JPMORGAN CHASE & CO
For the period ended Dec 31, 2023. Filed Feb 16, 2024.
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FY2023 · Filed Feb 16, 2024
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Notes to Consolidated Financial Statements
Note 1 –Basis of presentation
JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”), a financial holding company incorporated under Delaware law in 1968, is a leading financial services firm based in the U.S., with operations worldwide. The Firm is a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial transaction processing and asset management. On May 1, 2023, JPMorgan Chase acquired certain assets and assumed certain liabilities of First Republic Bank (the “First Republic acquisition”) from the Federal Deposit Insurance Corporation (“FDIC”). The Firm continues to convert certain operations, and to integrate clients, products and services associated with the First Republic acquisition, to align with the Firm’s businesses and operations. Accordingly, reporting classification and internal risk rating profiles in the wholesale portfolio may change in future periods. Refer to Note 34 for additional information on the First Republic acquisition.
The accounting and financial reporting policies of JPMorgan Chase and its subsidiaries conform to U.S. GAAP. Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by regulatory authorities.
Consolidation
The Consolidated Financial Statements include the accounts of JPMorgan Chase and other entities in which the Firm has a controlling financial interest. All material intercompany balances and transactions have been eliminated.
Assets held for clients in an agency or fiduciary capacity by the Firm are not assets of JPMorgan Chase and are not included on the Consolidated balance sheets.
The Firm determines whether it has a controlling financial interest in an entity by first evaluating whether the entity is a voting interest entity or a variable interest entity.
Voting interest entities
Voting interest entities are entities that have sufficient equity and provide the equity investors voting rights that enable them to make significant decisions relating to the entity’s operations. For these types of entities, the Firm’s determination of whether it has a controlling interest is primarily based on the amount of voting equity interests held. Entities in which the Firm has a controlling financial interest, through ownership of the majority of the entities’ voting equity interests, or through other contractual rights that give the Firm control, are consolidated by the Firm.
Investments in companies in which the Firm has significant influence over operating and financing decisions (but does not own a majority of the voting equity interests) are accounted for (i) in accordance with the equity method of accounting, or (ii) at fair value if the fair value option was elected. These investments are generally included in other assets, with income or loss included in noninterest revenue.
Certain Firm-sponsored asset management funds are structured as limited partnerships or limited liability companies. For many of these entities, the Firm is the general partner or managing member, but the non-affiliated partners or members have the ability to remove the Firm as the general partner or managing member without cause (i.e., kick-out rights), based on a simple majority vote, or the non-affiliated partners or members have rights to participate in important decisions. Accordingly, the Firm does not consolidate these voting interest entities. However, in the limited cases where the non-managing partners or members do not have substantive kick-out or participating rights, the Firm evaluates the funds as VIEs and consolidates the funds if the Firm is the general partner or managing member and has both power and a potentially significant interest.
The Firm’s investment companies and asset management funds have investments in both publicly-held and privately-held entities, including investments in buyouts, growth equity and venture opportunities. These investments are accounted for under investment company guidelines and, accordingly, irrespective of the percentage of equity ownership interests held, are carried on the Consolidated balance sheets at fair value, and are recorded in other assets, with income or loss included in noninterest revenue. If consolidated, the Firm retains the accounting under such specialized investment company guidelines.
Variable interest entities
VIEs are entities that, by design, either (1) lack sufficient equity to permit the entity to finance its activities without additional subordinated financial support from other parties, or (2) have equity investors that do not have the ability to make significant decisions relating to the entity’s operations through voting rights, or do not have the obligation to absorb the expected losses, or do not have the right to receive the residual returns of the entity.
The most common type of VIE is an SPE. SPEs are commonly used in securitization transactions in order to isolate certain assets and distribute the cash flows from those assets to investors. The basic SPE structure involves a company selling assets to the SPE; the SPE funds the purchase of those assets by issuing securities to investors. The legal documents that govern the transaction specify how the cash earned on the assets must be allocated to the SPE’s investors and other parties that have rights to those cash flows. SPEs are generally structured to insulate investors from claims on the SPE’s assets by creditors of other entities, including the creditors of the seller of the assets.
The primary beneficiary of a VIE (i.e., the party that has a controlling financial interest) is required to consolidate the assets and liabilities of the VIE. The primary beneficiary is the party that has both (1) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; and (2) through its interests in the VIE, the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
To assess whether the Firm has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, the Firm considers all the facts and circumstances, including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes, first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE (such as asset managers, collateral managers, servicers, or owners of call options or liquidation rights over the VIE’s assets) or have the right to unilaterally remove those decision-makers are deemed to have the power to direct the activities of a VIE.
To assess whether the Firm has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, the Firm considers all of its economic interests, including debt and equity investments, servicing fees, and derivatives or other arrangements deemed to be variable interests in the VIE. This assessment requires that the Firm apply judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE. Factors considered in assessing significance include: the design of the VIE, including its capitalization structure; subordination of interests; payment priority; relative share of interests held across various classes within the VIE’s capital structure; and the reasons why the interests are held by the Firm.
The Firm performs on-going reassessments of: (1) whether entities previously evaluated under the majority voting-interest framework have become VIEs, based on certain events, and are therefore subject to the VIE consolidation framework; and (2) whether changes in the facts and circumstances regarding the Firm’s involvement with a VIE cause the Firm’s consolidation conclusion to change.
Refer to Note 14 for further discussion of Firm-sponsored VIEs.
Revenue recognition
Interest income
The Firm recognizes interest income on loans, debt securities, and other debt instruments, generally on a level-yield basis, based on the underlying contractual rate. Refer to Note 7 for further information.
Revenue from contracts with customers
JPMorgan Chase recognizes noninterest revenue from certain contracts with customers, in investment banking fees, deposit-related fees, asset management fees, commissions and other fees, and components of card income, when the Firm’s related performance obligations are satisfied. Refer to Note 6 for further discussion of the Firm’s revenue from contracts with customers.
Principal transactions revenue
JPMorgan Chase carries a portion of its assets and liabilities at fair value. Changes in fair value are reported primarily in principal transactions revenue. Refer to Notes 2 and 3 for further discussion of fair value measurement. Refer to Note 6 for further discussion of principal transactions revenue.
Use of estimates in the preparation of consolidated financial statements
The preparation of the Consolidated Financial Statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenue and expense, and disclosures of contingent assets and liabilities. Actual results could be different from these estimates.
Foreign currency translation
JPMorgan Chase revalues assets, liabilities, revenue and expense denominated in non-U.S. currencies into U.S. dollars using applicable exchange rates.
Gains and losses relating to translating functional currency financial statements for U.S. reporting are included in the Consolidated statements of comprehensive income. Gains and losses relating to nonfunctional currency transactions, including non-U.S. operations where the functional currency is the U.S. dollar, are reported in the Consolidated statements of income.
Offsetting assets and liabilities
U.S. GAAP permits entities to present derivative receivables and derivative payables with the same counterparty and the related cash collateral receivables and payables on a net basis on the Consolidated balance sheets when a legally enforceable master netting agreement exists. U.S. GAAP also permits securities sold and purchased under repurchase agreements and securities borrowed or loaned under securities loan agreements to be presented net when specified conditions are met, including the existence of a legally enforceable master netting agreement. The Firm has elected to net such balances where it has determined that the specified conditions are met.
The Firm uses master netting agreements to mitigate counterparty credit risk in certain transactions, including derivative contracts, resale, repurchase, securities borrowed and securities loaned agreements. A master netting agreement is a single agreement with a counterparty that permits multiple transactions governed by that agreement to be terminated or accelerated and settled through a single payment in a single currency in the event of a default (e.g., bankruptcy, failure to make a required payment or securities transfer or deliver collateral or margin when due). Upon the exercise of derivatives termination rights by the non-defaulting party (i) all transactions are terminated, (ii) all transactions are valued and the positive values of “in the money” transactions are netted against the negative values of “out of the money” transactions and (iii) the only remaining payment obligation is of one of the parties to pay the netted termination amount. Upon exercise of default rights under repurchase agreements and securities loan agreements in general (i) all transactions are terminated and accelerated, (ii) all values of securities or cash held or to be delivered are calculated, and all such sums are netted against each other and (iii) the only remaining payment obligation is of one of the parties to pay the netted termination amount.
Typical master netting agreements for these types of transactions also often contain a collateral/margin agreement that provides for a security interest in, or title transfer of, securities or cash collateral/margin to the party that has the right to demand margin (the “demanding party”). The collateral/margin agreement typically requires a party to transfer collateral/margin to the demanding party with a value equal to the amount of the margin deficit on a net basis across all transactions governed by the master netting agreement, less any threshold. The collateral/margin agreement grants to the demanding party, upon default by the counterparty, the right to set-off any amounts payable by the counterparty against any posted collateral or the cash equivalent of any posted collateral/margin. It also grants to the demanding party the right to liquidate collateral/margin and to apply the proceeds to an amount payable by the counterparty.
Refer to Note 5 for further discussion of the Firm’s derivative instruments. Refer to Note 11 for further discussion of the Firm’s securities financing agreements.
Statements of cash flows
For JPMorgan Chase’s Consolidated statements of cash flows, cash is defined as those amounts included in cash and due from banks and deposits with banks on the Consolidated balance sheets.
Accounting standards adopted January 1, 2023
Derivatives and Hedging: Fair Value Hedging – Portfolio Layer Method
The adoption of this guidance expanded the ability to hedge a portfolio of fixed-rate assets to allow more types of assets to be included in the portfolio, and to allow more of the portfolio to be hedged. This guidance also clarified the types of derivatives that could be used as hedges, and the balance sheet presentation and disclosure requirements for the hedge accounting adjustments. As permitted by the guidance, the Firm elected to transfer HTM securities to AFS and designated those securities in a portfolio layer method hedge upon adoption. The adoption impact of the transfer on retained earnings was not material.
Refer to Note 5 and Note 10 for additional information.
Financial Instruments – Credit Losses: Troubled Debt Restructurings (“TDRs”)
The adoption of this guidance eliminated the accounting and disclosure requirements for TDRs, including the requirement to measure the allowance using a discounted cash flow (“DCF”) methodology, and allowed the option of a non-DCF portfolio-based approach for modified loans to troubled borrowers. If a DCF methodology is still applied for these modified loans, the discount rate must be the post-modification effective interest rate, instead of the pre-modification effective interest rate.
The Firm elected to apply its non-DCF, portfolio-based allowance approach for modified loans to troubled borrowers for all portfolios except collateral-dependent loans and nonaccrual risk-rated loans which the Firm elected to continue applying a DCF methodology. Refer to Note 13 for a description of the portfolio-based allowance approach and the asset-specific allowance approach.
This guidance was adopted on January 1, 2023 under the modified retrospective method which resulted in a net decrease to the allowance for credit losses of $587 million and an increase to retained earnings of $446 million, after-tax, predominantly driven by residential real estate and credit card.
The adoption of this guidance eliminated the disclosure requirements for TDRs including the requirement to assess whether a modification is reasonably expected or involves a concession. The new guidance requires disclosure for loan modifications to borrowers experiencing financial difficulty consisting of principal forgiveness, interest rate reduction, other-than-insignificant payment delay, term extension or a combination of these modifications. The Firm has defined these types of modifications as financial difficulty modifications ("FDMs"). As a result of the elimination of the requirement to assess whether a modification is reasonably expected or involves a concession, the population of loans considered FDMs differs from those previously considered TDRs. This guidance also requires disclosure of current period gross charge-offs by vintage origination year.
Refer to Note 12 for further information.
Significant accounting policies
The following table identifies JPMorgan Chase’s other significant accounting policies and the Note and page where a detailed description of each policy can be found.
| Fair value measurement | Note 2 | page 175 |
|---|---|---|
| Fair value option | Note 3 | page 197 |
| Derivative instruments | Note 5 | page 203 |
| Noninterest revenue and noninterest expense | Note 6 | page 217 |
| Interest income and Interest expense | Note 7 | page 221 |
| Pension and other postretirement employee benefit plans | Note 8 | page 222 |
| Employee share-based incentives | Note 9 | page 225 |
| Investment securities | Note 10 | page 227 |
| Securities financing activities | Note 11 | page 232 |
| Loans | Note 12 | page 235 |
| Allowance for credit losses | Note 13 | page 255 |
| Variable interest entities | Note 14 | page 261 |
| Goodwill, mortgage servicing rights, and other intangible assets | Note 15 | page 269 |
| Premises and equipment | Note 16 | page 274 |
| Leases | Note 18 | page 275 |
| Accounts payable & other liabilities | Note 19 | page 277 |
| Long-term debt | Note 20 | page 278 |
| Earnings per share | Note 23 | page 283 |
| Income taxes | Note 25 | page 285 |
| Off–balance sheet lending-related financial instruments, guarantees and other commitments | Note 28 | page 291 |
| Litigation | Note 30 | page 298 |
Note 2 –Fair value measurement
JPMorgan Chase carries a portion of its assets and liabilities at fair value. These assets and liabilities are predominantly carried at fair value on a recurring basis (i.e., assets and liabilities that are measured and reported at fair value on the Firm’s Consolidated balance sheets). Certain assets, liabilities and unfunded lending-related commitments are measured at fair value on a nonrecurring basis; that is, they are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment).
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. Fair value is based on quoted market prices or inputs, where available. If prices or quotes are not available, fair value is based on valuation models and other valuation techniques that consider relevant transaction characteristics (such as maturity) and use, as inputs, observable or unobservable market parameters, including yield curves, interest rates, volatilities, prices (such as commodity, equity or debt prices), correlations, foreign exchange rates and credit curves. Fair value may also incorporate valuation adjustments.
The level of precision in estimating unobservable market inputs or other factors can affect the amount of gain or loss recorded for a particular position. Furthermore, while the Firm believes its valuation methods are appropriate and consistent with those of other market participants, the methods and assumptions used reflect management judgment and may vary across the Firm’s businesses and portfolios.
The Firm uses various methodologies and assumptions in the determination of fair value. The use of different methodologies or assumptions by other market participants compared with those used by the Firm could result in the Firm deriving a different estimate of fair value at the reporting date.
Valuation process
Risk-taking functions are responsible for providing fair value estimates for assets and liabilities carried on the Consolidated balance sheets at fair value. The Firm’s Valuation Control Group (“VCG”), which is part of the Firm’s Finance function and independent of the risk-taking functions, is responsible for verifying these estimates and determining any fair value adjustments that may be required to ensure that the Firm’s positions are recorded at fair value. In addition, the Firm’s Valuation Governance Forum (“VGF”), which is composed of senior finance and risk executives, is responsible for overseeing the management of risks arising from valuation activities conducted across the Firm. The Firmwide VGF is chaired by the Firmwide head of the VCG (under the direction of the Firm’s Controller), and includes sub-forums covering the CIB, CCB, CB, AWM and certain corporate functions including Treasury and CIO.
Price verification process
The VCG verifies fair value estimates provided by the risk-taking functions by leveraging independently derived prices, valuation inputs and other market data, where available. Where independent prices or inputs are not available, the VCG performs additional review to ensure the reasonableness of the estimates. The additional review may include evaluating the limited market activity including client unwinds, benchmarking valuation inputs to those used for similar instruments, decomposing the valuation of structured instruments into individual components, comparing expected to actual cash flows, reviewing profit and loss trends, and reviewing trends in collateral valuation. There are also additional levels of management review for more significant or complex positions.
The VCG determines any valuation adjustments that may be required to the estimates provided by the risk-taking functions. No adjustments to quoted prices are applied for instruments classified within level 1 of the fair value hierarchy (refer to the discussion below for further information on the fair value hierarchy). For other positions, judgment is required to assess the need for valuation adjustments to appropriately reflect liquidity considerations, unobservable parameters, and, for certain portfolios that meet specified criteria, the size of the net open risk position. The determination of such adjustments follows a consistent framework across the Firm:
Liquidity valuation adjustments are considered where an observable external price or valuation parameter exists but is of lower reliability, potentially due to lower market activity. Liquidity valuation adjustments are made based on current market conditions. Factors that may be considered in determining the liquidity adjustment include analysis of: (1) the estimated bid-offer spread for the instrument being traded; (2) alternative pricing points for similar instruments in active markets; and (3) the range of reasonable values that the price or parameter could take.
The Firm manages certain portfolios of financial instruments on the basis of net open risk exposure and, as permitted by U.S. GAAP, has elected to estimate the fair value of such portfolios on the basis of a transfer of the entire net open risk position in an orderly transaction. Where this is the case, valuation adjustments may be necessary to reflect the cost of exiting a larger-than-normal market-size net open risk position. Where applied, such adjustments are based on factors that a relevant market participant would consider in the transfer of the net open risk position, including the size of the adverse market move that is likely to occur during the period required to sufficiently reduce the net open risk position.
Uncertainty adjustments related to unobservable parameters may be made when positions are valued using prices or input parameters to valuation models that are unobservable due to a lack of market activity or because they cannot be implied from observable market data. Such prices or parameters must be estimated and are, therefore, subject to management judgment. Adjustments are made to reflect the uncertainty inherent in the resulting valuation estimate.
Where appropriate, the Firm also applies adjustments to its estimates of fair value in order to appropriately reflect counterparty credit quality (CVA), the Firm’s own creditworthiness (DVA) and the impact of funding (FVA), using a consistent framework across the Firm. Refer to Credit and funding adjustments on page 192 of this Note for more information on such adjustments.
Valuation model review and approval
If prices or quotes are not available for an instrument or a similar instrument, fair value is generally determined using valuation models that consider relevant transaction terms such as maturity and use as inputs market-based or independently sourced parameters. Where this is the case the price verification process described above is applied to the inputs in those models.
Under the Firm’s Estimations and Model Risk Management Policy, MRGR reviews and approves new models, as well as material changes to existing models, prior to implementation in the operating environment. In certain circumstances exceptions may be granted to the Firm’s policy to allow a model to be used prior to review or approval. MRGR may also require the user to take appropriate actions to mitigate the model risk if it is to be used in the interim. These actions will depend on the model and may include, for example, limitation of trading activity.
Fair value hierarchy
A three-level fair value hierarchy has been established under U.S. GAAP for disclosure of fair value measurements. The fair value hierarchy is based on the observability of inputs to the valuation of an asset or liability as of the measurement date. The three levels are defined as follows.
Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
Level 2 – inputs to the valuation methodology include 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 financial instrument.
Level 3 – one or more inputs to the valuation methodology are unobservable and significant to the fair value measurement.
A financial instrument’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement.
The following table describes the valuation methodologies generally used by the Firm to measure its significant products/instruments at fair value, including the general classification of such instruments pursuant to the fair value hierarchy.
| Product/instrument | Valuation methodology | Classifications in the fair value hierarchy |
|---|---|---|
| Securities financing agreements | Valuations are based on discounted cash flows, which consider: | Predominantly level 2 |
| • Derivative features: refer to the discussion of derivatives below for further information | ||
| • Market rates for the respective maturity | ||
| • Collateral characteristics | ||
| Loans and lending-related commitments — wholesaleLoans carried at fair value(trading loans and non-trading loans) and associatedlending-related commitments | Where observable market data is available, valuations are based on: | Level 2 or 3 |
| • Observed market prices (circumstances are infrequent) | ||
| • Relevant broker quotes | ||
| • Observed market prices for similar instruments | ||
| Where observable market data is unavailable or limited, valuations are based on discounted cash flows, which consider the following: | ||
| • Credit spreads derived from the cost of CDS; or benchmark credit curves developed by the Firm, by industry and credit rating | ||
| • Prepayment speed | ||
| • Collateral characteristics | ||
| Loans — consumer | Fair value is based on observable market prices for mortgage-backed securities with similar collateral and incorporates adjustments to these prices to account for differences between the securities and the value of the underlying loans, which include credit characteristics, portfolio composition, and liquidity. | Predominantly level 2 |
| Loans carried at fair value — conforming residential mortgage loans expected to be sold | ||
| Investment and trading securities | Quoted market prices | Level 1 |
| In the absence of quoted market prices, securities are valued based on: | Level 2 or 3 | |
| • Observable market prices for similar securities | ||
| • Relevant broker quotes | ||
| • Discounted cash flows | ||
| In addition, the following inputs to discounted cash flows are used for the following products: | ||
| Mortgage- and asset-backed securities specific inputs: | ||
| • Collateral characteristics | ||
| • Deal-specific payment and loss allocations | ||
| • Current market assumptions related to yield, prepayment speed, conditional default rates and loss severity | ||
| Collateralized loan obligations (“CLOs”) specific inputs: | ||
| • Collateral characteristics | ||
| • Deal-specific payment and loss allocations | ||
| • Expected prepayment speed, conditional default rates, loss severity | ||
| • Credit spreads | ||
| • Credit rating data | ||
| Physical commodities | Valued using observable market prices or data. | Level 1 or 2 |
| Product/instrument | Valuation methodology | Classifications in the fair value hierarchy |
|---|---|---|
| Derivatives | Actively traded derivatives, e.g., exchange-traded derivatives, that are valued using quoted prices. | Level 1 |
| Derivatives that are valued using models such as the Black-Scholes option pricing model, simulation models, or a combination of models that may use observable or unobservable valuation inputs as well as considering the contractual terms.The key valuation inputs used will depend on the type of derivative and the nature of the underlying instruments and may include equity prices, commodity prices, foreign exchange rates, volatilities, correlations, CDS spreads, recovery rates and prepayment speed. | Level 2 or 3 | |
| In addition, specific inputs used for derivatives that are valued based on models with significant unobservable inputs are as follows: | ||
| Interest rate and FX exotic derivatives specific inputs include: | ||
| • Interest rate curve | ||
| • Interest rate volatility | ||
| • Interest rate spread volatility | ||
| • Bermudan switch value | ||
| • Interest rate correlation | ||
| • Interest rate-FX correlation | ||
| • Foreign exchange correlation | ||
| Credit derivatives specific inputs include: | ||
| • Credit correlation between the underlying debt instruments | ||
| Equity derivatives specific inputs include: | ||
| • Forward equity price | ||
| • Equity volatility | ||
| • Equity correlation | ||
| • Equity-FX correlation | ||
| • Equity-IR correlation | ||
| Commodity derivatives specific inputs include: | ||
| • Forward commodity price | ||
| • Commodity volatility | ||
| • Commodity correlation | ||
| Additionally, adjustments are made to reflect counterparty credit quality (CVA) and the impact of funding (FVA). Refer to page 192 of this Note. | ||
| Mortgage servicing rights | Refer to Mortgage servicing rights in Note 15. | Level 3 |
| Private equity direct investments | Fair value is estimated using all available information; the range of potential inputs include: | Level 2 or 3 |
| • Transaction prices | ||
| • Trading multiples of comparable public companies | ||
| • Operating performance of the underlying portfolio company | ||
| • Adjustments as required, since comparable public companies are not identical to the company being valued, and for company-specific issues including lack of liquidity | ||
| • Additional available inputs relevant to the investment | ||
| Fund investments (e.g., mutual/collective investment funds, private equity funds, hedge funds, and real estate funds) | Net asset value | |
| • NAV is supported by the ability to redeem and purchase at the NAV level | Level 1 | |
| • Adjustments to the NAV as required, for restrictions on redemption (e.g., lock-up periods or withdrawal limitations) or where observable activity is limited | Level 2 or 3(a) | |
| Beneficial interests issued by consolidated VIEs | Valued using observable market information, where available. | Level 2 or 3 |
| In the absence of observable market information, valuations are based on the fair value of the underlying assets held by the VIE. | ||
(a)Excludes certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient.
