amounts.

•

Level 3 other financial assets and liabilities are frequently economically hedged with cash instruments and derivatives. Accordingly, gains or losses that are reported in level 3 can be partially offset by gains or losses attributable to level 1, 2 or 3 cash instruments or derivatives. As a result, gains or losses included in the level 3 rollforward below do not necessarily represent the overall impact on the firm’s results of operations, liquidity or capital resources.

•

Net unrealized gains/(losses) relate to instruments that were still held at period-end.

•

For the three months ended September 2016, the net realized and unrealized losses on level 3 other financial liabilities of $329 million (reflecting $23 million of realized losses and $306 million of unrealized losses) include losses of approximately $302 million, $18 million and $2 million reported in “Market making,” “Other principal transactions” and “Interest expense,” respectively, in the condensed consolidated statements of earnings and losses of $7 million reported in “Debt valuation adjustment” in the condensed consolidated statements of comprehensive income.

•

For the nine months ended September 2016, the net realized and unrealized losses on level 3 other financial liabilities of $411 million (reflecting $76 million of realized losses and $335 million of unrealized losses) include losses of approximately $332 million, $32 million and $7 million reported in “Market making,” “Other principal transactions” and “Interest expense,” respectively, in the condensed consolidated statements of earnings and losses of $40 million reported in “Debt valuation adjustment” in the condensed consolidated statements of comprehensive income.

•

For the three months ended September 2015, the net realized and unrealized gains on level 3 other financial liabilities of $828 million (reflecting $58 million of realized gains and $770 million of unrealized gains) include gains/(losses) of approximately $786 million, $46 million and $(4) million reported in “Market making,” “Other principal transactions” and “Interest expense,” respectively.

•

For the nine months ended September 2015, the net realized and unrealized gains on level 3 other financial liabilities of $823 million (reflecting $36 million of realized gains and $787 million of unrealized gains) include gains/(losses) of approximately $977 million, $(134) million and $(20) million reported in “Market making,” “Other principal transactions” and “Interest expense,” respectively.

See “Level 3 Rollforward Commentary” below for an explanation of the net unrealized gains/(losses) on level 3 other financial assets and liabilities and the activity related to transfers into and out of level 3.


	Level 3 Other Financial Assets and Liabilities at Fair Value
$ in millions		Balance, beginning of period		Net realized gains/ (losses)		Net unrealized gains/ (losses)		Purchases		Sales		Issuances		Settlements		Transfers into level 3		Transfers out of level 3	Balance, end of period
Three Months Ended September 2016
Receivables from customers and counterparties		$ 48		$ 1		$ 1		$ 6		$—		$ —		$ (1	)	$ —		$ —	$ 55
Total other financial assets		$ 48		$ 1		$ 1		$ 6		$—		$ —		$ (1	)	$ —		$ —	$ 55
Deposits		$ (2,936	)	$ (7	)	$ —		$ —		$—		$ (284	)	$ 9		$ —		$ —	$ (3,218	)

Securities sold under agreements to repurchase		(76	)	—		—		—		—		—		1		—		—	(75	)

Other secured financings		(688	)	(1	)	(9	)	(3	)	—		(1	)	191		(106	)	1	(616	)

Unsecured short-term borrowings		(4,654	)	—		(218	)	—		—		(692	)	1,208		(76	)	760	(3,672	)

Unsecured long-term borrowings		(6,626	)	(19	)	(88	)	—		—		(1,160	)	378		(48	)	125	(7,438	)

Other liabilities and accrued expenses		(109	)	4		9		—		—		(13	)	—		—		—	(109	)
Total other financial liabilities		$(15,089	)	$(23	)	$(306	)	$ (3	)	$—		$(2,150	)	$1,787		$ (230	)	$ 886	$(15,128	)
Nine Months Ended September 2016
Receivables from customers and counterparties		$ 45		$ 2		$ 1		$ 10		$—		$ —		$ (3	)	$ —		$ —	$ 55
Total other financial assets		$ 45		$ 2		$ 1		$ 10		$—		$ —		$ (3	)	$ —		$ —	$ 55
Deposits		$ (2,215	)	$(20	)	$(208	)	$ —		$—		$ (797	)	$ 22		$ —		$ —	$ (3,218	)

