Bank of America 2013 Annual Report Download - page 269

Bank of America 2013 267
Other Assets
The Corporation elects to account for certain private equity
investments that are not in an investment company under the fair
value option as this measurement basis is consistent with
applicable accounting guidance for similar investments that are
in an investment company. The Corporation also elects to account
for certain long-term fixed-rate margin loans that are hedged with
derivatives under the fair value option. Election of the fair value
option allows the Corporation to reduce the accounting volatility
that would otherwise result from the asymmetry created by
accounting for the financial instruments at historical cost and the
derivatives at fair value.
Securities Financing Agreements
The Corporation elects to account for certain securities financing
agreements, including resale and repurchase agreements, under
the fair value option based on the tenor of the agreements, which
reflects the magnitude of the interest rate risk. The majority of
securities financing agreements collateralized by U.S. government
securities are not accounted for under the fair value option as
these contracts are generally short-dated and therefore the
interest rate risk is not significant.
Long-term Deposits
The Corporation elects to account for certain long-term fixed-rate
and rate-linked deposits that are hedged with derivatives that do
not qualify for hedge accounting under the fair value option.
Election of the fair value option allows the Corporation to reduce
the accounting volatility that would otherwise result from the
asymmetry created by accounting for the financial instruments at
historical cost and the derivatives at fair value. The Corporation
did not elect to carry other long-term deposits at fair value because
they were not hedged using derivatives.
Short-term Borrowings
The Corporation elects to account for certain short-term
borrowings, primarily short-term structured liabilities, under the
fair value option because this debt is risk-managed on a fair value
basis.
The Corporation elects to account for certain asset-backed
secured financings, which are also classified in short-term
borrowings, under the fair value option. Election of the fair value
option allows the Corporation to reduce the accounting volatility
that would otherwise result from the asymmetry created by
accounting for the asset-backed secured financings at historical
cost and the corresponding mortgage LHFS securing these
financings at fair value.
Long-term Debt
The Corporation elects to account for certain long-term debt,
primarily structured liabilities, under the fair value option. This long-
term debt is either risk-managed on a fair value basis or the related
hedges do not qualify for hedge accounting.
The table below provides information about the fair value
carrying amount and the contractual principal outstanding of
assets and liabilities accounted for under the fair value option at
December 31, 2013 and 2012.
Fair Value Option Elections
December 31
2013 2012
(Dollars in millions)
Fair Value
Carrying
Amount
Contractual
Principal
Outstanding
Fair Value
Carrying
Amount Less
Unpaid
Principal
Fair Value
Carrying
Amount
Contractual
Principal
Outstanding
Fair Value
Carrying
Amount Less
Unpaid
Principal
Loans reported as trading account assets (1) $ 2,200 $ 4,315 $ (2,115)$ 1,663 $ 2,879 $ (1,216)
Trading inventory - other 5,475 n/a n/a 2,170 n/a n/a
Consumer and commercial loans 10,042 10,423 (381) 9,002 9,576 (574)
Loans held-for-sale 6,656 6,996 (340) 11,659 12,676 (1,017)
Securities financing agreements 109,298 109,032 266 141,309 140,791 518
Other assets 278 270 8453 270 183
Long-term deposits 1,899 2,115 (216) 2,262 2,046 216
Asset-backed secured financings ——— 741 1,176 (435)
Unfunded loan commitments 354 n/a n/a 528 n/a n/a
Short-term borrowings 1,520 1,520 — 3,333 3,333 —
Long-term debt (2, 3) 47,035 46,669 366 49,161 50,792 (1,631)
(1) A significant portion of the loans reported as trading account assets are distressed loans which trade and were purchased at a deep discount to par, and the remainder are loans with a fair value
near contractual principal outstanding.
(2) The majority of the difference between the fair value carrying amount and contractual principal outstanding at December 31, 2013 and 2012 relates to the impact of the Corporation’s credit spreads
as well as the fair value of the embedded derivative, where applicable.
(3) Includes structured liabilities with a fair value of $40.7 billion and contractual principal outstanding of $39.7 billion at December 31, 2013 compared to $39.3 billion and $39.9 billion at December 31,
2012.
n/a = not applicable