Fair Value

9 Months Ended

Sep. 30, 2019

Fair Value Measurements

We carry trading account assets and liabilities, AFS debt securities, certain equity 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. For information about our valuation techniques for financial assets and financial liabilities measured at fair value and the fair value hierarchy, refer to pages 32 to 39 in Note 2 to the consolidated financial statements included under Item 8, Financial Statements and Supplementary Data, in the 2018 Annual Financial Statements.

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:



	Fair Value Measurements on a Recurring Basis
	As of September 30, 2019
(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	$	34	$	—	$	—				$	34
Non-U.S. government securities	137		208		—					345
Other	20		440		—					460
Total trading account assets	191		648		—					839
Available-for-sale investment securities:
U.S. Treasury and federal agencies:
Direct obligations	2,039		—		—					2,039
Mortgage-backed securities	—		22,379		—					22,379
Total U.S. Treasury and federal agencies	2,039		22,379		—					24,418
Asset-backed securities:
Student loans	—		471		—					471
Credit cards	—		90		—					90
Collateralized loan obligations	—		58		1,388					1,446
Total asset-backed securities	—		619		1,388					2,007
Non-U.S. debt securities:
Mortgage-backed securities	—		1,917		—					1,917
Asset-backed securities	—		1,110		721					1,831
Government securities	—		13,189		—					13,189
Other⁽²⁾	—		6,954		44					6,998
Total non-U.S. debt securities	—		23,170		765					23,935
State and political subdivisions	—		1,819		—					1,819
Collateralized mortgage obligations	—		113		—					113
Other U.S. debt securities	—		2,465		—					2,465
Total available-for-sale investment securities	2,039		50,565		2,153					54,757
Other assets:
Derivative instruments:
Foreign exchange contracts	—		13,898		14		$	(8,886	)	5,026
Interest rate contracts	—		22		—		(8		)	14
Total derivative instruments	—		13,920		14		(8,894		)	5,040
Other	—		424		—		—			424
Total assets carried at fair value	$	2,230	$	65,557	$	2,167	$	(8,894	)	$	61,060
Liabilities:
Accrued expenses and other liabilities:
Trading account liabilities:
Other	$	4	$	—	$	—	$	—		$	4
Derivative instruments:
Foreign exchange contracts	$	4	$	14,173	$	12	$	(9,524	)	$	4,665
Interest rate contracts	2		49		—		(8		)	43
Other derivative contracts	—		207		—		—			207
Total derivative instruments	6		14,429		12		(9,532		)	4,915
Total liabilities carried at fair value	$	10	$	14,429	$	12	$	(9,532	)	$	4,919

⁽¹⁾Represents counterparty netting against level 2 financial assets and liabilities where a legally enforceable master netting agreement exists between us and the counterparty. Netting also reflects asset and liability reductions of $0.79 billion and $1.43 billion, respectively, for cash collateral received from and provided to derivative counterparties.

⁽²⁾As of September 30, 2019, the fair value of other non-U.S. debt securities included $4.29 billion of supranational bonds, $1.52 billion of corporate bonds and $0.73 billion of covered bonds.



	Fair Value Measurements on a Recurring Basis
	As of December 31, 2018
(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	$	34	$	—	$	—				$	34
Non-U.S. government securities	146		179		—					325
Other	—		501		—					501
Total trading account assets	180		680		—					860
Available-for-sale investment securities:
U.S. Treasury and federal agencies:
Direct obligations	1,039		—		—					1,039
Mortgage-backed securities	—		15,968		—					15,968
Total U.S. Treasury and federal agencies	1,039		15,968		—					17,007
Asset-backed securities:
Student loans	—		541		—					541
Credit cards	—		583		—					583
Collateralized loan obligations	—		—		593					593
Total asset-backed securities	—		1,124		593					1,717
Non-U.S. debt securities:
Mortgage-backed securities	—		1,682		—					1,682
Asset-backed securities	—		943		631					1,574
Government securities	—		12,793		—					12,793
Other⁽²⁾	—		6,544		58					6,602
Total non-U.S. debt securities	—		21,962		689					22,651
State and political subdivisions	—		1,918		—					1,918
Collateralized mortgage obligations	—		195		2					197
Other U.S. debt securities	—		1,658		—					1,658
Total available-for-sale investment securities	1,039		42,825		1,284					45,148
Other assets:
Derivative instruments:
Foreign exchange contracts	—		16,382		4		$	(11,210	)	5,176
Interest rate contracts	13		—		—		—			13
Total derivative instruments	13		16,382		4		(11,210		)	5,189
Other	—		395		—		—			395
Total assets carried at fair value	$	1,232	$	60,282	$	1,288	$	(11,210	)	$	51,592
Liabilities:
Accrued expenses and other liabilities:
Derivative instruments:
Foreign exchange contracts	$	—	$	16,518	$	4	$	(11,564	)	$	4,958
Interest rate contracts	—		71		—		—			71
Other derivative contracts	—		214		—		—			214
Total derivative instruments	—		16,803		4		(11,564		)	5,243
Total liabilities carried at fair value	$	—	$	16,803	$	4	$	(11,564	)	$	5,243

