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Derivatives and Hedging Activities
 9 Months Ended
Sep. 30, 2020
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Derivatives and Hedging Activities
Note 7.
Derivatives and Hedging Activities
Derivative Activities
Derivatives are instruments that derive their value from underlying asset prices, indices, reference rates and other inputs, or a combination of these factors. Derivatives may be traded on an exchange (exchange-traded) or they may be privately negotiated contracts, which are usually referred to as OTC derivatives. Certain of the firm’s OTC derivatives are cleared and settled through central clearing counterparties
(OTC-cleared),
while others are bilateral contracts between two counterparties (bilateral OTC).
Market Making.
As a market maker, the firm enters into derivative transactions to provide liquidity to clients and to facilitate the transfer and hedging of their risks. In this role, the firm typically acts as principal and is required to commit capital to provide execution, and maintains market-making positions in response to, or in anticipation of, client demand.
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, as well as to manage foreign exchange risk of certain available-for-sale securities and the net investment in certain
non-U.S.
operations.
The firm enters into various types of derivatives, including:
 
•  
Futures and Forwards.
Contracts that commit counterparties to purchase or sell financial instruments, commodities or currencies in the future.
 
•  
Swaps.
Contracts that require counterparties to exchange cash flows, such as currency or interest payment streams. The amounts exchanged are based on the specific terms of the contract with reference to specified rates, financial instruments, commodities, currencies or indices.
 
•  
Options.
Contracts in which the option purchaser has the right, but not the obligation, to purchase from or sell to the option writer financial instruments, commodities or currencies within a defined time period for a specified price.
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 the Global Markets segment), and other principal transactions (for derivatives included in the remaining business segments) in the consolidated statements of earnings. For both the three and nine months ended September 2020 and September 2019, substantially all of the firm’s derivatives were included in the Global Markets segment.
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 2020
            As of December 2019  
$ in millions
  
 
Derivative
Assets
 
 
  
 
Derivative
Liabilities
 
 
  
 
    
Derivative
Assets
  
 
    
Derivative
Liabilities
  
 
Not accounted for as hedges
 
        
Exchange-traded
  
 
$
 
        664
 
  
 
$
 
        883
 
       $        476       $        856  
OTC-cleared
  
 
17,102
 
  
 
15,395
 
       9,958       8,618  
Bilateral OTC
  
 
346,474
 
  
 
312,065
 
  
 
     266,387       242,046  
Total interest rates
  
 
364,240
 
  
 
328,343
 
  
 
     276,821       251,520  
OTC-cleared
  
 
2,633
 
  
 
2,792
 
       6,551       6,929  
Bilateral OTC
  
 
14,446
 
  
 
13,080
 
  
 
     14,178       13,860  
Total credit
  
 
17,079
 
  
 
15,872
 
  
 
     20,729       20,789  
Exchange-traded
  
 
71
 
  
 
10
 
       35       10  
OTC-cleared
  
 
329
 
  
 
457
 
       411       391  
Bilateral OTC
  
 
86,034
 
  
 
84,153
 
  
 
     79,887       81,613  
Total currencies
  
 
86,434
 
  
 
84,620
 
  
 
     80,333       82,014  
Exchange-traded
  
 
3,814
 
  
 
3,368
 
       2,390       2,272  
OTC-cleared
  
 
243
 
  
 
227
 
       180       243  
Bilateral OTC
  
 
10,498
 
  
 
14,002
 
  
 
     8,568       13,034  
Total commodities
  
 
14,555
 
  
 
17,597
 
  
 
     11,138       15,549  
Exchange-traded
  
 
28,592
 
  
 
32,863
 
       13,499       16,976  
Bilateral OTC
  
 
42,649
 
  
 
46,668
 
  
 
     36,162       39,531  
Total equities
  
 
71,241
 
  
 
79,531
 
  
 
     49,661       56,507  
Subtotal
  
 
553,549
 
  
 
525,963
 
  
 
     438,682       426,379  
Accounted for as hedges
 
        
OTC-cleared
  
 
3
 
  
 
–
 
       –       –  
Bilateral OTC
  
 
1,421
 
  
 
–
 
  
 
     3,182       1  
Total interest rates
  
 
1,424
 
  
 
–
 
  
 
     3,182       1  
OTC-cleared
  
 
10
 
  
 
19
 
       16       57  
Bilateral OTC
  
 
18
 
  
 
96
 
  
 
     16       153  
Total currencies
  
 
28
 
  
 
115
 
  
 
     32       210  
Subtotal
  
 
1,452
 
  
 
115
 
  
 
     3,214       211  
Total gross fair value
  
 
$ 555,001
 
  
 
$ 526,078
 
  
 
     $ 441,896       $ 426,590  
 
Offset in the consolidated balance sheets
    
Exchange-traded
  
 
$  (29,075
) 
  
 
$  (29,075
) 
       $  (14,159 )      $  (14,159 ) 
OTC-cleared
  
 
(18,420
) 
  
 
(18,420
) 
       (15,565 )      (15,565 ) 
Bilateral OTC
  
 
(369,760
) 
  
 
(369,760
) 
  
 
     (310,920 )      (310,920 ) 
Counterparty netting
  
 
(417,255
) 
  
 
(417,255
) 
  
 
     (340,644 )      (340,644 ) 
OTC-cleared
  
 
(1,573
) 
  
 
(336
) 
       (1,302 )      (526 ) 
Bilateral OTC
  
 
(71,653
) 
  
 
(51,789
) 
  
