Fair Value

6 Months Ended

Jun. 30, 2011

Fair Value

Fair Value

Note 11.    Fair Value

Fair Value Measurements

We carry trading account assets, investment securities available for sale 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 OCI within shareholders' equity in our consolidated statement of condition.

We measure fair value for the above-described financial assets and liabilities in accordance with 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 GAAP. We categorize the financial assets and liabilities that we carry at fair value based upon 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 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. Fair value is measured using unadjusted quoted prices in active markets for identical securities. Our level 1 financial assets and liabilities primarily included long and short positions in U.S. government securities and highly liquid U.S. and non-U.S. government fixed-income securities. We carry U.S. government securities in our available-for-sale portfolio in connection with our asset and liability management activities. We carry the long and short positions in highly liquid fixed-income securities in trading account assets and accrued expenses and other liabilities in connection with our trading activities. We assume these long and short positions in our role as a financial intermediary, which includes accommodating our clients' investment and risk management needs. Our level 1 financial assets also included active 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:

a) Quoted prices for similar assets or liabilities in active markets;

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

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

d) 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.

The fair value of the 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, includes comparisons to market research information pertaining to credit expectations, execution prices and the timing of cash flows.

The fair value of the derivative instruments categorized in level 2 predominantly represents 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 evaluated the impact on valuation of the credit risk of our counterparties and our own credit risk. We considered 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 appropriate measurements of fair value. Valuation adjustments associated with these factors were not significant for the three or six months ended June 30, 2011 or 2010.

Our level 2 financial assets and liabilities primarily included various types of interest-rate and foreign exchange derivative instruments, as well as trading account assets and fixed-income investment securities.

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 fair value measurement. These inputs reflect management's judgment about the assumptions that a market participant would use in pricing the 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.

• For certain investment securities available for sale, fair value was measured using information obtained from third-party sources or through the use of pricing models. Management evaluated its methodologies used to determine fair value, but considered the level of observable market information to be insufficient to categorize the securities in level 2.

• Foreign exchange contracts carried in other assets and accrued expenses and other liabilities were primarily composed of forward contracts and options. The fair value of foreign exchange forward contracts was measured using discounted cash flow techniques. However, in certain circumstances, extrapolation was required to develop certain forward points which were not observable. The fair value of foreign exchange options was measured using an option pricing model. Because of a limited number of observable transactions, certain model inputs were unobservable, such as volatilities, and were based on historical experience.

• The fair value of certain interest-rate caps with long-dated maturities, also carried in other assets and accrued expenses and other liabilities, was measured using a matrix pricing approach. Observable market prices were not available for these derivatives, so extrapolation was necessary to value these instruments, since they had a strike and/or maturity outside of the matrix.

The following tables present information with respect to our financial assets and liabilities carried at fair value in our consolidated statement of condition as of the dates indicated. No significant transfers of financial assets or liabilities between levels 1 and 2 occurred during the six months ended June 30, 2011.

	Fair Value Measurements on a Recurring Basis as of June 30, 2011
(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	$	2,282	$	145						$	2,427
Investment securities available for sale:
U.S. Treasury and federal agencies:
Direct obligations		6,271		1,110	$	17					7,398
Mortgage-backed securities		—		24,603		932					25,535
Asset-backed securities:
Student loans		—		14,674		1,246					15,920
Credit cards		—		9,789		79					9,868
Sub-prime		—		1,645		—					1,645
Other		—		613		700					1,313
Total asset-backed securities		—		26,721		2,025					28,746
Non-U.S. debt securities		—		16,157		3,989					20,146
State and political subdivisions		—		6,693		54					6,747
Collateralized mortgage obligations		—		2,481		173					2,654
Other U.S. debt securities		—		2,802		2					2,804
U.S. equity securities		—		563		—					563
Non-U.S. equity securities		7		183		—					190
Total investment securities available for sale		6,278		81,313		7,192					94,783
Other assets		235		8,529		209	$	(4,067	)		4,906
Total assets carried at fair value	$	8,795	$	89,987	$	7,401	$	(4,067	)	$	102,116
Liabilities:
Accrued expenses and other liabilities	$	2,169	$	8,786	$	228	$	(4,067	)	$	7,116
Total liabilities carried at fair value	$	2,169	$	8,786	$	228	$	(4,067	)	$	7,116

⁽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.