⁽¹⁾Represents counterparty netting against level 2 financial assets and liabilities where a legally enforceable master netting agreement exists between us and the counterparty. Netting also reflects asset and liability reductions of $0.99 billion and $1.34 billion, respectively, for cash collateral received from and provided to derivative counterparties.

⁽²⁾As of December 31, 2018, the fair value of other non-U.S. debt securities included $3.20 billion of supranational bonds, $1.33 billion of corporate bonds and $1.30 billion of covered bonds.

The following tables present activity related to our level 3 financial assets during the three and nine months ended September 30, 2019 and 2018, respectively. Transfers into and out of level 3 are reported as of the beginning of the period presented. During the three and nine months ended September 30, 2019 and 2018, transfers into level 3 were primarily related to certain ABS and non-U.S. debt securities. During the three and nine months ended September 30, 2019 and 2018, transfers out of level 3 were mainly related to certain ABS, MBS, municipal bonds and 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
	Three Months Ended September 30, 2019
	Fair Value as of June 30, 2019		Total Realized and Unrealized Gains (Losses)						Purchases		Sales		Settlements			Transfers into Level 3		Transfers out of Level 3			Fair Value as of September 30, 2019⁽¹⁾		Change in Unrealized Gains (Losses) Related to Financial Instruments Held as of September 30, 2019
(In millions)			Recorded in Revenue⁽¹⁾			Recorded in Other Comprehensive Income⁽¹⁾
Assets:
Available-for-sale Investment securities:
U.S. Treasury and federal agencies:
Mortgage-backed securities	123		—			—			—		—		—			—		$	(123	)	$	—
Asset-backed securities:
Collateralized loan obligations	1,222		—			—			33		—		(97		)	230		—			1,388
Total asset-backed securities	1,222		—			—			33		—		(97		)	230		—			1,388
Non-U.S. debt securities:
Asset-backed securities	721		—			(27		)	66		—		—			—		(39		)	721
Other	46		—			(2		)	—		—		—			—		—			44
Total non-U.S. debt securities	767		—			(29		)	66		—		—			—		(39		)	765
Total Available-for-sale investment securities	2,112		—			(29		)	99		—		(97		)	230		(162		)	2,153
Other assets:
Derivative instruments:
Foreign exchange contracts	11		(1		)	—			5		—		(1		)	—		—			14		$	—
Total derivative instruments	11		(1		)	—			5		—		(1		)	—		—			14		—
Total assets carried at fair value	$	2,123	$	(1	)	$	(29	)	$	104	$	—	$	(98	)	$	230	$	(162	)	$	2,167	$	—

⁽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 foreign exchange trading services.



	Fair Value Measurements Using Significant Unobservable Inputs
	Nine Months Ended September 30, 2019
	Fair Value as of December 31, 2018		Total Realized and Unrealized Gains (Losses)						Purchases		Sales		Settlements			Transfers into Level 3		Transfers out of Level 3			Fair Value as of September 30, 2019⁽¹⁾		Change in Unrealized Gains (Losses) Related to Financial Instruments Held as of September 30, 2019
(In millions)			Recorded in Revenue⁽¹⁾			Recorded in Other Comprehensive Income⁽¹⁾
Assets:
Available-for-sale Investment securities:
U.S. Treasury and federal agencies:
Mortgage-backed securities	$	—	$	—		$	—		$	123	$	—	$	—		$	—	$	(123	)	$	—
Asset-backed securities:
Collateralized loan obligations	593		1			—			620		—		(272		)	446		—			1,388
Total asset-backed securities	593		1			—			620		—		(272		)	446		—			1,388
Non-U.S. debt securities:
Asset-backed securities	631		—			(28		)	157		—		—			—		(39		)	721
Other	58		—			(2		)	—		—		—			—		(12		)	44
Total non-U.S. debt securities	689		—			(30		)	157		—		—			—		(51		)	765
Collateralized mortgage obligations	2		—			—			—		—		(2		)	—		—			—
Total Available-for-sale investment securities	1,284		1			(30		)	900		—		(274		)	446		(174		)	2,153
Other assets:
Derivative instruments:
Foreign exchange contracts	4		(3		)	—			14		—		(1		)	—		—			14		$	—
Total derivative instruments	4		(3		)	—			14		—		(1		)	—		—			14		—
Total assets carried at fair value	$	1,288	$	(2	)	$	(30	)	$	914	$	—	$	(275	)	$	446	$	(174	)	$	2,167	$	—