 
     (54,698 )      (41,618 ) 
Cash collateral netting
  
 
(73,226
) 
  
 
(52,125
) 
  
 
     (56,000 )      (42,144 ) 
Total amounts offset
  
 
$(490,481
) 
  
 
$(469,380
) 
  
 
     $(396,644 )      $(382,788 ) 
 
Included in the consolidated balance sheets
    
Exchange-traded
  
 
$
 
 
 
 
 
4,066
 
  
 
$
 
 
 
 
 
8,049
 
       $     2,241       $     5,955  
OTC-cleared
  
 
327
 
  
 
134
 
       249       147  
Bilateral OTC
  
 
60,127
 
  
 
48,515
 
  
 
     42,762       37,700  
Total
  
 
$   64,520
 
  
 
$   56,698
 
  
 
     $   45,252       $   43,802  
 
Not offset in the consolidated balance sheets
    
Cash collateral
  
 
$    (1,140
) 
  
 
$    (1,700
) 
       $       (604 )      $    (1,603 ) 
Securities collateral
  
 
(17,096
) 
  
 
(11,515
) 
  
 
     (14,196 )      (9,252 ) 
Total
  
 
$   46,284
 
  
 
$  
  
43,483
 
  
 
     $   30,452       $   32,947  
    Notional Amounts as of  
$ in millions
  
 
September
2020
 
 
     
December
2019
  
 
Not accounted for as hedges
     
Exchange-traded
  
 
$  3,897,833
 
      $  4,757,300  
OTC-cleared
  
 
16,266,950
 
      13,440,376  
Bilateral OTC
  
 
13,299,418
 
      11,668,171  
Total interest rates
  
 
33,464,201
 
      29,865,847  
OTC-cleared
  
 
547,677
 
      396,342  
Bilateral OTC
  
 
618,220
 
      707,935  
Total credit
  
 
1,165,897
 
      1,104,277  
Exchange-traded
  
 
2,647
 
      4,566  
OTC-cleared
  
 
177,785
 
      134,060  
Bilateral OTC
  
 
6,250,229
 
      5,926,602  
Total currencies
  
 
6,430,661
 
      6,065,228  
Exchange-traded
  
 
223,284
 
      230,018  
OTC-cleared
  
 
2,354
 
      2,639  
Bilateral OTC
  
 
208,868
 
      243,228  
Total commodities
  
 
434,506
 
      475,885  
Exchange-traded
  
 
1,102,199
 
      910,099  
Bilateral OTC
  
 
1,238,886
 
      1,182,335  
Total equities
  
 
2,341,085
 
      2,092,434  
Subtotal
  
 
43,836,350
 
      39,603,671  
Accounted for as hedges
     
OTC-cleared
  
 
181,135
 
      123,531  
Bilateral OTC
  
 
6,559
 
      9,714  
Total interest rates
  
 
187,694
 
      133,245  
OTC-cleared
  
 
3,274
 
      4,152  
Bilateral OTC
  
 
9,274
 
      9,247  
Total currencies
  
 
12,548
 
      13,399  
Subtotal
  
 
200,242
 
      146,644  
Total notional amounts
  
 
$44,036,592
 
      $39,750,315  
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 $19.33 billion as of September 2020 and $9.15 billion as of December 2019, and derivative liabilities of $20.99 billion as of September 2020 and $14.88 billion as of December 2019, 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.
 
•  
During the first quarter of 2020, consistent with the rules of a clearing organization, the firm elected to consider its transactions with that clearing organization as settled each day. The impact of this change would have been a reduction in gross credit derivative assets of $3.97 billion and liabilities of $4.15 billion as of December 2019, and a corresponding decrease in counterparty and cash collateral netting, with no impact to the consolidated balance sheets.
Fair Value of Derivatives by Level
The table below presents derivatives on a gross basis by level and product type, as well as the impact of netting.
 
$ in millions
     Level 1       Level 2       Level 3       Total  
As of September 2020
        
Assets
        
Interest rates
  
 
$ 184
 
  
 
$ 364,601
 
  
 
$   
 
879
 
  
 
$ 365,664
 
Credit
  
 
–
 
  
 
13,315
 
  
 
3,764
 
  
 
17,079
 
Currencies
  
 
–
 
  
 
86,292
 
  
 
170
 
  
 
86,462
 
Commodities
  
 
–
 
  
 
14,010
 
  
 
545
 
  
 
14,555
 
Equities
  
 
23
 
  
 
69,109
 
  
 
2,109
 
  
 
71,241
 
Gross fair value
  
 
207
 
  
 
547,327
 
  
 
7,467
 
  
 
555,001
 
Counterparty netting in levels
  
 
(68
) 
  
 
(414,710
) 
  
 
(1,156
) 
  
 
(415,934
) 
Subtotal
  
 
$ 139
 
  
 
$ 132,617
 
  
 
$ 6,311
 
  
 
$ 139,067
 
Cross-level counterparty netting
        
 
(1,321
) 
Cash collateral netting
  
 
 
 
  
 
 
 
  
 
 
 
  
 
(73,226
) 
Net fair value
  
 
 
 
  
 
 
 
  
 
 
 
  
 
$   64,520
 
 
Liabilities
        
Interest rates
  
 
$(109
) 
  
 
$(327,610
) 
  
 
$  
 
(624
) 
  
 
$(328,343
) 
Credit
  
 
–
 
  
 
(14,094
) 
  
 
(1,778
) 
  
 
(15,872
) 
Currencies
  
 
–
 
  
 