| Product/instrument | Valuation methodology | Classification in the fair value hierarchy |
|---|---|---|
| Structured notes (included in deposits, short-term borrowings and long-term debt) | Valuations are based on discounted cash flow analyses that consider the embedded derivative and the terms and payment structure of the note.The embedded derivative features are considered using models such as the Black-Scholes option pricing model, simulation models, or a combination of models that may use observable or unobservable valuation inputs, depending on the embedded derivative. The specific inputs used vary according to the nature of the embedded derivative features, as described in the discussion above regarding derivatives valuation. Adjustments are then made to this base valuation to reflect the Firm’s own credit risk (DVA). Refer to page 192 of this Note. | Level 2 or 3 |
The following table presents the assets and liabilities reported at fair value as of December 31, 2023 and 2022, by major product category and fair value hierarchy.
| Assets and liabilities measured at fair value on a recurring basis | |||||
|---|---|---|---|---|---|
| Fair value hierarchy | |||||
| December 31, 2023 (in millions) | Level 1 | Level 2 | Level 3 | Derivative netting adjustments(f) | Total fair value |
| Federal funds sold and securities purchased under resale agreements | $— | $259,813 | $— | $— | $259,813 |
| Securities borrowed | — | 70,086 | — | — | 70,086 |
| Trading assets: | |||||
| Debt instruments: | |||||
| Mortgage-backed securities: | |||||
| U.S. GSEs and government agencies(a) | — | 73,840 | 758 | — | 74,598 |
| Residential – nonagency | — | 1,921 | 5 | — | 1,926 |
| Commercial – nonagency | — | 1,362 | 12 | — | 1,374 |
| Total mortgage-backed securities | — | 77,123 | 775 | — | 77,898 |
| U.S. Treasury, GSEs and government agencies(a) | 133,997 | 9,998 | — | — | 143,995 |
| Obligations of U.S. states and municipalities | — | 5,858 | 10 | — | 5,868 |
| Certificates of deposit, bankers’ acceptances and commercial paper | — | 756 | — | — | 756 |
| Non-U.S. government debt securities | 24,846 | 55,557 | 179 | — | 80,582 |
| Corporate debt securities | — | 32,854 | 484 | — | 33,338 |
| Loans | — | 7,872 | 684 | — | 8,556 |
| Asset-backed securities | — | 2,199 | 6 | — | 2,205 |
| Total debt instruments | 158,843 | 192,217 | 2,138 | — | 353,198 |
| Equity securities | 107,926 | 679 | 127 | — | 108,732 |
| Physical commodities(b) | 2,479 | 3,305 | 7 | — | 5,791 |
| Other | — | 17,879 | 101 | — | 17,980 |
| Total debt and equity instruments(c) | 269,248 | 214,080 | 2,373 | — | 485,701 |
| Derivative receivables: | |||||
| Interest rate | 2,815 | 243,578 | 4,298 | (224,367) | 26,324 |
| Credit | — | 8,644 | 1,010 | (9,103) | 551 |
| Foreign exchange | 149 | 204,737 | 889 | (187,756) | 18,019 |
| Equity | — | 55,167 | 2,522 | (52,761) | 4,928 |
| Commodity | — | 15,234 | 205 | (10,397) | 5,042 |
| Total derivative receivables | 2,964 | 527,360 | 8,924 | (484,384) | 54,864 |
| Total trading assets(d) | 272,212 | 741,440 | 11,297 | (484,384) | 540,565 |
| Available-for-sale securities: | |||||
| Mortgage-backed securities: | |||||
| U.S. GSEs and government agencies(a) | — | 85,170 | — | — | 85,170 |
| Residential – nonagency | — | 3,639 | — | — | 3,639 |
| Commercial – nonagency | — | 2,803 | — | — | 2,803 |
| Total mortgage-backed securities | — | 91,612 | — | — | 91,612 |
| U.S. Treasury and government agencies | 57,683 | 122 | — | — | 57,805 |
| Obligations of U.S. states and municipalities | — | 21,367 | — | — | 21,367 |
| Non-U.S. government debt securities | 13,095 | 8,187 | — | — | 21,282 |
| Corporate debt securities | — | 100 | — | — | 100 |
| Asset-backed securities: | |||||
| Collateralized loan obligations | — | 6,752 | — | — | 6,752 |
| Other(a) | — | 2,786 | — | — | 2,786 |
| Total available-for-sale securities | 70,778 | 130,926 | — | — | 201,704 |
| Loans(e) | — | 35,772 | 3,079 | — | 38,851 |
| Mortgage servicing rights | — | — | 8,522 | — | 8,522 |
| Other assets(d) | 6,635 | 3,929 | 758 | — | 11,322 |
| Total assets measured at fair value on a recurring basis | $349,625 | $1,241,966 | $23,656 | $(484,384) | $1,130,863 |
| Deposits | $— | $76,551 | $1,833 | $— | $78,384 |
| Federal funds purchased and securities loaned or sold under repurchase agreements | — | 169,003 | — | — | 169,003 |
| Short-term borrowings | — | 18,284 | 1,758 | — | 20,042 |
| Trading liabilities: | |||||
| Debt and equity instruments(c) | 107,292 | 32,252 | 37 | — | 139,581 |
| Derivative payables: | |||||
| Interest rate | 4,409 | 232,277 | 3,796 | (228,586) | 11,896 |
| Credit | — | 11,293 | 745 | (10,949) | 1,089 |
| Foreign exchange | 147 | 211,289 | 827 | (199,643) | 12,620 |
| Equity | — | 60,887 | 4,924 | (56,443) | 9,368 |
| Commodity | — | 15,894 | 484 | (10,504) | 5,874 |
| Total derivative payables | 4,556 | 531,640 | 10,776 | (506,125) | 40,847 |
| Total trading liabilities | 111,848 | 563,892 | 10,813 | (506,125) | 180,428 |
| Accounts payable and other liabilities | 3,968 | 1,617 | 52 | — | 5,637 |
| Beneficial interests issued by consolidated VIEs | — | 1 | — | — | 1 |
| Long-term debt | — | 60,198 | 27,726 | — | 87,924 |
| Total liabilities measured at fair value on a recurring basis | $115,816 | $889,546 | $42,182 | $(506,125) | $541,419 |
| Fair value hierarchy | |||||
|---|---|---|---|---|---|
| December 31, 2022 (in millions) | Level 1 | Level 2 | Level 3 | Derivative netting adjustments(f) | Total fair value |
| Federal funds sold and securities purchased under resale agreements | $— | $311,883 | $— | $— | $311,883 |
| Securities borrowed | — | 70,041 | — | — | 70,041 |
| Trading assets: | |||||
| Debt instruments: | |||||
| Mortgage-backed securities: | |||||
| U.S. GSEs and government agencies(a) | — | 68,162 | 759 | — | 68,921 |
| Residential – nonagency | — | 2,498 | 5 | — | 2,503 |
| Commercial – nonagency | — | 1,448 | 7 | — | 1,455 |
| Total mortgage-backed securities | — | 72,108 | 771 | — | 72,879 |
| U.S. Treasury, GSEs and government agencies(a) | 61,191 | 8,546 | — | — | 69,737 |
| Obligations of U.S. states and municipalities | — | 6,608 | 7 | — | 6,615 |
| Certificates of deposit, bankers’ acceptances and commercial paper | — | 2,009 | — | — | 2,009 |
| Non-U.S. government debt securities | 18,213 | 48,429 | 155 | — | 66,797 |
| Corporate debt securities | — | 25,626 | 463 | — | 26,089 |
| Loans | — | 5,744 | 759 | — | 6,503 |
| Asset-backed securities | — | 2,536 | 23 | — | 2,559 |
| Total debt instruments | 79,404 | 171,606 | 2,178 | — | 253,188 |
| Equity securities | 82,483 | 2,060 | 665 | — | 85,208 |
| Physical commodities(b) | 9,595 | 16,673 | 2 | — | 26,270 |
| Other | — | 18,146 | 64 | — | 18,210 |
| Total debt and equity instruments(c) | 171,482 | 208,485 | 2,909 | — | 382,876 |
| Derivative receivables: | |||||
| Interest rate | 3,390 | 292,956 | 4,069 | (271,996) | 28,419 |
| Credit | — | 9,722 | 607 | (9,239) | 1,090 |
| Foreign exchange | 169 | 240,207 | 1,203 | (218,214) | 23,365 |
| Equity | — | 57,485 | 4,428 | (52,774) | 9,139 |
| Commodity | — | 24,982 | 375 | (16,490) | 8,867 |
| Total derivative receivables | 3,559 | 625,352 | 10,682 | (568,713) | 70,880 |
| Total trading assets(d) | 175,041 | 833,837 | 13,591 | (568,713) | 453,756 |
| Available-for-sale securities: | |||||
| Mortgage-backed securities: | |||||
| U.S. GSEs and government agencies(a) | 3 | 71,500 | — | — | 71,503 |
| Residential – nonagency | — | 4,620 | — | — | 4,620 |
| Commercial – nonagency | — | 1,958 | — | — | 1,958 |
| Total mortgage-backed securities | 3 | 78,078 | — | — | 78,081 |
| U.S. Treasury and government agencies | 92,060 | — | — | — | 92,060 |
| Obligations of U.S. states and municipalities | — | 6,786 | — | — | 6,786 |
| Non-U.S. government debt securities | 10,591 | 9,105 | — | — | 19,696 |
| Corporate debt securities | — | 118 | 239 | — | 357 |
| Asset-backed securities: | |||||
| Collateralized loan obligations | — | 5,792 | — | — | 5,792 |
| Other | — | 3,085 | — | — | 3,085 |
| Total available-for-sale securities | 102,654 | 102,964 | 239 | — | 205,857 |
| Loans(e) | — | 40,661 | 1,418 | — | 42,079 |
| Mortgage servicing rights | — | — | 7,973 | — | 7,973 |
| Other assets(d) | 7,544 | 6,065 | 405 | — | 14,014 |
| Total assets measured at fair value on a recurring basis | $285,239 | $1,365,451 | $23,626 | $(568,713) | $1,105,603 |
| Deposits | $— | $26,458 | $2,162 | $— | $28,620 |
| Federal funds purchased and securities loaned or sold under repurchase agreements | — | 151,999 | — | — | 151,999 |
| Short-term borrowings | — | 14,391 | 1,401 | — | 15,792 |
| Trading liabilities: | |||||
| Debt and equity instruments(c) | 98,719 | 28,032 | 84 | — | 126,835 |
| Derivative payables: | |||||
| Interest rate | 2,643 | 284,280 | 3,368 | (274,321) | 15,970 |
| Credit | — | 9,377 | 594 | (9,217) | 754 |
| Foreign exchange | 160 | 250,647 | 714 | (232,665) | 18,856 |
| Equity | — | 57,649 | 4,812 | (53,657) | 8,804 |
| Commodity | — | 22,748 | 521 | (16,512) | 6,757 |
| Total derivative payables | 2,803 | 624,701 | 10,009 | (586,372) | 51,141 |
| Total trading liabilities | 101,522 | 652,733 | 10,093 | (586,372) | 177,976 |
| Accounts payable and other liabilities | 5,702 | 1,283 | 53 | — | 7,038 |
| Beneficial interests issued by consolidated VIEs | — | 5 | — | — | 5 |
| Long-term debt | — | 48,189 | 24,092 | — | 72,281 |
| Total liabilities measured at fair value on a recurring basis | $107,224 | $895,058 | $37,801 | $(586,372) | $453,711 |
(a)At December 31, 2023 and 2022, included total U.S. GSE obligations of $78.5 billion and $73.8 billion, respectively, which were mortgage-related.
(b)Physical commodities inventories are generally accounted for at the lower of cost or net realizable value. “Net realizable value” is a term defined in U.S. GAAP as not exceeding fair value less costs to sell (“transaction costs”). Transaction costs for the Firm’s physical commodities inventories are either not applicable or immaterial to the value of the inventory. Therefore, net realizable value approximates fair value for the Firm’s physical commodities inventories. When fair value hedging has been applied (or when net realizable value is below cost), the carrying value of physical commodities approximates fair value, because under fair value hedge accounting, the cost basis is adjusted for changes in fair value. Refer to Note 5 for a further discussion of the Firm’s hedge accounting relationships. To provide consistent fair value disclosure information, all physical commodities inventories have been included in each period presented.
(c)Balances reflect the reduction of securities owned (long positions) by the amount of identical securities sold but not yet purchased (short positions).
(d)Certain investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient are not required to be classified in the fair value hierarchy. At December 31, 2023 and 2022, the fair values of these investments, which include certain hedge funds, private equity funds, real estate and other funds, were $1.0 billion and $950 million, respectively. Included in these balances at December 31, 2023 and 2022, were trading assets of $42 million and $43 million, respectively, and other assets of $984 million and $907 million, respectively.
(e)At December 31, 2023 and 2022, included $10.2 billion and $9.7 billion, respectively, of residential first-lien mortgages, and $6.0 billion and $6.8 billion, respectively, of commercial first-lien mortgages. Residential mortgage loans include conforming mortgage loans originated with the intent to sell to U.S. GSEs and government agencies of $2.9 billion and $2.4 billion, respectively.
(f)As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral received and paid when a legally enforceable master netting agreement exists. The level 3 balances would be reduced if netting were applied, including the netting benefit associated with cash collateral.
Level 3 valuations
The Firm has established well-structured processes for determining fair value, including for instruments where fair value is estimated using significant unobservable inputs (level 3). Refer to pages 175–179 of this Note for further information on the Firm’s valuation process and a detailed discussion of the determination of fair value for individual financial instruments.
Estimating fair value requires the application of judgment. The type and level of judgment required is largely dependent on the amount of observable market information available to the Firm. For instruments valued using internally developed valuation models and other valuation techniques that use significant unobservable inputs and are therefore classified within level 3 of the fair value hierarchy, judgments used to estimate fair value are more significant than those required when estimating the fair value of instruments classified within levels 1 and 2.
In arriving at an estimate of fair value for an instrument within level 3, management must first determine the appropriate valuation model or other valuation technique to use. Second, due to the lack of observability of significant inputs, management must assess relevant empirical data in deriving valuation inputs including transaction details, yield curves, interest rates, prepayment speed, default rates, volatilities, correlations, prices (such as commodity, equity or debt prices), valuations of comparable instruments, foreign exchange rates and credit curves.
The following table presents the Firm’s primary level 3 financial instruments, the valuation techniques used to measure the fair value of those financial instruments, the significant unobservable inputs, the range of values for those inputs and the weighted or arithmetic averages of such inputs. While the determination to classify an instrument within level 3 is based on the significance of the unobservable inputs to the overall fair value measurement, level 3 financial instruments typically include observable components (that is, components that are actively quoted and can be validated to external sources) in addition to the unobservable components. The level 1 and/or level 2 inputs are not included in the table. In addition, the Firm manages the risk of the observable components of level 3 financial instruments using securities and derivative positions that are classified within levels 1 or 2 of the fair value hierarchy.
The range of values presented in the table is representative of the highest and lowest level input used to value the significant groups of instruments within a product/instrument classification. Where provided, the weighted averages of the input values presented in the table are calculated based on the fair value of the instruments that the input is being used to value.
In the Firm’s view, the input range, weighted and arithmetic average values do not reflect the degree of input uncertainty or an assessment of the reasonableness of the Firm’s estimates and assumptions. Rather, they reflect the characteristics of the various instruments held by the Firm and the relative distribution of instruments within the range of characteristics. For example, two option contracts may have similar levels of market risk exposure and valuation uncertainty, but may have significantly different implied volatility levels because the option contracts have different underlyings, tenors, or strike prices. The input range and weighted and arithmetic average values will therefore vary from period-to-period and parameter-to-parameter based on the characteristics of the instruments held by the Firm at each balance sheet date.
| Level 3 inputs(a) | ||||||||
|---|---|---|---|---|---|---|---|---|
| Product/Instrument · Fair value (in millions) · Principal valuation technique · Unobservable inputs(g) · Range of input values · Average(i) | ||||||||
| Residential mortgage-backed securities and loans(b) | $1,743 | Discounted cash flows | Yield | 0% | 72% | 7% | ||
| Prepayment speed | 3% | 12% | 9% | |||||
| Conditional default rate | 0% | 6% | 0% | |||||
| Loss severity | 0% | 110% | 3% | |||||
| Commercial mortgage-backed securities and loans(c) | 1,460 | Market comparables | Price | $0 | $90 | $80 | ||
| Corporate debt securities | 484 | Market comparables | Price | $0 | $242 | $98 | ||
| Loans(d) | 1,335 | Market comparables | Price | $0 | $108 | $79 | ||
| Non-U.S. government debt securities | 179 | Market comparables | Price | $2 | $109 | $91 | ||
| Net interest rate derivatives | 495 | Option pricing | Interest rate volatility | 25bps | 420bps | 117bps | ||
| Interest rate spread volatility · 37bps · 77bps · 64bps | ||||||||
| Bermudan switch value | 0% | 54% | 19% | |||||
| Interest rate correlation | (82)% | 90% | 19% | |||||
| IR-FX correlation | (35)% | 60% | 5% | |||||
| 7 | Discounted cash flows | Prepayment speed | 0% | 20% | 5% | |||
| Net credit derivatives | 233 | Discounted cash flows | Credit correlation | 35% | 70% | 51% | ||
| Credit spread · 0bps · 3,617bps · 384bps | ||||||||
| Recovery rate | 10% | 90% | 55% | |||||
| 32 | Market comparables | Price | $0 | $115 | $73 | |||
| Net foreign exchange derivatives | 128 | Option pricing | IR-FX correlation | (40)% | 60% | 20% | ||
| (66) | Discounted cash flows | Prepayment speed | 11% | 11% | ||||
| Interest rate curve | 2% | 17% | 7% | |||||
| Net equity derivatives | (2,402) | Option pricing | Forward equity price(h) | 74% | 148% | 100% | ||
| Equity volatility | 3% | 145% | 28% | |||||
| Equity correlation | 15% | 100% | 57% | |||||
| Equity-FX correlation | (88)% | 65% | (30)% | |||||
| Equity-IR correlation | (19)% | 20% | 12% | |||||
| Net commodity derivatives | (279) | Option pricing | Oil commodity forward | $84 / BBL | $270 / BBL | $177 / BBL | ||
| Natural gas commodity forward · $2 / MMBTU · $6 / MMBTU · $4 / MMBTU | ||||||||
| Commodity volatility | 17% | 20% | 18% | |||||
| Commodity correlation | (35)% | 98% | 31% | |||||
| MSRs | 8,522 | Discounted cash flows | Refer to Note 15 | |||||
| Long-term debt, short-term borrowings, and deposits(e) | 30,078 | Option pricing | Interest rate volatility | 25bps | 420bps | 117bps | ||
| Bermudan switch value | 0% | 54% | 19% | |||||
| Interest rate correlation | (82)% | 90% | 19% | |||||
| IR-FX correlation | (35)% | 60% | 5% | |||||
| Equity correlation | 15% | 100% | 57% | |||||
| Equity-FX correlation | (88)% | 65% | (30)% | |||||
| Equity-IR correlation | (19)% | 20% | 12% | |||||
| 1,239 | Discounted cash flows | Credit correlation | 35% | 70% | 51% | |||
| Yield | 5% | 20% | 12% | |||||
| Loss severity | 0% | 100% | 50% | |||||
| Other level 3 assets and liabilities, net(f) | 920 | |||||||
(a)The categories presented in the table have been aggregated based upon the product type, which may differ from their classification on the Consolidated balance sheets. Furthermore, the inputs presented for each valuation technique in the table are, in some cases, not applicable to every instrument valued using the technique as the characteristics of the instruments can differ.
(b)Comprises U.S. GSE and government agency securities of $758 million, nonagency securities of $5 million and non-trading loans of $980 million.
(c)Comprises nonagency securities of $12 million, trading loans of $65 million and non-trading loans of $1.4 billion.
(d)Comprises trading loans of $619 million and non-trading loans of $716 million.
(e)Long-term debt, short-term borrowings and deposits include structured notes issued by the Firm that are financial instruments that typically contain embedded derivatives. The estimation of the fair value of structured notes includes the derivative features embedded within the instrument. The significant unobservable inputs are broadly consistent with those presented for derivative receivables.
(f)Includes equity securities of $671 million including $544 million in Other assets, for which quoted prices are not readily available and the fair value is generally based on internal valuation techniques such as EBITDA multiples and comparable analysis. All other level 3 assets and liabilities are insignificant both individually and in aggregate.
(g)Price is a significant unobservable input for certain instruments. When quoted market prices are not readily available, reliance is generally placed on price-based internal valuation techniques. The price input is expressed assuming a par value of $100.
(h)Forward equity price is expressed as a percentage of the current equity price.
(i)Amounts represent weighted averages except for derivative related inputs where arithmetic averages are used.
Changes in and ranges of unobservable inputs
The following discussion provides a description of the impact on a fair value measurement of a change in each unobservable input in isolation, and the interrelationship between unobservable inputs, where relevant and significant. The impact of changes in inputs may not be independent, as a change in one unobservable input may give rise to a change in another unobservable input. Where relationships do exist between two unobservable inputs, those relationships are discussed below. Relationships may also exist between observable and unobservable inputs (for example, as observable interest rates rise, unobservable prepayment rates decline); such relationships have not been included in the discussion below. In addition, for each of the individual relationships described below, the inverse relationship would also generally apply.
The following discussion also provides a description of attributes of the underlying instruments and external market factors that affect the range of inputs used in the valuation of the Firm’s positions.
Yield – The yield of an asset is the interest rate used to discount future cash flows in a discounted cash flow calculation. An increase in the yield, in isolation, would result in a decrease in a fair value measurement.
Credit spread – The credit spread is the amount of additional annualized return over the market interest rate that a market participant would demand for taking exposure to the credit risk of an instrument. The credit spread for an instrument forms part of the discount rate used in a discounted cash flow calculation. Generally, an increase in the credit spread would result in a decrease in a fair value measurement.
The yield and the credit spread of a particular mortgage-backed security primarily reflect the risk inherent in the instrument. The yield is also impacted by the absolute level of the coupon paid by the instrument (which may not correspond directly to the level of inherent risk). Therefore, the range of yield and credit spreads reflects the range of risk inherent in various instruments owned by the Firm. The risk inherent in mortgage-backed securities is driven by the subordination of the security being valued and the characteristics of the underlying mortgages within the collateralized pool, including borrower FICO scores, LTV ratios for residential mortgages and the nature of the property and/or any tenants for commercial mortgages. For corporate debt securities, obligations of U.S. states and municipalities and other similar instruments, credit spreads reflect the credit quality of the obligor and the tenor of the obligation.
Prepayment speed – The prepayment speed is a measure of the voluntary unscheduled principal repayments of a prepayable obligation in a collateralized pool. Prepayment speeds generally decline as borrower delinquencies rise. An increase in prepayment speeds, in isolation, would result in a decrease in a fair value measurement of assets valued at a premium to par and an increase in a fair value measurement of assets valued at a discount to par.
Prepayment speeds may vary from collateral pool to collateral pool, and are driven by the type and location of the underlying borrower, and the remaining tenor of the obligation as well as the level and type (e.g., fixed or floating) of interest rate being paid by the borrower. Typically collateral pools with higher borrower credit quality have a higher prepayment rate than those with lower borrower credit quality, all other factors being equal.
