| Fair value measurement | Note 2 Fair value measurement This note presents the fair values of financial instruments and explains how we determine those values. Note 1, “Basis of preparation and summary of significant accounting policies”, sets out the accounting treatment for each measurement category of financial instruments.
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, between market participants in an orderly transaction in the principal market at the measurement date under current market conditions (i.e., the exit price). The determination of fair value requires judgment and is based on market information, where available and appropriate. Fair value measurements are categorized into three levels within a fair value hierarchy (Level 1, 2 or 3) based on the valuation inputs used in measuring the fair value, as outlined below.
• Level 1 – Unadjusted quoted market prices in active markets for identical assets or liabilities we can access at the measurement date. Bid prices, ask prices or prices within the bid and ask, which are the most representative of the fair value, are used as appropriate to measure fair value. Fair value is best evidenced by an independent quoted market price for the same instrument in an active market. An active market is one where transactions are occurring with sufficient frequency and volume to provide quoted prices on an ongoing basis.
• Level 2 – Quoted prices for identical assets or liabilities in markets that are inactive or observable market quotes for similar instruments, or use of valuation techniques where all significant inputs are observable. Inactive markets may be characterized by a significant decline in the volume and level of observed trading activity or through large or erratic bid/offer spreads. In instances where traded markets do not exist or are not considered sufficiently active, we measure fair value using valuation models.
• Level 3 – Non-observable non-observable. For a significant portion of our financial instruments, quoted market prices are not available because of the lack of traded markets, and even where such markets do exist, they may not be considered sufficiently active to be used as a final determinant of fair value. When quoted market prices in active markets are not available, we would consider using valuation models. The valuation model and technique we select maximizes the use of observable market inputs to the extent possible and appropriate in order to estimate the price at which an orderly transaction would take place at the measurement date. In an inactive market, we consider all reasonably available information, including any available pricing for similar instruments, recent arm’s-length Valuation adjustments are an integral component of our fair valuation process. We apply judgment in establishing valuation adjustments that take into account various factors that may have an impact on the valuation. Such factors primarily include, but are not limited to, the bid-offer Generally, the unit of account for a financial instrument is the individual instrument, and valuation adjustments are applied at an individual instrument level, consistent with that unit of account. In cases where we manage a group of financial assets and liabilities that consist of substantially similar and offsetting risk exposures, the fair value of the group of financial assets and liabilities is measured on the basis of the net open risks. We apply judgment in determining the most appropriate inputs and the weighting we ascribe to each such input as well as in our selection of valuation methodologies. Regardless of the valuation technique we use, we incorporate assumptions that we believe market participants would make for credit, funding, and liquidity considerations. When the fair value of a financial instrument at inception is determined using a valuation technique that incorporates one or more significant inputs that are non-observable, We have an ongoing process for evaluating and enhancing our valuation techniques and models. Where enhancements are made, they are applied prospectively, so that fair values reported in prior periods are not recalculated on the new basis. Valuation models used, including analytics for the construction of yield curves and volatility surfaces, are vetted and approved, consistent with our model risk policy. To ensure that valuations are appropriate, we have established internal guidance on fair value measurement, which is reviewed periodically in recognition of the dynamic nature of markets and the constantly evolving pricing practices in the market. A number of policies and controls are put in place to ensure that the internal guidance on fair value measurement is being applied consistently and appropriately, including independent validation of valuation inputs to external sources such as exchange quotes, broker quotes or other management-approved independent pricing sources. Key model inputs, such as yield curves and volatilities, are independently verified. The results from the independent price validation and any valuation adjustments are reviewed by the Independent Price Verification Committee on a monthly basis. This includes, but is not limited to, reviewing fair value adjustments and methodologies, independent price verification results, limits and valuation uncertainty. Due to the judgment used in applying a wide variety of acceptable valuation techniques and models, as well as the use of estimates inherent in this process, estimates of fair value for the same or similar assets may differ among financial institutions. The calculation of fair value is based on market conditions as at each consolidated balance sheet date and may not be reflective of ultimate realizable value. Methods and assumptions Financial instruments with fair value equal to carrying value For financial instruments that are not carried on the consolidated balance sheet at fair value and where we consider the carrying value to be a reasonable approximation of fair value due to their short-term nature and generally negligible credit risk, the fair values disclosed for these financial instruments are assumed to equal their carrying values. These financial instruments are: cash and non-interest-bearing Securities The fair value of debt or equity