Fair Value Measurements (Tables)

12 Months Ended

Dec. 31, 2017

Fair Values Of Funds And Unfunded Commitments

The following table presents the fair value of our direct and indirect principal investments and related unfunded commitments at December 31, 2017, as well as financial support provided for the years ended December 31, 2017, and December 31, 2016.



					Financial support provided
					Year ended December 31,
	December 31, 2017				2017			2016
in millions	Fair Value		Unfunded Commitments		Funded Commitments		Funded Other	Funded Commitments		Funded Other
INVESTMENT TYPE
Direct investments ^(a)	$	13	—		—		—	—		$	13
Indirect investments ^(b)	124		$	29	$	1	—	$	6	—
Total	$	137	$	29	$	1	—	$	6	$	13

(a)

Our direct investments consist of equity and debt investments directly in independent business enterprises. Operations of the business enterprises are handled by management of the portfolio company. The purpose of funding these enterprises is to provide financial support for business development and acquisition strategies. We infuse equity capital based on an initial contractual cash contribution and later from additional requests on behalf of the companies’ management.

(b)

Our indirect investments consist of buyout funds, venture capital funds, and fund of funds. These investments are generally not redeemable. Instead, distributions are received through the liquidation of the underlying investments of the fund. An investment in any one of these funds typically can be sold only with the approval of the fund’s general partners. We estimate that the underlying investments of the funds will be liquidated over a period of one to eight years. The purpose of funding our capital commitments to these investments is to allow the funds to make additional follow-on investments and pay fund expenses until the fund dissolves. We, and all other investors in the fund, are obligated to fund the full amount of our respective capital commitments to the fund based on our and their respective ownership percentages, as noted in the applicable Limited Partnership Agreement.

Fair Value of Assets and Liabilities Measured on Recurring Basis

The following tables present these assets and liabilities at December 31, 2017, and December 31, 2016.



December 31, 2017	Level 1		Level 2		Level 3		Total
in millions
ASSETS MEASURED ON A RECURRING BASIS
Trading account assets:
U.S. Treasury, agencies and corporations	—		$	615	—		$	615
States and political subdivisions	—		37		—		37
Collateralized mortgage obligations	—		—		—		—
Other mortgage-backed securities	—		104		—		104
Other securities	—		65		—		65
Total trading account securities	—		821		—		821
Commercial loans	—		15		—		15
Total trading account assets	—		836		—		836
Securities available for sale:
U.S. Treasury, agencies and corporations	—		157		—		157
States and political subdivisions	—		9		—		9
Agency residential collateralized mortgage obligations	—		14,660		—		14,660
Agency residential mortgage-backed securities	—		1,439		—		1,439
Agency commercial mortgage-backed securities	—		1,854		—		1,854
Other securities	—		—		$	20	20
Total securities available for sale	—		18,119		20		18,139
Other investments:
Principal investments:
Direct	—		—		13		13
Indirect (measured at NAV) ^(a)	—		—		—		124
Total principal investments	—		—		13		137
Equity investments:
Direct	—		4		3		7
Total equity investments	—		4		3		7
Total other investments	—		4		16		144
Loans, net of unearned income	—		—		2		2
Loans held for sale	—		70		1		71
Derivative assets:
Interest rate	—		713		9		722
Foreign exchange	$	100	30		—		130
Commodity	—		255		—		255
Credit	—		—		1		1
Other	—		1		3		4
Derivative assets	100		999		13		1,112
Netting adjustments ^(b)	—		—		—		(443		)
Total derivative assets	100		999		13		669
Accrued income and other assets	—		—		—		—
Total assets on a recurring basis at fair value	$	100	$	20,028	$	52	$	19,861
LIABILITIES MEASURED ON A RECURRING BASIS
Bank notes and other short-term borrowings:
Short positions	$	72	$	562	—		$	634
Derivative liabilities:
Interest rate	—		520		—		520
Foreign exchange	98		26		—		124
Commodity	—		246		—		246
Credit	—		4		—		4
Other	—		13		—		13
Derivative liabilities	98		809		—		907
Netting adjustments ^(b)	—		—		—		(616		)
Total derivative liabilities	98		809		—		291
Accrued expense and other liabilities	—		—		—		—
Total liabilities on a recurring basis at fair value	$	170	$	1,371	—		$	925