Conditional default rate – The conditional default rate is a measure of the reduction in the outstanding collateral balance underlying a collateralized obligation as a result of defaults. While there is typically no direct relationship between conditional default rates and prepayment speeds, collateralized obligations for which the underlying collateral has high prepayment speeds will tend to have lower conditional default rates. An increase in conditional default rates would generally be accompanied by an increase in loss severity and an increase in credit spreads. An increase in the conditional default rate, in isolation, would result in a decrease in a fair value measurement. Conditional default rates reflect the quality of the collateral underlying a securitization and the structure of the securitization itself. Based on the types of securities owned in the Firm’s market-making portfolios, conditional default rates are most typically at the lower end of the range presented.
Loss severity – The loss severity (the inverse concept is the recovery rate) is the expected amount of future realized losses resulting from the ultimate liquidation of a particular loan, expressed as the net amount of loss relative to the outstanding loan balance. An increase in loss severity is generally accompanied by an increase in conditional default rates. An increase in the loss severity, in isolation, would result in a decrease in a fair value measurement.
The loss severity applied in valuing a mortgage-backed security depends on factors relating to the underlying mortgages, including the LTV ratio, the nature of the lender’s lien on the property and other instrument-specific factors.
Correlation – Correlation is a measure of the relationship between the movements of two variables. Correlation is a pricing input for a derivative product where the payoff is driven by one or more underlying risks. Correlation inputs are related to the type of derivative (e.g., interest rate, credit, equity, foreign exchange and commodity) due to the nature of the underlying risks. When parameters are positively correlated, an increase in one parameter will result in an increase in the other parameter. When parameters are negatively correlated, an increase in one parameter will result in a decrease in the other parameter. An increase in correlation can result in an increase or a decrease in a fair value measurement. Given a short correlation position, an increase in correlation, in isolation, would generally result in a decrease in a fair value measurement.
The level of correlation used in the valuation of derivatives with multiple underlying risks depends on a number of factors including the nature of those risks. For example, the correlation between two credit risk exposures would be different than that between two interest rate risk exposures. Similarly, the tenor of the transaction may also impact the correlation input, as the relationship between the underlying risks may be different over different time periods. Furthermore, correlation levels are very much dependent on market conditions and could have a relatively wide range of levels within or across asset classes over time, particularly in volatile market conditions.
Volatility – Volatility is a measure of the variability in possible returns for an instrument, parameter or market index given how much the particular instrument, parameter or index changes in value over time. Volatility is a pricing input for options, including equity options, commodity options, and interest rate options. Generally, the higher the volatility of the underlying, the riskier the instrument. Given a long position in an option, an increase in volatility, in isolation, would generally result in an increase in a fair value measurement.
The level of volatility used in the valuation of a particular option-based derivative depends on a number of factors, including the nature of the risk underlying the option (e.g., the volatility of a particular equity security may be significantly different from that of a particular commodity index), the tenor of the derivative as well as the strike price of the option.
Bermudan switch value – The switch value is the difference between the overall value of a Bermudan swaption, which can be exercised at multiple points in time, and its most expensive European swaption and reflects the additional value that the multiple exercise dates provide the holder. Switch values are dependent on market conditions and can vary greatly depending on a number of factors, such as the tenor of the underlying swap as well as the strike price of the option. An increase in switch value, in isolation, would generally result in an increase in a fair value measurement.
Interest rate curve – The interest rate curve represents the relationship of interest rates over differing tenors. The interest rate curve is used to set interest rate and foreign exchange derivative cash flows and is also a pricing input used in the discounting of any derivative cash flow.
Forward price – The forward price is the price at which the buyer agrees to purchase the asset underlying a forward contract on the predetermined future delivery date, and is such that the value of the contract is zero at inception.
The forward price is used as an input in the valuation of certain derivatives and depends on a number of factors including interest rates, the current price of the underlying asset, and the expected income to be received and costs to be incurred by the seller as a result of holding that asset until the delivery date. An increase in the forward can result in an increase or a decrease in a fair value measurement.
Changes in level 3 recurring fair value measurements
The following tables include a rollforward of the Consolidated balance sheets amounts (including changes in fair value) for financial instruments classified by the Firm within level 3 of the fair value hierarchy for the years ended December 31, 2023, 2022 and 2021. When a determination is made to classify a financial instrument within level 3, the determination is based on the significance of the unobservable inputs to the overall fair value measurement. However, level 3 financial instruments typically include, in addition to the unobservable or level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources); accordingly, the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology. The Firm risk-manages the observable components of level 3 financial instruments using securities and derivative positions that are classified within level 1 or 2 of the fair value hierarchy; as these level 1 and level 2 risk management instruments are not included below, the gains or losses in the following tables do not reflect the effect of the Firm’s risk management activities related to such level 3 instruments.
| Fair value measurements using significant unobservable inputs | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year endedDecember 31, 2023(in millions) · Fair value at January 1, 2023 · Total realized/unrealized gains/(losses) · Transfers into level 3 · Transfers (out of) level 3 · Fair value at Dec. 31, 2023 · Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2023 | ||||||||||||||||||
| Purchases(g) · Sales · Settlements(h) | ||||||||||||||||||
| Assets:(a) | ||||||||||||||||||
| Federal funds sold and securities purchased under resale agreements | $— | $— | $— | $— | $— | $— | $— | $— | $— | |||||||||
| Trading assets: | ||||||||||||||||||
| Debt instruments: | ||||||||||||||||||
| Mortgage-backed securities: | ||||||||||||||||||
| U.S. GSEs and government agencies | 759 | 4 | 249 | (133) | (107) | — | (14) | 758 | 1 | |||||||||
| Residential – nonagency | 5 | 6 | — | (6) | (1) | 1 | — | 5 | 1 | |||||||||
| Commercial – nonagency | 7 | 6 | — | — | (1) | 8 | (8) | 12 | 7 | |||||||||
| Total mortgage-backed securities | 771 | 16 | 249 | (139) | (109) | 9 | (22) | 775 | 9 | |||||||||
| Obligations of U.S. states and municipalities | 7 | — | 1 | — | (1) | 3 | — | 10 | — | |||||||||
| Non-U.S. government debt securities | 155 | 74 | 217 | (254) | — | 22 | (35) | 179 | 74 | |||||||||
| Corporate debt securities | 463 | 36 | 322 | (172) | (41) | 114 | (238) | 484 | 35 | |||||||||
| Loans | 759 | (15) | 1,027 | (499) | (441) | 382 | (529) | 684 | 30 | |||||||||
| Asset-backed securities | 23 | — | 7 | (12) | (1) | 5 | (16) | 6 | — | |||||||||
| Total debt instruments | 2,178 | 111 | 1,823 | (1,076) | (593) | 535 | (840) | 2,138 | 148 | |||||||||
| Equity securities | 665 | (53) | 164 | (239) | (384) | 192 | (218) | 127 | (422) | |||||||||
| Physical commodities | 2 | — | 7 | — | (2) | — | — | 7 | — | |||||||||
| Other | 64 | (58) | 141 | — | (5) | 1 | (42) | 101 | (28) | |||||||||
| Total trading assets – debt and equity instruments | 2,909 | — | 2,135 | (1,315) | (984) | 728 | (1,100) | 2,373 | (302)(c) | |||||||||
| Net derivative receivables:(b) | ||||||||||||||||||
| Interest rate | 701 | 556 | 251 | (255) | 654 | (1,117) | (288) | 502 | 419 | |||||||||
| Credit | 13 | 304 | (60) | (25) | 47 | 15 | (29) | 265 | 230 | |||||||||
| Foreign exchange | 489 | 31 | 151 | (144) | (187) | 144 | (422) | 62 | (80) | |||||||||
| Equity | (384) | 191 | 928 | (1,931) | (1,306) | 700 | (600) | (2,402) | (646) | |||||||||
| Commodity | (146) | (59) | 59 | (290) | (51) | (11) | 219 | (279) | (144) | |||||||||
| Total net derivative receivables | 673 | 1,023(c) | 1,329 | (2,645) | (843) | (269) | (1,120) | (1,852) | (221)(c) | |||||||||
| Available-for-sale securities: | ||||||||||||||||||
| Corporate debt securities | 239 | 24 | — | (225) | — | — | (38) | — | — | |||||||||
| Total available-for-sale securities | 239 | 24(d) | — | (225) | — | — | (38) | — | — | |||||||||
| Loans | 1,418 | 289(c) | 2,398 | (120) | (1,147) | 1,306 | (1,065) | 3,079 | 293(c) | |||||||||
| Mortgage servicing rights | 7,973 | 467(e) | 1,281 | (188) | (1,011) | — | — | 8,522 | 467(e) | |||||||||
| Other assets | 405 | (36)(c) | 525 | (20) | (147) | 45 | (14) | 758 | (82)(c) | |||||||||
| Fair value measurements using significant unobservable inputs | ||||||||||||||||||
| Year endedDecember 31, 2023(in millions) | Fair value at January 1, 2023 | Total realized/unrealized (gains)/losses | Transfers (out of) level 3 | Fair value at Dec. 31, 2023 | Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2023 | |||||||||||||
| Purchases | Sales | Issuances | Settlements(h) | Transfers into level 3 | ||||||||||||||
| Liabilities:(a) | ||||||||||||||||||
| Deposits | $2,162 | $95(c)(f) | $— | $— | $940 | $(1,043) | $— | $(321) | $1,833 | $73(c)(f) | ||||||||
| Short-term borrowings | 1,401 | 201(c)(f) | — | — | 4,522 | (4,345) | 3 | (24) | 1,758 | 14(c)(f) | ||||||||
| Trading liabilities – debt and equity instruments | 84 | (21)(c) | (32) | 9 | — | (2) | 19 | (20) | 37 | — | ||||||||
| Accounts payable and other liabilities | 53 | (4)(c) | (16) | 24 | — | — | 8 | (13) | 52 | (4)(c) | ||||||||
| Long-term debt | 24,092 | 3,010(c)(f) | — | — | 12,679 | (11,555) | 229 | (729) | 27,726 | 2,870(c)(f) | ||||||||
| Fair value measurements using significant unobservable inputs | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year endedDecember 31, 2022(in millions) · Fair value at January 1, 2022 · Total realized/unrealized gains/(losses) · Transfers (out of) level 3 · Fair value at Dec. 31, 2022 · Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2022 | ||||||||||||||||||
| Purchases(g) · Sales · Settlements(h) · Transfers into level 3 | ||||||||||||||||||
| Assets:(a) | ||||||||||||||||||
| Federal funds sold and securities purchased under resale agreements | $— | $— | $1 | $(1) | $(1) | $1 | $— | $— | $— | |||||||||
| Trading assets: | ||||||||||||||||||
| Debt instruments: | ||||||||||||||||||
| Mortgage-backed securities: | ||||||||||||||||||
| U.S. GSEs and government agencies | 265 | 31 | 673 | (125) | (84) | 4 | (5) | 759 | 29 | |||||||||
| Residential – nonagency | 28 | (1) | 7 | (5) | (12) | — | (12) | 5 | — | |||||||||
| Commercial – nonagency | 10 | — | — | (1) | — | 3 | (5) | 7 | — | |||||||||
| Total mortgage-backed securities | 303 | 30 | 680 | (131) | (96) | 7 | (22) | 771 | 29 | |||||||||
| Obligations of U.S. states and municipalities | 7 | — | — | — | — | — | — | 7 | — | |||||||||
| Non-U.S. government debt securities | 81 | (92) | 494 | (338) | (4) | 84 | (70) | 155 | (153) | |||||||||
| Corporate debt securities | 332 | (30) | 404 | (178) | (100) | 357 | (322) | 463 | (48) | |||||||||
| Loans | 708 | (51) | 652 | (605) | (230) | 925 | (640) | 759 | (26) | |||||||||
| Asset-backed securities | 26 | 5 | 19 | (24) | (1) | 5 | (7) | 23 | 1 | |||||||||
| Total debt instruments | 1,457 | (138) | 2,249 | (1,276) | (431) | 1,378 | (1,061) | 2,178 | (197) | |||||||||
| Equity securities | 662 | (1,036) | 473 | (377) | (2) | 1,066 | (121) | 665 | (840) | |||||||||
| Physical commodities | — | (1) | 3 | — | — | — | — | 2 | (1) | |||||||||
| Other | 160 | 93 | 37 | — | (221) | 1 | (6) | 64 | 46 | |||||||||
| Total trading assets – debt and equity instruments | 2,279 | (1,082)(c) | 2,762 | (1,653) | (654) | 2,445 | (1,188) | 2,909 | (992)(c) | |||||||||
| Net derivative receivables:(b) | ||||||||||||||||||
| Interest rate | (16) | 187 | 325 | (483) | 329 | 732 | (373) | 701 | 332 | |||||||||
| Credit | 74 | 226 | 17 | (9) | (271) | 5 | (29) | 13 | 170 | |||||||||
| Foreign exchange | (419) | 726 | 215 | (114) | 83 | 3 | (5) | 489 | 459 | |||||||||
| Equity | (3,626) | 5,016 | 1,226 | (2,530) | 96 | (656) | 90 | (384) | 3,435 | |||||||||
| Commodity | (907) | 571 | 110 | (331) | 350 | 5 | 56 | (146) | 369 | |||||||||
| Total net derivative receivables | (4,894) | 6,726(c) | 1,893 | (3,467) | 587 | 89 | (261) | 673 | 4,765(c) | |||||||||
| Available-for-sale securities: | ||||||||||||||||||
| Corporate debt securities | 161 | 5 | 88 | — | (15) | — | — | 239 | 5 | |||||||||
| Total available-for-sale securities | 161 | 5(d) | 88 | — | (15) | — | — | 239 | 5(d) | |||||||||
| Loans | 1,933 | (158)(c) | 568 | (261) | (886) | 1,053 | (831) | 1,418 | (76)(c) | |||||||||
| Mortgage servicing rights | 5,494 | 2,039(e) | 2,198 | (822) | (936) | — | — | 7,973 | 2,039(e) | |||||||||
| Other assets | 306 | 194(c) | 50 | (38) | (103) | 2 | (6) | 405 | 191(c) | |||||||||
| Fair value measurements using significant unobservable inputs | ||||||||||||||||||
| Year endedDecember 31, 2022(in millions) | Fair value at January 1, 2022 | Total realized/unrealized (gains)/losses | Transfers (out of) level 3 | Fair value at Dec. 31, 2022 | Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2022 | |||||||||||||
| Purchases | Sales | Issuances | Settlements(h) | Transfers into level 3 | ||||||||||||||
| Liabilities:(a) | ||||||||||||||||||
| Deposits | $2,317 | $(292)(c)(f) | $— | $— | $531 | $(114) | $— | $(280) | $2,162 | $(76)(c)(f) | ||||||||
| Short-term borrowings | 2,481 | (358)(c)(f) | — | — | 3,963 | (4,685) | 15 | (15) | 1,401 | 90(c)(f) | ||||||||
| Trading liabilities – debt and equity instruments | 30 | (31)(c) | (41) | 77 | — | — | 57 | (8) | 84 | 101(c) | ||||||||
| Accounts payable and other liabilities | 69 | (16)(c) | (37) | 42 | — | — | 1 | (6) | 53 | (16)(c) | ||||||||
| Long-term debt | 24,374 | (3,869)(c)(f) | — | — | 12,714 | (8,876) | 793 | (1,044) | 24,092 | (3,447)(c)(f) | ||||||||
| Fair value measurements using significant unobservable inputs | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Year endedDecember 31, 2021(in millions) · Fair value at January 1, 2021 · Total realized/unrealized gains/(losses) · Transfers (out of) level 3 · Fair value atDec. 31, 2021 · Change in unrealized gains/(losses) related to financial instruments held at Dec. 31, 2021 | |||||||||||||||||||
| Purchases(g) · Sales · Settlements(h) · Transfers into level 3 | |||||||||||||||||||
| Assets:(a) | |||||||||||||||||||
| Federal funds sold and securities purchased under resale agreements | $— | $— | $— | $— | $— | $— | $— | $— | $— | ||||||||||
| Trading assets: | |||||||||||||||||||
| Debt instruments: | |||||||||||||||||||
| Mortgage-backed securities: | |||||||||||||||||||
| U.S. GSEs and government agencies | 449 | (28) | 21 | (67) | (110) | 1 | (1) | 265 | (31) | ||||||||||
| Residential – nonagency | 28 | — | 26 | (24) | (5) | 4 | (1) | 28 | (3) | ||||||||||
| Commercial – nonagency | 3 | 5 | 12 | (7) | (17) | 14 | — | 10 | (2) | ||||||||||
| Total mortgage-backed securities | 480 | (23) | 59 | (98) | (132) | 19 | (2) | 303 | (36) | ||||||||||
| Obligations of U.S. states and municipalities | 8 | — | — | — | (1) | — | — | 7 | — | ||||||||||
| Non-U.S. government debt securities | 182 | (14) | 359 | (332) | (7) | — | (107) | 81 | (10) | ||||||||||
| Corporate debt securities | 507 | (23) | 404 | (489) | (4) | 162 | (225) | 332 | (16) | ||||||||||
| Loans | 893 | 2 | 994 | (669) | (287) | 648 | (873) | 708 | (20) | ||||||||||
| Asset-backed securities | 28 | 28 | 76 | (99) | (2) | 2 | (7) | 26 | (2) | ||||||||||
| Total debt instruments | 2,098 | (30) | 1,892 | (1,687) | (433) | 831 | (1,214) | 1,457 | (84) | ||||||||||
| Equity securities | 476 | (77) | 378 | (168) | — | 164 | (111) | 662 | (335) | ||||||||||
| Physical commodities | — | — | — | — | — | — | — | — | — | ||||||||||
| Other | 49 | 74 | 233 | — | (98) | 5 | (103) | 160 | 31 | ||||||||||
| Total trading assets – debt and equity instruments | 2,623 | (33)(c) | 2,503 | (1,855) | (531) | 1,000 | (1,428) | 2,279 | (388)(c) | ||||||||||
| Net derivative receivables:(b) | |||||||||||||||||||
| Interest rate | 258 | 1,789 | 116 | (192) | (2,011) | 112 | (88) | (16) | 282 | ||||||||||
| Credit | (224) | 130 | 6 | (12) | 146 | 34 | (6) | 74 | 141 | ||||||||||
| Foreign exchange | (434) | (209) | 110 | (110) | 222 | (12) | 14 | (419) | 13 | ||||||||||
| Equity | (3,862) | (480) | 1,285 | (2,813) | 1,758 | 315 | 171 | (3,626) | (155) | ||||||||||
| Commodity | (731) | (728) | 145 | (493) | 916 | (4) | (12) | (907) | (426) | ||||||||||
| Total net derivative receivables | (4,993) | 502(c) | 1,662 | (3,620) | 1,031 | 445 | 79 | (4,894) | (145)(c) | ||||||||||
| Available-for-sale securities: | |||||||||||||||||||
| Corporate debt securities | — | (1) | 162 | — | — | — | — | 161 | (1) | ||||||||||
| Total available-for-sale securities | — | (1)(d) | 162 | — | — | — | — | 161 | (1)(d) | ||||||||||
| Loans | 2,305 | (87)(c) | 612 | (439) | (965) | 1,301 | (794) | 1,933 | (59)(c) | ||||||||||
| Mortgage servicing rights | 3,276 | 98(e) | 3,022 | (114) | (788) | — | — | 5,494 | 98(e) | ||||||||||
| Other assets | 538 | 16(c) | 9 | (17) | (239) | — | (1) | 306 | 11(c) | ||||||||||
| Fair value measurements using significant unobservable inputs | |||||||||||||||||||
| Year endedDecember 31, 2021(in millions) | Fair value at January 1, 2021 | Total realized/unrealized (gains)/losses | Transfers into level 3 | Transfers (out of) level 3 | Fair value atDec. 31, 2021 | Change in unrealized (gains)/losses related to financial instruments held at Dec. 31, 2021 | |||||||||||||
| Purchases | Sales | Issuances | Settlements(h) | ||||||||||||||||
| Liabilities:(a) | |||||||||||||||||||
| Deposits | $2,913 | $(80)(c)(f) | $— | $— | $431 | $(467) | $2 | $(482) | $2,317 | $(77)(c)(f) | |||||||||
| Short-term borrowings | 2,420 | (1,391)(c)(f) | — | — | 6,823 | (5,308) | 9 | (72) | 2,481 | (83)(c)(f) | |||||||||
| Trading liabilities – debt and equity instruments | 51 | (8)(c) | (101) | 38 | — | — | 64 | (14) | 30 | (157)(c) | |||||||||
| Accounts payable and other liabilities | 68 | 8(c) | — | 1 | — | — | — | (8) | 69 | 8(c) | |||||||||
| Long-term debt | 23,397 | 369(c)(f) | — | — | 13,505 | (12,191) | 103 | (809) | 24,374 | 87(c)(f) | |||||||||
(a)Level 3 assets at fair value as a percentage of total Firm assets at fair value (including assets measured at fair value on a nonrecurring basis) were 2% at December 31, 2023, 2022 and 2021. Level 3 liabilities at fair value as a percentage of total Firm liabilities at fair value (including liabilities measured at fair value on a nonrecurring basis) were 8% at both December 31, 2023 and December 31, 2022 and 10% at December 31, 2021.
(b)All level 3 derivatives are presented on a net basis, irrespective of the underlying counterparty.
(c)Predominantly reported in principal transactions revenue, except for changes in fair value for CCB mortgage loans and lending-related commitments originated with the intent to sell, and mortgage loan purchase commitments, which are reported in mortgage fees and related income.
(d)Realized gains/(losses) on AFS securities are reported in investment securities gains/(losses). Unrealized gains/(losses) are reported in OCI. Realized and unrealized gains/(losses) recorded on level 3 AFS securities were not material for the years ended December 31, 2023, 2022 and 2021.
(e)Changes in fair value for MSRs are reported in mortgage fees and related income.
(f)Realized (gains)/losses due to DVA for fair value option elected liabilities are reported in principal transactions revenue, and were not material for the years ended December 31, 2023, 2022 and 2021. Unrealized (gains)/losses are reported in OCI, and were $(158) million, $(529) million and $258 million for the years ended December 31, 2023, 2022 and 2021, respectively.
(g)Loan originations are included in purchases.
(h)Includes financial assets and liabilities that have matured, been partially or fully repaid, impacts of modifications, deconsolidations associated with beneficial interests in VIEs and other items.
Level 3 analysis
Consolidated balance sheets changes
The following describes significant changes to level 3 assets since December 31, 2022, for those items measured at fair value on a recurring basis. Refer to Assets and liabilities measured at fair value on a nonrecurring basis on page 193 for further information on changes impacting items measured at fair value on a nonrecurring basis.
For the year ended December 31, 2023
Level 3 assets were $23.7 billion at December 31, 2023, reflecting an increase of $30 million from December 31, 2022.
The increase for the year ended December 31, 2023 was driven by:
$1.7 billion increase in non-trading loans largely due to $1.1 billion of loans in CIB associated with First Republic.
$549 million increase in MSRs,
predominantly offset by:
$1.8 billion decrease in gross derivative receivables due to settlements and net transfers largely offset by gains and purchases.
Refer to Note 15 for information on MSRs.
