Bank of America 2015 Annual Report Download - page 151

Bank of America 2015 149
Offsetting of Derivatives
December 31, 2015 December 31, 2014
(Dollars in billions)
Derivative
Assets
Derivative
Liabilities
Derivative
Assets
Derivative
Liabilities
Interest rate contracts
Over-the-counter $ 309.3 $ 297.2 $ 386.6 $ 373.2
Exchange-traded — — 0.1 0.1
Over-the-counter cleared 197.0 201.7 365.7 368.7
Foreign exchange contracts
Over-the-counter 103.2 107.5 133.0 139.9
Over-the-counter cleared 0.1 0.1 — —
Equity contracts
Over-the-counter 16.6 14.0 19.5 16.7
Exchange-traded 10.0 9.2 8.6 7.8
Commodity contracts
Over-the-counter 7.3 8.9 10.2 11.9
Exchange-traded 2.9 2.9 7.4 7.7
Over-the-counter cleared 0.1 0.1 0.1 0.6
Credit derivatives
Over-the-counter 24.6 22.9 30.8 30.2
Over-the-counter cleared 6.5 6.4 7.0 6.8
Total gross derivative assets/liabilities, before netting
Over-the-counter 461.0 450.5 580.1 571.9
Exchange-traded 12.9 12.1 16.1 15.6
Over-the-counter cleared 203.7 208.3 372.8 376.1
Less: Legally enforceable master netting agreements and cash collateral received/paid
Over-the-counter (426.6)(425.7)(545.7) (545.5)
Exchange-traded (9.8)(9.8)(13.9) (13.9)
Over-the-counter cleared (203.3)(208.2)(372.5) (375.5)
Derivative assets/liabilities, after netting 37.9 27.2 36.9 28.7
Other gross derivative assets/liabilities 12.1 11.3 15.8 18.2
Total derivative assets/liabilities 50.0 38.5 52.7 46.9
Less: Financial instruments collateral (1) (13.9) (6.5)(13.3) (8.9)
Total net derivative assets/liabilities $ 36.1 $32.0 $ 39.4 $ 38.0
(1) These amounts are limited to the derivative asset/liability balance and, accordingly, do not include excess collateral received/pledged.
ALM and Risk Management Derivatives
The Corporation’s ALM and risk management activities include the
use of derivatives to mitigate risk to the Corporation including
derivatives designated in qualifying hedge accounting
relationships and derivatives used in other risk management
activities. Interest rate, foreign exchange, equity, commodity and
credit contracts are utilized in the Corporation’s ALM and risk
management activities.
The Corporation maintains an overall interest rate risk
management strategy that incorporates the use of interest rate
contracts, which are generally non-leveraged generic interest rate
and basis swaps, options, futures and forwards, to minimize
significant fluctuations in earnings caused by interest rate
volatility. The Corporation’s goal is to manage interest rate
sensitivity and volatility so that movements in interest rates do
not significantly adversely affect earnings or capital. As a result
of interest rate fluctuations, hedged fixed-rate assets and liabilities
appreciate or depreciate in fair value. Gains or losses on the
derivative instruments that are linked to the hedged fixed-rate
assets and liabilities are expected to substantially offset this
unrealized appreciation or depreciation.
Market risk, including interest rate risk, can be substantial in
the mortgage business. Market risk is the risk that values of
mortgage assets or revenues will be adversely affected by changes
in market conditions such as interest rate movements. To mitigate
the interest rate risk in mortgage banking production income, the
Corporation utilizes forward loan sale commitments and other
derivative instruments, including purchased options, and certain
debt securities. The Corporation also utilizes derivatives such as
interest rate options, interest rate swaps, forward settlement
contracts and eurodollar futures to hedge certain market risks of
MSRs. For more information on MSRs, see Note 23 – Mortgage
Servicing Rights.
The Corporation uses foreign exchange contracts to manage
the foreign exchange risk associated with certain foreign currency-
denominated assets and liabilities, as well as the Corporation’s
investments in non-U.S. subsidiaries. Foreign exchange contracts,
which include spot and forward contracts, represent agreements
to exchange the currency of one country for the currency of another
country at an agreed-upon price on an agreed-upon settlement
date. Exposure to loss on these contracts will increase or decrease
over their respective lives as currency exchange and interest rates
fluctuate.
The Corporation enters into derivative commodity contracts
such as futures, swaps, options and forwards as well as non-
derivative commodity contracts to provide price risk management
services to customers or to manage price risk associated with its
physical and financial commodity positions. The non-derivative
commodity contracts and physical inventories of commodities
expose the Corporation to earnings volatility. Fair value accounting
hedges provide a method to mitigate a portion of this earnings
volatility.