CITIGROUP INCC
CITIGROUP INC Fair Value Disclosure
FAIR VALUE MEASUREMENT
ASC 820-10, Fair Value Measurement, defines fair value, establishes a consistent framework for measuring fair value and requires disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, and therefore represents an exit price. Among other things, the standard requires the Company to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
Under ASC 820-10, the probability of counterparty default is factored into the valuation of derivative and other positions, and the impact of Citigroup’s own credit risk is also factored into the valuation of derivatives and other liabilities that are measured at fair value.
Fair Value Hierarchy
ASC 820-10 specifies a hierarchy of inputs based on whether the inputs are observable or unobservable. Observable inputs are developed using market data and reflect market participant assumptions, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs have created the following fair value hierarchy:
•Level 1: Quoted prices for identical instruments in active markets.
•Level 2: Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-derived valuations in which all significant inputs and significant value drivers are observable in the market.
•Level 3: Valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
As required under the fair value hierarchy, the Company considers relevant and observable market inputs in its valuations where possible.
The fair value hierarchy classification approach typically utilizes rules-based and data-driven selection criteria to determine whether an instrument is classified as Level 1, Level 2 or Level 3:
•The determination of whether an instrument is quoted in an active market and therefore considered a Level 1 instrument is based upon the frequency of observed transactions and the quality of independent market data available on the measurement date.
•A Level 2 classification is assigned where there is observability of prices/market inputs to models, or where any unobservable inputs are not significant to the valuation. The determination of whether an input is considered observable is based on the availability of independent market data and its corroboration, for example through observed transactions in the market.
•Otherwise, an instrument is classified as Level 3.
Determination of Fair Value
For assets and liabilities carried at fair value, the Company measures fair value using the procedures set out below, irrespective of whether the assets and liabilities are measured at fair value as a result of an election, a non-recurring lower-of-cost-or-market (LOCOM) adjustment, or because they are required to be measured at fair value.
When available, the Company uses quoted market prices from active markets to determine fair value and classifies such items as Level 1. In some specific cases where a market price is available, the Company will apply practical expedients (such as matrix pricing) to calculate fair value, in which case the items may be classified as Level 2.
The Company may also apply a price-based methodology that utilizes, where available, quoted prices or other market information obtained from recent trading activity in positions with the same or similar characteristics to the position being valued. If relevant and observable prices are available, those valuations may be classified as Level 2. However, when there are one or more significant unobservable “price” inputs, those valuations will be classified as Level 3. Furthermore, when a quoted price is considered stale, a significant adjustment to the price of a similar security may be necessary to reflect differences in the terms of the actual security or loan being valued, or alternatively, when prices from independent sources may be insufficient to corroborate a valuation, the “price” inputs are considered unobservable and the fair value measurements are classified as Level 3.
If quoted market prices are not available, fair value is based upon internally developed valuation techniques that use, where possible, current market-based parameters, such as interest rates, currency rates and option volatilities. Items valued using such internally generated valuation techniques are classified according to the lowest level input or value driver that is significant to the valuation. Thus, an item may be classified as Level 3 even though there may be some significant inputs that are readily observable.
Fair value estimates from internal valuation techniques are verified, where possible, to prices obtained from independent vendors or brokers. Vendors’ and brokers’ valuations may be based on a variety of inputs ranging from observed prices to proprietary valuation models, and the Company assesses the quality and relevance of this information in determining the estimate of fair value. The following section describes the valuation methodologies used by the Company to measure various financial instruments at fair value. Where appropriate, the description includes details of the valuation models, the key inputs to those models and any significant assumptions.
Market Valuation Adjustments
Generally, the unit of account for a financial instrument is the individual financial instrument. The Company applies market valuation adjustments that are consistent with the unit of account, which does not include adjustment due to the size of the Company’s position, except as follows. ASC 820-10 permits an exception, through an accounting policy election, to measure the fair value of a portfolio of financial assets and financial liabilities on the basis of the net open risk position when certain criteria are met. Citi has elected to measure
certain portfolios of financial instruments that meet those criteria, such as derivatives, on the basis of the net open risk position. The Company applies market valuation adjustments, including adjustments to account for the size of the net open risk position, consistent with market participant assumptions.
Valuation adjustments are applied to items classified as Level 2 or Level 3 in the fair value hierarchy to ensure that the fair value reflects the price at which the net open risk position could be exited. These valuation adjustments are based on the bid/offer spread for an instrument in the market. When Citi has elected to measure certain portfolios of financial investments, such as derivatives, on the basis of the net open risk position, the valuation adjustment may take into account the size of the position.
Credit valuation adjustments (CVA) and funding valuation adjustments (FVA) are applied to the relevant population of over-the-counter (OTC) derivative instruments where adjustments to reflect counterparty credit risk, own credit risk and term funding risk are required to estimate fair value. This principally includes derivatives with a base valuation (e.g., discounted using overnight indexed swap (OIS)) requiring adjustment for these effects, such as uncollateralized interest rate swaps. The CVA represents a portfolio-level adjustment to reflect the risk premium associated with the counterparty’s (assets) or Citi’s (liabilities) non-performance risk.
The FVA represents a market funding risk premium inherent in the uncollateralized portion of a derivative portfolio and in certain collateralized derivative portfolios that do not include standard credit support annexes (CSAs), such as where the CSA does not permit the reuse of collateral received. Citi’s FVA methodology leverages the existing CVA methodology to estimate a funding exposure profile. The calculation of this exposure profile considers collateral agreements in which the terms do not permit the Company to reuse the collateral received, including where counterparties post collateral to third-party custodians. Citi’s CVA and FVA methodologies consist of two steps:
•First, the exposure profile for each counterparty is determined using the terms of all individual derivative positions and a Monte Carlo simulation or other quantitative analysis to generate a series of expected cash flows at future points in time. The calculation of this exposure profile considers the effect of credit risk mitigants and sources of funding, including pledged cash or other collateral and any legal right of offset that exists with a counterparty through arrangements such as netting agreements. Individual derivative contracts that are subject to an enforceable master netting agreement with a counterparty are aggregated as a netting set for this purpose, since it is those aggregate net cash flows that are subject to nonperformance risk. This process identifies specific, point-in-time future cash flows that are subject to nonperformance and term funding risk, rather than using the current recognized net asset or liability as a basis to measure the CVA and FVA.
•Second, for CVA, market-based views of default probabilities derived from observed credit spreads in the credit default swap (CDS) market are applied to the
expected future cash flows determined in step one. Citi’s own credit CVA is determined using Citi-specific CDS spreads for the relevant tenor. Generally, counterparty CVA is determined using CDS spread indices for each credit rating and tenor. For certain identified netting sets where individual analysis is practicable (e.g., exposures to counterparties with liquid CDSs), counterparty-specific CDS spreads are used. For FVA, a term structure of spreads is applied to the expected funding exposures (e.g., the market liquidity spread used to represent the term funding premium associated with certain OTC derivatives).
The CVA and FVA are designed to incorporate a market view of the credit and funding risk, respectively, inherent in the derivative portfolio. However, most unsecured derivative instruments are negotiated bilateral contracts and are not commonly transferred to third parties. Derivative instruments are normally settled contractually or, if terminated early, are terminated at a value negotiated bilaterally between the counterparties. Thus, the CVA and FVA may not be realized upon a settlement or termination in the normal course of business. In addition, all or a portion of these adjustments may be reversed or otherwise adjusted in future periods in the event of changes in the credit or funding risk associated with the derivative instruments.
The table below summarizes the CVA and FVA applied to the fair value of derivative instruments at December 31, 2022 and 2021:
| Credit and funding valuation adjustments contra-liability (contra-asset) | ||||||||
| In millions of dollars | December 31, 2022 | December 31, 2021 | ||||||
| Counterparty CVA | $ | (816) | $ | (705) | ||||
| Asset FVA | (622) | (433) | ||||||
| Citigroup (own credit) CVA | 607 | 379 | ||||||
| Liability FVA | 263 | 110 | ||||||
| Total CVA and FVA—derivative instruments | $ | (568) | $ | (649) | ||||
The table below summarizes pretax gains (losses) related to changes in CVA on derivative instruments, net of hedges, FVA on derivatives and debt valuation adjustments (DVA) on Citi’s own fair value option (FVO) liabilities for the years indicated:
| Credit/funding/debt valuation adjustments gain (loss) | |||||||||||
| In millions of dollars | 2022 | 2021 | 2020 | ||||||||
| Counterparty CVA | $ | (227) | $ | 79 | $ | (101) | |||||
| Asset FVA | (102) | 96 | (95) | ||||||||
| Own credit CVA | 157 | (33) | 133 | ||||||||
| Liability FVA | 155 | (22) | (6) | ||||||||
| Total CVA and FVA—derivative instruments | $ | (17) | $ | 120 | $ | (69) | |||||
DVA related to own FVO liabilities(1) | $ | 2,685 | $ | 296 | $ | (616) | |||||
| Total CVA, DVA and FVA | $ | 2,668 | $ | 416 | $ | (685) | |||||
(1) See Note 20.
Securities Purchased Under Agreements to Resell and Securities Sold Under Agreements to Repurchase
No quoted prices exist for these instruments, since fair value is determined using a discounted cash flow technique. Cash flows are estimated based on the terms of the contract, taking into account any embedded derivatives or other features. These cash flows are discounted using interest rates appropriate to the maturity of the instrument as well as the nature of the underlying collateral. Generally, when such instruments are recorded at fair value, they are classified within Level 2 of the fair value hierarchy, as the inputs used in the valuation are readily observable. However, certain long-dated positions are classified within Level 3 of the fair value hierarchy.
Trading Account Assets and Liabilities—Trading Securities and Trading Loans
When available, the Company uses quoted market prices in active markets to determine the fair value of trading securities; such items are classified as Level 1 of the fair value hierarchy. Examples include government securities and exchange-traded equity securities.
For bonds and secondary market loans traded over the counter, the Company generally determines fair value utilizing various valuation techniques, including discounted cash flows, price-based and internal models. Fair value estimates from these internal valuation techniques are verified, where possible, to prices obtained from independent sources, including third-party vendors. A price-based methodology utilizes, where available, quoted prices or other market information obtained from recent trading activity of assets with similar characteristics to the bond or loan being valued. The yields used in discounted cash flow models are derived from the same price information. Trading securities and loans priced using such methods are generally classified as Level 2. However, when the primary inputs to the valuation are unobservable, or prices from independent sources are insufficient to corroborate valuation, a loan or security is
generally classified as Level 3. Fair value estimates from these internal valuation techniques are verified, where possible, to prices obtained from independent sources, including third-party vendors.