(84,310
) 
  
 
(425
) 
  
 
(84,735
) 
Commodities
  
 
–
 
  
 
(17,247
) 
  
 
(350
) 
  
 
(17,597
) 
Equities
  
 
(15
) 
  
 
(77,380
) 
  
 
(2,136
) 
  
 
(79,531
) 
Gross fair value
  
 
(124
) 
  
 
(520,641
) 
  
 
(5,313
) 
  
 
(526,078
) 
Counterparty netting in levels
  
 
68
 
  
 
414,710
 
  
 
1,156
 
  
 
415,934
 
Subtotal
  
 
$  (56
) 
  
 
$(105,931
) 
  
 
$(4,157
) 
  
 
$(110,144
) 
Cross-level counterparty netting
        
 
1,321
 
Cash collateral netting
  
 
 
 
  
 
 
 
  
 
 
 
  
 
52,125
 
Net fair value
  
 
 
 
  
 
 
 
  
 
 
 
  
 
$  (56,698
) 
 
As of December 2019
        
Assets
        
Interest rates
     $    
 
3		       $
 
 279,443		       $
 
    557		       $
 
 280,003		  
Credit
     –       17,204       3,525       20,729  
Currencies
     –       80,178       187       80,365  
Commodities
     –       10,648       490       11,138  
Equities
     21       48,953       687       49,661  
Gross fair value
     24       436,426       5,446       441,896  
Counterparty netting in levels
     –       (340,325 )      (792 )      (341,117 ) 
Subtotal
     $  
 
24		       $   
 
96,101		       $
 
 4,654		       $
 
 100,779		  
Cross-level counterparty netting
           473  
Cash collateral netting
  
 
 
 
  
 
 
 
  
 
 
 
     (56,000 ) 
Net fair value
  
 
 
 
  
 
 
 
  
 
 
 
     $
 
   45,252		  
 
Liabilities
        
Interest rates
     $  
  
(3		 )      $
 
(251,050		 )      $   
 
(468		 )      $
 
(251,521		 ) 
Credit
     –       (19,141 )      (1,648 )      (20,789 ) 
Currencies
     –       (81,826 )      (398 )      (82,224 ) 
Commodities
     –       (15,306 )      (243 )      (15,549 ) 
Equities
     (26 )      (53,817 )      (2,664 )      (56,507 ) 
Gross fair value
     (29 )      (421,140 )      (5,421 )      (426,590 ) 
Counterparty netting in levels
     –       340,325       792       341,117  
Subtotal
     $
  
(29		 )      $
 
  (80,815		 )      $
 
(4,629		 )      $
 
  (85,473		 ) 
Cross-level counterparty netting
           (473 ) 
Cash collateral netting
  
 
 
 
  
 
 
 
  
 
 
 
     42,144  
Net fair value
  
 
 
 
  
 
 
 
  
 
 
 
     $
 
  (43,802		 ) 
In the table above:
 
•  
Gross fair values exclude the effects of both counterparty netting and collateral netting, and therefore are not representative of the firm’s exposure.
 
•  
Counterparty netting is reflected in each level to the extent that receivable and payable balances are netted within the same level and is included in counterparty netting in levels. Where the counterparty netting is across levels, the netting is included in cross-level counterparty netting.
•  
Derivative assets are shown as positive amounts and derivative liabilities are shown as negative amounts.
See Note 4 for an overview of the firm’s fair value measurement policies and the valuation techniques and significant inputs used to determine the fair value of derivatives.
Significant Unobservable Inputs
The table below presents the amount of level 3 derivative assets (liabilities), and ranges, averages and medians of significant unobservable inputs used to value level 3 derivatives.
 
         
Level 3 Assets (Liabilities) and Range of Significant
Unobservable Inputs (Average/Median) as of
  
$ in millions, except inputs
 
  
 
September
2020
 
 
    
December
2019
  
 
Interest rates, net
    
 
$255 
 
     $89   
 
Correlation
    
 
(38)% to 81% (52%/60%)
 
     (42)% to 81% (52%/60%)  
 
Volatility (bps)
  
 
 
 
  
 
31 to 150 (65/53)
 
     31 to 150 (70/61)  
Credit, net
    
 
$1,986 
 
     $1,877   
 
Credit spreads (bps)
    
 
2 to 748 (124/90)
 
     1 to 559 (96/53)  
 
Upfront credit points
    
 
7 to 90 (47/50)
 
     2 to 90 (38/32)  
 
Recovery rates
  
 
 
 
  
 
25% to 90% (48%/40%)
 
     10% to 60% (31%/25%)  
Currencies, net
    
 
$(255)
 
     $(211)  
 
Correlation
    
 
20% to 70% (39%/41%)
 
     20% to 70% (37%/36%)  
 
Volatility
  
 
 
 
  
 
19% to 20% (20%/20%)
 
     N/A  
Commodities, net
    
 
$195 
 
     $247   
 
Volatility
    
 
14% to 105% (39%/33%)
 
     9% to 57% (26%/25%)  
 
Natural gas spread
    
 
 
 
$(1.44) to $1.89 
($(0.12)/$(0.09))
 
 
 
    
$(1.93) to $1.69 
($(0.16)/$(0.17))
  
 
 
Oil spread
  
 
 
 
  
 
 
 
$4.73 to $9.98 
($8.15/$8.33)
 
 
 
    
$(4.86) to $19.77 
($9.82/$11.15)
  
 
Equities, net
    
 
$(27)
 
     $(1,977)  
 
Correlation
    
 
(70)% to 99% (50%/55%)
 
     (70)% to 99% (42%/45%)  
 
Volatility
  
 
 
 
  
 
3% to 128% (24%/22%)
 
     2% to 72% (14%/7%)  
In the table above:
 
•  
Derivative assets are shown as positive amounts and derivative liabilities are shown as negative amounts.
 