Securities sold under agreements to repurchase		(71	)	—		(6	)	—		—		—		2		—		—	(75	)

Other secured financings		(549	)	(4	)	(33	)	(8	)	6		(141	)	228		(116	)	1	(616	)

Unsecured short-term borrowings		(4,133	)	(33	)	(98	)	—		—		(3,327	)	3,522		(427	)	824	(3,672	)

Unsecured long-term borrowings		(4,224	)	(27	)	21		(2	)	—		(4,676	)	1,417		(260	)	313	(7,438	)

Other liabilities and accrued expenses		(52	)	8		(11	)	—		—		(55	)	1		—		—	(109	)
Total other financial liabilities		$(11,244	)	$(76	)	$(335	)	$(10	)	$ 6		$(8,996	)	$5,192		$ (803	)	$1,138	$(15,128	)
Three Months Ended September 2015
Receivables from customers and counterparties		$ 42		$ —		$ —		$ 2		$ (3	)	$ —		$ 1		$ —		$ —	$ 42
Total other financial assets		$ 42		$ —		$ —		$ 2		$ (3	)	$ —		$ 1		$ —		$ —	$ 42
Deposits		$ (1,680	)	$ (3	)	$ 11		$ —		$—		$ (295	)	$ 8		$ —		$ —	$ (1,959	)

Securities sold under agreements to repurchase		(82	)	—		—		—		—		—		16		—		—	(66	)

Other secured financings		(1,479	)	(4	)	64		(10	)	—		(125	)	84		(312	)	1	(1,781	)

Unsecured short-term borrowings		(4,490	)	66		548		—		—		(1,023	)	552		(154	)	62	(4,439	)

Unsecured long-term borrowings		(3,462	)	(2	)	155		—		—		(586	)	98		(227	)	62	(3,962	)

Other liabilities and accrued expenses		(1,145	)	1		(8	)	—		—		(1	)	1		(23	)	1,125	(50	)
Total other financial liabilities		$(12,338	)	$ 58		$ 770		$(10	)	$—		$(2,030	)	$ 759		$ (716	)	$1,250	$(12,257	)
Nine Months Ended September 2015
Receivables from customers and counterparties		$ 56		$ 1		$ (4	)	$ 6		$ (3	)	$ —		$ (21	)	$ 7		$ —	$ 42
Total other financial assets		$ 56		$ 1		$ (4	)	$ 6		$ (3	)	$ —		$ (21	)	$ 7		$ —	$ 42
Deposits		$ (1,065	)	$ (6	)	$ 64		$ —		$—		$ (997	)	$ 45		$ —		$ —	$ (1,959	)

Securities sold under agreements to repurchase		(124	)	—		(1	)	—		—		—		59		—		—	(66	)

Other secured financings		(1,091	)	(20	)	84		(10	)	32		(630	)	290		(481	)	45	(1,781	)

Unsecured short-term borrowings		(3,712	)	62		356		—		—		(2,735	)	1,882		(669	)	377	(4,439	)

Unsecured long-term borrowings		(2,585	)	(4	)	292		—		—		(2,364	)	726		(421	)	394	(3,962	)

Other liabilities and accrued expenses		(715	)	4		(8	)	—		—		(1	)	7		(23	)	686	(50	)
Total other financial liabilities		$ (9,292	)	$ 36		$ 787		$(10	)	$32		$(6,727	)	$3,009		$(1,594	)	$1,502	$(12,257	)

Level 3 Rollforward Commentary

Three Months Ended September 2016. The net unrealized loss on level 3 other financial assets and liabilities of $305 million (reflecting $1 million of gains on other financial assets and $306 million of losses on other financial liabilities) for the three months ended September 2016 primarily consisted of losses on certain hybrid financial instruments included in unsecured short-term borrowings, principally due to changes in foreign exchange rates and an increase in global equity prices.

Transfers into level 3 of other financial liabilities during the three months ended September 2016 primarily reflected transfers of certain hybrid financial instruments included in other secured financings, principally due to reduced transparency of certain yield inputs used to value these instruments and transfers of certain hybrid financial instruments included in unsecured short-term borrowings, principally due to reduced transparency of certain correlation and volatility inputs used to value these instruments.