	Fair Value Measurements on a Recurring Basis as of December 31, 2010
(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	$	357	$	122						$	479
Investment securities available for sale:
U.S. Treasury and federal agencies:
Direct obligations		6,529		1,048							7,577
Mortgage-backed securities		—		22,967	$	673					23,640
Asset-backed securities:
Student loans		—		12,764		1,165					13,929
Credit cards		—		7,560		43					7,603
Sub-prime		—		1,818		—					1,818
Other		—		563		491					1,054
Total asset-backed securities		—		22,705		1,699					24,404
Non-U.S. debt securities		—		11,295		2,723					14,018
State and political subdivisions		—		6,554		50					6,604
Collateralized mortgage obligations		—		1,502		359					1,861
Other U.S. debt securities		—		2,533		3					2,536
U.S. equity securities		—		1,115		—					1,115
Non-U.S. equity securities		7		119		—					126
Total investment securities available for sale		6,536		69,838		5,507					81,881
Other assets		168		7,971		254	$	(2,970	)		5,423
Total assets carried at fair value	$	7,061	$	77,931	$	5,761	$	(2,970	)	$	87,783
Liabilities:
Accrued expenses and other liabilities	$	723	$	8,557	$	269	$	(2,970	)	$	6,579
Total liabilities carried at fair value	$	723	$	8,557	$	269	$	(2,970	)	$	6,579

⁽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.

The following tables present activity related to our financial assets and liabilities categorized in level 3 of the valuation hierarchy for the three and six months ended June 30, 2011 and 2010. For the three and six months ended June 30, 2011 and 2010, transfers out of level 3 were substantially related to certain mortgage- or asset-backed securities and non-U.S. debt securities, for which fair value was measured using prices for which observable market information became available.

(In millions)	Fair Value Measurements Using Significant Unobservable Inputs Three Months Ended June 30, 2011
	Fair Value at March 31, 2011		Transfers into Level 3		Transfers out of Level 3			Total Realized and Unrealized Gains (Losses)						Purchases		Issuances		Sales			Settlements			Fair Value at June 30, 2011		Change in Unrealized Gains (Losses) Related to Financial Instruments Held at June 30, 2011
								Recorded in Revenue			Recorded in Other Comprehensive Income
Assets:
Investment securities available for sale:
U.S. Treasury and federal agencies:
Direct obligations														$	17									$	17
Mortgage-backed securities	$	898													62						$	(28	)		932
Asset-backed securities:
Student loans		1,265			$	(308	)	$	2		$	(1	)		300							(12	)		1,246
Credit cards		74				(16	)		1			—			20							—			79
Other		565	$	114		(20	)		3			—			17							21			700
Total asset-backed securities		1,904		114		(344	)		6			(1	)		337							9			2,025
Non-U.S. debt securities		3,540		—		(680	)		5			4			1,220							(100	)		3,989
State and political subdivisions		51		—		—			—			1			2							—			54
Collateralized mortgage obligations		228		—		(196	)		199			—			142							(200	)		173
Other U.S. debt securities		3		—		—			—			—			—							(1	)		2
Total investment securities available for sale		6,624		114		(1,220	)		210			4			1,780							(320	)		7,192
Other assets		235		—		—			(38	)		—			96			$	(2	)		(82	)		209	$	(30	)
Total assets carried at fair value	$	6,859	$	114	$	(1,220	)	$	172		$	4		$	1,876		—	$	(2	)	$	(402	)	$	7,401	$	(30	)

(In millions)	Fair Value Measurements Using Significant Unobservable Inputs Three Months Ended June 30, 2011
	Fair Value at March 31, 2011		Transfers into Level 3		Transfers out of Level 3		Total Realized and Unrealized (Gains) Losses					Purchases			Issuances		Sales		Settlements			Fair Value at June 30, 2011		Change in Unrealized (Gains) Losses Related to Financial Instruments Held at June 30, 2011
							Recorded in Revenue			Recorded in Other Comprehensive Income
Liabilities:
Accrued expenses and other liabilities	$	241		—		—	$	(20	)		—	$	(2	)	$	14	$	79	$	(84	)	$	228	$	(3	)
Total liabilities carried at fair value	$	241		—		—	$	(20	)		—	$	(2	)	$	14	$	79	$	(84	)	$	228	$	(3	)

