Charles Schwab 2011 Annual Report Download - page 103

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THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
- 75 -
17. Fair Values of Assets and Liabilities
Fair value is defined as the price that would be received to sell an asset or the price paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Fair value measurement accounting guidance describes the
fair value hierarchy for disclosing assets and liabilities measured at fair value based on the inputs used to value them. The fair
value hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs. Observable inputs are
based on market pricing data obtained from sources independent of the Company. A quoted price in an active market provides
the most reliable evidence of fair value and is generally used to measure fair value whenever available. Unobservable inputs
reflect management’s judgment about the assumptions market participants would use in pricing the asset or liability. Where
inputs used to measure fair value of an asset or liability are from different levels of the hierarchy, the asset or liability is
categorized based on the lowest level input that is significant to the fair value measurement in its entirety. Assessing the
significance of a particular input requires judgment. The fair value hierarchy includes three levels based on the objectivity of
the inputs as follows:
Level 1 inputs are quoted prices in active markets as of the measurement date for identical assets or liabilities that the
Company has the ability to access. This category includes active exchange-traded money market funds, mutual
funds, options, and equity securities. The Company did not transfer any assets or liabilities between Level 1 and
Level 2 during 2011 or 2010.
Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability,
either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets,
and inputs other than quoted prices that are observable for the asset or liability, such as interest rates, benchmark
yields, issuer spreads, new issue data, and collateral performance. This category includes residential mortgage-
backed securities, corporate debt securities, certificates of deposit, commercial paper, U.S. agency and municipal
debt securities, U.S. Treasury securities, and asset-backed and other securities.
Level 3 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any,
market activity for the asset or liability. The Company did not have any financial assets or liabilities utilizing Level 3
inputs as of December 31, 2011 or 2010.