Fair Value

Fair-Value Measurements:

We carry trading account assets, AFS investment securities and various types of derivative financial instruments at fair value in our consolidated statement of condition on a recurring basis. Changes in the fair values of these financial assets and liabilities are recorded either as components of our consolidated statement of income or as components of AOCI within shareholders' equity in our consolidated statement of condition.

We measure fair value for the above-described financial assets and liabilities in conformity with U.S. GAAP that governs the measurement of the fair value of financial instruments. Management believes that its valuation techniques and underlying assumptions used to measure fair value conform to the provisions of U.S. GAAP. We categorize the financial assets and liabilities that we carry at fair value based on a prescribed three-level valuation hierarchy. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (level 1) and the lowest priority to valuation methods using significant unobservable inputs (level 3). If the inputs used to measure a financial asset or liability cross different levels of the hierarchy, categorization is based on the lowest-level input that is significant to the fair-value measurement. Management's assessment of the significance of a particular input to the overall fair-value measurement of a financial asset or liability requires judgment, and considers factors specific to that asset or liability. The three levels of the valuation hierarchy are described below.

Level 1. Financial assets and liabilities with values based on unadjusted quoted prices for identical assets or liabilities in an active market. Our level 1 financial assets and liabilities primarily include positions in U.S. government securities and highly liquid U.S. and non-U.S. government fixed-income securities carried in trading account assets. We may carry U.S. government securities in our AFS portfolio in connection with our asset-and-liability management activities. Our level 1 financial assets also include active exchange-traded equity securities and non-cash collateral received from counterparties in connection with our enhanced custody business.

Level 2. Financial assets and liabilities with values based on quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. Level 2 inputs include the following:


•	Quoted prices for similar assets or liabilities in active markets;


•	Quoted prices for identical or similar assets or liabilities in non-active markets;


•	Pricing models whose inputs are observable for substantially the full term of the asset or liability; and


•	Pricing models whose inputs are derived principally from, or corroborated by, observable market information through correlation or other means for substantially the full term of the asset or liability.

Our level 2 financial assets and liabilities primarily include non-U.S. debt securities carried in trading account assets and various types of fixed-income investment securities available-for-sale, as well as various types of foreign exchange and interest-rate derivative instruments.

Fair value for our investment securities available-for-sale categorized in level 2 is measured primarily using information obtained from independent third parties. This third-party information is subject to review by management as part of a validation process, which includes obtaining an understanding of the underlying assumptions and the level of market participant information used to support those assumptions. In addition, management compares significant assumptions used by third parties to available market information. Such information may include known trades or, to the extent that trading activity is limited, comparisons to market research information pertaining to credit expectations, execution prices and the timing of cash flows and, where information is available, back-testing.

Derivative instruments categorized in level 2 predominantly represent foreign exchange contracts used in our trading activities, for which fair value is measured using discounted cash-flow techniques, with inputs consisting of observable spot and forward points, as well as observable interest-rate curves. With respect to derivative instruments, we evaluate the impact on valuation of the credit risk of our counterparties and our own credit risk. We consider factors such as the likelihood of default by us and our counterparties, our current and potential future net exposures and remaining maturities in determining the fair value. Valuation adjustments associated with derivative instruments were not material to those instruments for the years ended December 31, 2016 and 2015.

Level 3. Financial assets and liabilities with values based on prices or valuation techniques that require inputs that are both unobservable in the market and significant to the overall measurement of fair value. These inputs reflect management's judgment about the assumptions that a market participant would use in pricing the financial asset or liability, and are based on the best available information, some of which is internally developed. The following provides a more detailed discussion of our financial assets and liabilities that we may categorize in level 3 and the related valuation methodology.

•

The fair value of our investment securities categorized in level 3 is measured using information obtained from third-party sources, typically non-binding broker or dealer quotes, or through the use of internally-developed pricing models. Management has evaluated its methodologies used to measure fair value, but has considered the level of observable market information to be insufficient to categorize the securities in level 2.


•	The fair value of certain foreign exchange contracts, primarily options, is measured using an option-pricing model. Because of a limited number of observable transactions, certain model inputs are not observable, such as implied volatility surface, but are derived from observable market information.

Our level 3 financial assets and liabilities are similar in structure and profile to our level 1 and level 2 financial instruments, but they trade in less liquid markets, and the measurement of their fair value is inherently more difficult.