Refer to the sections below for additional information.
Transfers between levels for instruments carried at
fair value on a recurring basis
During the year ended December 31, 2023, significant transfers from level 2 into level 3 included the following:
$951 million of gross interest rate derivative receivables as a result of a decrease in observability and an increase in the significance of unobservable inputs and $2.1 billion of gross interest rate derivative payables as a result of transition to term SOFR for certain interest rate options.
$1.5 billion of gross equity derivative receivables and $829 million of gross equity derivative payables as a result of a decrease in observability and an increase in the significance of unobservable inputs.
$1.3 billion of non-trading loans driven by a decrease in observability.
During the year ended December 31, 2023, significant transfers from level 3 into level 2 included the following:
$1.1 billion of total debt and equity instruments, partially due to trading loans, driven by an increase in observability.
$921 million of gross interest rate derivative receivables as a result of an increase in observability and a decrease in the significance of unobservable inputs.
$2.3 billion of gross equity derivative receivables and $1.7 billion of gross equity derivative payables as a result of an increase in observability and a decrease in the significance of unobservable inputs.
$1.1 billion of non-trading loans as a result of an increase in observability and a decrease in the significance of unobservable inputs.
During the year ended December 31, 2022, significant transfers from level 2 into level 3 included the following:
$2.4 billion of total debt and equity instruments, predominantly due to equity securities of $1.1 billion driven by a decrease in observability predominantly as a result of restricted access to certain markets and trading loans of $925 million driven by a decrease in observability.
$1.6 billion of gross interest rate derivative receivables and $878 million of gross interest rate derivative payables as a result of a decrease in observability and an increase in the significance of unobservable inputs.
$1.6 billion of gross equity derivative receivables and $2.3 billion of gross equity derivative payables as a result of a decrease in observability and an increase in the significance of unobservable inputs.
$1.1 billion of non-trading loans driven by a decrease in observability.
$793 million of long-term debt driven by a decrease in observability and an increase in the significance of unobservable inputs for structured notes.
During the year ended December 31, 2022, significant transfers from level 3 into level 2 included the following:
$1.2 billion of total debt and equity instruments, largely due to trading loans, driven by an increase in observability.
$1.2 billion of gross interest rate derivative receivables and $807 million of gross interest rate derivative payables as a result of an increase in observability and a decrease in the significance of unobservable inputs.
$2.2 billion of gross equity derivative receivables and $2.3 billion of gross equity derivative payables as a result of an increase in observability and a decrease in the significance of unobservable inputs.
$831 million of non-trading loans driven by an increase in observability.
$1.0 billion of long-term debt driven by an increase in observability and a decrease in the significance of unobservable inputs for structured notes.
During the year ended December 31, 2021, significant transfers from level 2 into level 3 included the following:
$1.0 billion of total debt and equity instruments, largely due to trading loans, driven by a decrease in observability.
$1.5 billion of gross equity derivative receivables and $1.2 billion of gross equity derivative payables as a result of a decrease in observability and an increase in the significance of unobservable inputs.
$1.3 billion of non-trading loans driven by a decrease in observability.
During the year ended December 31, 2021, significant transfers from level 3 into level 2 included the following:
$1.4 billion of total debt and equity instruments, largely due to trading loans, driven by an increase in observability.
$1.9 billion of gross equity derivative receivables and $2.1 billion of gross equity derivative payables as a result of an increase in observability and a decrease in the significance of unobservable inputs.
$794 million of non-trading loans driven by an increase in observability.
$809 million of long-term debt driven by an increase in observability and a decrease in the significance of unobservable inputs for structured notes.
All transfers are based on changes in the observability and/or significance of the valuation inputs and are assumed to occur at the beginning of the quarterly reporting period in which they occur.
Gains and losses
The following describes significant components of total realized/unrealized gains/(losses) for instruments measured at fair value on a recurring basis for the years ended December 31, 2023, 2022 and 2021. These amounts exclude any effects of the Firm’s risk management activities where the financial instruments are classified as level 1 and 2 of the fair value hierarchy. Refer to Changes in level 3 recurring fair value measurements rollforward tables on pages 186–190 for further information on these instruments.
$1.8 billion of net gains on assets, largely driven by gains in net interest rate derivative receivables due to market movements and gains in MSRs reflecting lower prepayment speeds on higher rates.
$3.3 billion of net losses on liabilities, predominantly driven by losses in long-term debt due to market movements.
$7.7 billion of net gains on assets, predominantly driven by gains in net equity derivative receivables due to market movements and gains in MSRs reflecting lower prepayment speeds on higher rates.
$4.6 billion of net gains on liabilities, predominantly driven by a decline in the fair value of long-term debt due to market movements.
$495 million of net gains on assets, driven by gains in net interest rate derivative receivables due to market movements, partially offset by losses in net equity derivative receivables and net commodity derivative receivables due to market movements.
$1.1 billion of net gains on liabilities, driven by gains in short-term borrowings due to market movements.
Refer to Note 15 for information on MSRs.
Credit and funding adjustments – derivatives
Derivatives are generally valued using models that use as their basis observable market parameters. These market parameters generally do not consider factors such as counterparty nonperformance risk, the Firm’s own credit quality, and funding costs. Therefore, it is generally necessary to make adjustments to the base estimate of fair value to reflect these factors.
CVA represents the adjustment, relative to the relevant benchmark interest rate, necessary to reflect counterparty nonperformance risk. The Firm estimates CVA using a scenario analysis to estimate the expected positive credit exposure across all of the Firm’s existing positions with each counterparty, and then estimates losses based on the probability of default and estimated recovery rate as a result of a counterparty credit event considering contractual factors designed to mitigate the Firm’s credit exposure, such as collateral and legal rights of offset. The key inputs to this methodology are (i) the probability of a default event occurring for each counterparty, as derived from observed or estimated CDS spreads; and (ii) estimated recovery rates implied by CDS spreads, adjusted to consider the differences in recovery rates as a derivative creditor relative to those reflected in CDS spreads, which generally reflect senior unsecured creditor risk.
FVA represents the adjustment to reflect the impact of funding and is recognized where there is evidence that a market participant in the principal market would incorporate it in a transfer of the instrument. The Firm’s FVA framework, applied to uncollateralized (including partially collateralized) over-the-counter (“OTC”) derivatives incorporates key inputs such as: (i) the expected funding requirements arising from the Firm’s positions with
each counterparty and collateral arrangements; and (ii) the estimated market funding cost in the principal market which, for derivative liabilities, considers the Firm’s credit risk (DVA). For collateralized derivatives, the fair value is estimated by discounting expected future cash flows at the relevant overnight indexed swap rate given the underlying collateral agreement with the counterparty, and therefore a separate FVA is not necessary.
The following table provides the impact of credit and funding adjustments on principal transactions revenue in the respective periods, excluding the effect of any associated hedging activities. The FVA presented below includes the impact of the Firm’s own credit quality on the inception value of liabilities as well as the impact of changes in the Firm’s own credit quality over time.
| Year ended December 31, (in millions) | 2023 | 2022 | 2021 |
|---|---|---|---|
| Credit and funding adjustments: | |||
| Derivatives CVA | $221 | $22 | $362 |
| Derivatives FVA | 114 | 42 | 47 |
Valuation adjustments on fair value option elected liabilities
The valuation of the Firm’s liabilities for which the fair value option has been elected requires consideration of the Firm’s own credit risk. DVA on fair value option elected liabilities reflects changes (subsequent to the issuance of the liability) in the Firm’s probability of default and LGD, which are estimated based on changes in the Firm’s credit spread observed in the bond market. Realized (gains)/losses due to DVA for fair value option elected liabilities are reported in principal transactions revenue. Unrealized (gains)/losses are reported in OCI. Refer to page 190 in this Note and Note 24 for further information.
Assets and liabilities measured at fair value on a nonrecurring basis
The following tables present the assets and liabilities held as of December 31, 2023 and 2022, for which nonrecurring fair value adjustments were recorded during the years ended December 31, 2023 and 2022, by major product category and fair value hierarchy.
| December 31, 2023(in millions) · Fair value hierarchy · Total fair value | ||||
|---|---|---|---|---|
| Level 1 · Level 2 · Level 3 | ||||
| Loans | $— | $599 | $1,156 | $1,755 |
| Other assets(a) | — | 52 | 1,334 | 1,386 |
| Total assets measured at fair value on a nonrecurring basis | $— | $651 | $2,490 | $3,141 |
| Accounts payable and other liabilities | — | — | — | — |
| Total liabilities measured at fair value on a nonrecurring basis | $— | $— | $— | $— |
| December 31, 2022(in millions) · Fair value hierarchy · Total fair value | ||||
|---|---|---|---|---|
| Level 1 · Level 2 · Level 3 | ||||
| Loans | $— | $643 | $627 | $1,270 |
| Other assets | — | 36 | 1,352 | 1,388 |
| Total assets measured at fair value on a nonrecurring basis | $— | $679 | $1,979 | $2,658 |
| Accounts payable and other liabilities | — | — | 84 | 84 |
| Total liabilities measured at fair value on a nonrecurring basis | $— | $— | $84 | $84 |
(a) Included impairments on certain equity method investments, as well as equity securities without readily determinable fair values that were adjusted based on observable price changes in orderly transactions from an identical or similar investment of the same issuer (measurement alternative). Of the $1.3 billion in level 3 assets measured at fair value on a nonrecurring basis as of December 31, 2023, $412 million related to equity securities adjusted based on the measurement alternative. These equity securities are classified as level 3 due to the infrequency of the observable prices and/or the restrictions on the shares.
Nonrecurring fair value changes
The following table presents the total change in value of assets and liabilities for which fair value adjustments have been recognized for the years ended December 31, 2023, 2022 and 2021, related to assets and liabilities held at those dates.
| December 31, (in millions) | 2023 | 2022 | 2021 |
|---|---|---|---|
| Loans | $(276) | $(55) | $(72) |
| Other assets(a) | (789) | (409) | 344 |
| Accounts payable and other liabilities | — | (83) | 5 |
| Total nonrecurring fair value gains/(losses) | $(1,065) | $(547) | $277 |
(a)Included $(232) million, $(338) million and $379 million for the years ended December 31, 2023, 2022 and 2021, respectively, of net gains/(losses) as a result of the measurement alternative. The current period also included impairments on certain equity method investments.
Refer to Note 12 for further information about the measurement of collateral-dependent loans.
Equity securities without readily determinable fair values
The Firm measures certain equity securities without readily determinable fair values at cost less impairment (if any), plus or minus observable price changes from an identical or similar investment of the same issuer (i.e., measurement alternative), with such changes recognized in other income.
In its determination of the new carrying values upon observable price changes, the Firm may adjust the prices if deemed necessary to arrive at the Firm’s estimated fair values. Such adjustments may include adjustments to reflect the different rights and obligations of similar securities, and other adjustments that are consistent with the Firm’s valuation techniques for private equity direct investments.
The following table presents the carrying value of equity securities without readily determinable fair values held as of December 31, 2023 and 2022, that are measured under the measurement alternative and the related adjustments recorded during the periods presented for those securities with observable price changes. These securities are included in the nonrecurring fair value tables when applicable price changes are observable.
| As of or for the year ended December 31, | ||
|---|---|---|
| (in millions) | 2023 | 2022 |
| Other assets | ||
| Carrying value(a) | $4,457 | $4,096 |
| Upward carrying value changes(b) | 93 | 488 |
| Downward carrying value changes/impairment(c) | (325) | (826) |
(a)The period-end carrying values reflect cumulative purchases and sales in addition to upward and downward carrying value changes.
(b)The cumulative upward carrying value changes between January 1, 2018 and December 31, 2023 were $1.2 billion.
(c)The cumulative downward carrying value changes/impairment between January 1, 2018 and December 31, 2023 were $(1.2) billion.
Included in other assets above is the Firm’s interest in approximately 37 million Visa Class B common shares (“Visa B shares”). These shares are subject to certain transfer restrictions and are convertible into Visa Class A common shares (“Visa A shares”) at a specified conversion rate upon final resolution of certain litigation matters involving Visa. The conversion rate of Visa B shares to Visa A shares was 1.5875 at December 31, 2023 and may be adjusted by Visa depending on developments related to the litigation matters. The outcome of those litigation matters, and the effect that the resolution of those matters may have on the conversion rate, is unknown. Accordingly, as of December 31, 2023, there is significant uncertainty regarding when the transfer restrictions on Visa B shares may be terminated and what the final conversion rate for the Visa B shares will be. As a result of these considerations, as well as differences in voting rights, Visa B shares are not considered to be similar to Visa A shares, and they continue to be held at their nominal carrying value.
In connection with prior sales of Visa B shares, the Firm has entered into derivative instruments with the purchasers of the shares under which the Firm retains the risk associated with changes in the conversion rate. Under the terms of the derivative instruments, the Firm will (a) make or receive payments based on subsequent changes in the conversion rate and (b) make periodic interest payments to the purchasers of the Visa B shares. The payments under the derivative instruments will continue as long as the Visa B shares remain subject to transfer restrictions. The derivative instruments are accounted for at fair value using a discounted cash flow methodology based upon the Firm’s estimate of the timing and magnitude of final resolution of the litigation matters. The derivative instruments are recorded in trading liabilities, and changes in fair value are recognized in other income. As of December 31, 2023, the Firm held derivative instruments associated with 23 million Visa B shares that the Firm had previously sold, which are all subject to similar terms and conditions.
On January 24, 2024, Visa filed a Current Report on Form 8-K with the SEC announcing that Visa’s stockholders approved amendments to its Certificate of Incorporation that redenominate the Visa B shares to Visa Class B-1 common shares (“Visa B-1 shares”) and authorize Visa to conduct one or more exchange offers ("the Program") which, if conducted, would have the effect of releasing transfer restrictions on a portion of Visa's B-1 shares through an exchange for Visa Class C common shares (“Visa C shares”). The Program would entitle the Firm to exchange its Visa B-1 shares, for Visa Class B-2 common shares (”Visa B-2 shares”) and Visa C shares, through an initial exchange offer if and when conducted by Visa. The Visa B-2 shares would continue to be subject to the transfer restrictions associated with the Visa B shares. The Firm is then entitled to sell the Visa C shares received after a brief lock-up period expires, and Visa is also authorized to extend offers for potential future exchanges, each enabling the release of additional Visa B shares if certain conditions are met. The timing and likelihood of any initial or future exchange offer is dependent upon actions taken by Visa and other factors that may be outside of the Firm’s control.
Additional disclosures about the fair value of financial instruments that are not carried on the Consolidated balance sheets at fair value
U.S. GAAP requires disclosure of the estimated fair value of certain financial instruments, which are included in the following table. However, this table does not include other items, such as nonfinancial assets, intangible assets, certain financial instruments, and customer relationships. In the opinion of management, these items, in the aggregate, add significant value to JPMorgan Chase.
Financial instruments for which carrying value approximates fair value
Certain financial instruments that are not carried at fair value on the Consolidated balance sheets are carried at
amounts that approximate fair value, due to their short-term nature and generally negligible credit risk. These instruments include cash and due from banks, deposits with banks, federal funds sold, securities purchased under resale agreements and securities borrowed, short-term receivables and accrued interest receivable, short-term borrowings, federal funds purchased, securities loaned and sold under repurchase agreements, accounts payable, and accrued liabilities. In addition, U.S. GAAP requires that the fair value of deposit liabilities with no stated maturity (i.e., demand, savings and certain money market deposits) be equal to their carrying value; recognition of the inherent funding value of these instruments is not permitted.
The following table presents, by fair value hierarchy classification, the carrying values and estimated fair values at December 31, 2023 and 2022, of financial assets and liabilities, excluding financial instruments that are carried at fair value on a recurring basis, and their classification within the fair value hierarchy.
| December 31, 2023 · December 31, 2022 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Estimated fair value hierarchy | Estimated fair value hierarchy | |||||||||
| (in billions) | Carrying value | Level 1 | Level 2 | Level 3 | Total estimated fair value | Carrying value | Level 1 | Level 2 | Level 3 | Total estimated fair value |
| Financial assets | ||||||||||
| Cash and due from banks | $29.1 | $29.1 | $— | $— | $29.1 | $27.7 | $27.7 | $— | $— | $27.7 |
| Deposits with banks | 595.1 | 594.6 | 0.5 | — | 595.1 | 539.5 | 539.3 | 0.2 | — | 539.5 |
| Accrued interest and accounts receivable | 107.1 | — | 107.0 | 0.1 | 107.1 | 124.7 | — | 124.6 | 0.1 | 124.7 |
| Federal funds sold and securities purchased under resale agreements | 16.3 | — | 16.3 | — | 16.3 | 3.7 | — | 3.7 | — | 3.7 |
| Securities borrowed | 130.3 | — | 130.3 | — | 130.3 | 115.3 | — | 115.3 | — | 115.3 |
| Investment securities, held-to-maturity | 369.8 | 160.6 | 182.2 | — | 342.8 | 425.3 | 189.1 | 199.5 | — | 388.6 |
| Loans, net of allowance for loan losses(a) | 1,262.5 | — | 285.6 | 964.6 | 1,250.2 | 1,073.9 | — | 194.0 | 853.9 | 1,047.9 |
| Other | 76.1 | — | 74.9 | 1.4 | 76.3 | 101.2 | — | 99.6 | 1.7 | 101.3 |
| Financial liabilities | ||||||||||
| Deposits | $2,322.3 | $— | $2,322.6 | $— | $2,322.6 | $2,311.6 | $— | $2,311.5 | $— | $2,311.5 |
| Federal funds purchased and securities loaned or sold under repurchase agreements | 47.5 | — | 47.5 | — | 47.5 | 50.6 | — | 50.6 | — | 50.6 |
| Short-term borrowings(b) | 24.7 | — | 24.7 | — | 24.7 | 28.2 | — | 28.2 | — | 28.2 |
| Accounts payable and other liabilities | 241.8 | — | 233.3 | 8.1 | 241.4 | 257.5 | — | 251.2 | 5.6 | 256.8 |
| Beneficial interests issued by consolidated VIEs | 23.0 | — | 23.0 | — | 23.0 | 12.6 | — | 12.6 | — | 12.6 |
| Long-term debt(b) | 303.9 | — | 252.2 | 51.3 | 303.5 | 223.6 | — | 216.5 | 2.8 | 219.3 |
(a)Fair value is typically estimated using a discounted cash flow model that incorporates the characteristics of the underlying loans (including principal, contractual interest rate and contractual fees) and other key inputs, including expected lifetime credit losses, interest rates, prepayment rates, and primary origination or secondary market spreads. For certain loans, the fair value is measured based on the value of the underlying collateral. Carrying value of the loan takes into account the loan’s allowance for loan losses, which represents the loan’s expected credit losses over its remaining expected life. The difference between the estimated fair value and carrying value of a loan is generally attributable to changes in market interest rates, including credit spreads, market liquidity premiums and other factors that affect the fair value of a loan but do not affect its carrying value.
(b)Includes FHLB advances in level 2 of Long-term debt and Short-term borrowings and the Purchase Money Note in level 3 of Long-term debt associated with First Republic. Refer to Notes 20 and 34 for additional information.
The majority of the Firm’s lending-related commitments are not carried at fair value on a recurring basis on the Consolidated balance sheets. The carrying value and the estimated fair value of these wholesale lending-related commitments were as follows for the periods indicated.
| December 31, 2023 · December 31, 2022 | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Estimated fair value hierarchy · Estimated fair value hierarchy | ||||||||||
| (in billions) | Carrying value(a)(b)(c) | Level 1 | Level 2 | Level 3 | Total estimated fair value | Carrying value(a)(b) | Level 1 | Level 2 | Level 3 | Total estimated fair value |
| Wholesale lending-related commitments | $3.0 | $— | $— | $4.8 | $4.8 | $2.3 | $— | $— | $3.2 | $3.2 |
(a)Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which is recognized at fair value at the inception of the guarantees.
(b)Includes the wholesale allowance for lending-related commitments.
(c)As of December 31, 2023, includes fair value adjustments associated with First Republic for other unfunded commitments to extend credit totaling $1.1 billion recorded in accounts payable and other liabilities on the Consolidated balance sheets. Refer to Notes 28 and 34 for additional information.
The Firm does not estimate the fair value of consumer off-balance sheet lending-related commitments. In many cases, the Firm can reduce or cancel these commitments by providing the borrower notice or, in some cases as permitted by law, without notice. Refer to page 177 of this Note for a further discussion of the valuation of lending-related commitments.
Note 3 –Fair value option
The fair value option provides an option to elect fair value for selected financial assets, financial liabilities, unrecognized firm commitments, and written loan commitments.
The Firm has elected to measure certain instruments at fair value for several reasons including to mitigate income statement volatility caused by the differences between the measurement basis of elected instruments (e.g., certain instruments that otherwise would be accounted for on an accrual basis) and the associated risk management arrangements that are accounted for on a fair value basis, as well as to better reflect those instruments that are managed on a fair value basis.
The Firm’s election of fair value includes the following instruments:
Loans purchased or originated as part of securitization warehousing activity, subject to bifurcation accounting, or managed on a fair value basis, including lending-related commitments
Certain securities financing agreements
Owned beneficial interests in securitized financial assets that contain embedded credit derivatives, which would otherwise be required to be separately accounted for as a derivative instrument
Structured notes and other hybrid instruments, which are predominantly financial instruments that contain embedded derivatives, that are issued or transacted as part of client-driven activities
Certain long-term beneficial interests issued by CIB’s consolidated securitization trusts where the underlying assets are carried at fair value
Changes in fair value under the fair value option election
The following table presents the changes in fair value included in the Consolidated statements of income for the years ended December 31, 2023, 2022 and 2021, for items for which the fair value option was elected. The profit and loss information presented below only includes the financial instruments that were elected to be measured at fair value; related risk management instruments, which are required to be measured at fair value, are not included in the table.
| 2023 | 2022 | 2021 | |||||||
|---|---|---|---|---|---|---|---|---|---|
| December 31, (in millions) | Principal transactions | All other income | Total changes in fair value recorded(e) | Principal transactions | All other income | Total changes in fair value recorded(e) | Principal transactions | All other income | Total changes in fair value recorded(e) |
| Federal funds sold and securities purchased under resale agreements | $300 | $— | $300 | $(384) | $— | $(384) | $(112) | $— | $(112) |
| Securities borrowed | 164 | — | 164 | (499) | — | (499) | (200) | — | (200) |
| Trading assets: | |||||||||
| Debt and equity instruments, excluding loans | 3,656 | — | 3,656 | (1,703) | — | (1,703) | (2,171) | (1)(c) | (2,172) |
| Loans reported as trading assets: | |||||||||
| Changes in instrument-specific credit risk | 248 | — | 248 | (136) | — | (136) | 353 | — | 353 |
| Other changes in fair value | 3 | 5(c) | 8 | (59) | — | (59) | (8) | — | (8) |
| Loans: | |||||||||
| Changes in instrument-specific credit risk | 322 | (4)(c) | 318 | (242) | 21(c) | (221) | 589 | (7)(c) | 582 |
| Other changes in fair value | 427 | 216(c) | 643 | (1,421) | (794)(c) | (2,215) | (139) | 2,056(c) | 1,917 |
| Other assets | 282 | (4)(d) | 278 | 39 | (6)(d) | 33 | 12 | (26)(d) | (14) |
| Deposits(a) | (2,582) | — | (2,582) | 901 | — | 901 | (183) | — | (183) |
| Federal funds purchased and securities loaned or sold under repurchase agreements | (121) | — | (121) | 181 | — | 181 | 69 | — | 69 |
| Short-term borrowings(a) | (567) | — | (567) | 473 | — | 473 | (366) | — | (366) |
| Trading liabilities | (24) | — | (24) | 43 | — | 43 | 7 | — | 7 |
| Beneficial interests issued by consolidated VIEs | — | — | — | (1) | — | (1) | — | — | — |
| Other liabilities | (16) | — | (16) | (11) | — | (11) | (17) | — | (17) |
| Long-term debt(a)(b) | (5,875) | (78)(c)(d) | (5,953) | 8,990 | 98(c)(d) | 9,088 | (980) | 4(c)(d) | (976) |
(a)Unrealized gains/(losses) due to instrument-specific credit risk (DVA) for liabilities for which the fair value option has been elected are recorded in OCI, while realized gains/(losses) are recorded in principal transactions revenue. Realized gains/(losses) due to instrument-specific credit risk recorded in principal transactions revenue were not material for the years ended December 31, 2023, 2022 and 2021.