•  
Ranges represent the significant unobservable inputs that were used in the valuation of each type of derivative.
 
•  
Averages represent the arithmetic average of the inputs and are not weighted by the relative fair value or notional of the respective financial instruments. An average greater than the median indicates that the majority of inputs are below the average. For example, the difference between the average and the median for credit spreads indicates that the majority of the inputs fall in the lower end of the range.
•
 
The ranges, averages and medians of these inputs are not representative of the appropriate inputs to use when calculating the fair value of any one derivative. For example, the highest correlation for interest rate derivatives is appropriate for valuing a specific interest rate derivative but may not be appropriate for valuing any other interest rate derivative. Accordingly, the ranges of inputs do not represent uncertainty in, or possible ranges of, fair value measurements of level 3 derivatives.
 
•  
Interest rates, currencies and equities derivatives are valued using option pricing models, credit derivatives are valued using option pricing, correlation and discounted cash flow models, and commodities derivatives are valued using option pricing and discounted cash flow models.
 
•  
The fair value of any one instrument may be determined using multiple valuation techniques. For example, option pricing models and discounted cash flows models are typically used together to determine fair value. Therefore, the level 3 balance encompasses both of these techniques.
 
•  
Correlation within currencies and equities includes cross-product type correlation.
 
•  
Volatility was not significant to the valuation of level 3 currency derivatives as of December 2019.
 
•  
Natural gas spread represents the spread per million British thermal units of natural gas.
 
•  
Oil spread represents the spread per barrel of oil and refined products.
Range of Significant Unobservable Inputs
The following provides information about the ranges of significant unobservable inputs used to value the firm’s level 3 derivative instruments:
 
•  
Correlation.
Ranges for correlation cover a variety of underliers both within one product type (e.g., equity index and equity single stock names) and across product types (e.g., correlation of an interest rate and a currency), as well as across regions. Generally, cross-product type correlation inputs are used to value more complex instruments and are lower than correlation inputs on assets within the same derivative product type.
 
•  
Volatility.
Ranges for volatility cover numerous underliers across a variety of markets, maturities and strike prices. For example, volatility of equity indices is generally lower than volatility of single stocks.
•  
Credit spreads, upfront credit points and recovery rates.
The ranges for credit spreads, upfront credit points and recovery rates cover a variety of underliers (index and single names), regions, sectors, maturities and credit qualities (high-yield and investment-grade). The broad range of this population gives rise to the width of the ranges of significant unobservable inputs.
 
•  
Commodity prices and spreads.
The ranges for commodity prices and spreads cover variability in products, maturities and delivery locations.
Sensitivity of Fair Value Measurement to Changes in Significant Unobservable Inputs
The following is a description of the directional sensitivity of the firm’s level 3 fair value measurements to changes in significant unobservable inputs, in isolation, as of each
period-end:
 
•  
Correlation.
In general, for contracts where the holder benefits from the convergence of the underlying asset or index prices (e.g., interest rates, credit spreads, foreign exchange rates, inflation rates and equity prices), an increase in correlation results in a higher fair value measurement.
 
•  
Volatility.
In general, for purchased options, an increase in volatility results in a higher fair value measurement.
 
•  
Credit spreads, upfront credit points and recovery rates.
In general, the fair value of purchased credit protection increases as credit spreads or upfront credit points increase or recovery rates decrease. Credit spreads, upfront credit points and recovery rates are strongly related to distinctive risk factors of the underlying reference obligations, which include reference entity-specific factors, such as leverage, volatility and industry, market-based risk factors, such as borrowing costs or liquidity of the underlying reference obligation, and macroeconomic conditions.
 
•  
Commodity prices and spreads.
In general, for contracts where the holder is receiving a commodity, an increase in the spread (price difference from a benchmark index due to differences in quality or delivery location) or price results in a higher fair value measurement.
Due to the distinctive nature of each of the firm’s level 3 derivatives, the interrelationship of inputs is not necessarily uniform within each product type.
Level 3 Rollforward
The table below presents a summary of the changes in fair value for level 3 derivatives.
 
    Three Months
Ended September		                Nine Months
Ended September		  
$ in millions
  
 
2020
 
      2019    
 
  
 
2020
 
      2019  
Total level 3 derivatives, net
            
Beginning balance
  
 
$3,060
 
      $ 598      
 
$     25
 
      $ 590  
Net realized gains/(losses)
  
 
(8
) 
      75      
 
142
 
      89  
Net unrealized gains/(losses)
  
 
(315
) 
      162      
 
1,465
 
      (49 ) 
Purchases
  
 
93
 
      133      
 
345
 
      420  
Sales
  
 
(288
) 
      (222 )     
 
181
 
      (607 ) 
Settlements
  
 
(189
) 
      (44 )     
 
182
 
      220  
Transfers into level 3
  
 
–
 
      (33 )     
 
(74
) 
      60  
Transfers out of level 3
  
 
(199
) 
      (6 )   
 
  
 
(112
) 
      (60 ) 
Ending balance
  
 
$2,154
 
      $ 663    
 
  
 
$2,154
 
      $ 663  
In the table above:
 
•  
Changes in fair value are presented for all derivative assets and liabilities that are classified in level 3 as of the end of the period.
 
