JP Morgan Chase 2015 Annual Report Download - page 213

JPMorgan Chase & Co./2015 Annual Report 203
The majority of the Firm’s lending-related commitments are not carried at fair value on a recurring basis on the Consolidated
balance sheets, nor are they actively traded. The carrying value of the allowance and the estimated fair value of the Firm’s
wholesale lending-related commitments were as follows for the periods indicated.
December 31, 2015 December 31, 2014
Estimated fair value hierarchy Estimated fair value hierarchy
(in billions)
Carrying
value(a) Level 1 Level 2 Level 3
Total
estimated
fair value
Carrying
value(a) Level 1 Level 2 Level 3
Total
estimated
fair value
Wholesale lending-
related commitments $ 0.8 $ — $ — $ 3.0 $ 3.0 $ 0.6 $ — $ — $ 1.6 $ 1.6
(a) Excludes the current carrying values of the guarantee liability and the offsetting asset, each of which are recognized at fair value at the inception of
guarantees.
The Firm does not estimate the fair value of consumer 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. For a further
discussion of the valuation of lending-related commitments, see page 186 of this Note.
Note 4 – Fair value option
The fair value option provides an option to elect fair value
as an alternative measurement for selected financial assets,
financial liabilities, unrecognized firm commitments, and
written loan commitments.
The Firm has elected to measure certain instruments at fair
value in order to:
• Mitigate income statement volatility caused by the
differences in the measurement basis of elected
instruments (e.g. certain instruments elected were
previously accounted for on an accrual basis) while the
associated risk management arrangements are
accounted for on a fair value basis;
• Eliminate the complexities of applying certain
accounting models (e.g., hedge accounting or bifurcation
accounting for hybrid instruments); and/or
• 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.
• Certain securities financing arrangements with an
embedded derivative and/or a maturity of greater than
one year.
• 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.
• Certain investments that receive tax credits and other
equity investments acquired as part of the Washington
Mutual transaction.
• Structured notes issued as part of CIB’s client-driven
activities. (Structured notes are predominantly financial
instruments that contain embedded derivatives.)
• Certain long-term beneficial interests issued by CIB’s
consolidated securitization trusts where the underlying
assets are carried at fair value.