	Fair Value Measurements Using Significant Unobservable Inputs
	Three Months Ended September 30, 2018
	Fair Value as of June 30, 2018		Total Realized and Unrealized Gains (Losses)						Purchases		Settlements			Transfers into Level 3		Transfers out of Level 3			Fair Value as of September 30, 2018⁽¹⁾		Change in Unrealized Gains (Losses) Related to Financial Instruments Held as of September 30, 2018
(In millions)			Recorded in Revenue⁽¹⁾			Recorded in Other Comprehensive Income⁽¹⁾
Assets:
Available-for-sale Investment securities:
Asset-backed securities:
Collateralized loan obligations	$	851	$	1		$	(2	)	$	—	$	(239	)	$	—	$	—		$	611
Total asset-backed securities	851		1			(2		)	—		(239		)	—		—			611
Non-U.S. debt securities:
Asset-backed securities	474		—			(5		)	76		—			46		—			591
Other	169		—			(1		)	—		—			—		(64		)	104
Total non-U.S. debt securities	643		—			(6		)	76		—			46		(64		)	695
Collateralized mortgage obligations	—		—			—			—		—			8		—			8
Total Available-for-sale investment securities	1,494		1			(8		)	76		(239		)	54		(64		)	1,314
Other assets:
Derivative instruments:
Foreign exchange contracts	7		(2		)	—			3		(6		)	—		—			2		$	(2	)
Total derivative instruments	7		(2		)	—			3		(6		)	—		—			2		(2		)
Total assets carried at fair value	$	1,501	$	(1	)	$	(8	)	$	79	$	(245	)	$	54	$	(64	)	$	1,316	$	(2	)



	Fair Value Measurements Using Significant Unobservable Inputs
	Nine Months Ended September 30, 2018
	Fair Value as of December 31, 2017		Total Realized and Unrealized Gains (Losses)						Purchases		Sales			Settlements			Transfers into Level 3		Transfers out of Level 3			Fair Value as of September 30, 2018⁽¹⁾		Change in Unrealized Gains (Losses) Related to Financial Instruments Held as of September 30, 2018
(In millions)			Recorded in Revenue⁽¹⁾			Recorded in Other Comprehensive Income⁽¹⁾
Assets:
Available-for-sale Investment securities:
Asset-backed securities:
Collateralized loan obligations	$	1,358	$	3		$	(5	)	$	319	$	(636	)	$	(219	)	$	—	$	(209	)	$	611
Total asset-backed securities	1,358		3			(5		)	319		(636		)	(219		)	—		(209		)	611
Non-U.S. debt securities:
Mortgage-backed securities	119		—			—			—		—			—			—		(119		)	—
Asset-backed securities	402		—			(14		)	455		(310		)	(56		)	114		—			591
Other	204		—			(6		)	—		—			(30		)	—		(64		)	104
Total non-U.S. debt securities	725		—			(20		)	455		(310		)	(86		)	114		(183		)	695
State and political subdivisions	43		—			—			—		(37		)	(1		)	—		(5		)	—
Collateralized mortgage obligations	—		—			—			—		—			—			8		—			8
Total Available-for-sale investment securities	2,126		3			(25		)	774		(983		)	(306		)	122		(397		)	1,314
Other assets:
Derivative instruments:
Foreign exchange contracts	1		(3		)	—			4		—			—			—		—			2		$	(2	)
Total derivative instruments	1		(3		)	—			4		—			—			—		—			2		(2		)
Total assets carried at fair value	$	2,127	$	—		$	(25	)	$	778	$	(983	)	$	(306	)	$	122	$	(397	)	$	1,316	$	(2	)

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/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 September 30, 2019		As of December 31, 2018		Valuation Technique	Significant Unobservable Input⁽¹⁾	As of September 30, 2019		As of December 31, 2018
Significant unobservable inputs readily available to State Street:
Assets:
Derivative Instruments, foreign exchange contracts	$	14	$	4	Option model	Volatility	9.1	%	11.4	%
Total	$	14	$	4
Liabilities:
Derivative instruments, foreign exchange contracts	12		$	4	Option model	Volatility	9.2	%	11.4	%
Total	$	12	$	4

⁽¹⁾Significant changes in these unobservable inputs may result in significant changes in fair value measurement of the derivative instrument.