•  
Net unrealized gains/(losses) relates to instruments that were still held at
period-end.
 
•  
Transfers between levels of the fair value hierarchy are reported at the beginning of the reporting period in which they occur. If a derivative was transferred into level 3 during a reporting period, its entire gain or loss for the period is classified in level 3.
 
•  
Positive amounts for transfers into level 3 and negative amounts for transfers out of level 3 represent net transfers of derivative assets. Negative amounts for transfers into level 3 and positive amounts for transfers out of level 3 represent net transfers of derivative liabilities.
 
•  
A derivative with level 1 and/or level 2 inputs is classified in level 3 in its entirety if it has at least one significant level 3 input.
 
•  
If there is one significant level 3 input, the entire gain or loss from adjusting only observable inputs (i.e., level 1 and level 2 inputs) is classified in level 3.
 
•  
Gains or losses that have been classified in level 3 resulting from changes in level 1 or level 2 inputs are frequently offset by gains or losses attributable to level 1 or level 2 derivatives and/or level 1, level 2 and level 3 trading cash instruments. As a result, gains/(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.
The table below presents information, by product type, for derivatives included in the summary table above.
 
    Three Months
Ended September		                Nine Months
Ended September		  
$ in millions
  
 
2020
 
     2019    
 
  
 
2020
 
     2019  
Interest rates, net
          
Beginning balance
  
 
$   311
 
     $      30      
 
$
 
      89
 
     $   (109 ) 
Net realized gains/(losses)
  
 
3
 
     (21 )     
 
12
 
     (28 ) 
Net unrealized gains/(losses)
  
 
54
 
     103      
 
201
 
     163  
Purchases
  
 
11
 
     2      
 
18
 
     10  
Sales
  
 
1
 
     –      
 
(15
) 
     (12 ) 
Settlements
  
 
(59
) 
     (51 )     
 
(40
) 
     41  
Transfers into level 3
  
 
(53
) 
     6      
 
(14
) 
     (15 ) 
Transfers out of level 3
  
 
(13
) 
     (19 )   
 
  
 
4
 
     –  
Ending balance
  
 
$   255
 
     $      50    
 
  
 
$    255
 
     $      50  
 
Credit, net
 
      
Beginning balance
  
 
$2,327
 
     $ 1,676      
 
$ 1,877
 
     $ 1,672  
Net realized gains/(losses)
  
 
(1
) 
     21      
 
6
 
     30  
Net unrealized gains/(losses)
  
 
(124
) 
     245      
 
175
 
     264  
Purchases
  
 
16
 
     23      
 
35
 
     102  
Sales
  
 
(8
) 
     (31 )     
 
(23
) 
     (63 ) 
Settlements
  
 
(189
) 
     (56 )     
 
(38
) 
     (207 ) 
Transfers into level 3
  
 
26
 
     37      
 
4
 
     110  
Transfers out of level 3
  
 
(61
) 
     (15 )   
 
  
 
(50
) 
     (8 ) 
Ending balance
  
 
$1,986
 
     $ 1,900    
 
  
 
$ 1,986
 
     $ 1,900  
 
Currencies, net
          
Beginning balance
  
 
$    (94
) 
     $     (31 )     
 
$   (211
) 
     $    461  
Net realized gains/(losses)
  
 
18
 
     (2 )     
 
8
 
     (23 ) 
Net unrealized gains/(losses)
  
 
(143
) 
     (147 )     
 
(118
) 
     (311 ) 
Purchases
  
 
5
 
     6      
 
5
 
     9  
Sales
  
 
(12
) 
     (8 )     
 
(7
) 
     (12 ) 
Settlements
  
 
(34
) 
     17      
 
77
 
     (293 ) 
Transfers into level 3
  
 
(1
) 
     (18 )     
 
(2
) 
     (13 ) 
Transfers out of level 3
  
 
6
 
     (3 )   
 
  
 
(7
) 
     (4 ) 
Ending balance
  
 
$  (255
) 
     $   (186 )   
 
  
 
$   (255
) 
     $   (186 ) 
 
Commodities, net
          
Beginning balance
  
 
$   331
 
     $    134      
 
$    247
 
     $    112  
Net realized gains/(losses)
  
 
16
 
     1      
 
65
 
     (18 ) 
Net unrealized gains/(losses)
  
 
(84
) 
     84      
 
38
 
     151  
Purchases
  
 
1
 
     7      
 
2
 
     27  
Sales
  
 
(7
) 
     (16 )     
 
(20
) 
     (124 ) 
Settlements
  
 
(20
) 
     (46 )     
 
(64
) 
     2  
Transfers into level 3
  
 
(12
) 
     6      
 
(24
) 
     –  
Transfers out of level 3
  
 
(30
) 
     (9 )   
 
  
 
(49
) 
     11  
Ending balance
  
 
$   195
 
     $    161    
 
  
 
$    195
 
     $    161  
 
Equities, net
          
Beginning balance
  
 
$   185
 
     $(1,211 )     
 
$(1,977
) 
     $(1,546 ) 
Net realized gains/(losses)
  
 
(44
) 
     76      
 
51
 
     128  
Net unrealized gains/(losses)
  
 
(18
) 
     (123 )     
 
1,169
 
     (316 ) 
Purchases
  
 
60
 
     95      
 
285
 
     272  
Sales
  
 
(262
) 
     (167 )     
 