When the Company’s principal exit market for a portfolio of loans is through securitization, the Company uses the securitization price as a key input into the fair value of the loan portfolio. The securitization price is determined from the assumed proceeds of a hypothetical securitization within the current market environment. Where such a price verification is possible, loan portfolios are typically classified as Level 2 in the fair value hierarchy.
For most of the subprime mortgage backed security (MBS) exposures, fair value is determined utilizing observable transactions where available, or other valuation techniques such as discounted cash flow analysis utilizing valuation assumptions derived from similar, more observable securities as market proxies. The valuation of certain asset-backed security (ABS) CDO positions is inferred through the net asset value of the underlying assets of the ABS CDO.
Trading Account Assets and Liabilities—Derivatives
Exchange-traded derivatives, measured at fair value using quoted (i.e., exchange) prices in active markets, where available, are classified as Level 1 of the fair value hierarchy.
Derivatives without a quoted price in an active market and derivatives executed over the counter are valued using internal valuation techniques. These derivative instruments are classified as either Level 2 or Level 3 depending on the observability of the significant inputs to the model.
The valuation techniques depend on the type of derivative and the nature of the underlying instrument. The principal techniques used to value these instruments are discounted cash flows and internal models, such as derivative pricing models (e.g., Black-Scholes and Monte Carlo simulations).
The key inputs depend upon the type of derivative and the nature of the underlying instrument and include interest rate yield curves, foreign exchange rates, volatilities and correlation.
Investments
The investments category includes available-for-sale debt and marketable equity securities whose fair values are generally determined by utilizing similar procedures described for trading securities above or, in some cases, using vendor pricing as the primary source.
Also included in investments are nonpublic investments in private equity and real estate entities. Determining the fair value of nonpublic securities involves a significant degree of management judgment, as no quoted prices exist and such securities are not generally traded. In addition, there may be transfer restrictions on private equity securities. The Company’s process for determining the fair value of such securities utilizes commonly accepted valuation techniques, including guideline public company analysis and comparable transactions. In determining the fair value of nonpublic securities, the Company also considers events such as a proposed sale of the investee company, initial public offerings, equity issuances or other observable transactions. Private
equity securities are generally classified as Level 3 of the fair value hierarchy.
In addition, the Company holds investments in certain alternative investment funds that calculate NAV per share, including hedge funds, private equity funds and real estate funds. Investments in funds are generally classified as non-marketable equity securities carried at fair value. The fair values of these investments are estimated using the NAV per share of the Company’s ownership interest in the funds where it is not probable that the investment will be realized at a price other than the NAV. Consistent with the provisions of ASU 2015-07, these investments are categorized within the fair value hierarchy and are not included in the tables below. See Note 13 for additional information.
Short-Term Borrowings and Long-Term Debt
Where fair value accounting has been elected, the fair value of non-structured liabilities is determined by utilizing internal models using the appropriate discount rate for the applicable maturity. Such instruments are classified as Level 2 of the fair value hierarchy when all significant inputs are readily observable.
The Company determines the fair value of hybrid financial instruments, including structured liabilities, using the appropriate derivative valuation methodology (described above in “Trading Account Assets and Liabilities—Derivatives”) given the nature of the embedded risk profile. Such instruments are classified as Level 2 or Level 3 depending on the observability of significant inputs to the model.
Items Measured at Fair Value on a Recurring Basis
The following tables present for each of the fair value hierarchy levels the Company’s assets and liabilities that are measured at fair value on a recurring basis at December 31, 2022 and 2021. The Company may hedge positions that have
been classified in the Level 3 category with other financial instruments (hedging instruments) that may be classified as Level 3, but also with financial instruments classified as Level 1 or Level 2. The effects of these hedges are presented gross in the following tables:
Fair Value Levels
| In millions of dollars at December 31, 2022 | Level 1 | Level 2 | Level 3 | Gross inventory | Netting(1) | Net balance | ||||||||||||||
| Assets | ||||||||||||||||||||
| Securities borrowed and purchased under agreements to resell | $ | — | $ | 350,145 | $ | 149 | $ | 350,294 | $ | (110,767) | $ | 239,527 | ||||||||
| Trading non-derivative assets | ||||||||||||||||||||
| Trading mortgage-backed securities | ||||||||||||||||||||
| U.S. government-sponsored agency guaranteed | — | 34,878 | 600 | 35,478 | — | 35,478 | ||||||||||||||
| Residential | 1 | 1,821 | 166 | 1,988 | — | 1,988 | ||||||||||||||
| Commercial | — | 798 | 145 | 943 | — | 943 | ||||||||||||||
| Total trading mortgage-backed securities | $ | 1 | $ | 37,497 | $ | 911 | $ | 38,409 | $ | — | $ | 38,409 | ||||||||
| U.S. Treasury and federal agency securities | $ | 63,067 | $ | 4,513 | $ | 1 | $ | 67,581 | $ | — | $ | 67,581 | ||||||||
| State and municipal | — | 2,256 | 7 | 2,263 | — | 2,263 | ||||||||||||||
| Foreign government | 38,383 | 25,850 | 119 | 64,352 | — | 64,352 | ||||||||||||||
| Corporate | 1,593 | 11,955 | 394 | 13,942 | — | 13,942 | ||||||||||||||
| Equity securities | 43,990 | 10,179 | 192 | 54,361 | — | 54,361 | ||||||||||||||
| Asset-backed securities | — | 1,597 | 668 | 2,265 | — | 2,265 | ||||||||||||||
Other trading assets(2) | 24 | 14,963 | 648 | 15,635 | — | 15,635 | ||||||||||||||
| Total trading non-derivative assets | $ | 147,058 | $ | 108,810 | $ | 2,940 | $ | 258,808 | $ | — | $ | 258,808 | ||||||||
| Trading derivatives | ||||||||||||||||||||
| Interest rate contracts | $ | 297 | $ | 174,156 | $ | 3,751 | $ | 178,204 | ||||||||||||
| Foreign exchange contracts | — | 186,897 | 766 | 187,663 | ||||||||||||||||
| Equity contracts | 20 | 40,683 | 1,704 | 42,407 | ||||||||||||||||
| Commodity contracts | — | 26,823 | 1,501 | 28,324 | ||||||||||||||||
| Credit derivatives | — | 7,484 | 905 | 8,389 | ||||||||||||||||
| Total trading derivatives—before netting and collateral | $ | 317 | $ | 436,043 | $ | 8,627 | $ | 444,987 | ||||||||||||
| Netting agreements | $ | (346,545) | ||||||||||||||||||
| Netting of cash collateral received | (23,136) | |||||||||||||||||||
| Total trading derivatives—after netting and collateral | $ | 317 | $ | 436,043 | $ | 8,627 | $ | 444,987 | $ | (369,681) | $ | 75,306 | ||||||||
| Investments | ||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||
| U.S. government-sponsored agency guaranteed | $ | — | $ | 11,232 | $ | 30 | $ | 11,262 | $ | — | $ | 11,262 | ||||||||
| Residential | — | 444 | 41 | 485 | — | 485 | ||||||||||||||
| Commercial | — | 2 | — | 2 | — | 2 | ||||||||||||||
| Total investment mortgage-backed securities | $ | — | $ | 11,678 | $ | 71 | $ | 11,749 | $ | — | $ | 11,749 | ||||||||
| U.S. Treasury and federal agency securities | $ | 91,851 | $ | 439 | $ | — | $ | 92,290 | $ | — | $ | 92,290 | ||||||||
| State and municipal | — | 1,637 | 586 | 2,223 | — | 2,223 | ||||||||||||||
| Foreign government | 58,419 | 74,250 | 608 | 133,277 | — | 133,277 | ||||||||||||||
| Corporate | 2,230 | 2,343 | 343 | 4,916 | — | 4,916 | ||||||||||||||
| Marketable equity securities | 254 | 165 | 10 | 429 | — | 429 | ||||||||||||||
| Asset-backed securities | — | 1,029 | 1 | 1,030 | — | 1,030 | ||||||||||||||
| Other debt securities | — | 4,194 | — | 4,194 | — | 4,194 | ||||||||||||||
Non-marketable equity securities(3) | — | 9 | 430 | 439 | — | 439 | ||||||||||||||
| Total investments | $ | 152,754 | $ | 95,744 | $ | 2,049 | $ | 250,547 | $ | — | $ | 250,547 | ||||||||
Table continues on the next page.
| In millions of dollars at December 31, 2022 | Level 1 | Level 2 | Level 3 | Gross inventory | Netting(1) | Net balance | ||||||||||||||
| Loans | $ | — | $ | 3,999 | $ | 1,361 | $ | 5,360 | $ | — | $ | 5,360 | ||||||||
| Mortgage servicing rights | — | — | 665 | 665 | — | 665 | ||||||||||||||
| Non-trading derivatives and other financial assets measured on a recurring basis | $ | 4,310 | $ | 6,291 | $ | 57 | $ | 10,658 | $ | — | $ | 10,658 | ||||||||
| Total assets | $ | 304,439 | $ | 1,001,032 | $ | 15,848 | $ | 1,321,319 | $ | (480,448) | $ | 840,871 | ||||||||
Total as a percentage of gross assets(4) | 23.0 | % | 75.8 | % | 1.2 | % | ||||||||||||||
| Liabilities | ||||||||||||||||||||
| Interest-bearing deposits | $ | — | $ | 1,860 | $ | 15 | $ | 1,875 | $ | — | $ | 1,875 | ||||||||
| Securities loaned and sold under agreements to repurchase | — | 155,822 | 1,031 | 156,853 | (85,967) | 70,886 | ||||||||||||||
| Trading account liabilities | ||||||||||||||||||||
| Securities sold, not yet purchased | 97,559 | 13,111 | 50 | 110,720 | — | 110,720 | ||||||||||||||
| Other trading liabilities | — | 8 | 3 | 11 | — | 11 | ||||||||||||||
| Total trading liabilities | $ | 97,559 | $ | 13,119 | $ | 53 | $ | 110,731 | $ | — | $ | 110,731 | ||||||||
| Trading derivatives | ||||||||||||||||||||
| Interest rate contracts | $ | 175 | $ | 169,049 | $ | 3,396 | $ | 172,620 | ||||||||||||
| Foreign exchange contracts | — | 185,279 | 716 | 185,995 | ||||||||||||||||
| Equity contracts | 70 | 40,905 | 2,808 | 43,783 | ||||||||||||||||
| Commodity contracts | 2 | 25,093 | 1,223 | 26,318 | ||||||||||||||||
| Credit derivatives | — | 6,715 | 1,062 | 7,777 | ||||||||||||||||
| Total trading derivatives—before netting and collateral | $ | 247 | $ | 427,041 | $ | 9,205 | $ | 436,493 | ||||||||||||
| Netting agreements | $ | (346,545) | ||||||||||||||||||
| Netting of cash collateral paid | (30,032) | |||||||||||||||||||
| Total trading derivatives—after netting and collateral | $ | 247 | $ | 427,041 | $ | 9,205 | $ | 436,493 | $ | (376,577) | $ | 59,916 | ||||||||
| Short-term borrowings | $ | — | $ | 6,184 | $ | 38 | $ | 6,222 | $ | — | $ | 6,222 | ||||||||
| Long-term debt | — | 69,878 | 36,117 | 105,995 | — | 105,995 | ||||||||||||||
| Total non-trading derivatives and other financial liabilities measured on a recurring basis | $ | 4,197 | $ | 240 | $ | 2 | $ | 4,439 | $ | — | $ | 4,439 | ||||||||
| Total liabilities | $ | 102,003 | $ | 674,144 | $ | 46,461 | $ | 822,608 | $ | (462,544) | $ | 360,064 | ||||||||
Total as a percentage of gross liabilities(4) | 12.4 | % | 82.0 | % | 5.6 | % | ||||||||||||||
(1)Represents netting of (i) the amounts due under securities purchased under agreements to resell and the amounts owed under securities sold under agreements to repurchase and (ii) derivative exposures covered by a qualifying master netting agreement and cash collateral offsetting.