(a)	Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

(b)

Netting adjustments represent the amounts recorded to convert our derivative assets and liabilities from a gross basis to a net basis in accordance with applicable accounting guidance. The net basis takes into account the impact of bilateral collateral and master netting agreements that allow us to settle all derivative contracts with a single counterparty on a net basis and to offset the net derivative position with the related cash collateral. Total derivative assets and liabilities include these netting adjustments.



December 31, 2016	Level 1		Level 2		Level 3		Total
in millions
ASSETS MEASURED ON A RECURRING BASIS
Trading account assets:
U.S. Treasury, agencies and corporations	—		$	655	—		$	655
States and political subdivisions	—		8		—		8
Collateralized mortgage obligations	—		—		—		—
Other mortgage-backed securities	—		113		—		113
Other securities	—		73		—		73
Total trading account securities	—		849		—		849
Commercial loans	—		18		—		18
Total trading account assets	—		867		—		867
Securities available for sale:
U.S. Treasury, agencies and corporations	—		184		—		184
States and political subdivisions	—		11		—		11
Agency residential collateralized mortgage obligations	—		16,408		—		16,408
Agency residential mortgage-backed securities	—		1,846		—		1,846
Agency commercial mortgage-backed securities	—		1,743		—		1,743
Other securities	$	3	—		$	17	20
Total securities available for sale	3		20,192		17		20,212
Other investments:
Principal investments:
Direct	—		—		27		27
Indirect (measured at NAV) ^(a)	—		—		—		158
Total principal investments	—		—		27		185
Equity and mezzanine investments:
Indirect (measured at NAV) ^(a)	—		—		—		6
Total equity and mezzanine investments	—		—		—		6
Total other investments	—		—		27		191
Loans, net of unearned income	—		—		—		—
Loans held for sale	—		62		—		62
Derivative assets:
Interest rate	—		923		7		930
Foreign exchange	114		9		—		123
Commodity	—		176		—		176
Credit	—		—		1		1
Other	—		2		2		4
Derivative assets	114		1,110		10		1,234
Netting adjustments ^(b)	—		—		—		(431		)
Total derivative assets	114		1,110		10		803
Accrued income and other assets	—		8		—		8
Total assets on a recurring basis at fair value	$	117	$	22,239	$	54	$	22,143
LIABILITIES MEASURED ON A RECURRING BASIS
Bank notes and other short-term borrowings:
Short positions	$	192	$	616	—		$	808
Derivative liabilities:
Interest rate	—		737		—		737
Foreign exchange	102		11		—		113
Commodity	—		165		—		165
Credit	—		4		—		4
Other	—		1		—		1
Derivative liabilities	102		918		—		1,020
Netting adjustments ^(b)	—		—		—		(384		)
Total derivative liabilities	102		918		—		636
Accrued expense and other liabilities	—		14		—		14
Total liabilities on a recurring basis at fair value	$	294	$	1,548	—		$	1,458


(a)	Certain investments that are measured at fair value using the net asset value per share (or its equivalent) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet.