Transfers out of level 3 of other financial liabilities during the three months ended September 2016 primarily reflected transfers of certain hybrid financial instruments included in unsecured short-term borrowings, principally due to increased transparency of certain inputs, including correlation and volatility inputs used to value these instruments.

Nine Months Ended September 2016. The net unrealized loss on level 3 other financial assets and liabilities of $334 million (reflecting $1 million of gains on other financial assets and $335 million of losses on other financial liabilities) for the nine months ended September 2016 primarily consisted of losses on certain hybrid financial instruments included in deposits, principally due to the impact of an increase in the market value of the underlying assets.

Transfers into level 3 of other financial liabilities during the nine months ended September 2016 primarily reflected transfers of certain hybrid financial instruments included in unsecured short-term and long-term borrowings, principally due to reduced transparency of certain correlation and volatility inputs used to value these instruments.

Transfers out of level 3 of other financial liabilities during the nine months ended September 2016 primarily reflected transfers of certain hybrid financial instruments included in unsecured short-term borrowings, principally due to increased transparency of certain inputs, including correlation and volatility inputs used to value these instruments.

Three Months Ended September 2015. The net unrealized gain on level 3 other financial liabilities of $770 million for the three months ended September 2015 primarily reflected gains on certain hybrid financial instruments included in unsecured short-term borrowings and unsecured long-term borrowings, principally due to a decrease in global equity prices and the impact of wider credit spreads.

Transfers into level 3 of other financial liabilities during the three months ended September 2015 primarily reflected transfers of certain other secured financings from level 2, principally due to reduced transparency of certain yield and funding spread inputs used to value these instruments, and transfers of certain hybrid financial instruments included in unsecured long-term and short-term borrowings from level 2, principally due to reduced transparency of certain correlation and volatility inputs used to value these instruments.

Transfers out of level 3 of other financial liabilities during the three months ended September 2015 primarily reflected transfers of certain subordinated liabilities included in other liabilities and accrued expenses to level 2, principally due to increased price transparency as a result of market transactions in the related underlying investments.

Nine Months Ended September 2015. The net unrealized gain on level 3 other financial assets and liabilities of $783 million (reflecting $4 million of losses on other financial assets and $787 million of gains on other financial liabilities) for the nine months ended September 2015 primarily reflected gains on certain hybrid financial instruments included in unsecured short-term borrowings and long-term borrowings, principally due to a decrease in global equity prices and the impact of wider credit spreads.

Transfers into level 3 of other financial liabilities during the nine months ended September 2015 primarily reflected transfers of certain hybrid financial instruments included in unsecured short-term and long-term borrowings from level 2, principally due to reduced transparency of certain correlation and volatility inputs used to value these instruments, transfers from level 3 unsecured long-term borrowings to level 3 unsecured short-term borrowings, as these borrowings neared maturity, and transfers of certain other secured financings from level 2, principally due to reduced transparency of certain yield and funding spread inputs used to value these instruments.

Transfers out of level 3 of other financial liabilities during the nine months ended September 2015 primarily reflected transfers of certain subordinated liabilities included in other liabilities and accrued expenses to level 2, principally due to increased price transparency as a result of market transactions in the related underlying investments, transfers of certain hybrid financial instruments included in unsecured long-term and short-term borrowings to level 2, principally due to increased transparency of certain correlation and volatility inputs used to value these instruments, and transfers to level 3 unsecured short-term borrowings from level 3 unsecured long-term borrowings as these borrowings neared maturity.

Gains and Losses on Financial Assets and Financial Liabilities Accounted for at Fair Value Under the Fair Value Option

The table below presents the gains and losses recognized in earnings as a result of the firm electing to apply the fair value option to certain financial assets and financial liabilities. These gains and losses are included in “Market making” and “Other principal transactions.” The table below also includes gains and losses on the embedded derivative component of hybrid financial instruments included in unsecured short-term borrowings, unsecured long-term borrowings and deposits. These gains and losses would have been recognized under other U.S. GAAP even if the firm had not elected to account for the entire hybrid financial instrument at fair value.