(2)Includes positions related to investments in unallocated precious metals, as discussed in Note 26. Also includes physical commodities accounted for at the lower of cost or fair value and unfunded credit products.
(3)Amounts exclude $27 million of investments measured at net asset value (NAV) in accordance with ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).
(4)Because the amount of the cash collateral paid/received has not been allocated to the Level 1, 2 and 3 subtotals, these percentages are calculated based on total assets and liabilities measured at fair value on a recurring basis, excluding the cash collateral paid/received on derivatives.
Fair Value Levels
| In millions of dollars at December 31, 2021 | Level 1 | Level 2 | Level 3 | Gross inventory | Netting(1) | Net balance | ||||||||||||||
| Assets | ||||||||||||||||||||
| Securities borrowed and purchased under agreements to resell | $ | — | $ | 342,030 | $ | 231 | $ | 342,261 | $ | (125,795) | $ | 216,466 | ||||||||
| Trading non-derivative assets | ||||||||||||||||||||
| Trading mortgage-backed securities | ||||||||||||||||||||
| U.S. government-sponsored agency guaranteed | — | 34,534 | 496 | 35,030 | — | 35,030 | ||||||||||||||
| Residential | 1 | 643 | 104 | 748 | — | 748 | ||||||||||||||
| Commercial | — | 778 | 81 | 859 | — | 859 | ||||||||||||||
| Total trading mortgage-backed securities | $ | 1 | $ | 35,955 | $ | 681 | $ | 36,637 | $ | — | $ | 36,637 | ||||||||
| U.S. Treasury and federal agency securities | $ | 44,900 | $ | 3,230 | $ | 4 | $ | 48,134 | $ | — | $ | 48,134 | ||||||||
| State and municipal | — | 1,995 | 37 | 2,032 | — | 2,032 | ||||||||||||||
| Foreign government | 39,176 | 31,485 | 23 | 70,684 | — | 70,684 | ||||||||||||||
| Corporate | 1,544 | 16,156 | 412 | 18,112 | — | 18,112 | ||||||||||||||
| Equity securities | 53,833 | 10,047 | 174 | 64,054 | — | 64,054 | ||||||||||||||
| Asset-backed securities | — | 981 | 613 | 1,594 | — | 1,594 | ||||||||||||||
Other trading assets(2) | — | 20,346 | 576 | 20,922 | — | 20,922 | ||||||||||||||
| Total trading non-derivative assets | $ | 139,454 | $ | 120,195 | $ | 2,520 | $ | 262,169 | $ | — | $ | 262,169 | ||||||||
| Trading derivatives | ||||||||||||||||||||
| Interest rate contracts | $ | 90 | $ | 161,500 | $ | 3,898 | $ | 165,488 | ||||||||||||
| Foreign exchange contracts | — | 134,912 | 637 | 135,549 | ||||||||||||||||
| Equity contracts | 41 | 43,904 | 1,307 | 45,252 | ||||||||||||||||
| Commodity contracts | — | 28,547 | 1,797 | 30,344 | ||||||||||||||||
| Credit derivatives | — | 9,299 | 919 | 10,218 | ||||||||||||||||
| Total trading derivatives—before netting and collateral | $ | 131 | $ | 378,162 | $ | 8,558 | $ | 386,851 | ||||||||||||
| Netting agreements | $ | (292,628) | ||||||||||||||||||
Netting of cash collateral received(3) | (24,447) | |||||||||||||||||||
| Total trading derivatives—after netting and collateral | $ | 131 | $ | 378,162 | $ | 8,558 | $ | 386,851 | $ | (317,075) | $ | 69,776 | ||||||||
| Investments | ||||||||||||||||||||
| Mortgage-backed securities | ||||||||||||||||||||
| U.S. government-sponsored agency guaranteed | $ | — | $ | 33,165 | $ | 51 | $ | 33,216 | $ | — | $ | 33,216 | ||||||||
| Residential | — | 286 | 94 | 380 | — | 380 | ||||||||||||||
| Commercial | — | 25 | — | 25 | — | 25 | ||||||||||||||
| Total investment mortgage-backed securities | $ | — | $ | 33,476 | $ | 145 | $ | 33,621 | $ | — | $ | 33,621 | ||||||||
| U.S. Treasury and federal agency securities | $ | 122,271 | $ | 168 | $ | 1 | $ | 122,440 | $ | — | $ | 122,440 | ||||||||
| State and municipal | — | 1,849 | 772 | 2,621 | — | 2,621 | ||||||||||||||
| Foreign government | 56,842 | 61,112 | 786 | 118,740 | — | 118,740 | ||||||||||||||
| Corporate | 2,861 | 2,871 | 188 | 5,920 | — | 5,920 | ||||||||||||||
| Marketable equity securities | 350 | 177 | 16 | 543 | — | 543 | ||||||||||||||
| Asset-backed securities | — | 300 | 3 | 303 | — | 303 | ||||||||||||||
| Other debt securities | — | 4,877 | — | 4,877 | — | 4,877 | ||||||||||||||
Non-marketable equity securities(4) | — | 28 | 316 | 344 | — | 344 | ||||||||||||||
| Total investments | $ | 182,324 | $ | 104,858 | $ | 2,227 | $ | 289,409 | $ | — | $ | 289,409 | ||||||||
Table continues on the next page.
| In millions of dollars at December 31, 2021 | Level 1 | Level 2 | Level 3 | Gross inventory | Netting(1) | Net balance | ||||||||||||||
| Loans | $ | — | $ | 5,371 | $ | 711 | $ | 6,082 | $ | — | $ | 6,082 | ||||||||
| Mortgage servicing rights | — | — | 404 | 404 | — | 404 | ||||||||||||||
| Non-trading derivatives and other financial assets measured on a recurring basis | $ | 4,075 | $ | 8,194 | $ | 73 | $ | 12,342 | $ | — | $ | 12,342 | ||||||||
| Total assets | $ | 325,984 | $ | 958,810 | $ | 14,724 | $ | 1,299,518 | $ | (442,870) | $ | 856,648 | ||||||||
Total as a percentage of gross assets(5) | 29.0 | % | 69.9 | % | 1.1 | % | ||||||||||||||
| Liabilities | ||||||||||||||||||||
| Interest-bearing deposits | $ | — | $ | 1,483 | $ | 183 | $ | 1,666 | $ | — | $ | 1,666 | ||||||||
| Securities loaned and sold under agreements to repurchase | — | 174,318 | 643 | 174,961 | (118,267) | 56,694 | ||||||||||||||
| Trading account liabilities | ||||||||||||||||||||
| Securities sold, not yet purchased | 82,675 | 23,268 | 65 | 106,008 | — | 106,008 | ||||||||||||||
| Other trading liabilities | — | 5 | — | 5 | — | 5 | ||||||||||||||
| Total trading account liabilities | $ | 82,675 | $ | 23,273 | $ | 65 | $ | 106,013 | $ | — | $ | 106,013 | ||||||||
| Trading derivatives | ||||||||||||||||||||
| Interest rate contracts | $ | 56 | $ | 147,846 | $ | 2,172 | $ | 150,074 | ||||||||||||
| Foreign exchange contracts | — | 134,572 | 726 | 135,298 | ||||||||||||||||
| Equity contracts | 60 | 46,177 | 3,447 | 49,684 | ||||||||||||||||
| Commodity contracts | — | 30,004 | 1,375 | 31,379 | ||||||||||||||||
| Credit derivatives | — | 10,065 | 950 | 11,015 | ||||||||||||||||
| Total trading derivatives—before netting and collateral | $ | 116 | $ | 368,664 | $ | 8,670 | $ | 377,450 | ||||||||||||
| Netting agreements | $ | (292,628) | ||||||||||||||||||
Netting of cash collateral paid(3) | (29,306) | |||||||||||||||||||
| Total trading derivatives—after netting and collateral | $ | 116 | $ | 368,664 | $ | 8,670 | $ | 377,450 | $ | (321,934) | $ | 55,516 | ||||||||
| Short-term borrowings | $ | — | $ | 7,253 | $ | 105 | $ | 7,358 | $ | — | $ | 7,358 | ||||||||
| Long-term debt | — | 57,100 | 25,509 | 82,609 | — | 82,609 | ||||||||||||||
| Non-trading derivatives and other financial liabilities measured on a recurring basis | $ | 3,574 | $ | — | $ | 1 | $ | 3,575 | $ | — | $ | 3,575 | ||||||||
| Total liabilities | $ | 86,365 | $ | 632,091 | $ | 35,176 | $ | 753,632 | $ | (440,201) | $ | 313,431 | ||||||||
Total as a percentage of gross liabilities(5) | 11.5 | % | 83.9 | % | 4.7 | % | ||||||||||||||
(1)Represents netting of (i) the amounts due under securities purchased under agreements to resell and the amounts owed under securities sold under agreements to repurchase and (ii) derivative exposures covered by a qualifying master netting agreement and cash collateral offsetting.
(2)Includes positions related to investments in unallocated precious metals, as discussed in Note 26. Also includes physical commodities accounted for at the lower of cost or fair value and unfunded credit products.
(3)Represents the netting of cash collateral paid and received by counterparties under enforceable credit support agreements. Substantially all netting of cash collateral received and paid is against OTC derivative assets and liabilities, respectively.