(b)

Change in Fair Values of Level 3 Financial Instruments

The following table shows the change in the fair values of our Level 3 financial instruments for the years ended December 31, 2017, and December 31, 2016. We mitigate the credit risk, interest rate risk, and risk of loss related to many of these Level 3 instruments by using securities and derivative positions classified as Level 1 or Level 2. Level 1 and Level 2 instruments are not included in the following table. Therefore, the gains or losses shown do not include the impact of our risk management activities.



in millions	Beginning of Period Balance		Gains (Losses) included in comprehensive income		Gains (Losses) Included in Earnings				Purchases	Sales			Settlements		Transfers Other		Transfers into Level 3 ^(e)			Transfers out of Level 3^(e)				End of Period Balance		Unrealized Gains (Losses) Included in Earnings
Year ended December 31, 2017
Securities available for sale
Other securities	$	17	$	3	—				—	—			—		—		—			—				$	20	—
Other investments
Principal investments
Direct	27		—		$	(6	)	^(c)	—	$	(8	)	—		—		—			—				13		$	(1	)	^(c)
Equity investments
Direct	—		—		—				—	—			—		—		$	3		—				3		—
Loans held for sale	—		—		—				—	(3		)	—		$	4	—			—				1		—
Loans held for investment	—		—		—				—	—			—		2		—			—				2		—
Derivative instruments ^(b)
Interest rate	7		—		(2		)	^(d)	—	—			—		—		13		^(f)	$	(9	)	^(f)	9		—
Credit	1		—		(16		)	^(d)	—	—			$	16	—		—			—				1		—
Other ^(a)	2		—		—				—	—			—		1		—			—				3		—



in millions	Beginning of Period Balance		Gains (Losses) Included in Earnings				Purchases		Sales			Settlements		Transfers Other			Transfers into Level 3 ^(e)			Transfers out of Level 3 ^(e)				End of Period Balance		Unrealized Gains (Losses) Included in Earnings
Year ended December 31, 2016
Securities available for sale
Other securities	$	17	—				—		—			—		—			—			—				$	17	—
Other investments
Principal investments
Direct	50		$	16		^(c)	—		$	(39	)	—		—			—			—				27		$	2		^(c)
Other indirect	—		—				—		(20		)	—		—			$	20		—				—		(1		)	^(c)
Derivative instruments ^(b)
Interest rate	16		4			^(d)	$	1	—			—		—			9		^(f)	$	(23	)	^(f)	7		—
Credit	1		(13		)	^(d)	1		—			$	12	—			—			—				1		—
Other ^(a)	—		—				5		—			—		$	(3	)	—			—				2		—


(a)	Amounts represent Level 3 interest rate lock commitments.


(b)	Amounts represent Level 3 derivative assets less Level 3 derivative liabilities.


(c)	Realized and unrealized gains and losses on principal investments are reported in “net gains (losses) from principal investing” on the income statement. Realized and unrealized losses on private equity and mezzanine investments are reported in “other income” on the income statement.


(d)	Realized and unrealized gains and losses on derivative instruments are reported in “corporate services income” and “other income” on the income statement.


(e)	Our policy is to recognize transfers into and transfers out of Level 3 as of the end of the reporting period.


(f)	Certain derivatives previously classified as Level 2 were transferred to Level 3 because Level 3 unobservable inputs became significant. Certain derivatives previously classified as Level 3 were transferred to Level 2 because Level 3 unobservable inputs became less significant.

Assets and Liabilities Measured at Fair Value on Nonrecurring Basis

The following table presents our assets measured at fair value on a nonrecurring basis at December 31, 2017, and December 31, 2016:



	December 31, 2017							December 31, 2016
in millions	Level 1	Level 2		Level 3		Total		Level 1	Level 2	Level 3		Total
ASSETS MEASURED ON A NONRECURRING BASIS
Impaired loans	—	—		$	9	$	9	—	—	$	11	$	11
Loans held for sale ^(a)	—	—		—		—		—	—	—		—
Accrued income and other assets ^(b)	—	$	5	133		138		—	—	11		11
Total assets on a nonrecurring basis at fair value	—	$	5	$	142	$	147	—	—	$	22	$	22


(a)	During 2017, we transferred $63 million, net, of commercial and residential loans and leases at their current fair value from held-for-sale status to the held-to-maturity portfolio, compared to $35 million, net, during 2016 that was transferred from held-to-maturity to held-for-sale status.