	Three Months Ended September					Nine Months Ended September
$ in millions		2016		2015			2016		2015
Unsecured short-term borrowings		$(832	)	$1,845			$ (773	)	$ 947

Unsecured long-term borrowings		(19	)	273			(608	)	746

Other liabilities and accrued expenses		1		(237	)		(86	)	(676	)

Other		(85	)	34			(629	)	(28	)
Total		$(935	)	$1,915			$(2,096	)	$ 989

In the table above:

•

Gains/(losses) exclude contractual interest, which is included in “Interest income” and “Interest expense,” for all instruments other than hybrid financial instruments. See Note 23 for further information about interest income and interest expense.

•

Unsecured short-term borrowings includes gains/(losses) on the embedded derivative component of hybrid financial instruments of $(850) million and $1.84 billion for the three months ended September 2016 and September 2015, respectively, and $(782) million and $925 million for the nine months ended September 2016 and September 2015, respectively.

•

Unsecured long-term borrowings includes gains/(losses) on the embedded derivative component of hybrid financial instruments of $28 million and $112 million for the three months ended September 2016 and September 2015, respectively, and $(420) million and $645 million for the nine months ended September 2016 and September 2015, respectively.

•

Other liabilities and accrued expenses includes gains/(losses) on certain subordinated liabilities of consolidated VIEs.

•

Other primarily consists of gains/(losses) on receivables from customers and counterparties, deposits and other secured financings.

Excluding the gains and losses on the instruments accounted for under the fair value option described above, “Market making” and “Other principal transactions” primarily represent gains and losses on “Financial instruments owned, at fair value” and “Financial instruments sold, but not yet purchased, at fair value.”

Loans and Lending Commitments

The table below presents the difference between the aggregate fair value and the aggregate contractual principal amount for loans and long-term receivables for which the fair value option was elected. In the table below, the aggregate contractual principal amount of loans on non-accrual status and/or more than 90 days past due (which excludes loans carried at zero fair value and considered uncollectible) exceeds the related fair value primarily because the firm regularly purchases loans, such as distressed loans, at values significantly below the contractual principal amounts.


	As of
$ in millions		September 2016	December 2015
Performing loans and long-term receivables
Aggregate contractual principal in excess of fair value		$ 869	$1,330

Loans on non-accrual status and/or more than 90 days past due
Aggregate contractual principal in excess of fair value		9,132	9,600

Aggregate fair value of loans on non-accrual status and/or more than 90 days past due		2,454	2,391

As of September 2016 and December 2015, the fair value of unfunded lending commitments for which the fair value option was elected was a liability of $88 million and $211 million, respectively, and the related total contractual amount of these lending commitments was $7.55 billion and $14.01 billion, respectively. See Note 18 for further information about lending commitments.

Long-Term Debt Instruments

The aggregate contractual principal amount of long-term other secured financings for which the fair value option was elected exceeded the related fair value by $500 million and $362 million as of September 2016 and December 2015, respectively. The aggregate contractual principal amount of unsecured long-term borrowings for which the fair value option was elected exceeded the related fair value by $740 million and $1.12 billion as of September 2016 and December 2015, respectively. The amounts above include both principal- and non-principal-protected long-term borrowings.

Impact of Credit Spreads on Loans and Lending Commitments

The estimated net gain attributable to changes in instrument-specific credit spreads on loans and lending commitments for which the fair value option was elected was $157 million and $165 million for the three months ended September 2016 and September 2015, respectively, and $270 million and $835 million for the nine months ended September 2016 and September 2015, respectively. The firm generally calculates the fair value of loans and lending commitments for which the fair value option is elected by discounting future cash flows at a rate which incorporates the instrument-specific credit spreads. For floating-rate loans and lending commitments, substantially all changes in fair value are attributable to changes in instrument-specific credit spreads, whereas for fixed-rate loans and lending commitments, changes in fair value are also attributable to changes in interest rates.

Debt Valuation Adjustment

The firm calculates the fair value of financial liabilities for which the fair value option is elected by discounting future cash flows at a rate which incorporates the firm’s credit spreads. The net DVA on such financial liabilities was a loss of $13 million (both gross and net of tax) for the three months ended September 2016 and $116 million ($75 million, net of tax) for the nine months ended September 2016, and was included in “Debt valuation adjustment” in the condensed consolidated statements of comprehensive income. The gains/(losses) reclassified to earnings from accumulated other comprehensive loss upon extinguishment of such financial liabilities were not material for both the three and nine months ended September 2016.