(4)Amounts exclude $145 million of investments measured at NAV in accordance with ASU 2015-07, Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent).
(5)Because the amount of the cash collateral paid/received has not been allocated to the Level 1, 2 and 3 subtotals, these percentages are calculated based on total assets and liabilities measured at fair value on a recurring basis, excluding the cash collateral paid/received on derivatives.
Changes in Level 3 Fair Value Category
The following tables present the changes in the Level 3 fair value category for the years ended December 31, 2022 and 2021. The gains and losses presented below include changes in the fair value related to both observable and unobservable inputs.
The Company often hedges positions with offsetting positions that are classified in a different level. For example,
the gains and losses for assets and liabilities in the Level 3 category presented in the tables below do not reflect the effect of offsetting losses and gains on hedging instruments that may be classified in the Level 1 and Level 2 categories. In addition, the Company hedges items classified in the Level 3 category with instruments also classified in Level 3 of the fair value hierarchy. The hedged items and related hedges are presented gross in the following tables:
Level 3 Fair Value Rollforward
Net realized/unrealized gains (losses) included in(1) | Transfers | Unrealized gains (losses) still held(3) | |||||||||||||||||||||||||||||||||
| In millions of dollars | Dec. 31, 2021 | Principal transactions | Other(1)(2) | into Level 3 | out of Level 3 | Purchases | Issuances | Sales | Settlements | Dec. 31, 2022 | |||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
| Securities borrowed and purchased under agreements to resell | $ | 231 | $ | 12 | $ | — | $ | 3 | $ | — | $ | 252 | $ | — | $ | — | $ | (349) | $ | 149 | $ | 18 | |||||||||||||
| Trading non-derivative assets | |||||||||||||||||||||||||||||||||||
| Trading mortgage-backed securities | |||||||||||||||||||||||||||||||||||
| U.S. government-sponsored agency guaranteed | 496 | (81) | — | 244 | (475) | 969 | — | (553) | — | 600 | (59) | ||||||||||||||||||||||||
| Residential | 104 | (5) | — | 112 | (87) | 187 | — | (145) | — | 166 | (1) | ||||||||||||||||||||||||
| Commercial | 81 | (13) | — | 167 | (78) | 37 | — | (49) | — | 145 | (3) | ||||||||||||||||||||||||
| Total trading mortgage-backed securities | $ | 681 | $ | (99) | $ | — | $ | 523 | $ | (640) | $ | 1,193 | $ | — | $ | (747) | $ | — | $ | 911 | $ | (63) | |||||||||||||
| U.S. Treasury and federal agency securities | $ | 4 | $ | (4) | $ | — | $ | 2 | $ | (1) | $ | 1 | $ | — | $ | — | $ | (1) | $ | 1 | $ | (1) | |||||||||||||
| State and municipal | 37 | 9 | — | 77 | (35) | 16 | — | (97) | — | 7 | — | ||||||||||||||||||||||||
| Foreign government | 23 | (41) | — | 308 | (326) | 248 | — | (93) | — | 119 | (22) | ||||||||||||||||||||||||
| Corporate | 412 | 101 | — | 499 | (451) | 1,068 | — | (1,235) | — | 394 | (136) | ||||||||||||||||||||||||
| Marketable equity securities | 174 | 45 | — | 161 | (105) | 155 | — | (238) | — | 192 | (42) | ||||||||||||||||||||||||
| Asset-backed securities | 613 | (41) | — | 243 | (239) | 835 | — | (743) | — | 668 | (36) | ||||||||||||||||||||||||
| Other trading assets | 576 | 249 | — | 407 | (594) | 774 | 27 | (779) | (12) | 648 | (122) | ||||||||||||||||||||||||
| Total trading non-derivative assets | $ | 2,520 | $ | 219 | $ | — | $ | 2,220 | $ | (2,391) | $ | 4,290 | $ | 27 | $ | (3,932) | $ | (13) | $ | 2,940 | $ | (422) | |||||||||||||
Trading derivatives, net(4) | |||||||||||||||||||||||||||||||||||
| Interest rate contracts | $ | 1,726 | $ | 176 | $ | — | $ | 33 | $ | (792) | $ | (163) | $ | 7 | $ | 79 | $ | (711) | $ | 355 | $ | (588) | |||||||||||||
| Foreign exchange contracts | (89) | 734 | — | (422) | (22) | 124 | 20 | (459) | 164 | 50 | (81) | ||||||||||||||||||||||||
| Equity contracts | (2,140) | 1,604 | — | (572) | 673 | 176 | — | (370) | (475) | (1,104) | 1,057 | ||||||||||||||||||||||||
| Commodity contracts | 422 | 822 | — | 194 | (716) | 100 | — | (211) | (333) | 278 | 413 | ||||||||||||||||||||||||
| Credit derivatives | (31) | (266) | — | (7) | 131 | (36) | — | — | 52 | (157) | (198) | ||||||||||||||||||||||||
Total trading derivatives, net(4) | $ | (112) | $ | 3,070 | $ | — | $ | (774) | $ | (726) | $ | 201 | $ | 27 | $ | (961) | $ | (1,303) | $ | (578) | $ | 603 | |||||||||||||
Table continues on the next page.
Net realized/unrealized gains (losses) included in(1) | Transfers | Unrealized gains (losses) still held(3) | |||||||||||||||||||||||||||||||||
| In millions of dollars | Dec. 31, 2021 | Principal transactions | Other(1)(2) | into Level 3 | out of Level 3 | Purchases | Issuances | Sales | Settlements | Dec. 31, 2022 | |||||||||||||||||||||||||
| Investments | |||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||||||||||||||
| U.S. government-sponsored agency guaranteed | $ | 51 | $ | — | $ | (7) | $ | 1 | $ | (10) | $ | 7 | $ | — | $ | (12) | $ | — | $ | 30 | $ | (24) | |||||||||||||
| Residential | 94 | — | (5) | — | (42) | 3 | — | (9) | — | 41 | (5) | ||||||||||||||||||||||||
| Commercial | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Total investment mortgage-backed securities | $ | 145 | $ | — | $ | (12) | $ | 1 | $ | (52) | $ | 10 | $ | — | $ | (21) | $ | — | $ | 71 | $ | (29) | |||||||||||||
| U.S. Treasury and federal agency securities | $ | 1 | $ | — | $ | (1) | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||
| State and municipal | 772 | — | (65) | 82 | (164) | 2 | — | (41) | — | 586 | (49) | ||||||||||||||||||||||||
| Foreign government | 786 | — | (72) | 256 | (276) | 706 | — | (792) | — | 608 | (23) | ||||||||||||||||||||||||
| Corporate | 188 | — | (4) | 197 | (4) | 24 | — | (58) | — | 343 | (2) | ||||||||||||||||||||||||
| Marketable equity securities | 16 | — | (7) | — | — | 1 | — | — | — | 10 | — | ||||||||||||||||||||||||
| Asset-backed securities | 3 | — | 22 | 41 | (1) | — | — | (64) | — | 1 | (5) | ||||||||||||||||||||||||
| Other debt securities | — | — | — | — | — | 82 | — | (82) | — | — | — | ||||||||||||||||||||||||
| Non-marketable equity securities | 316 | — | (11) | 11 | (12) | 155 | — | (29) | — | 430 | 4 | ||||||||||||||||||||||||
| Total investments | $ | 2,227 | $ | — | $ | (150) | $ | 588 | $ | (509) | $ | 980 | $ | — | $ | (1,087) | $ | — | $ | 2,049 | $ | (104) | |||||||||||||
| Loans | $ | 711 | $ | — | $ | 15 | $ | 426 | $ | (208) | $ | — | $ | 569 | $ | — | $ | (152) | $ | 1,361 | $ | 145 | |||||||||||||
| Mortgage servicing rights | 404 | — | 201 | — | — | — | 120 | — | (60) | 665 | 199 | ||||||||||||||||||||||||
| Other financial assets measured on a recurring basis | 73 | — | (12) | 29 | (26) | 46 | 39 | (26) | (66) | 57 | — | ||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | $ | 183 | $ | — | $ | 6 | $ | 8 | $ | (122) | $ | — | $ | 20 | $ | — | $ | (68) | $ | 15 | $ | — | |||||||||||||
| Securities loaned and sold under agreements to repurchase | 643 | 86 | — | 3 | (3) | 453 | 196 | — | (175) | 1,031 | 7 | ||||||||||||||||||||||||
| Trading account liabilities | |||||||||||||||||||||||||||||||||||
| Securities sold, not yet purchased | 65 | 2 | — | 55 | (36) | 135 | — | — | (167) | 50 | (65) | ||||||||||||||||||||||||
| Other trading liabilities | — | (3) | — | — | — | — | — | — | — | 3 | — | ||||||||||||||||||||||||
| Short-term borrowings | 105 | 109 | — | 46 | (69) | — | 96 | — | (31) | 38 | (14) | ||||||||||||||||||||||||
| Long-term debt | 25,509 | 9,796 | — | 9,873 | (7,612) | — | 18,847 | — | (704) | 36,117 | 7,805 | ||||||||||||||||||||||||
| Other financial liabilities measured on a recurring basis | 1 | — | (6) | 5 | (5) | — | 2 | — | (7) | 2 | — | ||||||||||||||||||||||||
(1)Net realized/unrealized gains (losses) are presented as increase (decrease) to Level 3 assets, and as (increase) decrease to Level 3 liabilities. Changes in fair value of available-for-sale debt securities are recorded in AOCI, unless related to credit impairment, while gains and losses from sales are recorded in Realized gains (losses) from sales of investments in the Consolidated Statement of Income.
(2)Unrealized gains (losses) on MSRs are recorded in Other revenue in the Consolidated Statement of Income.
(3)Represents the amount of total gains or losses for the period, included in earnings (and AOCI for changes in fair value of available-for-sale debt securities and DVA on fair value option liabilities), attributable to the change in fair value relating to assets and liabilities classified as Level 3 that are still held at December 31, 2022.
(4)Total Level 3 trading derivative assets and liabilities have been netted in these tables for presentation purposes only.