The following tables present information with respect to our financial assets and liabilities carried at fair value in our consolidated statement of condition on a recurring basis as of the dates indicated. No transfers of financial assets or liabilities between levels 1 and 2 occurred during 2016 or 2015.



	Fair-Value Measurements on a Recurring Basis
	as of December 31, 2016
(In millions)	Quoted Market Prices in Active Markets (Level 1)		Pricing Methods with Significant Observable Market Inputs (Level 2)		Pricing Methods with Significant Unobservable Market Inputs (Level 3)		Impact of Netting⁽¹⁾			Total Net Carrying Value in Consolidated Statement of Condition
Assets:
Trading account assets:
U.S. government securities	$	30	$	—	$	—				$	30
Non-U.S. government securities	495		174		—					669
Other	—		325		—					325
Total trading account assets	525		499		—					1,024
AFS Investment securities:
U.S. Treasury and federal agencies:
Direct obligations	3,824		439		—					4,263
Mortgage-backed securities	—		13,257		—					13,257
Asset-backed securities:
Student loans	—		5,499		97					5,596
Credit cards	—		1,351		—					1,351
Sub-prime	—		272		—					272
Other⁽²⁾	—		—		905					905
Total asset-backed securities	—		7,122		1,002					8,124
Non-U.S. debt securities:
Mortgage-backed securities	—		6,535		—					6,535
Asset-backed securities	—		2,484		32					2,516
Government securities	—		5,836		—					5,836
Other⁽³⁾	—		5,365		248					5,613
Total non-U.S. debt securities	—		20,220		280					20,500
State and political subdivisions	—		10,283		39					10,322
Collateralized mortgage obligations	—		2,577		16					2,593
Other U.S. debt securities	—		2,469		—					2,469
U.S. equity securities	—		42		—					42
Non-U.S. equity securities	—		3		—					3
U.S. money-market mutual funds	—		409		—					409
Non-U.S. money-market mutual funds	—		16		—					16
Total investment securities available-for-sale	3,824		56,837		1,337					61,998
Other assets:
Derivative instruments:
Foreign exchange contracts	—		16,476		8		$	(9,163	)	7,321
Interest-rate contracts	—		68		—		(68		)	—
Total derivative instruments	—		16,544		8		(9,231		)	7,321
Total assets carried at fair value	$	4,349	$	73,880	$	1,345	$	(9,231	)	$	70,343
Liabilities:
Accrued expenses and other liabilities:
Derivative instruments:
Foreign exchange contracts	$	—	$	15,948	$	8	$	(10,456	)	$	5,500
Interest-rate contracts	—		348		—		(226		)	122
Other derivative contracts	—		380		—		—			380
Total derivative instruments	—		16,676		8		(10,682		)	6,002
Total liabilities carried at fair value	$	—	$	16,676	$	8	$	(10,682	)	$	6,002

⁽¹⁾Represents counterparty netting against level 2 financial assets and liabilities where a legally enforceable master netting agreement exists between State Street and the counterparty. Netting also reflects asset and liability reductions of $906 million and $2,356 million, respectively, for cash collateral received from and provided to derivative counterparties.

⁽²⁾As of December 31, 2016, the fair value of other asset-backed securities was primarily composed of $905 million of collateralized loan obligations.

⁽³⁾As of December 31, 2016, the fair value of other non-U.S. debt securities was primarily composed of $3,769 million of covered bonds and $988 million of corporate bonds.