(b)	At December 31, 2017, we recorded $31 million of impairment related to $119 million of LIHTC and Historic Tax Credit investments impacted by the enactment of the TCJ Act. Refer to the “Other Assets” section below for a description of the valuation technique and inputs applied for this fair value measurement.

Quantitative Information about Level 3 Fair Value Measurements

The range and weighted-average of the significant unobservable inputs used to fair value our material Level 3 recurring and nonrecurring assets at December 31, 2017, and December 31, 2016, along with the valuation techniques used, are shown in the following table:



December 31, 2017	Fair Value of Level 3 Assets		Valuation Technique	Significant Unobservable Input	Range (Weighted-Average)
Dollars in millions	Fair Value of Level 3 Assets		Valuation Technique	Significant Unobservable Input	Range (Weighted-Average)
Recurring
Other investments — principal investments — direct:	$	13	Individual analysis of the condition of each investment
Debt instruments				EBITDA multiple	N/A (6.00)
Equity instruments of private companies				EBITDA multiple (where applicable)	N/A (6.00)
Nonrecurring
Impaired loans	$	9	Fair value of underlying collateral	Discount	00.00 - 50.00% (23.00%)



December 31, 2016	Fair Value of Level 3 Assets		Valuation Technique	Significant Unobservable Input	Range (Weighted-Average)
dollars in millions	Fair Value of Level 3 Assets		Valuation Technique	Significant Unobservable Input	Range (Weighted-Average)
Recurring
Other investments — principal investments — direct:	$	27	Individual analysis of the condition of each investment
Debt instruments				EBITDA multiple	6.30 - 7.00 (6.50)
Equity instruments of private companies				EBITDA multiple (where applicable)	N/A (6.3)
Nonrecurring
Impaired loans ^(a)	$	11	Fair value of underlying collateral	Discount	00.00 - 70.00% (46.00%)

Fair Value Disclosures of Financial Instruments

The levels in the fair value hierarchy ascribed to our financial instruments and the related carrying amounts at December 31, 2017, and December 31, 2016, are shown in the following table.



	December 31, 2017
			Fair Value
in millions	Carrying Amount		Level 1		Level 2		Level 3		Measured at NAV		Netting Adjustment				Total
ASSETS
Cash and short-term investments ^(a)	$	5,118	$	5,118	—		—		—		—				$	5,118
Trading account assets ^(b)	836		—		$	836	—		—		—				836
Securities available for sale ^(b)	18,139		—		18,119		$	20	—		—				18,139
Held-to-maturity securities ^(c)	11,830		—		11,565		—		—		—				11,565
Other investments ^(b)	726		—		4		598		$	124	—				726
Loans, net of allowance ^(d)	85,528		—		—		84,005		—		—				84,005
Loans held for sale ^(b)	1,107		—		70		1,037		—		—				1,107
Derivative assets ^(b)	669		100		999		13		—		$	(443	)	^(f)	669
LIABILITIES
Deposits with no stated maturity ^(a)	$	93,588	—		$	93,588	—		—		—				$	93,588
Time deposits ^(e)	11,647		—		11,750		—		—		—				11,750
Short-term borrowings ^(a)	1,011		$	72	939		—		—		—				1,011
Long-term debt ^(e)	14,333		13,407		1,219		—		—		—				14,626
Derivative liabilities ^(b)	291		98		809		—		—		$	(616	)	^(f)	291