Net realized/unrealized gains (losses) included in(1) | Transfers | Unrealized gains (losses) still held(3) | |||||||||||||||||||||||||||||||||
| In millions of dollars | Dec. 31, 2020 | Principal transactions | Other(1)(2) | into Level 3 | out of Level 3 | Purchases | Issuances | Sales | Settlements | Dec. 31, 2021 | |||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||
| Securities borrowed and purchased under agreements to resell | $ | 320 | $ | (36) | $ | — | $ | 45 | $ | (49) | $ | 362 | $ | — | $ | — | $ | (411) | $ | 231 | $ | — | |||||||||||||
| Trading non-derivative assets | |||||||||||||||||||||||||||||||||||
| Trading mortgage-backed securities | |||||||||||||||||||||||||||||||||||
| U.S. government-sponsored agency guaranteed | 27 | 8 | — | 355 | (131) | 447 | — | (210) | — | 496 | 11 | ||||||||||||||||||||||||
| Residential | 340 | 25 | — | 89 | (96) | 282 | — | (536) | — | 104 | 13 | ||||||||||||||||||||||||
| Commercial | 136 | 23 | — | 96 | (58) | 62 | — | (178) | — | 81 | — | ||||||||||||||||||||||||
| Total trading mortgage-backed securities | $ | 503 | $ | 56 | $ | — | $ | 540 | $ | (285) | $ | 791 | $ | — | $ | (924) | $ | — | $ | 681 | $ | 24 | |||||||||||||
| U.S. Treasury and federal agency securities | $ | — | $ | — | $ | — | $ | 4 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 4 | $ | — | |||||||||||||
| State and municipal | 94 | (4) | — | 20 | (29) | 17 | — | (61) | — | 37 | (6) | ||||||||||||||||||||||||
| Foreign government | 51 | 29 | — | 143 | (129) | 83 | — | (154) | — | 23 | (2) | ||||||||||||||||||||||||
| Corporate | 375 | 74 | — | 461 | (384) | 867 | — | (981) | — | 412 | (38) | ||||||||||||||||||||||||
| Marketable equity securities | 73 | 67 | — | 156 | (52) | 118 | — | (188) | — | 174 | 23 | ||||||||||||||||||||||||
| Asset-backed securities | 1,606 | 371 | — | 173 | (297) | 1,313 | — | (2,553) | — | 613 | (43) | ||||||||||||||||||||||||
| Other trading assets | 945 | 97 | — | 158 | (457) | 980 | 4 | (1,147) | (4) | 576 | (37) | ||||||||||||||||||||||||
| Total trading non-derivative assets | $ | 3,647 | $ | 690 | $ | — | $ | 1,655 | $ | (1,633) | $ | 4,169 | $ | 4 | $ | (6,008) | $ | (4) | $ | 2,520 | $ | (79) | |||||||||||||
Trading derivatives, net(4) | |||||||||||||||||||||||||||||||||||
| Interest rate contracts | $ | 1,614 | $ | (376) | $ | — | $ | 102 | $ | 562 | $ | 27 | $ | (84) | $ | — | $ | (119) | $ | 1,726 | $ | 4 | |||||||||||||
| Foreign exchange contracts | 52 | (8) | — | (57) | 104 | 220 | — | (326) | (74) | (89) | 7 | ||||||||||||||||||||||||
| Equity contracts | (3,213) | 964 | — | (1,101) | 1,923 | 364 | — | (364) | (713) | (2,140) | (729) | ||||||||||||||||||||||||
| Commodity contracts | 292 | 474 | — | 174 | (454) | 162 | — | (238) | 12 | 422 | 261 | ||||||||||||||||||||||||
| Credit derivatives | 48 | (136) | — | (96) | 40 | — | — | — | 113 | (31) | (130) | ||||||||||||||||||||||||
Total trading derivatives, net(4) | $ | (1,207) | $ | 918 | $ | — | $ | (978) | $ | 2,175 | $ | 773 | $ | (84) | $ | (928) | $ | (781) | $ | (112) | $ | (587) | |||||||||||||
| Investments | |||||||||||||||||||||||||||||||||||
| Mortgage-backed securities | |||||||||||||||||||||||||||||||||||
| U.S. government-sponsored agency guaranteed | $ | 30 | $ | — | $ | 2 | $ | 42 | $ | (10) | $ | 3 | $ | — | $ | (16) | $ | — | $ | 51 | $ | 2 | |||||||||||||
| Residential | — | — | — | 54 | (12) | 52 | — | — | — | 94 | (1) | ||||||||||||||||||||||||
| Commercial | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Total investment mortgage-backed securities | $ | 30 | $ | — | $ | 2 | $ | 96 | $ | (22) | $ | 55 | $ | — | $ | (16) | $ | — | $ | 145 | $ | 1 | |||||||||||||
| U.S. Treasury and federal agency securities | $ | — | $ | — | $ | — | $ | 1 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 1 | $ | — | |||||||||||||
| State and municipal | 834 | — | (21) | 58 | (108) | 49 | — | (40) | — | 772 | (12) | ||||||||||||||||||||||||
| Foreign government | 268 | — | (49) | 512 | (565) | 871 | — | (251) | — | 786 | (2) | ||||||||||||||||||||||||
| Corporate | 60 | — | (14) | 183 | (44) | 37 | — | (34) | — | 188 | 2 | ||||||||||||||||||||||||
| Marketable equity securities | — | — | — | 16 | — | — | — | — | — | 16 | — | ||||||||||||||||||||||||
| Asset-backed securities | 1 | — | (21) | 36 | — | — | — | (13) | — | 3 | (2) | ||||||||||||||||||||||||
| Other debt securities | — | — | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Non-marketable equity securities | 349 | — | (27) | 2 | — | — | — | (8) | — | 316 | (6) | ||||||||||||||||||||||||
| Total investments | $ | 1,542 | $ | — | $ | (130) | $ | 904 | $ | (739) | $ | 1,012 | $ | — | $ | (362) | $ | — | $ | 2,227 | $ | (19) | |||||||||||||
Table continues on the next page.
Net realized/unrealized gains (losses) included in(1) | Transfers | Unrealized gains (losses) still held(3) | |||||||||||||||||||||||||||||||||
| In millions of dollars | Dec. 31, 2020 | Principal transactions | Other(1)(2) | into Level 3 | out of Level 3 | Purchases | Issuances | Sales | Settlements | Dec. 31, 2021 | |||||||||||||||||||||||||
| Loans | $ | 1,985 | $ | — | $ | 90 | $ | 311 | $ | (2,071) | $ | — | $ | 529 | $ | — | $ | (133) | $ | 711 | $ | (77) | |||||||||||||
| Mortgage servicing rights | 336 | — | 43 | — | — | — | 92 | — | (67) | 404 | 52 | ||||||||||||||||||||||||
| Other financial assets measured on a recurring basis | — | — | 6 | 65 | (27) | 58 | — | (26) | (3) | 73 | — | ||||||||||||||||||||||||
| Liabilities | |||||||||||||||||||||||||||||||||||
| Interest-bearing deposits | $ | 206 | $ | — | $ | (18) | $ | — | $ | (44) | $ | — | $ | 38 | $ | — | $ | (35) | $ | 183 | $ | (19) | |||||||||||||
| Securities loaned and sold under agreements to repurchase | 631 | (9) | — | 183 | (483) | 488 | — | — | (185) | 643 | 32 | ||||||||||||||||||||||||
| Trading account liabilities | |||||||||||||||||||||||||||||||||||
| Securities sold, not yet purchased | 214 | 48 | — | 87 | (34) | 59 | — | — | (213) | 65 | (4) | ||||||||||||||||||||||||
| Other trading liabilities | 26 | 26 | — | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Short-term borrowings | 219 | 43 | — | 137 | (57) | — | 49 | — | (200) | 105 | (2) | ||||||||||||||||||||||||
| Long-term debt | 25,210 | 2,774 | — | 8,611 | (9,771) | — | 10,262 | — | (6,029) | 25,509 | 1,756 | ||||||||||||||||||||||||
| Other financial liabilities measured on a recurring basis | 1 | — | (3) | — | (4) | — | 14 | — | (13) | 1 | — | ||||||||||||||||||||||||
(1)Net realized/unrealized gains (losses) are presented as increase (decrease) to Level 3 assets, and as (increase) decrease to Level 3 liabilities. Changes in fair value of available-for-sale debt securities are recorded in AOCI, unless related to credit impairment, while gains and losses from sales are recorded in in the Consolidated Statement of Income.
(2)Unrealized gains (losses) on MSRs are recorded in Other revenue in the Consolidated Statement of Income.
(3)Represents the amount of total gains or losses for the period, included in earnings (and AOCI for changes in fair value of available-for-sale debt securities and DVA on fair value option liabilities), attributable to the change in fair value relating to assets and liabilities classified as Level 3 that are still held at December 31, 2021.
(4)Total Level 3 derivative assets and liabilities have been netted in these tables for presentation purposes only.
Level 3 Fair Value Transfers
The following were the significant Level 3 transfers for the period December 31, 2021 to December 31, 2022:
•During the 12 months ended December 31, 2022, transfers of Long-term debt were $9.9 billion from Level 2 to Level 3. Of the $9.9 billion transfer in, approximately $7.0 billion related to interest rate option volatility inputs becoming unobservable and/or significant relative to their overall valuation, and $2.9 billion related to equity and credit derivative inputs (in addition to other volatility inputs, e.g., interest rate volatility inputs) becoming unobservable and/or significant to their overall valuation. In other instances, market changes have resulted in some inputs becoming more observable, and some unobservable inputs becoming less significant to the overall valuation of the instruments (e.g., when an option becomes deep-in or deep-out of the money). This has resulted in $7.6 billion of certain structured long-term debt products being transferred from Level 3 to Level 2 during the 12 months ended December 31, 2022.
The following were the significant Level 3 transfers for the period December 31, 2020 to December 31, 2021:
•During the 12 months ended December 31, 2021, transfers of Loans of $2.1 billion from Level 3 to Level 2 were primarily driven by equity forward and volatility inputs that have been assessed as not significant to the overall valuation of certain hybrid loan instruments, including equity options and long dated equity call spreads.
•During the 12 months ended December 31, 2021, transfers of Equity contracts of $1.1 billion from Level 2 to Level 3 were due to equity forward and volatility inputs becoming an unobservable and/or significant input relative to the overall valuation of equity options and equity swaps. In other instances, market changes have resulted in observable equity forward and volatility inputs becoming an insignificant input to the overall valuation of the instrument (e.g., when an option becomes deep-in or deep-out of the money). This has resulted in $1.9 billion of certain equity contracts being transferred from Level 3 to Level 2.
•During the 12 months ended December 31, 2021, transfers of Long-term debt were $8.6 billion from Level 2 to Level 3. Of the $8.6 billion transfer in, approximately $7.2 billion related to interest rate option volatility inputs becoming unobservable and/or significant relative to their overall valuation, and $1.0 billion related to equity volatility inputs (in addition to other volatility inputs, e.g., interest rate volatility inputs) becoming unobservable and/or significant to their overall valuation. In other instances, market changes have resulted in some inputs becoming more observable, and some unobservable inputs becoming less significant to the overall valuation of the instruments (e.g., when an option becomes deep-in or deep-out of the money). This has resulted in $9.8 billion of certain structured long-term debt products being transferred from Level 3 to Level 2 during the 12 months ended December 31, 2021.