(b)Long-term debt measured at fair value predominantly relates to structured notes. Although the risk associated with the structured notes is actively managed, the gains/(losses) reported in this table do not include the income statement impact of the risk management instruments used to manage such risk.
(c)Reported in mortgage fees and related income.
(d)Reported in other income.
(e)Changes in fair value exclude contractual interest, which is included in interest income and interest expense for all instruments other than certain hybrid financial instruments in CIB. Refer to Note 7 for further information regarding interest income and interest expense.
Determination of instrument-specific credit risk for items for which the fair value option was elected
The following describes how the gains and losses that are attributable to changes in instrument-specific credit risk, were determined.
Loans and lending-related commitments: For floating-rate instruments, all changes in value are attributed to instrument-specific credit risk. For fixed-rate instruments, an allocation of the changes in value for the period is made between those changes in value that are interest rate-related and changes in value that are credit-related. Allocations are generally based on an analysis of borrower-specific credit spread and recovery
information, where available, or benchmarking to similar entities or industries.
Long-term debt: Changes in value attributable to instrument-specific credit risk were derived principally from observable changes in the Firm’s credit spread as observed in the bond market.
Securities financing agreements: Generally, for these types of agreements, there is a requirement that collateral be maintained with a market value equal to or in excess of the principal amount loaned; as a result, there would be no adjustment or an immaterial adjustment for instrument-specific credit risk related to these agreements.
Difference between aggregate fair value and aggregate remaining contractual principal balance outstanding
The following table reflects the difference between the aggregate fair value and the aggregate remaining contractual principal balance outstanding as of December 31, 2023 and 2022, for loans, long-term debt and long-term beneficial interests for which the fair value option has been elected.
| 2023 | 2022 | |||||
|---|---|---|---|---|---|---|
| December 31, (in millions) | Contractual principal outstanding | Fair value | Fair value over/(under) contractual principal outstanding | Contractual principal outstanding | Fair value | Fair value over/(under) contractual principal outstanding |
| Loans | ||||||
| Nonaccrual loans | ||||||
| Loans reported as trading assets | $2,987 | $588 | $(2,399) | $2,517 | $368 | $(2,149) |
| Loans | 838 | 732 | (106) | 967 | 829 | (138) |
| Subtotal | 3,825 | 1,320 | (2,505) | 3,484 | 1,197 | (2,287) |
| 90 or more days past due and government guaranteed | ||||||
| Loans(a) | 65 | 59 | (6) | 124 | 115 | (9) |
| All other performing loans(b) | ||||||
| Loans reported as trading assets | 9,547 | 7,968 | (1,579) | 7,823 | 6,135 | (1,688) |
| Loans | 38,948 | 38,060 | (888) | 42,588 | 41,135 | (1,453) |
| Subtotal | 48,495 | 46,028 | (2,467) | 50,411 | 47,270 | (3,141) |
| Total loans | $52,385 | $47,407 | $(4,978) | $54,019 | $48,582 | $(5,437) |
| Long-term debt | ||||||
| Principal-protected debt | $47,768(d) | $38,882 | $(8,886) | $41,341(d) | $31,105 | $(10,236) |
| Nonprincipal-protected debt(c) | NA | 49,042 | NA | NA | 41,176 | NA |
| Total long-term debt | NA | $87,924 | NA | NA | $72,281 | NA |
| Long-term beneficial interests | ||||||
| Nonprincipal-protected debt(c) | NA | $1 | NA | NA | $5 | NA |
| Total long-term beneficial interests | NA | $1 | NA | NA | $5 | NA |
(a)These balances are excluded from nonaccrual loans as the loans are insured and/or guaranteed by U.S. government agencies.
(b)There wereno performing loans that were ninety days or more past due as of December 31, 2023 and 2022.
(c)Remaining contractual principal is not applicable to nonprincipal-protected structured notes and long-term beneficial interests. Unlike principal-protected structured notes and long-term beneficial interests, for which the Firm is obligated to return a stated amount of principal at maturity, nonprincipal-protected structured notes and long-term beneficial interests do not obligate the Firm to return a stated amount of principal at maturity, but for structured notes to return an amount based on the performance of an underlying variable or derivative feature embedded in the note. However, investors are exposed to the credit risk of the Firm as issuer for both nonprincipal-protected and principal-protected notes.
(d)Where the Firm issues principal-protected zero-coupon or discount notes, the balance reflects the contractual principal payment at maturity or, if applicable, the contractual principal payment at the Firm’s next call date.
At December 31, 2023 and 2022, the contractual amount of lending-related commitments for which the fair value option was elected was $9.7 billion and $7.6 billion, respectively, with a corresponding fair value of $97 million and $24 million, respectively. Refer to Note 28 for further information regarding off-balance sheet lending-related financial instruments.
Structured note products by balance sheet classification and risk component
The following table presents the fair value of structured notes, by balance sheet classification and the primary risk type.
| December 31, 2023 | December 31, 2022 | |||||||
|---|---|---|---|---|---|---|---|---|
| (in millions) | Long-term debt | Short-term borrowings | Deposits | Total | Long-term debt | Short-term borrowings | Deposits | Total |
| Risk exposure | ||||||||
| Interest rate | $38,604 | $654 | $74,526 | $113,784 | $31,973 | $260 | $24,655 | $56,888 |
| Credit | 5,444 | 350 | — | 5,794 | 4,105 | 170 | — | 4,275 |
| Foreign exchange | 2,605 | 941 | 187 | 3,733 | 2,674 | 788 | 50 | 3,512 |
| Equity | 38,685 | 5,483 | 2,905 | 47,073 | 30,864 | 4,272 | 3,545 | 38,681 |
| Commodity | 1,862 | 11 | 1(a) | 1,874 | 1,655 | 16 | 2(a) | 1,673 |
| Total structured notes | $87,200 | $7,439 | $77,619 | $172,258 | $71,271 | $5,506 | $28,252 | $105,029 |
(a)Excludes deposits linked to precious metals for which the fair value option has not been elected of $627 million and $602 million for the years ended December 31, 2023 and 2022, respectively.
Note 4 –Credit risk concentrations
Concentrations of credit risk arise when a number of clients, counterparties or customers are engaged in similar business activities or activities in the same geographic region, or when they have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic conditions.
JPMorgan Chase regularly monitors various segments of its credit portfolios to assess potential credit risk concentrations and to obtain additional collateral when deemed necessary and permitted under the Firm’s agreements. Senior management is significantly involved in the credit approval and review process, and risk levels are adjusted as needed to reflect the Firm’s risk appetite.
In the Firm’s consumer portfolio, concentrations are managed primarily by product and by U.S. geographic region, with a key focus on trends and concentrations at the portfolio level, where potential credit risk concentrations can be remedied through changes in underwriting policies and portfolio guidelines. Refer to Note 12 for additional information on the geographic composition of the Firm’s consumer loan portfolios. In the wholesale portfolio, credit risk concentrations are evaluated primarily by industry and monitored regularly on both an aggregate portfolio level and on an individual client or counterparty basis.
The Firm’s wholesale exposure is managed through loan syndications and participations, loan sales, securitizations, credit derivatives, master netting agreements, collateral and other risk-reduction techniques. Refer to Note 12 for additional information on loans.
The Firm does not believe that its exposure to any particular loan product or industry segment results in a significant concentration of credit risk.
Terms of loan products and collateral coverage are included in the Firm’s assessment when extending credit and establishing its allowance for credit losses. Refer to Note 13 for additional information on the allowance for credit losses.
The table below presents both on–balance sheet and off–balance sheet consumer and wholesale credit exposure by the Firm’s three credit portfolio segments as of December 31, 2023 and 2022. The wholesale industry of risk category is generally based on the client or counterparty’s primary business activity.
| 2023 · 2022 | ||||||||
|---|---|---|---|---|---|---|---|---|
| Credit exposure(h)(i) · On-balance sheet · Off-balance sheet(k) · Credit exposure(h) · On-balance sheet · Off-balance sheet(k) | ||||||||
| December 31, (in millions) · Loans · Derivatives · Loans · Derivatives | ||||||||
| Consumer, excluding credit card | $455,496 | $410,093 | $— | $45,403 | $344,893 | $311,375(j) | $— | $33,518 |
| Credit card(a) | 1,126,781 | 211,123 | — | 915,658 | 1,006,459 | 185,175 | — | 821,284 |
| Total consumer(a) | 1,582,277 | 621,216 | — | 961,061 | 1,351,352 | 496,550 | — | 854,802 |
| Wholesale(b) | ||||||||
| Real Estate | 208,261 | 166,372 | 420 | 41,469 | 170,857 | 131,681 | 249 | 38,927 |
| Individuals and Individual Entities(c) | 145,849 | 126,339 | 725 | 18,785 | 130,815 | 120,424 | 434 | 9,957 |
| Asset Managers | 129,574 | 52,178 | 9,925 | 67,471 | 95,656 | 40,511 | 16,397 | 38,748 |
| Consumer & Retail | 127,086 | 46,274 | 2,013 | 78,799 | 120,555 | 45,867 | 1,650 | 73,038 |
| Technology, Media & Telecommunications | 77,296 | 22,450 | 2,451 | 52,395 | 72,286 | 21,622 | 2,950 | 47,714 |
| Industrials | 75,092 | 26,548 | 1,335 | 47,209 | 72,483 | 26,960 | 1,770 | 43,753 |
| Healthcare | 65,025 | 23,169 | 1,577 | 40,279 | 62,613 | 22,970 | 1,683 | 37,960 |
| Banks & Finance Companies | 57,177 | 33,941 | 2,898 | 20,338 | 51,816 | 32,172 | 3,246 | 16,398 |
| Utilities | 36,061 | 7,067 | 3,396 | 25,598 | 36,218 | 9,107 | 3,269 | 23,842 |
| State & Municipal Govt(d) | 35,986 | 20,019 | 442 | 15,525 | 33,847 | 18,147 | 585 | 15,115 |
| Oil & Gas | 34,475 | 8,480 | 705 | 25,290 | 38,668 | 9,632 | 5,121 | 23,915 |
| Automotive | 33,977 | 17,459 | 428 | 16,090 | 33,287 | 14,735 | 529 | 18,023 |
| Chemicals & Plastics | 20,773 | 6,458 | 441 | 13,874 | 20,030 | 5,771 | 407 | 13,852 |
| Insurance | 20,501 | 2,535 | 7,138 | 10,828 | 21,045 | 2,387 | 8,081 | 10,577 |
| Central Govt | 17,704 | 5,463 | 10,669 | 1,572 | 19,095 | 3,167 | 12,955 | 2,973 |
| Transportation | 16,060 | 5,080 | 555 | 10,425 | 15,009 | 5,005 | 567 | 9,437 |
| Metals & Mining | 15,508 | 4,655 | 274 | 10,579 | 15,915 | 5,398 | 475 | 10,042 |
| Securities Firms | 8,689 | 865 | 3,285 | 4,539 | 8,066 | 556 | 3,387 | 4,123 |
| Financial Markets Infrastructure | 4,251 | 86 | 2,155 | 2,010 | 4,962 | 13 | 3,050 | 1,899 |
| All other(e) | 134,777 | 97,034 | 4,032 | 33,711 | 123,307 | 87,545 | 4,075 | 31,687 |
| Subtotal | 1,264,122 | 672,472 | 54,864 | 536,786 | 1,146,530 | 603,670 | 70,880 | 471,980 |
| Loans held-for-sale and loans at fair value | 30,018 | 30,018 | — | — | 35,427 | 35,427 | — | — |
| Receivables from customers(f) | 47,625 | — | — | — | 49,257 | — | — | — |
| Total wholesale | 1,341,765 | 702,490 | 54,864 | 536,786 | 1,231,214 | 639,097 | 70,880 | 471,980 |
| Total exposure(g)(h) | $2,924,042 | $1,323,706 | $54,864 | $1,497,847 | $2,582,566 | $1,135,647 | $70,880 | $1,326,782 |
(a)Also includes commercial card lending-related commitments primarily in CB and CIB.
(b)The industry rankings presented in the table as of December 31, 2022, are based on the industry rankings of the corresponding exposures at December 31, 2023, not actual rankings of such exposures at December 31, 2022.
(c)Individuals and Individual Entities predominantly consists of Global Private Bank clients within AWM and J.P. Morgan Wealth Management within CCB, and includes exposure to personal investment companies and personal and testamentary trusts.
(d)In addition to the credit risk exposure to states and municipal governments (both U.S. and non-U.S.) at December 31, 2023 and 2022, noted above, the Firm held: $5.9 billion and $6.6 billion, respectively, of trading assets; $21.4 billion and $6.8 billion, respectively, of AFS securities; and $9.9 billion and$19.7 billion, respectively, of HTM securities, issued by U.S. state and municipal governments. Refer to Note 2 and Note 10 for further information.
(e)All other includes: SPEs and Private education and civic organizations, representing approximately 94% and 6%, respectively, at December 31, 2023 and 95% and 5%, respectively, at December 31, 2022. Refer to Note 14 for more information on exposures to SPEs.
(f)Receivables from customers reflect held-for-investment margin loans to brokerage clients in CIB, CCB and AWM that are collateralized by assets maintained in the clients’ brokerage accounts (including cash on deposit, and primarily liquid and readily marketable debt or equity securities).
(g)Excludes cash placed with banks of $614.1 billion and $556.6 billion, at December 31, 2023 and 2022, respectively, which is predominantly placed with various central banks, primarily Federal Reserve Banks.
(h)Credit exposure is net of risk participations and excludes the benefit of credit derivatives used in credit portfolio management activities held against derivative receivables or loans and liquid securities and other cash collateral held against derivative receivables.
(i)Included credit exposure associated with First Republic consisting of $102.2 billion in the Consumer, excluding credit card portfolio, and $90.6 billion in the Wholesale portfolio predominantly in Real Estate, Asset Managers, and Individuals and Individual Entities.
(j)At December 31, 2023 and 2022, included$94 million and $350 million of loans in Business Banking under the PPP, respectively. PPP loans are guaranteed by the SBA. Other than in certain limited circumstances, the Firm typically does not recognize charge-offs, classify as nonaccrual nor record an allowance for loan losses on these loans.
(k)Represents lending-related financial instruments.
Note 5 –Derivative instruments
Derivative contracts derive their value from underlying asset prices, indices, reference rates, other inputs or a combination of these factors and may expose counterparties to risks and rewards of an underlying asset or liability without having to initially invest in, own or exchange the asset or liability. JPMorgan Chase makes markets in derivatives for clients and also uses derivatives to hedge or manage its own risk exposures. Predominantly all of the Firm’s derivatives are entered into for market-making or risk management purposes.
Market-making derivatives
The majority of the Firm’s derivatives are entered into for market-making purposes. Clients use derivatives to mitigate or modify interest rate, credit, foreign exchange, equity and commodity risks. The Firm actively manages the risks from its exposure to these derivatives by entering into other derivative contracts or by purchasing or selling other financial instruments that partially or fully offset the exposure from client derivatives.
Risk management derivatives
The Firm manages certain market and credit risk exposures using derivative instruments, including derivatives in hedge accounting relationships and other derivatives that are used to manage risks associated with specified assets and liabilities.
The Firm generally uses interest rate derivatives to manage the risk associated with changes in interest rates. Fixed-rate assets and liabilities appreciate or depreciate in market value as interest rates change. Similarly, interest income and expense increase or decrease as a result of variable-rate assets and liabilities resetting to current market rates, and as a result of the repayment and subsequent origination or issuance of fixed-rate assets and liabilities at current market rates. Gains and losses on the derivative instruments related to these assets and liabilities are expected to substantially offset this variability.
Foreign currency derivatives are used to manage the foreign exchange risk associated with certain foreign currency–denominated (i.e., non-U.S. dollar) assets and liabilities and forecasted transactions, as well as the Firm’s net investments in certain non-U.S. subsidiaries or branches whose functional currencies are not the U.S. dollar. As a result of fluctuations in foreign currencies, the U.S. dollar–equivalent values of the foreign currency–denominated assets and liabilities or the forecasted revenues or expenses increase or decrease. Gains or losses on the derivative instruments related to these foreign currency–denominated assets or liabilities, or forecasted transactions, are expected to substantially offset this variability.
Commodities derivatives are used to manage the price risk of certain commodities inventories. Gains or losses on these derivative instruments are expected to substantially offset the depreciation or appreciation of the related inventory.
Credit derivatives are used to manage the counterparty credit risk associated with loans and lending-related commitments. Credit derivatives compensate the purchaser when the entity referenced in the contract experiences a credit event, such as bankruptcy or a failure to pay an obligation when due. Credit derivatives primarily consist of CDS. Refer to the Credit derivatives section on pages 214–216 of this Note for a further discussion of credit derivatives.
Refer to the risk management derivatives gains and losses table on page 214 and the hedge accounting gains and losses tables on pages 211–213 of this Note for more information about risk management derivatives.
Derivative counterparties and settlement types
The Firm enters into OTC derivatives, which are negotiated and settled bilaterally with the derivative counterparty. The Firm also enters into, as principal, certain ETD such as futures and options, and OTC-cleared derivative contracts with CCPs. ETD contracts are generally standardized contracts traded on an exchange and cleared by the CCP, which is the Firm’s counterparty from the inception of the transactions. OTC-cleared derivatives are traded on a bilateral basis and then novated to the CCP for clearing.
Derivative clearing services
The Firm provides clearing services for clients in which the Firm acts as a clearing member at certain exchanges and clearing houses. The Firm does not reflect the clients’ derivative contracts in its Consolidated Financial Statements. Refer to Note 28 for further information on the Firm’s clearing services.
Accounting for derivatives
All free-standing derivatives that the Firm executes for its own account are required to be recorded on the Consolidated balance sheets at fair value.
As permitted under U.S. GAAP, the Firm nets derivative assets and liabilities, and the related cash collateral receivables and payables, when a legally enforceable master netting agreement exists between the Firm and the derivative counterparty. Refer to Note 1 for further discussion of the offsetting of assets and liabilities. The accounting for changes in value of a derivative depends on whether or not the transaction has been designated and qualifies for hedge accounting. Derivatives that are not designated as hedges are reported and measured at fair value through earnings. The tabular disclosures on pages 207–214 of this Note provide additional information on the amount of, and reporting for, derivative assets, liabilities, gains and losses. Refer to Notes 2 and 3 for a further discussion of derivatives embedded in structured notes.
Derivatives designated as hedges
The Firm applies hedge accounting to certain derivatives executed for risk management purposes – generally interest rate, foreign exchange and commodity derivatives. However, JPMorgan Chase does not seek to apply hedge accounting to all of the derivatives associated with the Firm’s risk management activities. For example, the Firm does not apply hedge accounting to purchased CDS used to manage the credit risk of loans and lending-related commitments, because of the difficulties in qualifying such contracts as hedges. For the same reason, the Firm does not apply hedge accounting to certain interest rate, foreign exchange, and commodity derivatives used for risk management purposes.
To qualify for hedge accounting, a derivative must be highly effective at reducing the risk associated with the exposure being hedged. In addition, for a derivative to be designated as a hedge, the risk management objective and strategy must be documented. Hedge documentation must identify the derivative hedging instrument, the asset or liability or forecasted transaction and type of risk to be hedged, and how the effectiveness of the derivative is assessed prospectively and retrospectively. To assess effectiveness, the Firm uses statistical methods such as regression analysis, nonstatistical methods such as dollar-value comparisons of the change in the fair value of the derivative to the change in the fair value or cash flows of the hedged item, and qualitative comparisons of critical terms and the evaluation of any changes in those terms. The extent to which a derivative has been, and is expected to continue to be, highly effective at offsetting changes in the fair value or cash flows of the hedged item must be assessed and documented at least quarterly. If it is determined that a derivative is not highly effective at hedging the designated exposure, hedge accounting is discontinued.
There are three types of hedge accounting designations: fair value hedges, cash flow hedges and net investment hedges. JPMorgan Chase uses fair value hedges primarily to hedge fixed-rate long-term debt, AFS securities and certain commodities inventories. For qualifying fair value hedges, the changes in the fair value of the derivative, and in the value of the hedged item for the risk being hedged, are recognized in earnings. Certain amounts excluded from the assessment of effectiveness are recorded in OCI and recognized in earnings over the life of the derivative. If the hedge relationship is terminated, then the adjustment to the hedged item continues to be reported as part of the basis of the hedged item and, for interest-bearing financial instruments, is amortized to earnings as a yield adjustment. Derivative amounts affecting earnings are recognized consistent with the classification of the hedged item – primarily net interest income and principal transactions revenue.
Effective January 1, 2023, the Firm adopted the new portfolio layer method hedge accounting guidance which expanded the ability to hedge a portfolio of fixed-rate assets to allow more types of assets to be included in the portfolio, and to allow more of the portfolio to be hedged.
The Firm employs the Portfolio Layer Method to manage the interest rate risk of portfolios of fixed-rate assets. Throughout the life of the open hedge, basis adjustments are maintained at the portfolio level and are only allocated to individual assets under certain circumstances. These include instances where the portfolio amount falls below the hedged layer amounts, or in cases of voluntary de-designation.
JPMorgan Chase uses cash flow hedges primarily to hedge the exposure to variability in forecasted cash flows from floating-rate assets and liabilities and foreign currency–denominated revenue and expense. For qualifying cash flow hedges, changes in the fair value of the derivative are recorded in OCI and recognized in earnings as the hedged item affects earnings. Derivative amounts affecting earnings are recognized consistent with the classification of the hedged item – primarily noninterest revenue, net interest income and compensation expense. If the hedge relationship is terminated, then the change in value of the derivative recorded in AOCI is recognized in earnings when the cash flows that were hedged affect earnings. For hedge relationships that are discontinued because a forecasted transaction is expected to not occur according to the original hedge forecast, any related derivative values recorded in AOCI are immediately recognized in earnings.
JPMorgan Chase uses net investment hedges to protect the value of the Firm’s net investments in certain non-U.S. subsidiaries or branches whose functional currencies are not the U.S. dollar. For qualifying net investment hedges, changes in the fair value of the derivatives due to changes in spot foreign exchange rates are recorded in OCI as translation adjustments. Amounts excluded from the assessment of effectiveness are recorded directly in earnings.