securities and obligations related to securities sold short is based on quoted bid or ask market prices where available in an active market. Securities for which quotes in an active market are not available are valued using all reasonably available market information as described below. The fair value of government issued or guaranteed securities that are not traded in an active market is calculated by applying valuation techniques such as discounted cash flow models using implied yields derived from the prices of actively traded government securities and most recently observable spread differentials. The fair value of corporate debt securities is determined using the most recently executed transaction prices, and where appropriate, adjusted to the price of these securities obtained from independent dealers, brokers, and third-party multi-contributor consensus pricing sources. When observable price quotations are not available, fair value is determined based on discounted cash flow models using observable discounting curves such as benchmark and government yield curves and spread differentials observed through independent dealers, brokers, and third-party multi-contributor consensus pricing sources. Asset-backed securities (ABS) and mortgage-backed securities (MBS) not issued or guaranteed by a government are valued using discounted cash flow models making maximum use of market observable inputs, such as broker quotes on identical or similar securities and other pricing information obtained from third-party pricing sources adjusted for the characteristics and the performance of the underlying collateral. Other key inputs used include prepayment and liquidation rates, credit spreads, and discount rates commensurate with the risks involved. These assumptions factor in information that is derived from actual transactions, underlying reference asset performance, external market research, and market indices, where appropriate. Privately issued debt and equity securities are valued using recent market transactions, where available. Otherwise, fair values are derived from valuation models using a market or income approach. These models consider various factors, including projected cash flows, earnings, revenue or other third-party evidence as available. The fair value of limited partnership investments is based upon net asset values published by third-party fund managers and is adjusted for more recent information where available and appropriate. The carrying value of Community Reinvestment Act Loans The fair value of variable-rate loans and loans for which interest rates are repriced or reset frequently is assumed to be equal to their carrying value. The fair value for fixed-rate loans is estimated using a discounted cash flow calculation that uses market interest rates. The ultimate fair value of loans disclosed is net of the associated allowance for credit losses. The fair value of loans is not adjusted for the value of any credit derivatives used to manage the credit risk associated with them. The fair value of these credit derivatives is disclosed separately. Securities purchased under resale agreements or sold under repurchase agreements The fair values of these contracts are determined using valuation techniques such as the discounted cash flow method using interest rate curves as inputs. Other assets and other liabilities Other assets and other liabilities mainly comprise accrued interest receivable or payable, brokers’ client accounts receivable or payable, derivative collateral receivable or payable, precious metals and accounts receivable or payable. The fair values of other assets and other liabilities are primarily assumed to be at cost or amortized cost as we consider the carrying value to be a reasonable approximation of fair value, except for the fair value of precious metals, which is quoted in an active market. Other assets also include investment in bank-owned life insurance carried at the cash surrender value, which is assumed to be a reasonable approximation of fair value. Deposits The fair values of floating-rate deposits and demand deposits are assumed to be equal to their amortized cost. The fair value of fixed-rate deposits is determined by discounting the contractual cash flows using either current market interest rates with similar remaining terms or rates estimated using internal models and broker quotes. The fair value of deposit liabilities with embedded optionality includes the fair value of those options. The fair value of equity- and commodity-linked notes includes the fair value of embedded equity and commodity derivatives. Certain deposits designated at FVTPL are structured notes that have coupons or repayment terms linked to the performance of commodities, debt or equity securities or specific market indices. The fair value of these structured notes is estimated using internally vetted valuation models for the debt and embedded derivative portions of the notes by incorporating market observable prices of the referenced securities or comparable securities, and other inputs such as interest rate yield curves, equity prices or indices, market volatility levels, foreign exchange rates and changes in our own credit risk, where appropriate. Where observable prices or inputs are not available, management judgment is required to determine fair values by assessing other relevant sources of information such as historical data, proxy information from similar transactions, and through extrapolation and interpolation techniques. Appropriate market risk valuation adjustments for such inputs are assessed in all such instances. The fair value of secured borrowings, which comprises liabilities issued by or as a result of activities associated with the securitization of residential mortgages, the Covered Bond Programme, and consolidated securitization vehicles, is based on identical or proxy market observable quoted bond prices or determined by discounting the contractual cash flows using maximum market observable inputs, such as market interest rates, or credit spreads implied by debt instruments of similar credit quality, as appropriate. Subordinated indebtedness The fair value of subordinated indebtedness is determined by reference to market prices for the same or similar debt instruments.
