Variable Interest Entities

9 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Variable Interest Entities

Variable Interest Entities

For additional information on our VIEs, refer to Note 14 to the consolidated financial statements on pages 176 to 177 in our 2015 Form 10-K.

Tax-Exempt Investment Program:

In the normal course of our business, we structure and sell certificated interests in pools of tax-exempt investment-grade assets, principally to our mutual fund clients. We structure these pools as partnership trusts, and the assets and liabilities of the trusts are recorded in our consolidated statement of condition as AFS investment securities and other short-term borrowings. As of September 30, 2016 and December 31, 2015, we carried AFS investment securities, composed of securities related to state and political subdivisions, with a fair value of $1.76 billion and $2.10 billion, respectively, and other short-term borrowings of $1.39 billion and $1.75 billion, respectively, in our consolidated statement of condition in connection with these trusts. The interest revenue and interest expense generated by the investments and certificated interests, respectively, are recorded as components of net interest revenue when earned or incurred.

The trusts had a weighted-average life of approximately 4.8 years as of September 30, 2016, compared to approximately 5.4 years as of December 31, 2015.

Under separate legal agreements, we provide standby bond-purchase agreements to these trusts and, with respect to certain securities, letters of credit. As of September 30, 2016, our commitments to the trusts under these standby bond-purchase agreements and letters of credit totaled $1.62 billion and $530 million, respectively, and $81 million of the standby bond-purchase agreements were utilized.

Interests in Sponsored Investment Funds:

As of September 30, 2016, the aggregate assets and liabilities of our consolidated sponsored investment funds totaled $409 million and $327 million, respectively. As of December 31, 2015, the aggregate assets and liabilities of our consolidated sponsored investment funds totaled $321 million and $228 million, respectively.

As of September 30, 2016, our potential maximum total exposure associated with the consolidated sponsored investment funds totaled $51 million and represented the value of our economic ownership interest in the fund. Subsequently, we divested our interests in the funds as of October 31, 2016 and no longer consolidate the sponsored investment funds.

As of September 30, 2016 and December 31, 2015, we managed certain sponsored investment funds, considered VIEs, in which we held a variable interest but for which we were not deemed to be the primary beneficiary. Our potential maximum loss exposure related to these unconsolidated funds totaled $92 million and $75 million as of September 30, 2016 and December 31, 2015, respectively, and represented the carrying value of our seed capital investment, which is recorded in either AFS investment securities or other assets in our consolidated statement of condition. The amount of loss we may recognize during any period is limited to the carrying amount of our seed capital investment in the unconsolidated fund.