Valuation Techniques and Inputs for Level 3 Fair
Value Measurements
The Company’s Level 3 inventory consists of both cash instruments and derivatives of varying complexity.
The following tables present the valuation techniques covering the majority of Level 3 inventory and the most significant unobservable inputs used in Level 3 fair value measurements. Methodologies are applied consistently. Changes in listed inputs period versus period represent
variables that become more, or less, significant, hence their addition or removal from the table below. Differences between this table and amounts presented in the Level 3 Fair Value Rollforward table above represent individually immaterial items that have been measured using a variety of valuation techniques other than those listed.
| As of December 31, 2022 | Fair value(1) (in millions) | Methodology | Input | Low(2)(3) | High(2)(3) | Weighted average(4) | ||||||||||||||
| Assets | ||||||||||||||||||||
| Securities borrowed and purchased under agreements to resell | $ | 146 | Model-based | Credit spread | 15 bps | 15 bps | 15 bps | |||||||||||||
Interest rate | 2.61 | % | 2.61 | % | 2.61 | % | ||||||||||||||
| Mortgage-backed securities | $ | 228 | Price-based | Price | $ | 1.04 | $ | 99.71 | $ | 51.51 | ||||||||||
| 732 | Yield analysis | Yield | 4.41 | % | 20.30 | % | 9.74 | % | ||||||||||||
| State and municipal, foreign government, corporate and other debt securities | $ | 2,360 | Price-based | Price | $ | 0.01 | $ | 994.68 | $ | 245.85 | ||||||||||
Marketable equity securities(5) | $ | 147 | Price-based | Price | $ | — | $ | 9,087.76 | $ | 114.29 | ||||||||||
| 31 | Model-based | WAL | 2.24 years | 2.24 years | 2.24 years | |||||||||||||||
Recovery (in millions) | $ | 7,148 | $ | 7,148 | $ | 7,148 | ||||||||||||||
| Asset-backed securities | $ | 304 | Price-based | Price | $ | 10.50 | $ | 145.00 | $ | 74.97 | ||||||||||
| 308 | Yield analysis | Yield | 5.76 | % | 18.58 | % | 9.34 | % | ||||||||||||
| Non-marketable equities | $ | 287 | Comparables analysis | Illiquidity discount | 8.60 | % | 17.00 | % | 10.16 | % | ||||||||||
| 101 | Price-based | PE ratio | 14.00x | 15.70x | 15.16x | |||||||||||||||
| Cost of capital | 8.10 | % | 17.50 | % | 10.44 | % | ||||||||||||||
| Revenue multiple | 3.60x | 13.90x | 12.40x | |||||||||||||||||
Derivatives—gross(6) | ||||||||||||||||||||
| Interest rate contracts (gross) | $ | 7,108 | Model-based | IR normal volatility | 0.33 | % | 1.82 | % | 0.96 | % | ||||||||||
| Foreign exchange contracts (gross) | $ | 1,437 | Model-based | IR normal volatility | 0.33 | % | 1.47 | % | 0.67 | % | ||||||||||
| IR Basis | (4.23) | % | 9.68 | % | (0.03) | % | ||||||||||||||
| Equity volatility | 0.05 | % | 300.72 | % | 33.91 | % | ||||||||||||||
| Credit spread | 116 bps | 626 bps | 594 bps | |||||||||||||||||
Equity contracts (gross)(7) | $ | 4,430 | Model-based | Equity volatility | 0.05 | % | 300.72 | % | 41.47 | % | ||||||||||
| Equity forward | 68.34 | % | 271.61 | % | 103.50 | % | ||||||||||||||
| Equity-FX correlation | (95.00) | % | 50.00 | % | (16.33) | % | ||||||||||||||
| Equity-Equity correlation | (3.98) | % | 98.68 | % | 85.63 | % | ||||||||||||||
| WAL | 2.24 years | 2.24 years | 2.24 years | |||||||||||||||||
Recovery (in millions) | $7,148 | $7,148 | $7,148 | |||||||||||||||||
| Equity-IR correlation | (18.83) | % | 60.00 | % | 32.37 | % | ||||||||||||||
| Commodity and other contracts (gross) | $ | 2,724 | Model-based | Forward price | 14.27 | % | 385.50 | % | 106.08 | % | ||||||||||
| Commodity volatility | 10.43 | % | 151.50 | % | 33.55 | % | ||||||||||||||
| Commodity correlation | (32.00) | % | 91.94 | % | 36.70 | % | ||||||||||||||
| Credit derivatives (gross) | $ | 1,520 | Model-based | Credit spread | 2.50 bps | 955.10 bps | 101.27 bps | |||||||||||||
| 439 | Price-based | Recovery rate | 25.00 | % | 75.00 | % | 42.27 | % | ||||||||||||
| Credit correlation | 25.00 | % | 80.00 | % | 42.38 | % | ||||||||||||||
| Price | $ | 31.71 | $ | 99.00 | $ | 78.75 | ||||||||||||||
| As of December 31, 2022 | Fair value(1) (in millions) | Methodology | Input | Low(2)(3) | High(2)(3) | Weighted average(4) | ||||||||||||||
| Credit spread volatility | 35.58 | % | 64.79 | % | 40.47 | % | ||||||||||||||
| Non-trading derivatives and other financial assets and liabilities measured on a recurring basis (gross) | $ | 57 | Price-based | Price | $ | 80.16 | $ | 105.32 | $ | 92.65 | ||||||||||
| Loans and leases | $ | 1,059 | Model-based | Equity volatility | 0.05 | % | 300.72 | % | 42.62 | % | ||||||||||
| 304 | Price-based | Forward price | 14.27 | % | 324.85 | % | 105.07 | % | ||||||||||||
| Price | $0.01 | $100.53 | $84.77 | |||||||||||||||||
| Equity forward | 68.34 | % | 271.61 | % | 103.49 | % | ||||||||||||||
| Mortgage servicing rights | $ | 580 | Cash flow | Yield | (0.40) | % | 13.20 | % | 5.36 | % | ||||||||||
| 84 | Model-based | WAL | 3.92 years | 9.33 years | 7.71 years | |||||||||||||||
| Liabilities | ||||||||||||||||||||
| Interest-bearing deposits | $ | 15 | Model-based | Forward price | 100.00 | % | 101.30 | % | 100.07 | % | ||||||||||
| Securities loaned and sold under agreements to repurchase | $ | 970 | Model-based | Interest rate | 4.01 | % | 4.97 | % | 4.07 | % | ||||||||||
| Trading account liabilities | ||||||||||||||||||||
| Securities sold, not yet purchased and other trading liabilities | $ | 47 | Price-based | Price | $ | — | $ | 9,087.76 | $ | 41.22 | ||||||||||
| 6 | Model-based | FX volatility | 2.00 | % | 40.00 | % | 12.85 | % | ||||||||||||
| Short-term borrowings and long-term debt | $ | 36,155 | Model-based | IR normal volatility | 0.33 | % | 1.82 | % | 0.89 | % | ||||||||||
As of December 31, 2021 | Fair value(1) (in millions) | Methodology | Input | Low(2)(3) | High(2)(3) | Weighted average(4) | ||||||||||||||
| Assets | ||||||||||||||||||||
| Securities borrowed and purchased under agreements to resell | $ | 231 | Model-based | Credit spread | 15 bps | 15 bps | 15 bps | |||||||||||||
| Interest rate | 0.26 | % | 0.72 | % | 0.50 | % | ||||||||||||||
| Mortgage-backed securities | $ | 279 | Price-based | Price | $ | 4 | $ | 118 | $ | 79 | ||||||||||
| 526 | Yield analysis | Yield | 1.43 | % | 23.79 | % | 7.25 | % | ||||||||||||
| State and municipal, foreign government, corporate and other debt securities | $ | 2,264 | Price-based | Price | $ | — | $ | 995 | $ | 193 | ||||||||||
| 415 | Model-based | Equity volatility | 0.08 | % | 290.64 | % | 53.94 | % | ||||||||||||
Marketable equity securities(5) | $ | 128 | Price-based | Price | $ | — | $ | 73,000 | $ | 6,477 | ||||||||||
| 43 | Model-based | WAL | 1.73 years | 1.73 years | 1.73 years | |||||||||||||||
Recovery (in millions) | $ | 7,148 | $ | 7,148 | $ | 7,148 | ||||||||||||||
| Asset-backed securities | $ | 386 | Price-based | Price | $ | 5 | $ | 754 | $ | 87 | ||||||||||
| 208 | Yield analysis | Yield | 2.43 | % | 19.35 | % | 8.18 | % | ||||||||||||
| Non-marketable equities | $ | 121 | Price-based | Illiquidity discount | 10.00 | % | 36.00 | % | 26.43 | % | ||||||||||
| 112 | Comparables analysis | PE ratio | 11.00x | 29.00x | 15.42x | |||||||||||||||
| 83 | Model-based | Price | $ | 3 | $ | 2,601 | $ | 2,029 | ||||||||||||
| Adjustment factor | 0.33x | 0.44x | 0.34x | |||||||||||||||||
| Revenue multiple | 19.80x | 30.00x | 20.48x | |||||||||||||||||
| Cost of capital | 17.50 | % | 20.00 | % | 17.57 | % | ||||||||||||||
Derivatives—gross(6) | ||||||||||||||||||||
| Interest rate contracts (gross) | $ | 6,054 | Model-based | IR normal volatility | 0.24 | % | 0.94 | % | 0.70 | % | ||||||||||
| Foreign exchange contracts (gross) | $ | 1,364 | Model-based | IR normal volatility | 0.24 | % | 0.74 | % | 0.58 | % | ||||||||||
| FX volatility | 2.13 | % | 107.42 | % | 11.21 | % | ||||||||||||||
As of December 31, 2021 | Fair value(1) (in millions) | Methodology | Input | Low(2)(3) | High(2)(3) | Weighted average(4) | ||||||||||||||
| Credit spread | 140 bps | 696 bps | 639 bps | |||||||||||||||||
Equity contracts (gross)(7) | $ | 4,690 | Model-based | Equity volatility | 0.08 | % | 290.64 | % | 47.67 | % | ||||||||||
| Equity forward | 57.99 | % | 165.83 | % | 89.45 | % | ||||||||||||||
| Equity-FX correlation | (95.00) | % | 80.00 | % | (16.00) | % | ||||||||||||||
| Equity-Equity correlation | (6.49) | % | 99.00 | % | 85.61 | % | ||||||||||||||
| Commodity and other contracts (gross) | $ | 3,172 | Model-based | Forward price | 8.00 | % | 599.44 | % | 123.22 | % | ||||||||||
| Commodity volatility | 10.87 | % | 188.30 | % | 26.85 | % | ||||||||||||||
| Commodity correlation | (50.52) | % | 89.83 | % | (7.11) | % | ||||||||||||||
| Credit derivatives (gross) | $ | 1,480 | Model-based | Credit spread | 1.00 bps | 874.72 bps | 68.83 bps | |||||||||||||
| 427 | Price-based | Recovery rate | 20.00 | % | 75.00 | % | 44.72 | % | ||||||||||||
| Upfront points | 2.74 | % | 99.96 | % | 59.37 | % | ||||||||||||||
| Price | $ | 40 | $ | 103 | $ | 80 | ||||||||||||||
| Credit correlation | 30.00 | % | 80.00 | % | 54.57 | % | ||||||||||||||
| Non-trading derivatives and other financial assets and liabilities measured on a recurring basis (gross) | $ | 69 | Price-based | Price | $ | 94 | $ | 2,598 | $ | 591 | ||||||||||
| Loans and leases | $ | 691 | Model-based | Equity volatility | 22.48 | % | 85.44 | % | 50.56 | % | ||||||||||
| Forward price | 26.95 | % | 333.08 | % | 106.97 | % | ||||||||||||||
| Commodity volatility | 10.87 | % | 188.30 | % | 26.85 | % | ||||||||||||||
| Commodity correlation | (50.52) | % | 89.83 | % | (7.11) | % | ||||||||||||||
| Mortgage servicing rights | $ | 331 | Cash flow | Yield | (1.20) | % | 12.10 | % | 4.51 | % | ||||||||||
| 73 | Model-based | WAL | 2.75 years | 5.86 years | 5.14 years | |||||||||||||||
| Liabilities | ||||||||||||||||||||
| Interest-bearing deposits | $ | 183 | Model-based | IR normal volatility | 0.34 | % | 0.88 | % | 0.68 | % | ||||||||||
| Equity volatility | 0.08 | % | 290.64 | % | 54.05 | % | ||||||||||||||
| Equity forward | 57.99 | % | 165.83 | % | 89.39 | % | ||||||||||||||
| Securities loaned and sold under agreements to repurchase | $ | 643 | Model-based | Interest rate | 0.12 | % | 1.95 | % | 1.47 | % | ||||||||||