The following table outlines the Firm’s primary uses of derivatives and the related hedge accounting designation or disclosure category.
| Type of Derivative | Use of Derivative | Designation and disclosure | Affected segment or unit | Page reference |
|---|---|---|---|---|
| Manage specifically identified risk exposures in qualifying hedge accounting relationships: | ||||
| •Interest rate | Hedge fixed rate assets and liabilities | Fair value hedge | Corporate | 211-212 |
| •Interest rate | Hedge floating-rate assets and liabilities | Cash flow hedge | Corporate | 213 |
| •Foreign exchange | Hedge foreign currency-denominated assets and liabilities | Fair value hedge | Corporate | 211-212 |
| •Foreign exchange | Hedge foreign currency-denominated forecasted revenue and expense | Cash flow hedge | Corporate | 213 |
| •Foreign exchange | Hedge the value of the Firm’s investments in non-U.S. dollar functional currency entities | Net investment hedge | Corporate | 213 |
| •Commodity | Hedge commodity inventory | Fair value hedge | CIB, AWM | 211-212 |
| Manage specifically identified risk exposures not designated in qualifying hedge accounting relationships: | ||||
| •Interest rate | Manage the risk associated with mortgage commitments, warehouse loans and MSRs | Specified risk management | CCB | 214 |
| •Credit | Manage the credit risk associated with wholesale lending exposures | Specified risk management | CIB, AWM | 214 |
| •Interest rate and foreign exchange | Manage the risk associated with certain other specified assets and liabilities | Specified risk management | Corporate, CIB | 214 |
| Market-making derivatives and other activities: | ||||
| •Various | Market-making and related risk management | Market-making and other | CIB | 214 |
| •Various | Other derivatives | Market-making and other | CIB, AWM, Corporate | 214 |
Notional amount of derivative contracts
The following table summarizes the notional amount of free-standing derivative contracts outstanding as of December 31, 2023 and 2022.
| Notional amounts(b) | ||
|---|---|---|
| December 31, (in billions) | 2023 | 2022 |
| Interest rate contracts | ||
| Swaps | $23,251 | $24,491 |
| Futures and forwards | 2,690 | 2,636 |
| Written options | 3,370 | 3,047 |
| Purchased options | 3,362 | 2,992 |
| Total interest rate contracts | 32,673 | 33,166 |
| Credit derivatives(a) | 1,045 | 1,132 |
| Foreign exchange contracts | ||
| Cross-currency swaps | 4,721 | 4,196 |
| Spot, futures and forwards | 6,957 | 7,017 |
| Written options | 830 | 775 |
| Purchased options | 798 | 759 |
| Total foreign exchange contracts | 13,306 | 12,747 |
| Equity contracts | ||
| Swaps | 639 | 618 |
| Futures and forwards | 157 | 110 |
| Written options | 778 | 636 |
| Purchased options | 698 | 580 |
| Total equity contracts | 2,272 | 1,944 |
| Commodity contracts | ||
| Swaps | 115 | 136 |
| Spot, futures and forwards | 157 | 136 |
| Written options | 130 | 117 |
| Purchased options | 115 | 98 |
| Total commodity contracts | 517 | 487 |
| Total derivative notional amounts | $49,813 | $49,476 |
(a)Refer to the Credit derivatives discussion on pages 214–216 for more information on volumes and types of credit derivative contracts.
(b)Represents the sum of gross long and gross short third-party notional derivative contracts.
While the notional amounts disclosed above give an indication of the volume of the Firm’s derivatives activity, the notional amounts significantly exceed, in the Firm’s view, the possible losses that could arise from such transactions. For most derivative contracts, the notional amount is not exchanged; it is simply a reference amount used to calculate payments.
Impact of derivatives on the Consolidated balance sheets
The following table summarizes information on derivative receivables and payables (before and after netting adjustments) that are reflected on the Firm’s Consolidated balance sheets as of December 31, 2023 and 2022, by accounting designation (e.g., whether the derivatives were designated in qualifying hedge accounting relationships or not) and contract type.
| Free-standing derivative receivables and payables(a) | ||||||||
|---|---|---|---|---|---|---|---|---|
| Gross derivative receivables · Gross derivative payables | ||||||||
| December 31, 2023(in millions) | Not designated as hedges | Designated as hedges | Total derivative receivables | Net derivative receivables(b) | Not designated as hedges | Designated as hedges | Total derivative payables | Net derivative payables(b) |
| Trading assets and liabilities | ||||||||
| Interest rate | $250,689 | $2 | $250,691 | $26,324 | $240,482 | $— | $240,482 | $11,896 |
| Credit | 9,654 | — | 9,654 | 551 | 12,038 | — | 12,038 | 1,089 |
| Foreign exchange | 205,010 | 765 | 205,775 | 18,019 | 210,623 | 1,640 | 212,263 | 12,620 |
| Equity | 57,689 | — | 57,689 | 4,928 | 65,811 | — | 65,811 | 9,368 |
| Commodity | 15,228 | 211 | 15,439 | 5,042 | 16,286 | 92 | 16,378 | 5,874 |
| Total fair value of trading assets and liabilities | $538,270 | $978 | $539,248 | $54,864 | $545,240 | $1,732 | $546,972 | $40,847 |
| Gross derivative receivables · Gross derivative payables | ||||||||
| December 31, 2022(in millions) | Not designated as hedges | Designated as hedges | Total derivative receivables | Net derivative receivables(b) | Not designated as hedges | Designated as hedges | Total derivative payables | Netderivative payables(b) |
| Trading assets and liabilities | ||||||||
| Interest rate | $300,411 | $4 | $300,415 | $28,419 | $290,291 | $— | $290,291 | $15,970 |
| Credit | 10,329 | — | 10,329 | 1,090 | 9,971 | — | 9,971 | 754 |
| Foreign exchange | 239,946 | 1,633 | 241,579 | 23,365 | 248,911 | 2,610 | 251,521 | 18,856 |
| Equity | 61,913 | — | 61,913 | 9,139 | 62,461 | — | 62,461 | 8,804 |
| Commodity | 23,652 | 1,705 | 25,357 | 8,867 | 20,758 | 2,511 | 23,269 | 6,757 |
| Total fair value of trading assets and liabilities | $636,251 | $3,342 | $639,593 | $70,880 | $632,392 | $5,121 | $637,513 | $51,141 |
(a)Balances exclude structured notes for which the fair value option has been elected. Refer to Note 3 for further information.
(b)As permitted under U.S. GAAP, the Firm has elected to net derivative receivables and derivative payables and the related cash collateral receivables and payables when a legally enforceable master netting agreement exists.
Derivatives netting
The following tables present, as of December 31, 2023 and 2022, gross and net derivative receivables and payables by contract and settlement type. Derivative receivables and payables, as well as the related cash collateral from the same counterparty, have been netted on the Consolidated balance sheets where the Firm has obtained an appropriate legal opinion with respect to the master netting agreement. Where such a legal opinion has not been either sought or obtained, amounts are not eligible for netting on the Consolidated balance sheets, and those derivative receivables and payables are shown separately in the tables below.
In addition to the cash collateral received and transferred that is presented on a net basis with derivative receivables and payables, the Firm receives and transfers additional collateral (financial instruments and cash). These amounts mitigate counterparty credit risk associated with the Firm’s derivative instruments, but are not eligible for net presentation:
collateral that consists of liquid securities and other cash collateral held at third-party custodians, which are shown separately as"Collateral not nettable on the Consolidated balance sheets" in the tables below, up to the fair value exposure amount. For the purpose of this disclosure, the definition of liquid securities is consistent with the definition of high quality liquid assets as defined in the LCR rule;
the amount of collateral held or transferred that exceeds the fair value exposure at the individual counterparty level, as of the date presented, which is excluded from the tables below; and
collateral held or transferred that relates to derivative receivables or payables where an appropriate legal opinion has not been either sought or obtained with respect to the master netting agreement, which is excluded from the tables below.
| 2023 · 2022 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, (in millions) · Gross derivative receivables · Amounts netted on the Consolidated balance sheets · Net derivative receivables · Gross derivative receivables · Amounts netted on the Consolidated balance sheets · Netderivative receivables | |||||||||||
| U.S. GAAP nettable derivative receivables | |||||||||||
| Interest rate contracts: | |||||||||||
| OTC | $176,901 | $(152,703) | $24,198 | $203,922 | $(178,261) | $25,661 | |||||
| OTC–cleared | 71,419 | (71,275) | 144 | 93,800 | (93,424) | 376 | |||||
| Exchange-traded(a) | 402 | (389) | 13 | 559 | (311) | 248 | |||||
| Total interest rate contracts | 248,722 | (224,367) | 24,355 | 298,281 | (271,996) | 26,285 | |||||
| Credit contracts: | |||||||||||
| OTC | 7,637 | (7,226) | 411 | 8,474 | (7,535) | 939 | |||||
| OTC–cleared | 1,904 | (1,877) | 27 | 1,746 | (1,704) | 42 | |||||
| Total credit contracts | 9,541 | (9,103) | 438 | 10,220 | (9,239) | 981 | |||||
| Foreign exchange contracts: | |||||||||||
| OTC | 203,624 | (187,295) | 16,329 | 237,941 | (216,796) | 21,145 | |||||
| OTC–cleared | 469 | (459) | 10 | 1,461 | (1,417) | 44 | |||||
| Exchange-traded(a) | 6 | (2) | 4 | 15 | (1) | 14 | |||||
| Total foreign exchange contracts | 204,099 | (187,756) | 16,343 | 239,417 | (218,214) | 21,203 | |||||
| Equity contracts: | |||||||||||
| OTC | 25,001 | (23,677) | 1,324 | 30,323 | (25,665) | 4,658 | |||||
| Exchange-traded(a) | 30,462 | (29,084) | 1,378 | 28,467 | (27,109) | 1,358 | |||||
| Total equity contracts | 55,463 | (52,761) | 2,702 | 58,790 | (52,774) | 6,016 | |||||
| Commodity contracts: | |||||||||||
| OTC | 8,049 | (5,084) | 2,965 | 14,430 | (7,633) | 6,797 | |||||
| OTC–cleared | 133 | (123) | 10 | 120 | (112) | 8 | |||||
| Exchange-traded(a) | 5,214 | (5,190) | 24 | 9,103 | (8,745) | 358 | |||||
| Total commodity contracts | 13,396 | (10,397) | 2,999 | 23,653 | (16,490) | 7,163 | |||||
| Derivative receivables with appropriate legal opinion | 531,221 | (484,384) | 46,837(d) | 630,361 | (568,713) | 61,648(d) | |||||
| Derivative receivables where an appropriate legal opinion has not been either sought or obtained | 8,027 | 8,027 | 9,232 | 9,232 | |||||||
| Total derivative receivables recognized on the Consolidated balance sheets | $539,248 | $54,864 | $639,593 | $70,880 | |||||||
| Collateral not nettable on the Consolidated balance sheets(b)(c) | (22,461) | (23,014) | |||||||||
| Net amounts | $32,403 | $47,866 | |||||||||
| 2023 · 2022 | |||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| December 31, (in millions) · Gross derivative payables · Amounts netted on the Consolidated balance sheets · Net derivative payables · Gross derivative payables · Amounts netted on the Consolidated balance sheets · Netderivative payables | |||||||||||
| U.S. GAAP nettable derivative payables | |||||||||||
| Interest rate contracts: | |||||||||||
| OTC | $161,901 | $(152,467) | $9,434 | $190,108 | $(176,890) | $13,218 | |||||
| OTC–cleared | 76,007 | (75,729) | 278 | 97,417 | (97,126) | 291 | |||||
| Exchange-traded(a) | 436 | (390) | 46 | 327 | (305) | 22 | |||||
| Total interest rate contracts | 238,344 | (228,586) | 9,758 | 287,852 | (274,321) | 13,531 | |||||
| Credit contracts: | |||||||||||
| OTC | 10,332 | (9,313) | 1,019 | 8,054 | (7,572) | 482 | |||||
| OTC–cleared | 1,639 | (1,636) | 3 | 1,674 | (1,645) | 29 | |||||
| Total credit contracts | 11,971 | (10,949) | 1,022 | 9,728 | (9,217) | 511 | |||||
| Foreign exchange contracts: | |||||||||||
| OTC | 209,386 | (199,173) | 10,213 | 246,457 | (231,248) | 15,209 | |||||
| OTC–cleared | 552 | (470) | 82 | 1,488 | (1,417) | 71 | |||||
| Exchange-traded(a) | 6 | — | 6 | 20 | — | 20 | |||||
| Total foreign exchange contracts | 209,944 | (199,643) | 10,301 | 247,965 | (232,665) | 15,300 | |||||
| Equity contracts: | |||||||||||
| OTC | 29,999 | (27,360) | 2,639 | 29,833 | (26,554) | 3,279 | |||||
| Exchange-traded(a) | 33,137 | (29,083) | 4,054 | 28,291 | (27,103) | 1,188 | |||||
| Total equity contracts | 63,136 | (56,443) | 6,693 | 58,124 | (53,657) | 4,467 | |||||
| Commodity contracts: | |||||||||||
| OTC | 8,788 | (5,192) | 3,596 | 11,954 | (7,642) | 4,312 | |||||
| OTC–cleared | 120 | (120) | — | 112 | (112) | — | |||||
| Exchange-traded(a) | 5,376 | (5,192) | 184 | 9,021 | (8,758) | 263 | |||||
| Total commodity contracts | 14,284 | (10,504) | 3,780 | 21,087 | (16,512) | 4,575 | |||||
| Derivative payables with appropriate legal opinion | 537,679 | (506,125) | 31,554(d) | 624,756 | (586,372) | 38,384(d) | |||||
| Derivative payables where an appropriate legal opinion has not been either sought or obtained | 9,293 | 9,293 | 12,757 | 12,757 | |||||||
| Total derivative payables recognized on the Consolidated balance sheets | $546,972 | $40,847 | $637,513 | $51,141 | |||||||
| Collateral not nettable on the Consolidated balance sheets(b)(c) | (4,547) | (3,318) | |||||||||
| Net amounts | $36,300 | $47,823 | |||||||||
(a)Exchange-traded derivative balances that relate to futures contracts are settled daily.
(b)Includes liquid securities and other cash collateral held at third-party custodians related to derivative instruments where an appropriate legal opinion has been obtained. For some counterparties, the collateral amounts of financial instruments may exceed the derivative receivables and derivative payables balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net derivative payables balances with that counterparty.
(c)Derivative collateral relates only to OTC and OTC-cleared derivative instruments.
(d)Net derivatives receivable included cash collateral netted of $48.3 billion and $51.5 billion at December 31, 2023 and 2022, respectively. Net derivatives payable included cash collateral netted of $70.0 billion and $69.2 billion at December 31, 2023 and 2022, respectively. Derivative cash collateral relates to OTC and OTC-cleared derivative instruments.
Liquidity risk and credit-related contingent features
In addition to the specific market risks introduced by each derivative contract type, derivatives expose JPMorgan Chase to credit risk — the risk that derivative counterparties may fail to meet their payment obligations under the derivative contracts and the collateral, if any, held by the Firm proves to be of insufficient value to cover the payment obligation. It is the policy of JPMorgan Chase to actively pursue, where possible, the use of legally enforceable master netting arrangements and collateral agreements to mitigate derivative counterparty credit risk inherent in derivative receivables.
While derivative receivables expose the Firm to credit risk, derivative payables expose the Firm to liquidity risk, as the derivative contracts typically require the Firm to post cash or securities collateral with counterparties as the fair value of the contracts moves in the counterparties’ favor or upon specified downgrades in the Firm’s and its subsidiaries’ respective credit ratings. Certain derivative contracts also provide for termination of the contract, generally upon a downgrade of either the Firm or the counterparty, at the fair value of the derivative contracts. The following table shows the aggregate fair value of net derivative payables related to OTC and OTC-cleared derivatives that contain contingent collateral or termination features that may be triggered upon a ratings downgrade, and the associated collateral the Firm has posted in the normal course of business, at December 31, 2023 and 2022.
| OTC and OTC-cleared derivative payables containing downgrade triggers | ||
|---|---|---|
| (in millions) | December 31, 2023 | December 31, 2022 |
| Aggregate fair value of net derivative payables | $14,655 | $16,023 |
| Collateral posted | 14,673 | 15,505 |
The following table shows the impact of a single-notch and two-notch downgrade of the long-term issuer ratings of JPMorgan Chase & Co. and its subsidiaries, predominantly JPMorgan Chase Bank, N.A., at December 31, 2023 and 2022, related to OTC and OTC-cleared derivative contracts with contingent collateral or termination features that may be triggered upon a ratings downgrade. Derivatives contracts generally require additional collateral to be posted or terminations to be triggered when the predefined rating threshold is breached. A downgrade by a single rating agency that does not result in a rating lower than a preexisting corresponding rating provided by another major rating agency will generally not result in additional collateral (except in certain instances in which additional initial margin may be required upon a ratings downgrade), nor in termination payment requirements. The liquidity impact in the table is calculated based upon a downgrade below the lowest current rating of the rating agencies referred to in the derivative contract.
| Liquidity impact of downgrade triggers on OTC and OTC-cleared derivatives | ||||
|---|---|---|---|---|
| December 31, 2023 | December 31, 2022 | |||
| (in millions) | Single-notch downgrade | Two-notch downgrade | Single-notch downgrade | Two-notch downgrade |
| Amount of additional collateral to be posted upon downgrade(a) | $75 | $1,153 | $128 | $1,293 |
| Amount required to settle contracts with termination triggers upon downgrade(b) | 93 | 592 | 88 | 925 |
(a)Includes the additional collateral to be posted for initial margin.
(b)Amounts represent fair values of derivative payables, and do not reflect collateral posted.
Derivatives executed in contemplation of a sale of the underlying financial asset
In certain instances the Firm enters into transactions in which it transfers financial assets but maintains the economic exposure to the transferred assets by entering into a derivative with the same counterparty in contemplation of the initial transfer. The Firm generally accounts for such transfers as collateralized financing transactions as described in Note 11, but in limited circumstances they may qualify to be accounted for as a sale and a derivative under U.S. GAAP. The amount of such transfers accounted for as a sale where the associated derivative was outstanding was not material at both December 31, 2023 and 2022.
Impact of derivatives on the Consolidated statements of income
The following tables provide information related to gains and losses recorded on derivatives based on their hedge accounting
designation or purpose.
Fair value hedge gains and losses
The following tables present derivative instruments, by contract type, used in fair value hedge accounting relationships, as well as pre-tax gains/(losses) recorded on such derivatives and the related hedged items for the years ended December 31, 2023, 2022 and 2021, respectively. The Firm includes gains/(losses) on the hedging derivative in the same line item in the Consolidated statements of income as the related hedged item.
| Gains/(losses) recorded in income · Income statement impact of excluded components(e) · OCI impact | ||||||
|---|---|---|---|---|---|---|
| Year ended December 31, 2023(in millions) | Derivatives | Hedged items | Income statement impact | Amortization approach | Changes in fair value | Derivatives - Gains/(losses) recorded in OCI(f) |
| Contract type | ||||||
| Interest rate(a)(b) | $1,554 | $(1,248) | $306 | $— | $157 | $— |
| Foreign exchange(c) | 722 | (483) | 239 | (601) | 239 | (134) |
| Commodity(d) | 1,227 | (706) | 521 | — | 525 | — |
| Total | $3,503 | $(2,437) | $1,066 | $(601) | $921 | $(134) |
| Gains/(losses) recorded in income · Income statement impact of excluded components(e) · OCI impact | ||||||
| Year ended December 31, 2022(in millions) | Derivatives | Hedged items | Income statement impact | Amortization approach | Changes in fair value | Derivatives - Gains/(losses) recorded in OCI(f) |
| Contract type | ||||||
| Interest rate(a)(b) | $(14,352) | $14,047 | $(305) | $— | $(262) | $— |
| Foreign exchange(c) | (1,317) | 1,423 | 106 | (528) | 106 | 130 |
| Commodity(d) | 106 | (70) | 36 | — | 48 | — |
| Total | $(15,563) | $15,400 | $(163) | $(528) | $(108) | $130 |
| Gains/(losses) recorded in income · Income statement impact of excluded components(e) · OCI impact | ||||||
| Year ended December 31, 2021(in millions) | Derivatives | Hedged items | Income statement impact | Amortization approach | Changes in fair value | Derivatives - Gains/(losses) recorded in OCI(f) |
| Contract type | ||||||
| Interest rate(a)(b) | $(4,323) | $3,765 | $(558) | $— | $(439) | $— |
| Foreign exchange(c) | (1,317) | 1,349 | 32 | (286) | 32 | (26) |
| Commodity(d) | (9,609) | 9,710 | 101 | — | 72 | — |
| Total | $(15,249) | $14,824 | $(425) | $(286) | $(335) | $(26) |
(a)Primarily consists of hedges of the benchmark (e.g., Secured Overnight Financing Rate (“SOFR”)) interest rate risk of fixed-rate long-term debt and AFS securities. Gains and losses were recorded in net interest income.
(b)Includes the amortization of income/expense associated with the inception hedge accounting adjustment applied to the hedged item. Excludes the accrual of interest on interest rate swaps and the related hedged items.
(c)Primarily consists of hedges of the foreign currency risk of long-term debt and AFS securities for changes in spot foreign currency rates. Gains and losses related to the derivatives and the hedged items due to changes in foreign currency rates and the income statement impact of excluded components were recorded primarily in principal transactions revenue and net interest income.
(d)Consists of overall fair value hedges of physical commodities inventories that are generally carried at the lower of cost or net realizable value (net realizable value approximates fair value). Gains and losses were recorded in principal transactions revenue.
(e)The assessment of hedge effectiveness excludes certain components of the changes in fair values of the derivatives and hedged items such as forward points on foreign exchange forward contracts, time values and cross-currency basis spreads. Excluded components may impact earnings either through amortization of the initial amount over the life of the derivative or through fair value changes recognized in the current period.
(f)Represents the change in value of amounts excluded from the assessment of effectiveness under the amortization approach, predominantly cross-currency basis spreads. The amount excluded at inception of the hedge is recognized in earnings over the life of the derivative.
As of December 31, 2023 and 2022, the following amounts were recorded on the Consolidated balance sheets related to certain cumulative fair value hedge basis adjustments that are expected to reverse through the income statement in future periods as an adjustment to yield.
| Carrying amount of the hedged items(a)(b) · Cumulative amount of fair value hedging adjustments included in the carrying amount of hedged items: | ||||||
|---|---|---|---|---|---|---|
| December 31, 2023(in millions) · Active hedging relationships(d) · Discontinued hedging relationships(d)(e) · Total | ||||||
| Assets | ||||||
| Investment securities - AFS | $151,752(c) | $549 | $(2,010) | $(1,461) | ||
| Liabilities | ||||||
| Long-term debt | $195,455 | $(2,042) | $(9,727) | $(11,769) | ||
| Carrying amount of the hedged items(a)(b) · Cumulative amount of fair value hedging adjustments included in the carrying amount of hedged items: | ||||||
| December 31, 2022(in millions) | Active hedging relationships(d) | Discontinued hedging relationships(d)(e) | Total | |||
| Assets | ||||||
| Investment securities - AFS | $84,073(c) | $(4,149) | $(1,542) | $(5,691) | ||
| Liabilities | ||||||
| Long-term debt | $175,257 | $(11,879) | $(3,313) | $(15,192) | ||
(a)Excludes physical commodities with a carrying value of $5.6 billion and $26.0 billion at December 31, 2023 and 2022, respectively, to which the Firm applies fair value hedge accounting. As a result of the application of hedge accounting, these inventories are carried at fair value, thus recognizing unrealized gains and losses in current periods. Since the Firm exits these positions at fair value, there is no incremental impact to net income in future periods.