246
 
     (396 ) 
Settlements
  
 
113
 
     92      
 
247
 
     677  
Transfers into level 3
  
 
40
 
     (64 )     
 
(38
) 
     (22 ) 
Transfers out of level 3
  
 
(101
) 
     40    
 
  
 
(10
) 
     (59 ) 
Ending balance
  
 
$    (27
) 
     $(1,262 )   
 
  
 
$     (27
) 
     $(1,262 ) 
Level 3 Rollforward Commentary
Three Months Ended September 2020.
The net realized and unrealized losses on level 3 derivatives of $323 million (reflecting $8 million of net realized losses and $315 million of net unrealized losses) for the three months ended September 2020 included losses of $289 million reported in market making and losses of $34 million reported in other principal transactions.
The net unrealized losses on level 3 derivatives for the three months ended September 2020 were primarily attributable to losses on certain currency derivatives (primarily reflecting the impact of changes in foreign exchange rates) and losses on certain credit derivatives (primarily reflecting the impact of tighter credit spreads).
The drivers of transfers into level 3 derivatives during the three months ended September 2020 were not material.
Transfers out of level 3 derivatives during the three months ended September 2020 primarily reflected transfers of certain equity derivative assets to level 2 (principally due to increased transparency of certain volatility inputs used to value these derivatives).
Nine Months Ended September 2020.
The net realized and unrealized gains on level 3 derivatives of $1.61 billion (reflecting $142 million of net realized gains and $1.47 billion of net unrealized gains) for the nine months ended September 2020 included gains of $1.67 billion reported in market making and losses of $61 million reported in other principal transactions.
The net unrealized gains on level 3 derivatives for the nine months ended September 2020 were primarily attributable to gains on certain equity derivatives (primarily reflecting the impact of changes in underlying equity prices) and gains on certain interest rate derivatives (primarily reflecting the impact of a decrease in interest rates).
The drivers of both transfers into level 3 derivatives and out of level 3 derivatives during the nine months ended September 2020 were not material.
Three Months Ended September 2019.
The net realized and unrealized gains on level 3 derivatives of $237 million (reflecting $75 million of net realized gains and $162 million of net unrealized gains) for the three months ended September 2019 included gains/(losses) of $245 million reported in market making and $(8) million reported in other principal transactions.
The net unrealized gains on level 3 derivatives for the three months ended September 2019 were primarily attributable to gains on certain credit and interest rate derivatives (primarily reflecting the impact of a decrease in interest rates), partially offset by losses on certain currency derivatives (primarily reflecting the impact of a decrease in interest rates and changes in foreign exchange rates) and losses on certain equity derivatives (primarily reflecting the impact of an increase in equity prices).
The drivers of both transfers into level 3 derivatives and transfers out of level 3 derivatives during the three months ended September 2019 were not material.
Nine Months Ended September 2019.
The net realized and unrealized gains on level 3 derivatives of $40 million (reflecting $89 million of net realized gains and $49 million of net unrealized losses) for the nine months ended September 2019 included gains/(losses) of $99 million reported in market making and $(59) million reported in other principal transactions.
The net unrealized losses on level 3 derivatives for the nine months ended September 2019 were attributable to losses on certain equity derivatives (reflecting the impact of an increase in equity prices), losses on certain currency derivatives (primarily reflecting the impact of a decrease in interest rates and changes in foreign exchange rates), partially offset by gains on certain credit and interest rate derivatives (primarily reflecting the impact of a decrease in interest rates) and gains on certain commodity derivatives (reflecting the impact of changes in commodity prices).
Transfers into level 3 derivatives during the nine months ended September 2019 primarily reflected transfers of certain credit derivative assets from level 2 (primarily due to unobservable credit spread inputs becoming significant to the net risk of certain portfolios).
The drivers of transfers out of level 3 derivatives during the nine months ended September 2019 were not material.
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 2020
        
Assets
        
Interest rates
  
 
$  8,579
 
  
 
$21,362
 
  
 
$73,807
 
  
 
$103,748
 
Credit
  
 
685
 
  
 
3,532
 
  
 
3,989
 
  
 
8,206
 
Currencies
  
 
11,128
 
  
 
6,001
 
  
 
9,069
 
  
 
26,198
 
Commodities
  
 
3,244
 
  
 
1,916
 
  
 
542
 
  
 
5,702
 
Equities
  
 
8,406
 
  
 
10,223
 
  
 
2,204
 
  
 
20,833
 
Counterparty netting in tenors
  
 
(3,506
) 
  
 
(4,047
) 
  
 
(3,365
) 
  
 
(10,918
) 
Subtotal
  
 
$
28,536
 
  
 
$38,987
 
  
 
$86,246
 
  
 
$153,769
 
Cross-tenor counterparty netting
        
 
(20,089
) 
Cash collateral netting
  
 
 
 
  
 
 
 
  
 
 
 
  
 
(73,226
) 
Total OTC derivative assets
  
 
 
 
  
 
 
 
  
 
 
 
  
 
$  60,454
 
 
Liabilities
        
Interest rates
  
 
$  5,192
 
  
 
$12,242
 
  
 
$48,777
 
  
 
$  66,211
 
Credit
  
 
845
 
  
 
3,577
 
  
 
2,577
 
  
 
6,999
 
Currencies
  
 
11,282
 
  
 
7,237
 
  
 
6,013
 
  
 
24,532
 
Commodities
  
 
2,962
 
  
 
1,862
 
  
 
4,365
 
  
 