	Fair Value Measurements Using Significant Unobservable Inputs Six Months Ended June 30, 2011
	Fair Value at December 31, 2010		Transfers into Level 3		Transfers out of Level 3			Total Realized and Unrealized Gains (Losses)						Purchases		Issuances		Sales			Settlements			Fair Value at June 30, 2011		Change in Unrealized Gains (Losses) Related to Financial Instruments Held at June 30, 2011
(In millions)								Recorded in Revenue			Recorded in Other Comprehensive Income
Assets:
Investment securities available for sale:
U.S. Treasury and federal agencies:
Direct obligations														$	17									$	17
Mortgage-backed securities	$	673			$	(404	)				$	1			699						$	(37	)		932
Asset-backed securities:
Student loans		1,165				(315	)	$	3			—			421							(28	)		1,246
Credit cards		43				(16	)		2			(2	)		51							1			79
Other		491	$	114		(20	)		7			10			115							(17	)		700
Total asset-backed securities		1,699		114		(351	)		12			8			587							(44	)		2,025
Non-U.S. debt securities		2,723		—		(963	)		9			50			2,361							(191	)		3,989
State and political subdivisions		50		—		—			—			2			2							—			54
Collateralized mortgage obligations		359		—		(329	)		333			(2	)		165							(353	)		173
Other U.S. debt securities		3		—		—			—			—			—							(1	)		2
Total investment securities available for sale		5,507		114		(2,047	)		354			59			3,831							(626	)		7,192
Other assets		254		—		—			(107	)		—			164			$	(3	)		(99	)		209	$	(51	)
Total assets carried at fair value	$	5,761	$	114	$	(2,047	)	$	247		$	59		$	3,995		—	$	(3	)	$	(725	)	$	7,401	$	(51	)

	Fair Value Measurements Using Significant Unobservable Inputs Six Months Ended June 30, 2011
	Fair Value at December 31, 2010		Transfers into Level 3		Transfers out of Level 3		Total Realized and Unrealized (Gains) Losses					Purchases			Issuances		Sales		Settlements			Fair Value at June 30, 2011		Change in Unrealized (Gains) Losses Related to Financial Instruments Held at June 30, 2011
(In millions)							Recorded in Revenue			Recorded in Other Comprehensive Income
Liabilities:
Accrued expenses and other liabilities	$	269		—		—	$	(87	)		—	$	(3	)	$	13	$	144	$	(108	)	$	228	$	(35	)
Total liabilities carried at fair value	$	269		—		—	$	(87	)		—	$	(3	)	$	13	$	144	$	(108	)	$	228	$	(35	)

	Fair Value Measurements Using Significant Unobservable Inputs Three Months Ended June 30, 2010
	Fair Value at March 31, 2010		Total Realized and Unrealized Gains (Losses)					Purchases, Issuances and Settlements, Net			Transfers Into and/or Out of Level 3			Fair Value at June 30, 2010		Change in Unrealized Gains (Losses) Related to Financial Instruments Held at June 30, 2010
(In millions)			Recorded in Revenue		Recorded in Other Comprehensive Income
Assets:
Investment securities available for sale:
U.S. Treasury and federal agencies:
Mortgage-backed securities	$	225			$	(2	)	$	(180	)				$	43
Asset-backed securities:
Student loans		3,046	$	2		3			(64	)	$	(758	)		2,229
Credit cards		39		1		—			46			5			91
Sub-prime		3		—		1			—			—			4
Other		1,105		21		4			(61	)		—			1,069
Total asset-backed securities		4,193		24		8			(79	)		(753	)		3,393
Non-U.S. debt securities		2,687		18		10			(54	)		(2	)		2,659
State and political subdivisions		—		—		—			—			3			3
Collateralized mortgage obligations		195		1		(4	)		232			—			424
Other U.S. debt securities		3		—		—			—			—			3
Total investment securities available for sale		7,303		43		12			(81	)		(752	)		6,525
Loans and leases		916		—		—			—			(916	)		—
Other assets		209		9		—			89			—			307	$	26
Total assets	$	8,428	$	52	$	12		$	8		$	(1,668	)	$	6,832	$	26

	Fair Value Measurements Using Significant Unobservable Inputs Three Months Ended June 30, 2010
	Fair Value at March 31, 2010		Total Realized and Unrealized (Gains) Losses					Purchases, Issuances and Settlements, Net		Transfers Into and/or Out of Level 3			Fair Value at June 30, 2010		Change in Unrealized (Gains) Losses Related to Financial Instruments Held at June 30, 2010
(In millions)			Recorded in Revenue			Recorded in Other Comprehensive Income
Liabilities:
Other short-term borrowings	$	674								$	(674	)	$	—
Accrued expenses and other liabilities		212	$	(15	)		—	$	87		—			284	$	3
Total liabilities carried at fair value	$	886	$	(15	)		—	$	87	$	(674	)	$	284	$	3