(b)Excludes hedged items where only foreign currency risk is the designated hedged risk, as basis adjustments related to foreign currency hedges will not reverse through the income statement in future periods. At December 31, 2023 and 2022, the carrying amount excluded for AFS securities is $19.3 billion and $20.3 billion, respectively, and for long-term debt iszero and $221 million, respectively.
(c)Carrying amount represents the amortized cost, net of allowance if applicable. Effective January 1, 2023, the Firm adopted the portfolio layer method hedge accounting guidance. At December 31, 2023, the amortized cost of the portfolio layer method closed portfolios was $83.9 billion, of which $68.0 billion was designated as hedged. The amount designated as hedged is the sum of the notional amounts of all outstanding layers in each portfolio, which includes both spot starting and forward starting layers. The cumulative amount of basis adjustments was $(165) million, which is comprised of $73 million and $(238) million for active and discontinued hedging relationships, respectively. Refer to Note 1 and Note 10 for additional information.
(d)Positive (negative) amounts related to assets represent cumulative fair value hedge basis adjustments that will reduce (increase) net interest income in future periods. Positive (negative) amounts related to liabilities represent cumulative fair value hedge basis adjustments that will increase (reduce) net interest income in future periods.
(e)Represents basis adjustments existing on the balance sheet date associated with hedged items that have been de-designated from qualifying fair value hedging relationships.
Cash flow hedge gains and losses
The following tables present derivative instruments, by contract type, used in cash flow hedge accounting relationships, and the pre-tax gains/(losses) recorded on such derivatives, for the years ended December 31, 2023, 2022 and 2021, respectively. The Firm includes the gains/(losses) on the hedging derivative in the same line item in the Consolidated statements of income as the change in cash flows on the related hedged item.
| Derivatives gains/(losses) recorded in income and other comprehensive income/(loss) | |||
|---|---|---|---|
| Year ended December 31, 2023(in millions) | Amounts reclassifiedfrom AOCI to income | Amounts recordedin OCI | Total changein OCI for period |
| Contract type | |||
| Interest rate(a) | $(1,839) | $274 | $2,113 |
| Foreign exchange(b) | 64 | 209 | 145 |
| Total | $(1,775) | $483 | $2,258 |
| Derivatives gains/(losses) recorded in income and other comprehensive income/(loss) | |||
|---|---|---|---|
| Year ended December 31, 2022(in millions) | Amounts reclassifiedfrom AOCI to income | Amounts recordedin OCI | Total change in OCI for period |
| Contract type | |||
| Interest rate(a) | $(153) | $(7,131) | $(6,978) |
| Foreign exchange(b) | (267) | (342) | (75) |
| Total | $(420) | $(7,473) | $(7,053) |
| Derivatives gains/(losses) recorded in income and other comprehensive income/(loss) | |||
| Year ended December 31, 2021(in millions) | Amounts reclassifiedfrom AOCI to income | Amounts recordedin OCI | Total change in OCI for period |
| Contract type | |||
| Interest rate(a) | $1,032 | $(2,370) | $(3,402) |
| Foreign exchange(b) | 190 | 67 | (123) |
| Total | $1,222 | $(2,303) | $(3,525) |
(a)Primarily consists of hedges of SOFR-indexed floating-rate assets. Gains and losses were recorded in net interest income.
(b)Primarily consists of hedges of the foreign currency risk of non-U.S. dollar-denominated revenue and expense. The income statement classification of gains and losses follows the hedged item – primarily noninterest revenue and compensation expense.
The Firm did not experience any forecasted transactions that failed to occur for the years ended 2023, 2022 and 2021.
Over the next 12 months, the Firm expects that approximately $(1.6) billion (after-tax) of net losses recorded in AOCI at December 31, 2023, related to cash flow hedges will be recognized in income. For cash flow hedges that have been terminated, the maximum length of time over which the derivative results recorded in AOCI will be recognized in earnings is approximatelysix years, corresponding to the timing of the originally hedged forecasted cash flows. For open cash flow hedges, the maximum length of time over which forecasted transactions are hedged is approximately seven years. The Firm’s longer-dated forecasted transactions relate to core lending and borrowing activities.
Net investment hedge gains and losses
The following table presents hedging instruments, by contract type, that were used in net investment hedge accounting relationships, and the pre-tax gains/(losses) recorded on such instruments for the years ended December 31, 2023, 2022 and 2021.
| 2023 · 2022 · 2021 | ||||||
|---|---|---|---|---|---|---|
| Year ended December 31,(in millions) | Amounts recorded in income(a)(b) | Amounts recorded in OCI | Amounts recorded in income(a)(b) | Amounts recorded inOCI | Amounts recorded in income(a)(b) | Amounts recorded inOCI |
| Foreign exchange derivatives | $384 | $(1,732) | $(123) | $3,591 | $(228) | $2,452 |
(a)Certain components of hedging derivatives are permitted to be excluded from the assessment of hedge effectiveness, such as forward points on foreign exchange forward contracts. The Firm elects to record changes in fair value of these amounts directly in other income.
(b)Excludes amounts reclassified from AOCI to income on the sale or liquidation of hedged entities. During the year ended December 31, 2023, the Firm reclassified a net pre-tax loss of $(35) million to other revenue including the impact of the acquisition of CIFM. The Firm reclassified net pre-tax gains of $38 million to other income/expense related to the liquidation of certain legal entities during the year ended December 31, 2022. The amount reclassified for the year ended December 31, 2021 wasnot material. Refer to Note 24 for further information.
Gains and losses on derivatives used for specified risk management purposes
The following table presents pre-tax gains/(losses) recorded on a limited number of derivatives, not designated in hedge accounting relationships, that are used to manage risks associated with certain specified assets and liabilities, including certain risks arising from mortgage commitments, warehouse loans, MSRs, wholesale lending exposures, and foreign currency denominated assets and liabilities.
| Derivatives gains/(losses) recorded in income | |||
|---|---|---|---|
| Year ended December 31, (in millions) | 2023 | 2022 | 2021 |
| Contract type | |||
| Interest rate(a) | $(135) | $(827) | $1,078 |
| Credit(b) | (441) | 51 | (94) |
| Foreign exchange(c) | (2) | (48) | 94 |
| Total | $(578) | $(824) | $1,078 |
(a)Primarily represents interest rate derivatives used to hedge the interest rate risk inherent in mortgage commitments, warehouse loans and MSRs, as well as written commitments to originate warehouse loans. Gains and losses were recorded predominantly in mortgage fees and related income.
(b)Relates to credit derivatives used to mitigate credit risk associated with lending exposures in the Firm’s wholesale businesses. These derivatives do not include credit derivatives used to mitigate counterparty credit risk arising from derivative receivables, which is included in gains and losses on derivatives related to market-making activities and other derivatives. Gains and losses were recorded in principal transactions revenue.
(c)Primarily relates to derivatives used to mitigate foreign exchange risk of specified foreign currency-denominated assets and liabilities. Gains and losses were recorded in principal transactions revenue.
Gains and losses on derivatives related to market-making activities and other derivatives
The Firm makes markets in derivatives in order to meet the needs of customers and uses derivatives to manage certain risks associated with net open risk positions from its market-making activities, including the counterparty credit risk arising from derivative receivables. All derivatives not included in the hedge accounting or specified risk management categories above are included in this category. Gains and losses on these derivatives are primarily recorded in principal transactions revenue. Refer to Note 6 for information on principal transactions revenue.
Credit derivatives
Credit derivatives are financial instruments whose value is derived from the credit risk associated with the debt of a third-party issuer (the reference entity) and which allow one party (the protection purchaser) to transfer that risk to another party (the protection seller). Credit derivatives expose the protection purchaser to the creditworthiness of the protection seller, as the protection seller is required to make payments under the contract when the reference entity experiences a credit event, such as a bankruptcy, a failure to pay its obligation or a restructuring. The seller of credit protection receives a premium for providing protection but has the risk that the underlying instrument referenced in the contract will be subject to a credit event.
The Firm is both a purchaser and seller of protection in the credit derivatives market and uses these derivatives for two primary purposes. First, in its capacity as a market-maker, the Firm actively manages a portfolio of credit derivatives by purchasing and selling credit protection, predominantly on corporate debt obligations, to meet the needs of customers. Second, as an end-user, the Firm uses credit derivatives to manage credit risk associated with lending exposures (loans and unfunded commitments) in its wholesale and consumer businesses and derivatives counterparty exposures in its wholesale businesses, and to manage the credit risk arising from certain financial instruments in the Firm’s market-making businesses. Following is a summary of various types of credit derivatives.
Credit default swaps
Credit derivatives may reference the credit of either a single reference entity (“single-name”), broad-based index or portfolio. The Firm purchases and sells protection on both single- name and index-reference obligations. Single-name CDS and index CDS contracts are either OTC or OTC-cleared derivative contracts. Single-name CDS are used to manage the default risk of a single reference entity, while index CDS contracts are used to manage the credit risk associated with the broader credit markets or credit market segments. Like the S&P 500 and other market indices, a CDS index consists of a portfolio of CDS across many reference entities. New series of CDS indices are periodically established with a new underlying portfolio of reference entities to reflect changes in the credit markets. If one of the reference entities in the index experiences a credit event, then the reference entity that defaulted is removed from the index. CDS can also be referenced against specific portfolios of reference names or against customized exposure levels: for example, to provide protection against the first $1 million of realized credit losses in a $10 million portfolio of exposure. Such structures are commonly known as tranche CDS.
For both single-name CDS contracts and index CDS contracts, upon the occurrence of a credit event, under the terms of a CDS contract neither party to the CDS contract has recourse to the reference entity. The protection purchaser has recourse to the protection seller for the difference between the face value of the CDS contract and the fair value of the reference obligation at settlement of the credit derivative contract, also known as the recovery value. The protection purchaser does not need to hold the debt instrument of the underlying reference entity in order to receive amounts due under the CDS contract when a credit event occurs.
Credit-related notes
A credit-related note is a funded derivative with a credit risk component where the issuer of the credit-related note purchases from the note investor credit protection on a reference entity or an index. Under the contract, the investor pays the issuer the par value of the note at the inception of the transaction, and in return, the issuer makes periodic payments to the investor, based on the credit risk of the referenced entity. The issuer also repays the investor the par value of the note at maturity unless the reference entity (or one of the entities that makes up a reference index) experiences a specified credit event. If a credit event occurs, the issuer is not obligated to repay the par value of the note, but rather, the issuer pays the investor the difference between the par value of the note and the fair value of the defaulted reference obligation at the time of settlement. Neither party to the credit-related note has recourse to the defaulting reference entity.
The following tables present a summary of the notional amounts of credit derivatives and credit-related notes the Firm sold and purchased as of December 31, 2023 and 2022. Upon a credit event, the Firm as a seller of protection would typically pay out a percentage of the full notional amount of net protection sold, as the amount actually required to be paid on the contracts takes into account the recovery value of the reference obligation at the time of settlement. The Firm manages the credit risk on contracts to sell protection by purchasing protection with identical or similar underlying reference entities. Other purchased protection referenced in the following tables includes credit derivatives bought on related, but not identical, reference positions (including indices, portfolio coverage and other reference points) as well as protection purchased by CIB through credit-related notes. Other purchased protection also includes credit protection against certain loans in the retained lending portfolio through the issuance of credit derivatives and credit-related notes.
The Firm does not use notional amounts of credit derivatives as the primary measure of risk management for such derivatives, because the notional amount does not take into account the probability of the occurrence of a credit event, the recovery value of the reference obligation, or related cash instruments and economic hedges, each of which reduces, in the Firm’s view, the risks associated with such derivatives.
| Total credit derivatives and credit-related notes | ||||
|---|---|---|---|---|
| Maximum payout/Notional amount | ||||
| Protection sold | Protection purchased with identical underlyings(c) | Net protection (sold)/purchased(d) | Other protection purchased(e) | |
| December 31, 2023(in millions) | ||||
| Credit derivatives | ||||
| Credit default swaps | $(450,172) | $473,823 | $23,651 | $7,517 |
| Other credit derivatives(a) | (38,846) | 45,416 | 6,570 | 29,206 |
| Total credit derivatives | (489,018) | 519,239 | 30,221 | 36,723 |
| Credit-related notes(b) | — | — | — | 9,788 |
| Total | $(489,018) | $519,239 | $30,221 | $46,511 |
| Maximum payout/Notional amount | ||||
| Protection sold | Protection purchased with identical underlyings(c) | Net protection (sold)/purchased(d) | Other protection purchased(e) | |
| December 31, 2022(in millions) | ||||
| Credit derivatives | ||||
| Credit default swaps | $(495,557) | $509,846 | $14,289 | $2,917 |
| Other credit derivatives(a) | (47,165) | 65,029 | 17,864 | 11,746 |
| Total credit derivatives | (542,722) | 574,875 | 32,153 | 14,663 |
| Credit-related notes(b) | — | — | — | 7,863 |
| Total | $(542,722) | $574,875 | $32,153 | $22,526 |
(a)Other credit derivatives predominantly consist of credit swap options and total return swaps.
(b)Predominantly represents Other protection purchased by CIB.
(c)Represents the total notional amount of protection purchased where the underlying reference instrument is identical to the reference instrument on protection sold; the notional amount of protection purchased for each individual identical underlying reference instrument may be greater or lower than the notional amount of protection sold.
(d)Does not take into account the fair value of the reference obligation at the time of settlement, which would generally reduce the amount the seller of protection pays to the buyer of protection in determining settlement value.
(e)Represents protection purchased by the Firm on referenced instruments (single-name, portfolio or index) where the Firm has not sold any protection on the identical reference instrument.
The following tables summarize the notional amounts by the ratings, maturity profile, and total fair value, of credit derivatives as of December 31, 2023 and 2022, where JPMorgan Chase is the seller of protection. The maturity profile is based on the remaining contractual maturity of the credit derivative contracts. The ratings profile is based on the rating of the reference entity on which the credit derivative contract is based. The ratings and maturity profile of credit derivatives where JPMorgan Chase is the purchaser of protection are comparable to the profile reflected below.
| Protection sold – credit derivatives ratings(a)/maturity profile | |||||||
|---|---|---|---|---|---|---|---|
| December 31, 2023(in millions) | <1 year | 1–5 years | >5 years | Total notional amount | Fair value of receivables(b) | Fair value of payables(b) | Net fair value |
| Risk rating of reference entity | |||||||
| Investment-grade | $(89,981) | $(263,834) | $(29,470) | $(383,285) | $3,659 | $(1,144) | $2,515 |
| Noninvestment-grade | (31,419) | (69,515) | (4,799) | (105,733) | 2,466 | (1,583) | 883 |
| Total | $(121,400) | $(333,349) | $(34,269) | $(489,018) | $6,125 | $(2,727) | $3,398 |
| December 31, 2022(in millions) | <1 year | 1–5 years | >5 years | Total notional amount | Fair value of receivables(b) | Fair value of payables(b) | Net fair value |
|---|---|---|---|---|---|---|---|
| Risk rating of reference entity | |||||||
| Investment-grade | $(90,484) | $(294,791) | $(30,822) | $(416,097) | $2,324 | $(1,495) | $829 |
| Noninvestment-grade | (33,244) | (87,011) | (6,370) | (126,625) | 1,267 | (3,209) | (1,942) |
| Total | $(123,728) | $(381,802) | $(37,192) | $(542,722) | $3,591 | $(4,704) | $(1,113) |
(a)The ratings scale is primarily based on external credit ratings defined by S&P and Moody’s.
(b)Amounts are shown on a gross basis, before the benefit of legally enforceable master netting agreements including cash collateral netting.
Note 6 –Noninterest revenue and noninterest expense
Noninterest revenue
The Firm records noninterest revenue from certain contracts with customers in investment banking fees, deposit-related fees, asset management fees, commissions and other fees, and components of card income. The related contracts are often terminable on demand and the Firm has no remaining obligation to deliver future services. For arrangements with a fixed term, the Firm may commit to deliver services in the future. Revenue associated with these remaining performance obligations typically depends on the occurrence of future events or underlying asset values, and is not recognized until the outcome of those events or values are known.
Investment banking fees
This revenue category includes debt and equity underwriting and advisory fees. As an underwriter, the Firm helps clients raise capital via public offering and private placement of various types of debt and equity instruments. Underwriting fees are primarily based on the issuance price and quantity of the underlying instruments, and are recognized as revenue typically upon execution of the client’s transaction. The Firm also manages and syndicates loan arrangements. Credit arrangement and syndication fees, included within debt underwriting fees, are recorded as revenue after satisfying certain retention, timing and yield criteria.
The Firm also provides advisory services, by assisting its clients with mergers and acquisitions, divestitures, restructuring and other complex transactions. Advisory fees are recognized as revenue typically upon execution of the client’s transaction.
The following table presents the components of investment banking fees.
| Year ended December 31, (in millions) | 2023 | 2022 | 2021 |
|---|---|---|---|
| Underwriting | |||
| Equity | $1,149 | $975 | $3,969 |
| Debt | 2,610 | 2,732 | 4,853 |
| Total underwriting | 3,759 | 3,707 | 8,822 |
| Advisory | 2,760 | 2,979 | 4,394 |
| Total investment banking fees | $6,519 | $6,686 | $13,216 |
Investment banking fees are earned primarily by CIB.
Principal transactions
Principal transactions revenue is driven by many factors, including:
the bid-offer spread, which is the difference between the price at which a market participant is willing and able to sell an instrument to the Firm and the price at which another market participant is willing and able to buy it from the Firm, and vice versa; and
realized and unrealized gains and losses on financial instruments and commodities transactions, including those accounted for under the fair value option, primarily used in client-driven market-making activities.
–Realized gains and losses result from the sale of instruments, closing out or termination of transactions, or interim cash payments.
–Unrealized gains and losses result from changes in valuation.
In connection with its client-driven market-making activities, the Firm transacts in debt and equity instruments, derivatives and commodities, including physical commodities inventories and financial instruments that reference commodities.
Principal transactions revenue also includes realized and unrealized gains and losses related to:
derivatives designated in qualifying hedge accounting relationships, primarily fair value hedges of commodity and foreign exchange risk;
derivatives used for specific risk management purposes, primarily to mitigate credit, foreign exchange and interest rate risks.
Refer to Note 5 for further information on the income statement classification of gains and losses from derivatives activities.
In the financial commodity markets, the Firm transacts in OTC derivatives (e.g., swaps, forwards, options) and ETD that reference a wide range of underlying commodities. In the physical commodity markets, the Firm primarily purchases and sells precious and base metals and may hold other commodities inventories under financing and other arrangements with clients.
The following table presents all realized and unrealized gains and losses recorded in principal transactions revenue. This table excludes interest income and interest expense on trading assets and liabilities, which are an integral part of the overall performance of the Firm’s client-driven market-making activities in CIB and fund deployment activities in Treasury and CIO. Refer to Note 7 for further information on interest income and interest expense.
Trading revenue is presented primarily by instrument type. The Firm’s client-driven market-making businesses generally utilize a variety of instrument types in connection with their market-making and related risk-management activities; accordingly, the trading revenue presented in the table below is not representative of the total revenue of any individual LOB.
| Year ended December 31, (in millions) | 2023 | 2022 | 2021 |
|---|---|---|---|
| Trading revenue by instrument type | |||
| Interest rate(a) | $5,607 | $3,010 | $1,646 |
| Credit(b) | 1,434 | 1,412(c) | 2,691 |
| Foreign exchange | 5,082 | 5,119 | 2,787 |
| Equity | 10,229 | 8,068 | 7,773 |
| Commodity | 2,202 | 2,348 | 1,428 |
| Total trading revenue | 24,554 | 19,957 | 16,325 |
| Private equity losses | (94) | (45) | (21) |
| Principal transactions | $24,460 | $19,912 | $16,304 |
(a)Includes the impact of changes in funding valuation adjustments on derivatives.
(b)Includes the impact of changes in credit valuation adjustments on derivatives, net of the associated hedging activities.
(c)Includes net markdowns on held-for-sale positions, primarily unfunded commitments, in the bridge financing portfolio.
Principal transactions revenue is earned primarily by CIB.
Lending- and deposit-related fees
Lending-related fees include fees earned from loan commitments, standby letters of credit, financial guarantees, and other loan-servicing activities. Deposit-related fees include fees earned from performing cash management activities, and providing overdraft and other deposit account services. Lending- and deposit-related fees are recognized over the period in which the related service is provided. Refer to Note 28 for further information on lending-related commitments.
The following table presents the components of lending- and deposit-related fees.
| Year ended December 31, (in millions) | 2023 | 2022 | 2021 |
|---|---|---|---|
| Lending-related fees | $2,365(a) | $1,468 | $1,472 |
| Deposit-related fees | 5,048 | 5,630 | 5,560 |
| Total lending- and deposit-related fees | $7,413 | $7,098 | $7,032 |
(a) Includes the amortization of the purchase discount on certain acquired lending-related commitments associated with First Republic, predominantly in AWM and CB. The discount is deferred in other liabilities and recognized on a straight-line basis over the commitment period and was largely recognized in the current year as the commitments are generally short term. Refer to Note 34 for additional information.
Lending- and deposit-related fees are earned by CCB, CIB, CB, and AWM.
Asset management fees
Investment management fees include fees associated with assets the Firm manages on behalf of its clients, including investors in Firm-sponsored funds and owners of separately managed investment accounts. Management fees are typically based on the value of assets under management and are collected and recognized at the end of each period over which the management services are provided and the value of the managed assets is known. The Firm also receives performance-based management fees, which are earned based on exceeding certain benchmarks or other performance targets and are accrued and recognized when the probability of reversal is remote, typically at the end of the related billing period.
All other asset management fees include commissions earned on the sales or distribution of mutual funds to clients. These fees are recorded as revenue at the time the service is rendered or, in the case of certain distribution fees, based on the underlying fund’s asset value or investor redemption activity.
The following table presents the components of asset management fees.
| Year ended December 31, (in millions) | 2023 | 2022 | 2021 |
|---|---|---|---|
| Asset management fees | |||
| Investment management fees | $14,908(a) | $13,765 | $14,027 |
| All other asset management fees | 312 | 331 | 378 |
| Total asset management fees | $15,220 | $14,096 | $14,405 |
(a)Includes the impact of First Republic. Refer to Note 34 for additional information.
Asset management fees earned primarily by AWM and CCB.
Commissions and other fees
This revenue category includes commissions and fees from brokerage and custody services, and other products.
Brokerage commissions represents commissions earned when the Firm acts as a broker, by facilitating its clients’ purchases and sales of securities and other financial instruments. Brokerage commissions are collected and recognized as revenue upon occurrence of the client transaction. The Firm reports certain costs paid to third-party clearing houses and exchanges net against commission revenue.
Administration fees predominantly include fees for custody, funds services, securities lending and securities clearance. These fees are recorded as revenue over the period in which the related service is provided.
