Fair Value

12 Months Ended

Dec. 31, 2023

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. 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. Our level 1 financial assets also include actively traded exchange- traded equity securities.

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 AFS investment securities, as well as various types of foreign exchange and interest rate derivative instruments.

Fair value for our AFS investment securities 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. We consider factors such as the likelihood of default by 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, 2023 and 2022.

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 may be 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 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 therefore less observable.

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 December 31, 2023
(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	$	36	$	—	$	—			$	36
Non-U.S. government securities	—		138		—				138
Other	—		599		—				599

Total trading account assets	36		737		—				773
Available-for-sale investment securities:
U.S. Treasury and federal agencies:
Direct obligations	$	8,301	—		—				8,301
Mortgage-backed securities	—		10,755		—				10,755
Total U.S. Treasury and federal agencies	8,301		10,755		—				19,056







Non-U.S. debt securities:
Mortgage-backed securities	—		1,857		—				1,857
Asset-backed securities	—		2,137		—				2,137
Non-U.S. sovereign, supranational and non-U.S. agency	—		15,100		—				15,100
Other	—		2,735		—				2,735
Total non-U.S. debt securities	—		21,829		—				21,829
Asset-backed securities:
Student loans	—		114		—				114
Collateralized loan obligations	—		2,527		—				2,527
Non-agency CMBS and RMBS(2)	—		249		—				249
Other	—		90		—				90
Total asset-backed securities	—		2,980		—				2,980
State and political subdivisions	—		355		—				355

Other U.S. debt securities	—		306		—				306





Total available-for-sale investment securities	8,301		36,225		—				44,526
Other assets:
Derivative instruments:
Foreign exchange contracts	—		19,690		4		$	(14,387)	5,307
Interest rate contracts	—		13		—		(13)		—

Total derivative instruments	—		19,703		4		(14,400)		5,307


Other	11		640		—		—		651
Total assets carried at fair value	$	8,348	$	57,305	$	4	$	(14,400)	$	51,257
Liabilities:
Accrued expenses and other liabilities:




Derivative instruments:
Foreign exchange contracts	$	1	$	19,414	$	1	$	(11,909)	$	7,507
Interest rate contracts	4		—		—		—		4
Other derivative contracts	—		182		—		—		182
Total derivative instruments	5		19,596		1		(11,909)		7,693

Total liabilities carried at fair value	$	5	$	19,596	$	1	$	(11,909)	$	7,693

(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 $3.90 billion and $1.41 billion, respectively, for cash collateral received from and provided to derivative counterparties.

(2) Consists entirely of non-agency CMBS.


	Fair Value Measurements on a Recurring Basis
	As of December 31, 2022
(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	$	40	$	—	$	—			$	40
Non-U.S. government securities	—		142		—				142
Other	—		468		—				468
Total trading account assets	40		610		—				650
Available-for-sale investment securities:
U.S. Treasury and federal agencies:
Direct obligations	7,981		—		—				7,981
Mortgage-backed securities	—		8,509		—				8,509
Total U.S. Treasury and federal agencies	7,981		8,509		—				16,490






Non-U.S. debt securities:
Mortgage-backed securities	—		1,623		—				1,623
Asset-backed securities	—		1,669		—				1,669
Non-U.S. sovereign, supranational and non-U.S. agency	—		14,089		—				14,089
Other	—		2,091		—				2,091
Total non-U.S. debt securities	—		19,472		—				19,472
Asset-backed securities:
Student loans	—		115		—				115

Collateralized loan obligations	—		2,355		—				2,355
Non-agency CMBS and RMBS(2)	—		231		—				231
Other	—		88		—				88
Total asset-backed securities	—		2,789		—				2,789
State and political subdivisions	—		823		—				823

Other U.S. debt securities	—		1,005		—				1,005




Total available-for-sale investment securities	7,981		32,598		—				40,579
Other assets:
Derivative instruments:
Foreign exchange contracts	9		26,173		4		$	(18,522)	7,664
Interest rate contracts	—		—		—		—		—

Total derivative instruments	9		26,173		4		(18,522)		7,664
Other	6		600		—		—		606
Total assets carried at fair value	$	8,036	$	59,981	$	4	$	(18,522)	$	49,499
Liabilities:
Accrued expenses and other liabilities:
Trading account liabilities:



Derivative instruments:
Foreign exchange contracts	$	2	$	25,745	$	2	$	(17,951)	$	7,798
Interest rate contracts	1		—		—		—		1
Other derivative contracts	—		216		—		—		216
Total derivative instruments	3		25,961		2		(17,951)		8,015

Total liabilities carried at fair value	$	3	$	25,961	$	2	$	(17,951)	$	8,015

(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 $3.30 billion and $2.73 billion, respectively, for cash collateral received from and provided to derivative counterparties.

(2) Consists entirely of non-agency CMBS.

Financial Instruments Not Carried at Fair Value

Estimates of fair value for financial instruments not carried at fair value 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; and

•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 leveraged 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, 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, 2023
Financial Assets:
Cash and due from banks	$	4,047	$	4,047	$	4,047	$	—	$	—
Interest-bearing deposits with banks	87,665		87,665		—		87,665		—
Securities purchased under resale agreements	6,692		6,692		—		6,692		—

Investment securities held-to-maturity	57,117		51,503		8,409		43,094		—
Net loans	36,496		36,335		—		34,308		2,027
Other(1)	6,866		6,866		—		6,866		—
Financial Liabilities:
Deposits:
Non-interest-bearing	$	32,569	$	32,569	$	—	$	32,569	$	—
Interest-bearing - U.S.	121,738		121,738		—		121,738		—
Interest-bearing - non-U.S.	66,663		66,663		—		66,663		—
Securities sold under repurchase agreements	1,867		1,867		—		1,867		—

Federal funds purchased	1,000		1,000		—		1,000		—
Other short-term borrowings	2,660		2,660		—		2,660		—

Long-term debt	18,839		18,417		—		18,216		201
Other(1)	6,866		6,866		—		6,866		—

(1) Represents a portion of underlying client assets related to our prime services 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, 2022
Financial Assets:
Cash and due from banks	$	3,970	$	3,970	$	3,970	$	—	$	—
Interest-bearing deposits with banks	101,593		101,593		—		101,593		—
Securities purchased under resale agreements	5,215		5,215		—		5,215		—

Investment securities held-to-maturity	64,700		57,913		11,336		46,577		—
Net loans(1)	32,053		31,794		—		29,679		2,115
Other(2)	3,626		3,626		—		3,626		—
Financial Liabilities:
Deposits:
Non-interest-bearing	$	46,755	$	46,755	$	—	$	46,755	$	—
Interest-bearing - U.S.	111,384		111,384		—		111,384		—
Interest-bearing - non-U.S.	77,325		77,325		—		77,325		—
Securities sold under repurchase agreements	1,177		1,177		—		1,177		—

Other short-term borrowings	2,097		2,097		—		2,097		—
Long-term debt	14,996		14,273		—		14,102		171
Other(2)	3,626		3,626		—		3,626		—

(1) Includes $5 million of loans classified as held-for-sale that were measured at fair value in level 2 as of December 31, 2022.

(2) Represents a portion of underlying client assets related to our prime services 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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