	Fair-Value Measurements on a Recurring Basis
	as of December 31, 2015
(In millions)	Quoted Market Prices in Active Markets (Level 1)		Pricing Methods with Significant Observable Market Inputs (Level 2)		Pricing Methods with Significant Unobservable Market Inputs (Level 3)		Impact of Netting⁽¹⁾			Total Net Carrying Value in Consolidated Statement of Condition
Assets:
Trading account assets:
U.S. government securities	$	32	$	—	$	—				$	32
Non-U.S. government securities	479		—		—					479
Other	10		328		—					338
Total trading account assets	521		328		—					849
AFS Investment securities:
U.S. Treasury and federal agencies:
Direct obligations	5,206		512		—					5,718
Mortgage-backed securities	—		18,165		—					18,165
Asset-backed securities:
Student loans	—		6,987		189					7,176
Credit cards	—		1,341		—					1,341
Sub-prime	—		419		—					419
Other⁽²⁾	—		—		1,764					1,764
Total asset-backed securities	—		8,747		1,953					10,700
Non-U.S. debt securities:
Mortgage-backed securities	—		7,071		—					7,071
Asset-backed securities	—		3,093		174					3,267
Government securities	—		4,355		—					4,355
Other⁽³⁾	—		4,579		255					4,834
Total non-U.S. debt securities	—		19,098		429					19,527
State and political subdivisions	—		9,713		33					9,746
Collateralized mortgage obligations	—		2,948		39					2,987
Other U.S. debt securities	—		2,614		10					2,624
U.S. equity securities	—		39		—					39
Non-U.S. equity securities	—		3		—					3
U.S. money-market mutual funds	—		542		—					542
Non-U.S. money-market mutual funds	—		19		—					19
Total investment securities available-for-sale	5,206		62,400		2,464					70,070
Other assets:
Derivatives instruments:
Foreign exchange contracts	—		11,311		5		$	(6,562	)	4,754
Interest-rate contracts	—		135		—		(115		)	20
Other derivative contracts	—		5		—		(2		)	3
Total derivative instruments	—		11,451		5		(6,679		)	4,777
Other	2		—		—		—			2
Total assets carried at fair value	$	5,729	$	74,179	$	2,469	$	(6,679	)	$	75,698
Liabilities:
Accrued expenses and other liabilities:
Trading account liabilities:
U.S. government securities	$	5	$	—	$	—	$	—		$	5
Non-U.S. government securities	76		—		—		—			76
Other	5		13		—		—			18
Derivative instruments:
Foreign exchange contracts	—		10,863		5		(6,995		)	3,873
Interest-rate contracts	—		182		—		(24		)	158
Other derivative contracts	—		103		—		(2		)	101
Total derivative instruments	—		11,148		5		(7,021		)	4,132
Other	2		—		—		—			2
Total liabilities carried at fair value	$	88	$	11,161	$	5	$	(7,021	)	$	4,233

⁽¹⁾Represents counterparty netting against level 2 financial assets and liabilities where a legally enforceable master netting agreement exists between State Street and the counterparty. Netting also reflects asset and liability reductions of $776 million and $1.12 billion, respectively, for cash collateral received from and provided to derivative counterparties.

⁽²⁾As of December 31, 2015, the fair value of other asset-backed securities was primarily composed of $1,764 million of collateralized loan obligations.

⁽³⁾As of December 31, 2015, the fair value of other non-U.S. debt securities was primarily composed of $3,184 million of covered bonds and $613 million of corporate bonds.

The following tables present activity related to our level 3 financial assets during the years ended December 31, 2016 and 2015, respectively. Transfers into and out of level 3 are reported as of the beginning of the period presented. During the years ended December 31, 2016 and 2015, transfers out of level 3 were mainly related to certain mortgage- and asset-backed securities, including non-U.S. debt securities, for which fair value was measured using prices for which observable market information became available.



	Fair Value Measurements Using Significant Unobservable Inputs
	Year Ended December 31, 2016
	Fair Value as of December 31, 2015		Total Realized and Unrealized Gains (Losses)					Purchases		Sales			Settlements			Transfers out of Level 3			Fair Value as of December 31, 2016⁽²⁾		Change in Unrealized Gains (Losses) Related to Financial Instruments Held as of December 31, 2016
(In millions)			Recorded in Revenue⁽¹⁾		Recorded in Other Comprehensive Income⁽¹⁾
Assets:
AFS Investment securities:
U.S. Treasury and federal agencies, mortgage-backed securities	$	—	$	—	$	—		$	325	$	—		$	—		$	(325	)	$	—
Asset-backed securities:
Student loans	189		1		3			—		—			—			(96		)	97
Other	1,764		31		(23		)	469		(82		)	(1,254		)	—			905
Total asset-backed securities	1,953		32		(20		)	469		(82		)	(1,254		)	(96		)	1,002
Non-U.S. debt securities:
Mortgage-backed securities	—		—		—			90		—			—			(90		)	—
Asset-backed securities	174		—		—			196		—			(60		)	(278		)	32
Other	255		—		—			222		—			(7		)	(222		)	248
Total Non-U.S. debt securities	429		—		—			508		—			(67		)	(590		)	280
State and political subdivisions	33		—		9			—		—			(3		)	—			39
Collateralized mortgage obligations	39		—		2			89		(66		)	(27		)	(21		)	16
Other U.S. debt securities	10		—		—			—		—			(10		)	—			—
Total AFS investment securities	2,464		32		(9		)	1,391		(148		)	(1,361		)	(1,032		)	1,337
Other assets:
Derivative instruments:
Foreign exchange contracts	5		9		—			3		—			(9		)	—			8		$	5
Total derivative instruments	5		9		—			3		—			(9		)	—			8		5
Total assets carried at fair value	$	2,469	$	41	$	(9	)	$	1,394	$	(148	)	$	(1,370	)	$	(1,032	)	$	1,345	$	5

⁽¹⁾Total realized and unrealized gains (losses) on AFS investment securities are included within gains (losses) related to investment securities, net. Total realized and unrealized gains (losses) on derivative instruments are included within trading services.