9,189
 
Equities
  
 
9,165
 
  
 
12,627
 
  
 
3,058
 
  
 
24,850
 
Counterparty netting in tenors
  
 
(3,506
) 
  
 
(4,047
) 
  
 
(3,365
) 
  
 
(10,918
) 
Subtotal
  
 
$25,940
 
  
 
$33,498
 
  
 
$61,425
 
  
 
$120,863
 
Cross-tenor counterparty netting
        
 
(20,089
) 
Cash collateral netting
  
 
 
 
  
 
 
 
  
 
 
 
  
 
(52,125
) 
Total OTC derivative liabilities
  
 
 
 
  
 
 
 
  
 
 
 
  
 
$  48,649
 
 
As of December 2019
        
Assets
        
Interest rates
     $  5,521       $15,183       $57,394       $  78,098  
Credit
     678       3,259       3,183       7,120  
Currencies
     10,236       5,063       6,245       21,544  
Commodities
     2,507       1,212       302       4,021  
Equities
     7,332       4,509       1,294       13,135  
Counterparty netting in tenors
     (3,263 )      (3,673 )      (2,332 )      (9,268 ) 
Subtotal
     $23,011       $25,553       $66,086       $114,650  
Cross-tenor counterparty netting
           (15,639 ) 
Cash collateral netting
  
 
 
 
  
 
 
 
  
 
 
 
     (56,000 ) 
Total OTC derivative assets
  
 
 
 
  
 
 
 
  
 
 
 
     $  43,011  
 
Liabilities
        
Interest rates
     $  3,654       $  9,113       $36,470       $  49,237  
Credit
     1,368       4,052       1,760       7,180  
Currencies
     12,486       6,906       4,036       23,428  
Commodities
     2,796       1,950       3,804       8,550  
Equities
     5,755       7,381       3,367       16,503  
Counterparty netting in tenors
     (3,263 )      (3,673 )      (2,332 )      (9,268 ) 
Subtotal
     $22,796       $25,729       $47,105       $  95,630  
Cross-tenor counterparty netting
           (15,639 ) 
Cash collateral netting
  
 
 
 
  
 
 
 
  
 
 
 
     (42,144 ) 
Total OTC derivative liabilities
  
 
 
 
  
 
 
 
  
 
 
 
     $  37,847  
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.
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 2020, written credit derivatives had a total gross notional amount of $558.19 billion and purchased credit derivatives had a total gross notional amount of $607.73 billion, for total net notional purchased protection of $49.54 billion. As of December 2019, written credit derivatives had a total gross notional amount of $522.57 billion and purchased credit derivatives had a total gross notional amount of $581.76 billion, for total net notional purchased protection of $59.19 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 2020
          
Maximum Payout/Notional Amount of Written Credit Derivatives by Tenor
 
Less than 1 year
  
 
$  98,080
 
  
 
$11,545
 
  
 
$  1,550
 
  
 
$  2,408
 
  
 
$113,583
 
1 – 5 years
  
 
296,222
 
  
 
25,444
 
  
 
16,824
 
  
 
12,623
 
  
 
351,113
 
Greater than 5 years
  
 
80,575
 
  
 
6,704
 
  
 
5,313
 
  
 
898
 
  
 
93,490
 
Total
  
 
$474,877
 
  
 
$43,693
 
  
 
$23,687
 
  
 
$15,929
 
  
 
$558,186
 
 
Maximum Payout/Notional Amount of Purchased Credit Derivatives
 
 
Offsetting
  
 
$421,367
 
  
 
$33,354
 
  
 
$20,018
 
  
 
$15,043
 
  
 
$489,782
 
Other
  
 
$100,867
 
  
 
$11,085
 
  
 
$  3,932
 
  
 
$  2,062
 
  
 
$117,946
 
Fair Value of Written Credit Derivatives
 
Asset
  
 
$    7,598
 
  
 
$    
 
428
 
  
 
$    
 
243
 
  
 
$    
 
171
 
  
 
$    8,440
 
Liability
  
 
1,116
 
  
 
774
 
  
 
1,942
 
  
 
3,357
 
  
 
7,189
 
Net asset/(liability)
  
 
$    6,482
 
  
 
$   
 
(346
) 
  
 
$
 
(1,699
) 
  
 
$
 
(3,186
) 
  
 
$    1,251
 
 
As of December 2019
 
        
Maximum Payout/Notional Amount of Written Credit Derivatives by Tenor
 
Less than 1 year
     $143,566       $  7,155       $     759       $  2,953       $154,433  
1 – 5 years
     292,444       10,125       5,482       8,735       316,786  
Greater than 5 years
     48,109       2,260       427       554       51,350  
Total
     $484,119       $19,540       $  6,668       $12,242       $522,569  
 
Maximum Payout/Notional Amount of Purchased Credit Derivatives
 
 
Offsetting
     $395,127       $14,492       $  5,938       $10,543       $426,100  
Other
     $149,092       $  2,617       $  1,599       $  2,354       $155,662  
Fair Value of Written Credit Derivatives
 
Asset
     $  13,103       $     446       $     160       $     202       $  13,911  
Liability
     1,239       448       372       3,490       5,549  
Net asset/(liability)
     $  11,864       $        (2 )      $    (212 )      $ (3,288 )      $    8,362  
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 represents the gains or losses (including hedges) attributable to the impact of changes in credit exposure, counterparty credit spreads, liability funding spreads (which includes 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 represents 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
  
 
2020
 
        2019    
 
  
 