	Fair Value Measurements Using Significant Unobservable Inputs Six Months Ended June 30, 2010
	Fair Value at December 31, 2009		Total Realized and Unrealized Gains (Losses)						Purchases, Issuances and Settlements, Net			Transfers Into and/or Out of Level 3			Fair Value at June 30, 2010		Change in Unrealized Gains (Losses) Related to Financial Instruments Held at June 30, 2010
(In millions)			Recorded in Revenue			Recorded in Other Comprehensive Income
Assets:
Investment securities available for sale:
U.S. Treasury and federal agencies:
Mortgage-backed securities	$	58	$	(1	)	$	(2	)	$	(12	)				$	43
Asset-backed securities:
Student loans		3,111		5			71			(36	)	$	(922	)		2,229
Credit cards		312		15			(15	)		18			(239	)		91
Sub-prime		3		—			1			—			—			4
Other		1,134		39			42			(46	)		(100	)		1,069
Total asset-backed securities		4,560		59			99			(64	)		(1,261	)		3,393
Non-U.S. debt securities		2,606		75			148			(53	)		(117	)		2,659
State and political subdivisions		2		—			—			—			1			3
Collateralized mortgage obligations		199		(208	)		3			430			—			424
Other U.S. debt securities		3		—			—			—			—			3
Total investment securities available for sale		7,428		(75	)		248			301			(1,377	)		6,525
Other assets		128		3			—			176			—			307	$	3
Total assets	$	7,556	$	(72	)	$	248		$	477		$	(1,377	)	$	6,832	$	3

	Fair Value Measurements Using Significant Unobservable Inputs Six Months Ended June 30, 2010
	Fair Value at December 31, 2009		Total Realized and Unrealized (Gains) Losses					Purchases, Issuances and Settlements, Net		Transfers Into and/or Out of Level 3		Fair Value at June 30, 2010		Change in Unrealized (Gains) Losses Related to Financial Instruments Held at June 30, 2010
(In millions)			Recorded in Revenue			Recorded in Other Comprehensive Income
Liabilities:
Accrued expenses and other liabilities	$	147	$	(31	)		—	$	168		—	$	284	$	(17	)
Total liabilities carried at fair value	$	147	$	(31	)		—	$	168		—	$	284	$	(17	)

For our financial assets and liabilities categorized in level 3, total realized and unrealized gains and losses for the periods indicated were recorded in revenue as follows:

	Three Months Ended June 30, 2011						Three Months Ended June 30, 2010
(In millions)	Total Realized and Unrealized Gains (Losses) Recorded in Revenue			Change in Unrealized Gains (Losses) Related to Financial Instruments Held at June 30, 2011			Total Realized and Unrealized Gains (Losses) Recorded in Revenue		Change in Unrealized Gains (Losses) Related to Financial Instruments Held at June 30, 2010
Fee revenue:
Trading services	$	(18	)	$	(27	)	$	24	$	23
Total fee revenue		(18	)		(27	)		24		23
Net interest revenue		210			—			43		—
Total revenue	$	192		$	(27	)	$	67	$	23

	Six Months Ended June 30, 2011						Six Months Ended June 30, 2010
(In millions)	Total Realized and Unrealized Gains (Losses) Recorded in Revenue			Change in Unrealized Gains (Losses) Related to Financial Instruments Held at June 30, 2011			Total Realized and Unrealized Gains (Losses) Recorded in Revenue			Change in Unrealized Gains (Losses) Related to Financial Instruments Held at June 30, 2010
Fee revenue:
Trading services		$(20	)	$	(16	)	$	34		$	20
Total fee revenue		(20	)		(16	)		34			20
Net interest revenue		354			—			(75	)		—
Total revenue	$	334		$	(16	)	$	(41	)	$	20

Fair Values of Financial Instruments

Estimates of fair value for financial instruments not carried at fair value on a recurring basis in our consolidated statement of condition, as defined by GAAP, are generally subjective in nature, and are made 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 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.

• Financial instruments that have no defined maturity, have a remaining maturity of 180 days or less, or reprice frequently to a market rate are assumed to have a fair value that 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 reported 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 income 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 net loans (excluding leases), we consider fair value for these loans to approximate their reported value. The fair value of other types of loans, such as purchased receivables and CRE loans, is estimated 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. Loan commitments have no reported value because terms are at prevailing market rates.

The following table presents the reported amounts and estimated fair values of the financial instruments defined by GAAP, excluding the aforementioned short-term financial instruments and financial assets and liabilities carried at fair value on a recurring basis, as of the dates indicated:

(In millions)	Reported Amount		Fair Value
June 30, 2011:
Financial Assets:
Investment securities held to maturity	$	11,131	$	11,473
Net loans (excluding leases)		11,554		11,465
Financial Liabilities:
Long-term debt		9,544		9,648
December 31, 2010:
Financial Assets:
Investment securities held to maturity	$	12,249	$	12,576
Net loans (excluding leases)		10,387		10,242
Financial Liabilities:
Long-term debt		8,550		8,498