| Trading account liabilities | ||||||||||||||||||||
| Securities sold, not yet purchased and other trading liabilities | $ | 63 | Price-based | Price | $ | — | $ | 12,875 | $ | 1,707 | ||||||||||
| Short-term borrowings and long-term debt | $ | 25,514 | Model-based | IR normal volatility | 0.07 | % | 0.88 | % | 0.60 | % | ||||||||||
| Equity volatility | 0.08 | % | 290.64 | % | 53.21 | % | ||||||||||||||
| Equity-IR correlation | (3.53) | % | 60.00 | % | 32.12 | % | ||||||||||||||
| Equity-FX correlation | (95.00) | % | 80.00 | % | (15.98) | % | ||||||||||||||
| FX volatility | 0.06 | % | 41.76 | % | 9.38 | % | ||||||||||||||
(1)The tables above include the fair values for the items listed and may not foot to the total population for each category.
(2)Some inputs are shown as zero due to rounding.
(3)When the low and high inputs are the same, there is either a constant input applied to all positions, or the methodology involving the input applies to only one large position.
(4)Weighted averages are calculated based on the fair values of the instruments.
(5)For equity securities, the price inputs are expressed on an absolute basis, not as a percentage of the notional amount.
(6)Both trading and non-trading account derivatives—assets and liabilities—are presented on a gross absolute value basis.
(7)Includes hybrid products.
Uncertainty of Fair Value Measurements Relating to Unobservable Inputs
Valuation uncertainty arises when there is insufficient or dispersed market data to allow a precise determination of the exit value of a fair-valued position or portfolio in today’s market. This is especially prevalent in Level 3 fair value instruments, where uncertainty exists in valuation inputs that may be both unobservable and significant to the instrument’s (or portfolio’s) overall fair value measurement. The uncertainties associated with key unobservable inputs on the Level 3 fair value measurements may not be independent of one another. In addition, the amount and direction of the uncertainty on a fair value measurement for a given change in an unobservable input depends on the nature of the instrument as well as whether the Company holds the instrument as an asset or a liability. For certain instruments, the pricing, hedging and risk management are sensitive to the correlation between various inputs rather than on the analysis and aggregation of the individual inputs.
The following section describes some of the most significant unobservable inputs used by the Company in Level 3 fair value measurements.
Correlation
Correlation is a measure of the extent to which two or more variables change in relation to each other. A variety of correlation-related assumptions are required for a wide range of instruments, including equity and credit baskets, foreign exchange options, Credit Index Tranches and many other instruments. For almost all of these instruments, correlations are not directly observable in the market and must be calculated using alternative sources, including historical information. Estimating correlation can be especially difficult where it may vary over time, and calculating correlation information from market data requires significant assumptions regarding the informational efficiency of the market (e.g., swaption markets). Uncertainty therefore exists when an estimate of the appropriate level of correlation as an input into some fair value measurements is required.
Changes in correlation levels can have a substantial impact, favorable or unfavorable, on the value of an instrument, depending on its nature. A change in the default correlation of the fair value of the underlying bonds comprising a CDO structure would affect the fair value of the senior tranche. For example, an increase in the default correlation of the underlying bonds would reduce the fair value of the senior tranche, because highly correlated instruments produce greater losses in the event of default and a portion of these losses would become attributable to the senior tranche. That same change in default correlation would have a different impact on junior tranches of the same structure.
Volatility
Volatility represents the speed and severity of market price changes and is a key factor in pricing options. Volatility generally depends on the tenor of the underlying instrument
and the strike price or level defined in the contract. Volatilities for certain combinations of tenor and strike are not observable and need to be estimated using alternative methods, such as comparable instruments, historical analysis or other sources of
market information. This leads to uncertainty around the final fair value measurement of instruments with unobservable volatilities.
The general relationship between changes in the value of an instrument (or a portfolio) to changes in volatility also depends on changes in interest rates and the level of the underlying index. Generally, long option positions (assets) benefit from increases in volatility, whereas short option positions (liabilities) will suffer losses. Some instruments are more sensitive to changes in volatility than others. For example, an at-the-money option would experience a greater percentage change in its fair value than a deep-in-the-money option. In addition, the fair value of an option with more than one underlying security (e.g., an option on a basket of equities) depends on the volatility of the individual underlying securities as well as their correlations.
Yield
In some circumstances, the yield of an instrument is not observable in the market and must be estimated from historical data or from yields of similar securities. This estimated yield may need to be adjusted to capture the characteristics of the security being valued. Whenever the amount of the adjustment is significant to the value of the security, the fair value measurement is classified as Level 3.
Adjusted yield is generally used to discount the projected future principal and interest cash flows on instruments, such as asset-backed securities. Adjusted yield is impacted by changes in the interest rate environment and relevant credit spreads.
Prepayment
Voluntary unscheduled payments (prepayments) change the future cash flows for the investor and thereby change the fair value of the security. The effect of prepayments is more pronounced for residential mortgage-backed securities. Prepayment is generally negatively correlated with delinquency and interest rate. A combination of low prepayments and high delinquencies amplifies each input’s negative impact on a mortgage security’s valuation. As prepayment speeds change, the weighted average life of the security changes, which impacts the valuation either positively or negatively, depending upon the nature of the security and the direction of the change in the weighted average life.
Recovery
Recovery is the proportion of the total outstanding balance of a bond or loan that is expected to be collected in a liquidation scenario. For many credit securities (e.g., commercial mortgage-backed securities), the expected recovery amount of a defaulted property is typically unknown until a liquidation of the property is imminent. The assumed recovery of a security may differ from its actual recovery that will be observable in the future. Generally, an increase in the recovery rate assumption increases the fair value of the security. An increase in loss severity, the inverse of the recovery rate, reduces the amount of principal available for distribution and, as a result, decreases the fair value of the security.
Credit Spread
Credit spread is a component of the security representing its credit quality. Credit spread reflects the market perception of changes in prepayment, delinquency and recovery rates, therefore capturing the impact of other variables on the fair value. Changes in credit spread affect the fair value of securities differently depending on the characteristics and maturity profile of the security. For example, credit spread is a more significant driver of the fair value measurement of a high-yield bond as compared to an investment-grade bond. Generally, the credit spread for an investment-grade bond is also more observable and less volatile than its high-yield counterpart.
Items Measured at Fair Value on a Nonrecurring Basis
Certain assets and liabilities are measured at fair value on a nonrecurring basis and, therefore, are not included in the tables above. These include assets measured at cost that have been written down to fair value during the periods as a result of an impairment. These also include non-marketable equity securities that have been measured using the measurement alternative and are either (i) written down to fair value during the periods as a result of an impairment or (ii) adjusted upward or downward to fair value as a result of a transaction observed during the periods for an identical or similar investment in the same issuer. In addition, these assets include loans held-for-sale and other real estate owned that are measured at the lower of cost or market value.
The following tables present the carrying amounts of all assets that were still held for which a nonrecurring fair value measurement was recorded:
| In millions of dollars | Fair value | Level 2 | Level 3 | ||||||||
| December 31, 2022 | |||||||||||
Loans HFS(1) | $ | 2,336 | $ | 457 | $ | 1,879 | |||||
| Other real estate owned | 1 | — | 1 | ||||||||
Loans(2) | 69 | — | 69 | ||||||||
| Non-marketable equity securities measured using the measurement alternative | 597 | — | 597 | ||||||||
| Total assets at fair value on a nonrecurring basis | $ | 3,003 | $ | 457 | $ | 2,546 | |||||
| In millions of dollars | Fair value | Level 2 | Level 3 | ||||||||
| December 31, 2021 | |||||||||||
Loans HFS(1) | $ | 2,298 | $ | 986 | $ | 1,312 | |||||
| Other real estate owned | 11 | — | 11 | ||||||||
Loans(2) | 144 | — | 144 | ||||||||
| Non-marketable equity securities measured using the measurement alternative | 655 | 104 | 551 | ||||||||
| Total assets at fair value on a nonrecurring basis | $ | 3,108 | $ | 1,090 | $ | 2,018 | |||||
(1)Net of fair value amounts on the unfunded portion of loans HFS recognized as Other liabilities on the Consolidated Balance Sheet.