⁽²⁾ There were no transfers of assets into level 3 during the year ended December 31, 2016.



	Fair-Value Measurements Using Significant Unobservable Inputs
	Year Ended December 31, 2015
	Fair Value as of December 31, 2014		Total Realized and Unrealized Gains (Losses)						Purchases		Sales			Settlements			Transfers into Level 3		Transfers out of Level 3			Fair Value as of December 31, 2015		Change in Unrealized Gains (Losses) Related to Financial Instruments Held as of December 31, 2015
(In millions)			Recorded in Revenue⁽¹⁾			Recorded in Other Comprehensive Income⁽¹⁾
Assets:
Investment securities available-for-sale:
Asset-backed securities:
Student loans	$	259	$	1		$	(4	)	$	—	$	—		$	(6	)	$	—	$	(61	)	$	189
Other	3,780		53			(50		)	—		(1,105		)	(914		)	—		—			1,764
Total asset-backed securities	4,039		54			(54		)	—		(1,105		)	(920		)	—		(61		)	1,953
Non-U.S. debt securities:
Mortgage-backed securities	—		—			—			43		—			—			97		(140		)	—
Asset-backed securities	295		2			(1		)	249		—			(190		)	4		(185		)	174
Other	371		—			(1		)	111		—			(39		)	—		(187		)	255
Total non-U.S. debt securities	666		2			(2		)	403		—			(229		)	101		(512		)	429
State and political subdivisions	38		1			(3		)	—		—			(3		)	—		—			33
Collateralized mortgage obligations	614		(1		)	(2		)	294		(88		)	(105		)	—		(673		)	39
Other U.S. debt securities	9		—			—			—		—			—			10		(9		)	10
Total AFS investment securities	5,366		56			(61		)	697		(1,193		)	(1,257		)	111		(1,255		)	2,464
Other assets:
Derivative instruments:
Foreign exchange contracts	81		48			—			9		—			(133		)	—		—			5		$	(4	)
Total derivative instruments	81		48			—			9		—			(133		)	—		—			5		(4		)
Total assets carried at fair value	$	5,447	$	104		$	(61	)	$	706	$	(1,193	)	$	(1,390	)	$	111	$	(1,255	)	$	2,469	$	(4	)

The following table presents quantitative information, as of the dates indicated, about the valuation techniques and significant unobservable inputs used in the valuation of our level 3 financial assets and liabilities measured at fair value on a recurring basis for which we use internally-developed pricing models. The significant unobservable inputs for our level 3 financial assets and liabilities whose fair value is measured using pricing information from non-binding broker or dealer quotes are not included in the table, as the specific inputs applied are not provided by the broker/dealer.



	Quantitative Information about Level 3 Fair-Value Measurements
	Fair Value						Weighted-Average
(Dollars in millions)	As of December 31, 2016		As of December 31, 2015		Valuation Technique	Significant Unobservable Input⁽¹⁾	As of December 31, 2016		As of December 31, 2015
Significant unobservable inputs readily available to State Street:
Assets:
Asset-backed securities, other	$	1	$	28	Discounted cash flows	Credit spread	0.3	%	(0.1	)%
State and political subdivisions	39		33		Discounted cash flows	Credit spread	1.8		2.2
Derivative instruments, foreign exchange contracts	8		5		Option model	Volatility	14.4		9.3
Total	$	48	$	66
Liabilities:
Derivative instruments, foreign exchange contracts	$	8	$	5	Option model	Volatility	14.4		9.2
Total	$	8	$	5

⁽¹⁾Significant changes in these unobservable inputs would result in significant changes in fair value measurement.

Fair Value Estimates:

Estimates of fair value for financial instruments not carried at fair value on a recurring basis in our consolidated statement of condition are generally subjective in nature, and are determined as of a specific point in time based on the characteristics of the financial instruments and relevant market information. Disclosure of fair-value estimates is not required by U.S. GAAP for certain items, such as lease financing, equity-method investments, obligations for pension and other post-retirement plans, premises and equipment, other intangible assets and income-tax assets and liabilities. Accordingly, aggregate fair-value estimates presented do not purport to represent, and should not be considered representative of, our underlying “market” or franchise value. In addition, because of potential differences in methodologies and assumptions used to estimate fair values, our estimates of fair value should not be compared to those of other financial institutions.