2020
 
        2019  
CVA, net of hedges
  
 
$103
 
        $ 40      
 
$ 52
 
        $(158 ) 
FVA, net of hedges
  
 
101
 
        (11 )   
 
  
 
(78
) 
        261  
Total
  
 
$204
 
        $ 29    
 
  
 
$(26
) 
        $ 103  
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  
$ in millions
  
 
September
2020
 
 
      December
2019		  
 
Fair value of assets
  
 
$  1,475
 
      $  1,148  
Fair value of liabilities
  
 
(1,094
) 
      (1,717 ) 
Net asset/(liability)
  
 
$    
 
381
 
      $    (569 ) 
 
Notional amount
  
 
$12,670
 
      $11,003  
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  
$ in millions
  
 
September
2020
 
 
      December
2019		  
 
Net derivative liabilities under bilateral agreements
  
 
$38,819
 
      $32,800  
Collateral posted
  
 
$34,104
 
      $28,510  
Additional collateral or termination payments:
     
One-notch
downgrade
  
 
$    
 
406
 
      $     358  
Two-notch
downgrade
  
 
$    
 
912
 
      $  1,268  
Hedge Accounting
The firm applies hedge accounting for (i) certain interest rate swaps used to manage the interest rate exposure of certain fixed-rate unsecured long- and short-term borrowings and certain fixed-rate certificates of deposit, (ii) foreign exchange forward contracts used to manage the foreign exchange risk of certain available-for-sale securities and (iii) certain foreign currency forward contracts and foreign currency-denominated debt used to manage foreign currency exposures 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 certain interest rate swaps as fair value hedges of certain fixed-rate unsecured long- and short-term debt and fixed-rate certificates of deposit. These interest rate swaps hedge changes in fair value attributable to the designated benchmark interest rate (e.g., London Interbank Offered Rate (LIBOR), Secured Overnight Financing Rate or Overnight Index Swap Rate), effectively converting a substantial portion of fixed-rate obligations into floating-rate obligations.
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 fair value hedges, gains or losses on derivatives are included in interest expense. The change in fair value of the hedged item attributable to the risk being hedged is reported as an adjustment to its carrying value (hedging adjustment) and is also included in interest 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 to interest 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 borrowings and deposits, and total interest expense.
 
    Three Months
Ended September		         Nine Months
Ended September		  
$ in millions
  
 
2020
 
     2019           
 
2020
 
     2019  
Interest rate hedges
  
 
$(1,111
) 
     $ 2,465      
 
$ 5,829
 
     $  6,054  
Hedged borrowings and deposits
  
 
$    916
 
     $(2,548 )     
 
$(6,327
) 
     $
  
(6,366		 ) 
Interest expense
  
 
$ 1,848
 
     $ 4,451    
 
  
 
$ 7,375
 
     $13,519  
In the table above, the difference between gains/(losses) from interest rate hedges and hedged borrowings and deposits was primarily due to the amortization of prepaid credit spreads resulting from the passage of time.
The table below presents the carrying value of deposits and unsecured borrowings that are designated in a 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 2020
     
Deposits
  
 
$  17,963
 
   
 
$     806
 
Unsecured short-term borrowings
  
 
$    6,685
 
   
 
$       45
 
Unsecured long-term borrowings
  
 
$116,349
 
   
 
$12,799
 
 
As of December 2019
     
Deposits
     $  19,634        $     200  
Unsecured short-term borrowings
     $    6,008        $       28  
Unsecured long-term borrowings
     $  87,874        $  7,292  
In the table above, cumulative hedging adjustment included $5.25 billion as of September 2020 and $3.48 billion as of December 2019 of hedging adjustments from prior hedging relationships that were
de-designated
and substantially all were related to unsecured long-term borrowings.
In addition,
cumulative hedging adjustments for items no longer designated in a hedging relationship were $792 million as of September 2020 and $425 million as of December 2019 and substantially all were related to unsecured long-term borrowings.
During the third quarter of 2020, the firm designated certain foreign exchange forward contracts as fair value hedges of the foreign exchange risk of certain available-for-sale securities. The effectiveness of such hedges is assessed based on changes in spot rates. The carrying value of such securities was $635 million as of September 2020. Gains/(losses) included in earnings from such hedges and the related available-for-sale securities were not material for the three months ended September 2020.
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
  
 
2020
 
      2019    
 
 
 
  
 
2020
 
      2019  
Hedges:
            
Foreign currency forward contract
  
 
$(255
) 
      $367      
 
$ 387
 
      $351  
Foreign currency-denominated debt
  
 
$(102
) 
      $  26    
 
 
 
  
 
$(132
) 
      $ (18 ) 
Gains or losses on individual net investments in
non-U.S.
operations are reclassified to earnings from accumulated other comprehensive income/(loss) when such net investments are sold or substantially liquidated. The gross and net gains and losses on hedges and the related net investments in
non-U.S.
operations reclassified to earnings from accumulated other comprehensive income/(loss) was not material for the three months ended September 2020 and was $61 million (reflecting a gain of $215 million related to hedges and a loss of $154 million on the related net investments in
non-U.S.
operations) for the nine months ended September 2020. The gain/(loss) reclassified to earnings from accumulated other comprehensive income was not material for both the three and nine months September 2019.
The firm had designated $3.70 billion as of September 2020 and $3.05 billion as of December 2019 of foreign currency-denominated debt, included in unsecured long- and short-term borrowings, as hedges of net investments in
non-U.S.
subsidiaries.