(2)Represents impaired loans held for investment whose carrying amount is based on the fair value of the underlying collateral less costs to sell, primarily real estate.
The fair value of loans HFS is determined where possible using quoted secondary-market prices. If no such quoted price exists, the fair value of a loan is determined using quoted prices for a similar asset or assets, adjusted for the specific attributes of that loan. Fair value for the other real estate owned is based on appraisals. For loans whose carrying amount is based on the fair value of the underlying collateral, the fair values depend on the type of collateral. Fair value of the collateral is typically estimated based on quoted market prices if available, appraisals or other internal valuation techniques.
Where the fair value of the related collateral is based on an appraised value, the loan is generally classified as Level 3. In addition, for corporate loans, appraisals of the collateral are often based on sales of similar assets; however, because the prices of similar assets require significant adjustments to reflect the unique features of the underlying collateral, these fair value measurements are generally classified as Level 3.
The fair value of non-marketable equity securities under the measurement alternative is based on observed transaction prices for the identical or similar investment of the same issuer, or an internal valuation technique in the case of an impairment. Where there are insufficient market observations to conclude the inputs are observable, where significant adjustments are made to the observed transaction prices or when an internal valuation technique is used, the security is classified as Level 3. Fair value may differ from the observed transaction price due to a number of factors, including marketability adjustments and differences in rights and obligations when the observed transaction is not for the identical investment held by Citi.
Valuation Techniques and Inputs for Level 3 Nonrecurring Fair Value Measurements
The following tables present the valuation techniques covering the majority of Level 3 nonrecurring fair value measurements and the most significant unobservable inputs used in those measurements:
| As of December 31, 2022 | Fair value(1) (in millions) | Methodology | Input | Low(2) | High | Weighted average(3) | ||||||||||||||
| Loans held-for-sale | $ | 1,830 | Price-based | Price | $ | 0.88 | $ | 100.23 | $ | 65.91 | ||||||||||
| Other real estate owned | $ | 1 | Price-based | Appraised value(4) | $ | 30,000 | $ | 441,750 | $ | 310,552 | ||||||||||
Loans(5) | $ | 45 | Recovery analysis | Appraised value(4) | $ | 12,000 | $ | 14,022,820 | $ | 3,714,342 | ||||||||||
| 24 | Appraised value | |||||||||||||||||||
| Non-marketable equity securities measured using the measurement alternative | $ | 234 | Revenue multiple | 4.95x | 73.10x | 19.68x | ||||||||||||||
| 363 | Price | $ | 0.46 | $ | 2,416.43 | $ | 557.86 | |||||||||||||
| As of December 31, 2021 | Fair value(1) (in millions) | Methodology | Input | Low(2) | High | Weighted average(3) | ||||||||||||||
| Loans held-for-sale | $ | 1,312 | Price-based | Price | $ | 89 | $ | 100 | $ | 99 | ||||||||||
| Other real estate owned | $ | 4 | Price-based | Appraised value(4) | $ | 14,000 | $ | 2,392,464 | $ | 1,660,120 | ||||||||||
| 5 | Recovery analysis | |||||||||||||||||||
Loans(5) | $ | 120 | Recovery analysis | Appraised value(4) | $ | 10,000 | $ | 3,900,000 | $ | 247,018 | ||||||||||
| 24 | Price-based | Price | $ | 3 | $ | 75 | $ | 35 | ||||||||||||
| Recovery rate | 84.00 | % | 100.00 | % | 84.00 | % | ||||||||||||||
| Non-marketable equity securities measured using the measurement alternative | $ | 551 | Price-based | Price | $ | 6 | $ | 1,339 | $ | 52 | ||||||||||
(1)The table above includes the fair values for the items listed and may not foot to the total population for each category.
(2)Some inputs are shown as zero due to rounding.
(3)Weighted averages are calculated based on the fair values of the instruments.
(4)Appraised values are disclosed in whole dollars.
(5)Represents impaired loans held for investment whose carrying amount is based on the fair value of the underlying collateral less costs to sell, primarily real estate.
Nonrecurring Fair Value Changes
The following tables present total nonrecurring fair value measurements for the period, included in earnings, attributable to the change in fair value relating to assets that were still held:
| Year ended December 31, | ||||||||
| In millions of dollars | 2022 | 2021 | ||||||
| Loans HFS | $ | (58) | $ | (31) | ||||
| Other real estate owned | — | — | ||||||
Loans(1) | 13 | 9 | ||||||
| Non-marketable equity securities measured using the measurement alternative | 315 | 468 | ||||||
| Total nonrecurring fair value gains (losses) | $ | 270 | $ | 446 | ||||
(1)Represents loans held for investment whose carrying amount is based on the fair value of the underlying collateral less costs to sell, primarily real estate.
Estimated Fair Value of Financial Instruments Not Carried at Fair Value
The following tables present the carrying value and fair value of Citigroup’s financial instruments that are not carried at fair value. The tables below therefore exclude items measured at fair value on a recurring basis presented in the tables above.
The disclosure also excludes leases, affiliate investments, pension and benefit obligations, certain insurance contracts and tax-related items. Also, as required, the disclosure excludes the effect of taxes, any premium or discount that could result from offering for sale at one time the entire holdings of a particular instrument, excess fair value
associated with deposits with no fixed maturity and other expenses that would be incurred in a market transaction. In addition, the tables exclude the values of non-financial assets and liabilities, as well as a wide range of franchise, relationship and intangible values, which are integral to a full assessment of Citigroup’s financial position and the value of its net assets.
Fair values vary from period to period based on changes in a wide range of factors, including interest rates, credit quality and market perceptions of value, and as existing assets and liabilities run off and new transactions are entered into.
| December 31, 2022 | Estimated fair value | ||||||||||||||||
| Carrying value | Estimated fair value | ||||||||||||||||
| In billions of dollars | Level 1 | Level 2 | Level 3 | ||||||||||||||
| Assets | |||||||||||||||||
| Investments, net of allowance | $ | 274.3 | $ | 249.2 | $ | 123.2 | $ | 123.1 | $ | 2.9 | |||||||
| Securities borrowed and purchased under agreements to resell | 125.9 | 125.9 | — | 125.9 | — | ||||||||||||
Loans(1)(2) | 634.5 | 634.9 | — | — | 634.9 | ||||||||||||
Other financial assets(2)(3) | 427.1 | 427.1 | 320.0 | 22.0 | 85.1 | ||||||||||||
| Liabilities | |||||||||||||||||
| Deposits | $ | 1,364.1 | $ | 1,345.4 | $ | — | $ | 1,159.4 | $ | 186.0 | |||||||
| Securities loaned and sold under agreements to repurchase | 131.6 | 131.6 | — | 131.6 | — | ||||||||||||
Long-term debt(4) | 165.6 | 160.5 | — | 151.1 | 9.4 | ||||||||||||
Other financial liabilities(5) | 142.4 | 142.4 | — | 26.5 | 115.9 | ||||||||||||
| December 31, 2021 | Estimated fair value | ||||||||||||||||
| Carrying value | Estimated fair value | ||||||||||||||||
| In billions of dollars | Level 1 | Level 2 | Level 3 | ||||||||||||||
| Assets | |||||||||||||||||
| Investments, net of allowance | $ | 221.9 | $ | 221.0 | $ | 111.8 | $ | 106.4 | $ | 2.8 | |||||||
| Securities borrowed and purchased under agreements to resell | 110.8 | 110.8 | — | 106.4 | 4.4 | ||||||||||||
Loans(1)(2) | 644.8 | 659.6 | — | — | 659.6 | ||||||||||||
Other financial assets(2)(3) | 351.9 | 351.9 | 242.1 | 19.9 | 89.9 | ||||||||||||
| Liabilities | |||||||||||||||||
| Deposits | $ | 1,315.6 | $ | 1,316.2 | $ | — | $ | 1,153.9 | $ | 162.3 | |||||||
| Securities loaned and sold under agreements to repurchase | 134.6 | 134.6 | — | 134.5 | 0.1 | ||||||||||||
Long-term debt(4) | 171.8 | 184.6 | — | 171.9 | 12.7 | ||||||||||||
Other financial liabilities(5) | 111.1 | 111.1 | — | 17.0 | 94.1 | ||||||||||||
(1)The carrying value of loans is net of the allowance for credit losses on loans of $17.0 billion for December 31, 2022 and $16.5 billion for December 31, 2021. In addition, the carrying values exclude $0.4 billion and $0.5 billion of lease finance receivables at December 31, 2022 and 2021 respectively.
(2)Includes items measured at fair value on a nonrecurring basis.
(3)Includes cash and due from banks, deposits with banks, brokerage receivables, reinsurance recoverables and other financial instruments included in Other assets on the Consolidated Balance Sheet, for all of which the carrying value is a reasonable estimate of fair value.
(4)The carrying value includes long-term debt balances under qualifying fair value hedges.
(5)Includes brokerage payables, separate and variable accounts, short-term borrowings (carried at cost) and other financial instruments included in Other liabilities on the Consolidated Balance Sheet, for all of which the carrying value is a reasonable estimate of fair value.
The estimated fair values of the Company’s corporate unfunded lending commitments at December 31, 2022 and 2021 were off-balance sheet liabilities of $13.7 billion and $8.1 billion, respectively, substantially all of which are classified as Level 3. The Company does not estimate the fair values of consumer unfunded lending commitments, which are generally cancellable by providing notice to the borrower.
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2022 | Feb 27, 2023 | Showing above |
| 2021 | Feb 28, 2022 | |
| 2020 | Feb 26, 2021 | |
| 2019 | Feb 21, 2020 | |
| 2018 | Feb 22, 2019 | |
| 2017 | Feb 23, 2018 | |
| 2016 | Feb 24, 2017 | |
| 2015 | Feb 26, 2016 | |
About Fair Value Disclosures
Fair value disclosures classify all assets and liabilities measured at fair value into a three-level hierarchy: Level 1 (quoted market prices), Level 2 (observable inputs like yield curves), and Level 3 (unobservable inputs requiring management estimates). The proportion of Level 3 assets directly reflects how much of the balance sheet depends on internal models rather than market evidence.
Key signals: a growing Level 3 balance relative to total fair-value assets increases valuation uncertainty and earnings volatility risk. Watch for transfers between levels — assets moving from Level 2 to Level 3 often signal deteriorating market liquidity. Unrealized gains and losses on Level 3 positions flow through earnings or other comprehensive income, so large swings deserve scrutiny. For financial institutions, examine the sensitivity disclosures that show how Level 3 valuations change under alternative assumptions. Compare the fair value of debt against its carrying amount to gauge hidden leverage.