The following table presents the components of commissions and other fees.
| Year ended December 31, (in millions) | 2023 | 2022 | 2021 |
|---|---|---|---|
| Commissions and other fees | |||
| Brokerage commissions | $2,820 | $2,831 | $3,046 |
| Administration fees | 2,310 | 2,348 | 2,554 |
| All other commissions and fees(a) | 1,706 | 1,402 | 1,024 |
| Total commissions and other fees | $6,836 | $6,581 | $6,624 |
(a)Includes travel-related and annuity sales commissions, depositary receipt-related service fees, as well as other service fees, which are recognized as revenue when the services are rendered.
Commissions and other fees are earned primarily by CIB, CCB and AWM.
Mortgage fees and related income
This revenue category reflects CCB’s Home Lending production and net mortgage servicing revenue.
Production revenue includes fees and income recognized as earned on mortgage loans originated with the intent to sell, and the impact of risk management activities associated with the mortgage pipeline and warehouse loans. Production revenue also includes gains and losses on sales and lower of cost or fair value adjustments on mortgage loans held-for-sale (excluding certain repurchased loans insured by U.S. government agencies), and changes in the fair value of financial instruments measured under the fair value option. Net mortgage servicing revenue includes operating revenue earned from servicing third-party mortgage loans, which is recognized over the period in which the service is provided; changes in the fair value of MSRs; the impact of risk management activities associated with MSRs; and gains and losses on securitization of excess mortgage servicing. Net mortgage servicing revenue also includes gains and losses on sales and lower of cost or fair value adjustments of certain repurchased loans insured by U.S. government agencies.
Refer to Note 15 for further information on risk management activities and MSRs.
Net interest income from mortgage loans is recorded in interest income.
Card income
This revenue category includes interchange and other income from credit and debit card transactions; and fees earned from processing card transactions for merchants, both of which are recognized when purchases are made by a cardholder and presented net of certain transaction-related costs. Card income also includes account origination costs and annual fees, which are deferred and recognized on a straight-line basis over a 12-month period.
Certain credit card products offer the cardholder the ability to earn points based on account activity, which the cardholder can choose to redeem for cash and non-cash rewards. The cost to the Firm related to these proprietary rewards programs varies based on multiple factors including the terms and conditions of the rewards
programs, cardholder activity, cardholder reward redemption rates and cardholder reward selections. The Firm maintains a liability for its obligations under its rewards programs and reports the current-period cost as a reduction of card income.
Credit card revenue sharing agreements
The Firm has contractual agreements with numerous co-brand partners that grant the Firm exclusive rights to issue co-branded credit card products and market them to the customers of such partners. These partners endorse the co-brand credit card programs and provide their customer or member lists to the Firm. The partners may also conduct marketing activities and provide rewards redeemable under their own loyalty programs that the Firm will grant to co-brand credit cardholders based on account activity. The terms of these agreements generally range from five toten years.
The Firm typically makes payments to the co-brand credit card partners based on the cost of partners’ marketing activities and loyalty program rewards provided to credit cardholders, new account originations and sales volumes. Payments to partners based on marketing efforts undertaken by the partners are expensed by the Firm as incurred and reported as marketing expense. Payments for partner loyalty program rewards are reported as a reduction of card income when incurred. Payments to partners based on new credit card account originations are accounted for as direct loan origination costs and are deferred and recognized as a reduction of card income on a straight-line basis over a 12-month period. Payments to partners based on sales volumes are reported as a reduction of card income when the related interchange income is earned.
The following table presents the components of card income:
| Year ended December 31, (in millions) | 2023 | 2022 | 2021 |
|---|---|---|---|
| Interchange and merchant processing income | $31,021 | $28,085 | $23,592 |
| Reward costs and partner payments | (24,601) | (22,162) | (17,868) |
| All other(a) | (1,636) | (1,503) | (622) |
| Total card income | $4,784 | $4,420 | $5,102 |
(a)Predominantly represents the amortization of account origination costs and annual fees, which are deferred and recognized on a straight-line basis over a 12-month period.
Card income is earned primarily by CCB, CIB and CB.
Other income
This revenue category includes operating lease income, as well as losses associated with the Firm’s tax-oriented investments, predominantly alternative energy equity-method investments in CIB. The losses associated with these tax-oriented investments are more than offset by lower income tax expense from the associated tax credits.
The following table presents certain components ofother income:
| Year ended December 31, (in millions) | 2023 | 2022 | 2021 |
|---|---|---|---|
| Operating lease income | $2,843 | $3,654 | $4,914 |
| Losses on tax-oriented investments | (1,538) | (1,491) | (1,570) |
| Estimated bargain purchase gain associated with the First Republic acquisition | 2,775(a) | — | — |
| Gain related to the acquisition of CIFM | 339(b) | — | — |
| Gain on sale of Visa B shares | — | 914 | — |
(a) Refer to Note 34 for additional information on the First Republic acquisition.
(b) Gain on the original minority interest in CIFM upon the Firm's acquisition of the remaining 51% of the entity.
Refer to Note 2 and 18 for additional information on Visa B shares and operating leases, respectively.
Noninterest expense
Other expense
Other expense on the Firm’s Consolidated statements of income included:
| Year ended December 31, (in millions) | 2023 | 2022 | 2021 |
|---|---|---|---|
| Legal expense | $1,436 | $266 | $426 |
| FDIC-related expense | 4,203(a) | 860 | 730 |
| First Republic-related expense | 1,060(b) | — |
(a) Included the $2.9 billion FDIC special assessment.
(b)Included payments to the FDIC in the second quarter of 2023 with respect to First Republic individuals who were not employees of the Firm until July 2, 2023, as well as $360 million restructuring and integration costs. Refer to Note 34 for additional information on the First Republic acquisition.
FDIC Special Assessment
In November 2023, the FDIC approved a final rule to implement a special assessment intended to recover losses to the Deposit Insurance Fund (“DIF”) arising from the protection of uninsured depositors resulting from the systemic risk determination made on March 12, 2023. The final rule imposed a special assessment at a quarterly rate of 3.36 basis points on insured depository institutions whose estimated uninsured deposits were over $5.0 billion as of December 31, 2022. In the fourth quarter of 2023, the Firm recognized the estimated special assessment expense of $2.9 billion (pre-tax).
Refer to Note 32 for additional information on noninterest revenue and expense by segment.
Note 7 –Interest income and Interest expense
Interest income and interest expense are recorded in the Consolidated statements of income and classified based on the nature of the underlying asset or liability.
Interest income and interest expense includes the current-period interest accruals for financial instruments measured at fair value, except for derivatives and financial instruments containing embedded derivatives that would be separately accounted for in accordance with U.S. GAAP, absent the fair value option election; for those instruments, all changes in fair value including any interest elements, are primarily reported in principal transactions revenue. For financial instruments that are not measured at fair value, the related interest is included within interest income or interest expense, as applicable.
Interest income on loans and securities include the amortization and accretion of purchase premiums and discounts, as well as net deferred fees and costs on loans. These amounts are deferred in loans and investment securities, respectively, and recognized on a level-yield basis.
Refer to Notes 10, 11, 12, and 20 for further information on accounting for interest income and interest expense related to investment securities, securities financing activities (i.e., securities purchased or sold under resale or repurchase agreements; securities borrowed; and securities loaned), loans and long-term debt, respectively.
The following table presents the components of interest income and interest expense:
| Year ended December 31, (in millions) | 2023 | 2022 | 2021 |
|---|---|---|---|
| Interest income | |||
| Loans | $83,384(e) | $52,736 | $41,537 |
| Taxable securities | 17,390 | 10,372 | 6,460 |
| Non-taxable securities(a) | 1,336 | 975 | 1,063 |
| Total investment securities | 18,726(e) | 11,347 | 7,523 |
| Trading assets - debt instruments | 15,950 | 9,053 | 6,825 |
| Federal funds sold and securities purchased under resale agreements | 15,079 | 4,632 | 958 |
| Securities borrowed(b) | 7,983 | 2,237 | (385) |
| Deposits with banks | 21,797 | 9,039 | 512 |
| All other interest-earning assets(c) | 7,669 | 3,763 | 894 |
| Total interest income | $170,588 | $92,807 | $57,864 |
| Interest expense | |||
| Interest bearing deposits | $40,016 | $10,082 | $531 |
| Federal funds purchased and securities loaned or sold under repurchase agreements | 13,259 | 3,721 | 274 |
| Short-term borrowings | 1,894 | 747 | 126 |
| Trading liabilities - debt and all other interest-bearing liabilities(d) | 9,396 | 3,246 | 257 |
| Long-term debt | 15,803 | 8,075 | 4,282 |
| Beneficial interest issued by consolidated VIEs | 953 | 226 | 83 |
| Total interest expense | $81,321 | $26,097 | $5,553 |
| Net interest income | $89,267 | $66,710 | $52,311 |
| Provision for credit losses | 9,320 | 6,389 | (9,256) |
| Net interest income after provision for credit losses | $79,947 | $60,321 | $61,567 |
(a)Represents securities that are tax-exempt for U.S. federal income tax purposes.
(b)Negative interest and rates reflect the net impact of interest earned offset by fees paid on client-driven prime brokerage securities borrowed transactions.
(c)Includes interest earned on brokerage-related held-for-investment customer receivables, which are classified in accrued interest and accounts receivable, and all other interest-earning assets, which are classified in other assets on the Consolidated balance sheets.
(d)All other interest-bearing liabilities includes interest expense on brokerage-related customer payables.
(e)Includes the accretion of the purchase discount on certain acquired loans and investment securities associated with First Republic. Refer to Note 34 for additional information.
Note 8 –Pension and other postretirement
employee benefit plans
The Firm has various defined benefit pension plans and OPEB plans that provide benefits to its employees in the U.S. and certain non-U.S. locations. Substantially all the defined benefit pension plans are closed to new participants. The principal defined benefit pension plan in the U.S., which covered substantially all U.S. employees, was closed to new participants and frozen for existing participants on January 1, 2020, (and January 1, 2019 for new hires on or after December 2, 2017). Interest credits continue to accrue to participants’ accounts based on their accumulated balances.
The Firm maintains funded and unfunded postretirement benefit plans that provide medical and life insurance for certain eligible employees and retirees as well as their
dependents covered under these programs. None of these plans have a material impact on the Firm’s Consolidated Financial Statements.
The Firm also provides a qualified defined contribution plan in the U.S. and maintains other similar arrangements in certain non-U.S. locations. The most significant of these plans is the JPMorgan Chase 401(k) Savings Plan (“the 401(k) Savings Plan”), which covers substantially all U.S. employees. Employees can contribute to the 401(k) Savings Plan on a pretax and/or Roth 401(k) after-tax basis. The Firm makes annual matching and pay credit contributions to the 401(k) Savings Plan on behalf of eligible participants.
The following table presents the pretax benefit obligations, plan assets, the net funded status, and the amounts recorded in AOCI on the Consolidated balance sheets for the Firm’s significant defined benefit pension and OPEB plans.
| As of or for the year ended December 31, | Defined benefit pension and OPEB plans | |
|---|---|---|
| (in millions) | 2023 | 2022 |
| Projected benefit obligations | $(14,740) | $(13,545) |
| Fair value of plan assets | 22,013 | 19,890 |
| Net funded status | 7,273 | 6,345 |
| Accumulated other comprehensive income/(loss) | (1,517) | (1,916) |
The weighted-average discount rate used to value the benefit obligations as of December 31, 2023 and 2022, was 5.16% and 5.14%, respectively.
Gains and losses
Gains or losses resulting from changes in the benefit obligation and the fair value of plan assets are recorded in OCI. Amortization of net gains or losses are recognized as part of the net periodic benefit cost over subsequent periods, if, as of the beginning of the year, the net gain or loss exceeds 10% of the greater of the projected benefit obligation or the fair value of the plan assets. Amortization is generally over the average expected remaining lifetime of plan participants, given the frozen status of most plans. For the year ended December 31, 2023, the net gain was attributable to market-driven increases in the fair value of plan assets, partially offset by changes in the discount rate
and interest crediting rate. During the year ended December 31, 2022, a remeasurement of the Firm’s U.S. principal defined benefit plan in the third quarter, was required as a result of a pension settlement. The remeasurement resulted in a reduction in the fair value of the Firm’s U.S. principal defined benefit plan assets, reflecting market conditions at the time of remeasurement, and a reduction in the plan’s projected benefit obligation totaling $4.0 billion and $2.6 billion, respectively, resulting in a net decrease of $1.4 billion in pre-tax AOCI.
The following table presents the net periodic benefit costs reported in the Consolidated statements of income for the Firm’s defined benefit pension, defined contribution and OPEB plans, and in other comprehensive income for the defined benefit pension and OPEB plans.
| Pension and OPEB plans | |||
|---|---|---|---|
| Year ended December 31, (in millions) | 2023 | 2022 | 2021 |
| Total net periodic defined benefit plan cost/(credit)(a) | $(393) | $(192)(b) | $(201)(b) |
| Total defined contribution plans | 1,609 | 1,408 | 1,333 |
| Total pension and OPEB cost included in noninterest expense | $1,216 | $1,216 | $1,132 |
| Total recognized in other comprehensive (income)/loss | $(421) | $1,459 | $(1,129) |
(a)The service cost component of net periodic defined benefit cost is reported in compensation expense; all other components of net periodic defined benefit costs are reported in other expense in the Consolidated statements of income.
(b)Includes pension settlement losses of $92 million and $33 million, respectively, for the years ended December 31, 2022 and 2021.
The following table presents the weighted-average actuarial assumptions used to determine the net periodic benefit costs for the defined benefit pension and OPEB plans.
| Defined benefit pension and OPEB plans | |||
|---|---|---|---|
| Year ended December 31, | 2023 | 2022 | 2021 |
| Discount rate | 5.14% | 2.54% | 2.17% |
| Expected long-term rate of return on plan assets | 5.74% | 3.68% | 2.97% |
Plan assumptions
The Firm’s expected long-term rate of return is a blended weighted average, by asset allocation of the projected long-term returns for the various asset classes, taking into consideration local market conditions and the specific allocation of plan assets. Returns on asset classes are developed using a forward-looking approach and are not strictly based on historical returns, with consideration given to current market conditions and the portfolio mix of each plan.
The discount rates used in determining the benefit obligations are generally provided by the Firm’s actuaries, with the Firm’s principal defined benefit pension plan using a rate that was selected by reference to the yields on portfolios of bonds with maturity dates and coupons that closely match each of the plan’s projected cash flows.
Investment strategy and asset allocation
The assets of the Firm’s defined benefit pension plans are held in various trusts and are invested in well-diversified portfolios of equity and fixed income securities, cash and cash equivalents, and alternative investments. The Firm regularly reviews the asset allocations and asset managers, as well as other factors that could impact the portfolios, which are rebalanced when deemed necessary. As of December 31, 2023, the approved asset allocation ranges by asset class for the Firm’s principal defined benefit plan are 42-100% debt securities,0-40% equity securities,0-2% real estate, and 0-10% alternatives.
Assets held by the Firm’s defined benefit pension and OPEB plans do not include securities issued by JPMorgan Chase or its affiliates, except through indirect exposures through investments in exchange traded funds, mutual funds and collective investment funds managed by third-parties. The defined benefit pension and OPEB plans hold investments that are sponsored or managed by affiliates of JPMorgan Chase in the amount of $1.8 billion and $1.7 billion, as of December 31, 2023 and 2022, respectively.
Fair value measurement of the plans’ assets and liabilities
Refer to Note 2 for information on fair value measurements, including descriptions of level 1, 2, and 3 of the fair value hierarchy and the valuation methods employed by the Firm.
| Pension plan assets and liabilities measured at fair value | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| Defined benefit pension and OPEB plans | |||||||||
| 2023 · 2022 | |||||||||
| December 31, (in millions) · Level 1(a) · Level 2(b) · Level 3(c) · Total fair value · Level 1(a) · Level 2(b) · Level 3(c) · Total fair value | |||||||||
| Assets measured at fair value classified in the fair value hierarchy | $6,521 | $10,713 | $3,124 | $20,358 | $5,308 | $9,617 | $2,613 | $17,538 | |
| Assets measured at fair value using NAV as a practical expedient | 2,097 | 2,593 | |||||||
| Net defined benefit pension plan payables | (442) | (241) | |||||||
| Total fair value of plan assets | $22,013 | $19,890 | |||||||
(a) Consists predominantly of equity securities, U.S. federal, state, and local and non-U.S. government debt securities, and cash equivalents.
(b) Consists predominantly of corporate debt securities and U.S. federal, state, and local and non-U.S. government debt securities.
(c) Consists of corporate-owned life insurance policies, fund investments, and participating annuity contracts in 2023, and corporate-owned life insurance policies and participating annuity contracts in 2022.
Changes in level 3 fair value measurements using significant unobservable inputs
Investments classified in level 3 of the fair value hierarchy increased in 2023 to $3.1 billion, due to $400 million in unrealized gains and $173 million of transfers in, partially offset by $59 million in settlements. The decline in 2022 was due to $501 million in unrealized losses and $54 million in settlements.
Estimated future benefit payments
The following table presents benefit payments expected to be paid for the defined benefit pension and OPEB plans for the years indicated.
| Year ended December 31,(in millions) | Defined benefit pension and OPEB plans |
|---|---|
| 2024 | $1,142 |
| 2025 | 1,125 |
| 2026 | 1,113 |
| 2027 | 1,077 |
| 2028 | 1,063 |
| Years 2029–2033 | 5,143 |
Note 9 –Employee share-based incentives
Employee share-based awards
In 2023, 2022 and 2021, JPMorgan Chase granted long-term share-based awards to certain employees under its LTIP, as amended and restated effective May 15, 2018, and subsequently amended effective May 18, 2021. Under the terms of the LTIP, as of December 31, 2023,54 million shares of common stock were available for issuance through May 2025. The LTIP is the only active plan under which the Firm is currently granting share-based incentive awards. In the following discussion, the LTIP, plus prior Firm plans and plans assumed as the result of acquisitions, are referred to collectively as the “LTI Plans,” and such plans constitute the Firm’s share-based incentive plans.
RSUs are awarded at no cost to the recipient upon their grant. Generally, RSUs are granted annually and vest at a rate of 50% aftertwo years and 50% after three years and are converted into shares of common stock as of the vesting date. In addition, RSUs typically include full-career eligibility provisions, which allow employees to continue to vest upon voluntary termination based on age and/or service-related requirements, subject to post-employment and other restrictions. All RSU awards are subject to forfeiture until vested and contain clawback provisions that may result in cancellation under certain specified circumstances. Predominantly all RSUs entitle the recipient to receive cash payments equivalent to any dividends paid on the underlying common stock during the period the RSUs are outstanding.
Performance share units (“PSUs”) are granted annually, and approved by the Firm’s Board of Directors, to members of the Firm’s Operating Committee under the variable compensation program. PSUs are subject to the Firm’s achievement of specified performance criteria over athree-year period. The number of awards that vest can range from zero to 150% of the grant amount. In addition, dividends that accrue during the vesting period are reinvested in dividend equivalent share units. PSUs and the related dividend equivalent share units are converted into shares of common stock after vesting.
Once the PSUs and dividend equivalent share units have vested, the shares of common stock that are delivered, after applicable tax withholding, must be retained for an additional holding period, for a total combined vesting and holding period of approximately five toeight years from the grant date depending on regulations in certain countries.
Under the LTI Plans, stock appreciation rights (“SARs”) were generally granted with an exercise price equal to the fair value of JPMorgan Chase’s common stock on the grant date. SARs generally expireten years after the grant date. In 2021, the Firm awarded its Chairman and CEO and its President and Chief Operating Officer 1.5 million and 750,000 SARs, respectively. There wereno grants of SARs in 2023 or 2022.
The Firm separately recognizes compensation expense for each tranche of each award, net of estimated forfeitures, as if it were a separate award with its own vesting date. Generally, for each tranche granted, compensation expense is recognized on a straight-line basis from the grant date until the vesting date of the respective tranche, provided that the employees will not become full-career eligible during the vesting period. For awards with full-career eligibility provisions and awards granted with no future substantive service requirement, the Firm accrues the estimated value of awards expected to be awarded to employees as of the grant date without giving consideration to the impact of post-employment restrictions. For each tranche granted to employees who will become full-career eligible during the vesting period, compensation expense is recognized on a straight-line basis from the grant date until the earlier of the employee’s full-career eligibility date or the vesting date of the respective tranche.
The Firm’s policy for issuing shares upon settlement of employee share-based incentive awards is to issue either new shares of common stock or treasury shares. During 2023, 2022 and 2021, the Firm settled all of its employee share-based awards by issuing treasury shares.
Refer to Note 23 for further information on the classification of share-based awards for purposes of calculating earnings per share.
RSUs, PSUs and SARs activity
Generally, compensation expense for RSUs and PSUs is measured based on the number of units granted multiplied by the stock price at the grant date, and for SARs, is measured at the grant date using the Black-Scholes valuation model. Compensation expense for these awards is recognized in net income as described previously. The following table summarizes JPMorgan Chase’s RSUs, PSUs and SARs activity for 2023.
| RSUs/PSUs · SARs | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Year ended December 31, 2023 · Number of units · Weighted-average grantdate fair value · Number of awards · Weighted-average exercise price · Weighted-average remaining contractual life (in years) · Aggregate intrinsic value | ||||||||||
| (in thousands, except weighted-average data, and where otherwise stated) | ||||||||||
| Outstanding, January 1 | 47,726 | $139.90 | 2,511 | $141.19 | ||||||
| Granted | 23,758 | 139.39 | — | — | ||||||
| Exercised or vested | (17,773) | 134.86 | (261) | 46.58 | ||||||
| Forfeited | (1,468) | 142.11 | — | — | ||||||
| Canceled | NA | NA | — | — | ||||||
| Outstanding, December 31 | 52,243 | $141.31 | 2,250 | $152.19 | 7.7 | $40,444 | ||||
| Exercisable, December 31 | NA | NA | — | — | — | — | ||||
The total fair value of RSUs and PSUs that vested during the years ended December 31, 2023, 2022 and 2021, was $2.5 billion, $3.2 billion and $2.9 billion, respectively. The total intrinsic value of options exercised during the years ended December 31, 2023, 2022 and 2021, was $24 million, $75 million and $232 million, respectively.
Compensation expense
The Firm recognized the following noncash compensation expense related to its various employee share-based incentive plans in its Consolidated statements of income.
| Year ended December 31, (in millions) | 2023 | 2022 | 2021 |
|---|---|---|---|
| Cost of prior grants of RSUs, PSUs and SARs that are amortized over their applicable vesting periods | $1,510 | $1,253 | $1,161 |
| Accrual of estimated costs of share-based awards to be granted in future periods, predominantly those to full-career eligible employees | 1,607 | 1,541 | 1,768 |
| Total noncash compensation expense related to employee share-based incentive plans | $3,117 | $2,794 | $2,929 |
At December 31, 2023, approximately $1.0 billion (pretax) of compensation expense related to unvested awards had not yet been charged to net income. That cost is expected to be amortized into compensation expense over a weighted-average period of 1.7 years. The Firm does not capitalize any compensation expense related to share-based compensation awards to employees.
Tax benefits
Income tax benefits (including tax benefits from dividends or dividend equivalents) related to share-based incentive arrangements recognized in the Firm’s Consolidated statements of income for the years ended December 31, 2023, 2022 and 2021, were $836 million, $901 million and $957 million, respectively.
The text of this filing, as the company filed it with the SEC, without its images or exhibits. This is not investment advice.