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.

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)
September 30, 2019
Financial Assets:
Cash and due from banks	$	3,598	$	3,598	$	3,598	$	—	$	—
Interest-bearing deposits with banks	62,324		62,324		—		62,324		—
Securities purchased under resale agreements	3,041		3,041		—		3,041		—
Investment securities held-to-maturity	39,119		39,535		11,753		27,681		101
Net loans⁽¹⁾	26,938		27,133		—		25,546		1,587
Other⁽²⁾	8,499		8,499		—		8,499		—
Financial Liabilities:
Deposits:
Non-interest-bearing	$	33,719	$	33,719	$	—	$	33,719	$	—
Interest-bearing - U.S.	72,260		72,260		—		72,260		—
Interest-bearing - non-U.S.	64,907		64,907		—		64,907		—
Securities sold under repurchase agreements	1,330		1,330		—		1,330		—
Other short-term borrowings	7,073		7,073		—		7,073		—
Long-term debt	11,455		11,506		—		11,345		161
Other⁽¹⁾	8,499		8,499		—		8,499		—

⁽¹⁾Includes $37 million of loans classified as held-for-sale that were measured at fair value on a non-recurring basis as of September 30, 2019.

⁽²⁾Represents a portion of underlying client assets related to our enhanced custody business, which clients have allowed us to transfer and re-pledge.



					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, 2018
Financial Assets:
Cash and due from banks	$	3,212	$	3,212	$	3,212	$	—	$	—
Interest-bearing deposits with banks	73,040		73,040		—		73,040		—
Securities purchased under resale agreements	4,679		4,679		—		4,679		—
Investment securities held-to-maturity	41,914		41,351		14,541		26,688		122
Net loans (excluding leases)⁽¹⁾	25,722		25,561		—		24,648		913
Other⁽²⁾	8,500		8,500		—		8,500		—
Financial Liabilities:
Deposits:
Non-interest-bearing	$	44,804	$	44,804	$	—	$	44,804	$	—
Interest-bearing - U.S.	66,235		66,235		—		66,235		—
Interest-bearing - non-U.S.	69,321		69,321		—		69,321		—
Securities sold under repurchase agreements	1,082		1,082		—		1,082		—
Other short-term borrowings	3,092		3,092		—		3,092		—
Long-term debt	11,093		11,048		—		10,865		183
Other⁽²⁾	8,500		8,500		—		8,500		—

⁽¹⁾ Includes $10 million of loans classified as held-for-sale that were measured at fair value on a non-recurring basis as of December 31, 2018.

⁽²⁾Represents a portion of underlying client assets related to our enhanced custody business, which clients have allowed us to transfer and re-pledge.

- Definition

The entire disclosure for the fair value of financial instruments (as defined), including financial assets and financial liabilities (collectively, as defined), and the measurements of those instruments as well as disclosures related to the fair value of non-financial assets and liabilities. Such disclosures about the financial instruments, assets, and liabilities would include: (1) the fair value of the required items together with their carrying amounts (as appropriate); (2) for items for which it is not practicable to estimate fair value, disclosure would include: (a) information pertinent to estimating fair value (including, carrying amount, effective interest rate, and maturity, and (b) the reasons why it is not practicable to estimate fair value; (3) significant concentrations of credit risk including: (a) information about the activity, region, or economic characteristics identifying a concentration, (b) the maximum amount of loss the entity is exposed to based on the gross fair value of the related item, (c) policy for requiring collateral or other security and information as to accessing such collateral or security, and (d) the nature and brief description of such collateral or security; (4) quantitative information about market risks and how such risks are managed; (5) for items measured on both a recurring and nonrecurring basis information regarding the inputs used to develop the fair value measurement; and (6) for items presented in the financial statement for which fair value measurement is elected: (a) information necessary to understand the reasons for the election, (b) discussion of the effect of fair value changes on earnings, (c) a description of [similar groups] items for which the election is made and the relation thereof to the balance sheet, the aggregate carrying value of items included in the balance sheet that are not eligible for the election; (7) all other required (as defined) and desired information.

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