	December 31, 2016
			Fair Value
in millions	Carrying Amount		Level 1		Level 2		Level 3		Measured at NAV		Netting Adjustment				Total
ASSETS
Cash and short-term investments ^(a)	$	3,452	$	3,452	—		—		—		—				$	3,452
Trading account assets ^(b)	867		—		$	867	—		—		—				867
Securities available for sale ^(b)	20,212		3		20,192		$	17	—		—				20,212
Held-to-maturity securities ^(c)	10,232		—		10,007		—		—		—				10,007
Other investments ^(b)	738		—		—		569		$	164	—				733
Loans, net of allowance ^(d)	85,180		—		—		83,285		—		—				83,285
Loans held for sale ^(b)	1,104		—		62		1,042		—		—				1,104
Derivative assets ^(b)	803		114		1,110		10		—		$	(431	)	^(f)	803
LIABILITIES
Deposits with no stated maturity ^(a)	$	93,906	—		$	93,906	—		—		—				$	93,906
Time deposits ^(e)	10,181		—		10,267		—		—		—				10,267
Short-term borrowings ^(a)	2,310		$	192	2,118		—		—		—				2,310
Long-term debt ^(e)	12,384		12,386		304		—		—		—				12,690
Derivative liabilities ^(b)	636		102		918		—		—		$	(384	)	^(f)	636

Valuation Methods and Assumptions


(a)	Fair value equals or approximates carrying amount. The fair value of deposits with no stated maturity does not take into consideration the value ascribed to core deposit intangibles.


(b)	Information pertaining to our methodology for measuring the fair values of these assets and liabilities is included in the sections entitled “Qualitative Disclosures of Valuation Techniques” and “Assets Measured at Fair Value on a Nonrecurring Basis” in this Note.

(c)

Fair values of held-to-maturity securities are determined by using models that are based on security-specific details, as well as relevant industry and economic factors. The most significant of these inputs are quoted market prices, interest rate spreads on relevant benchmark securities, and certain prepayment assumptions. We review the valuations derived from the models to ensure they are reasonable and consistent with the values placed on similar securities traded in the secondary markets.

(d)

The fair value of loans is based on the present value of the expected cash flows. The projected cash flows are based on the contractual terms of the loans, adjusted for prepayments and use of a discount rate based on the relative risk of the cash flows, taking into account the loan type, maturity of the loan, liquidity risk, servicing costs, and a required return on debt and capital. In addition, an incremental liquidity discount is applied to certain loans, using historical sales of loans during periods of similar economic conditions as a benchmark. The fair value of loans includes lease financing receivables at their aggregate carrying amount, which is equivalent to their fair value.


(e)	Fair values of time deposits and long-term debt are based on discounted cash flows utilizing relevant market inputs.

(f)

- Definition

Tabular disclosure of the application of the fair value option for measurement and reporting of eligible financial assets and liabilities (as defined), as well as certain other eligible items (as defined) included in the statement of financial position, whether such option is elected for a single eligible item or a group of similar eligible items and is in addition to other disclosures concerning fair value which the company may be required to provide. Such disclosure might be expected to include: (1) for items included in the statement of financial position: (a) for each line item in the statement of financial position that includes an item or items for which the fair value option has been elected, provide the aggregate carrying amount of ineligible items included in each line item in the balance sheet, if any; (b) the difference between the aggregate fair value and the aggregate unpaid principal balance (assuming contractual principal amounts and fair value option elected) of: (i) loans and long-term receivables (other than securities otherwise reported at fair value) and (ii) long-term debt instruments; (c) for loans held as assets for which the fair value option has been elected: (i) the aggregate fair value of loans that are 90 days or more past due, (ii) if the policy is to recognize interest income separately from other changes in fair value, the aggregate fair value of loans in nonaccrual status, and (iii) the difference between the aggregate fair value and the aggregate unpaid principal balance for loans that are 90 days or more past due, in nonaccrual status, or both; (2) for items included in the income statement: (a) the amounts of gains and losses from fair value changes included in earnings and in which line in the income statement those gains and losses are reported whether or not combined with gains and losses from items required to be accounted for at fair value; (b) for loans and other receivables held as assets, the estimated amount of gains or losses included in earnings attributable to changes in instrument-specific credit risk; (c) for liabilities with fair values that have been significantly affected during the reporting period by changes in the instrument-specific credit risk, the estimated amount of gains and losses from fair value changes included in earnings that are attributable to changes in the instrument-specific credit risk; and (3) certain other disclosures as required or determined to be provided.

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