We use the following methods to estimate the fair values of our financial instruments:


•	For financial instruments that have quoted market prices, those quoted prices are used to estimate fair value.


•	For financial instruments that have no defined maturity, have a remaining maturity of 180 days or less, or reprice frequently to a market rate, we assume that the fair value of these instruments approximates their reported value, after taking into consideration any applicable credit risk.


•	For financial instruments for which no quoted market prices are available, fair value is estimated using information obtained from independent third parties, or by discounting the expected cash flows using an estimated current market interest rate for the financial instrument.

The generally short duration of certain of our assets and liabilities results in a significant number of financial instruments for which fair value equals or closely approximates the amount recorded in our consolidated statement of condition. These financial instruments are reported in the following captions in our consolidated statement of condition: cash and due from banks; interest-bearing deposits with banks; securities purchased under resale agreements; accrued interest and fees receivable; deposits; securities sold under repurchase agreements; federal funds purchased; and other short-term borrowings.

In addition, due to the relatively short duration of certain of our loans, we consider fair value for these loans to approximate their reported value. The fair value of other types of loans, such as senior secured bank loans, commercial real estate loans, purchased receivables and municipal loans is estimated using information obtained from independent third parties or by discounting expected future cash flows using current rates at which similar loans would be made to borrowers with similar credit ratings for the same remaining maturities. Commitments to lend have no reported value because their terms are at prevailing market rates.

The following tables present the reported amounts and estimated fair values of the financial assets and liabilities not carried at fair value on a recurring basis, as they would be categorized within the fair-value hierarchy, as of the dates indicated.



					Fair-Value Hierarchy
(In millions)	Reported Amount		Estimated Fair Value		Quoted Market Prices in Active Markets (Level 1)		Pricing Methods with Significant Observable Market Inputs (Level 2)		Pricing Methods with Significant Unobservable Market Inputs (Level 3)
December 31, 2016
Financial Assets:
Cash and due from banks	$	1,314	$	1,314	$	1,314	$	—	$	—
Interest-bearing deposits with banks	70,935		70,935		—		70,935		—
Securities purchased under resale agreements	1,956		1,956		—		1,956		—
Investment securities held-to-maturity	35,169		34,994		17,400		17,439		155
Net loans (excluding leases)	18,862		18,877		—		18,781		96
Financial Liabilities:
Deposits:
Non-interest-bearing	$	59,397	$	59,397	$	—	$	59,397	$	—
Interest-bearing - U.S.	30,911		30,911		—		30,911		—
Interest-bearing - non-U.S.	96,855		96,855		—		96,855		—
Securities sold under repurchase agreements	4,400		4,400		—		4,400		—
Other short-term borrowings	1,585		1,585		—		1,585		—
Long-term debt	11,430		11,618		—		11,282		336



					Fair-Value Hierarchy
(In millions)	Reported Amount		Estimated Fair Value		Quoted Market Prices in Active Markets (Level 1)		Pricing Methods with Significant Observable Market Inputs (Level 2)		Pricing Methods with Significant Unobservable Market Inputs (Level 3)
December 31, 2015
Financial Assets:
Cash and due from banks	$	1,207	$	1,207	$	1,207	$	—	$	—
Interest-bearing deposits with banks	75,338		75,338		—		75,338		—
Securities purchased under resale agreements	3,404		3,404		—		3,404		—
Investment securities held-to-maturity	29,952		29,798		—		29,798		—
Net loans (excluding leases)⁽¹⁾	17,838		17,792		—		17,667		125
Financial Liabilities:
Deposits:
Non-interest-bearing	$	65,800	$	65,800	$	—	$	65,800	$	—
Interest-bearing - U.S.	29,958		29,958		—		29,958		—
Interest-bearing - non-U.S.	95,869		95,869		—		95,869		—
Securities sold under repurchase agreements	4,499		4,499		—		4,499		—
Other short-term borrowings	1,754		1,754		—		1,754		—
Long-term debt	11,497		11,604		—		11,215		389

⁽¹⁾Includes $14 million of loans classified as held-for-sale that were measured at fair value on a non-recurring basis as of December 31, 2015.