Derivative instruments The fair value of exchange-traded derivatives such as options and futures is based on quoted market prices. OTC derivatives primarily consist of interest rate swaps, foreign exchange forwards, equity and commodity derivatives, interest rate and currency derivatives, and credit derivatives. For such instruments, where quoted market prices or third-party consensus pricing information are not available, valuation techniques are employed to estimate fair value on the basis of pricing models. Such vetted pricing models incorporate current market measures for interest rates, foreign exchange rates, equity and commodity prices and indices, credit spreads, corresponding market volatility levels, and other market-based pricing factors. In order to reflect the observed market practice of pricing collateralized and uncollateralized derivatives, our valuation approach uses overnight indexed swap (OIS) curves as the discount rate for valuing collateralized derivatives and uses an estimated market cost of funds curve as the discount rate for valuing uncollateralized derivatives. Uncollateralized derivatives are valued based on an estimated market cost of funds curve, which reduces the fair value of uncollateralized derivative assets incremental to the reduction in fair value for credit risk already reflected through the credit valuation adjustment (CVA). In contrast, the use of a market cost of funds curve reduces the fair value of uncollateralized derivative liabilities in a manner that generally includes adjustments for our own credit. As market practices continue to evolve in regard to derivative valuation, further adjustments may be required in the future. In addition to reflecting estimated market funding costs in our valuation of uncollateralized derivative receivables, we also consider whether a CVA is required to recognize the risk that any given derivative counterparty may not ultimately be able to fulfill its obligations. The CVA is driven off market-observed credit spreads or proxy credit spreads and our assessment of the net counterparty credit risk (CCR) exposure. In assessing this exposure, we also take into account credit mitigants such as collateral, master netting arrangements, and settlements through clearing houses. As noted above, the fair value of uncollateralized derivative liabilities based on market cost of funding generally includes adjustments for our own credit. In determining the fair value of complex and customized derivatives, such as equity, credit, and commodity derivatives written in reference to indices or baskets of reference, we consider all reasonably available information including any relevant observable market inputs, third-party consensus pricing inputs, indicative dealer and broker quotations, and our own internal model-based estimates, which are vetted and approved in accordance with our model risk policy, and are regularly and periodically calibrated. The model calculates fair value based on inputs specific to the type of contract, which may include stock prices, correlation for multiple assets, interest rates, foreign exchange rates, yield curves, volatility surfaces, and the probability of early termination. Where observable prices or inputs are not available, management judgment is required to determine fair values by assessing other relevant sources of information such as historical data, proxy information from similar transactions, and through extrapolation and interpolation techniques. Appropriate parameter uncertainty and market risk valuation adjustments for such inputs and other model risk valuation adjustments are assessed in all such instances. Mortgage commitments The fair value of mortgage commitments designated at FVTPL is for fixed-rate residential mortgage commitments and is based on changes in market interest rates for the loans between the commitment and the consolidated balance sheet dates. The valuation model takes into account the expected probability that outstanding commitments will be exercised as well as the length of time the commitment is offered. Fair value of financial instruments
Carrying value
$ millions, as at October 31 Amortized Mandatorily Designated Fair value Total Fair value Fair value
2023 Financial assets
Cash and deposits with banks $ 55,718 $ – $ – $ – $ 55,718 $ 55,718 $ –
Securities 67,294 82,723 – 61,331 211,348 209,326 (2,022 )
Cash collateral on securities borrowed 14,651 – – – 14,651 14,651 –
Securities purchased under resale agreements 66,797 13,387 – – 80,184 80,184 –
Loans
Residential mortgages 273,785 3 – – 273,788 268,403 (5,385 )
Personal 44,570 – – – 44,570 44,454 (116 )
Credit card 17,853 – – – 17,853 17,909 56
Business and government 192,856 126 144 – 193,126 192,727 (399 )
Derivative instruments – 33,243 – – 33,243 33,243 –
Customers’ liability under acceptances 10,816 – – – 10,816 10,816 –
Other assets 18,651 – – – 18,651 18,651 –
Financial liabilities
Deposits
Personal $ 225,183 $ – $ 13,852 $ – $ 239,035 $ 238,725 $ (310 )
Business and government 392,021 – 20,540 – 412,561 412,983 422
Bank 22,296 – – – 22,296 22,296 –
Secured borrowings 48,098 – 1,386 – 49,484 49,353 (131 )
Derivative instruments – 41,290 – – 41,290 41,290 –
Acceptances 10,820 – – – 10,820 10,820 –
Obligations related to securities sold short – 18,666 – – 18,666 18,666 –
Cash collateral on securities lent 8,081 – – – 8,081 8,081 –
Obligations related to securities sold under repurchase agreements 82,403 – 4,715 – 87,118 87,118 –
Other liabilities 18,459 119 16 – 18,594 18,594 –
Subordinated indebtedness 6,483 – – – 6,483 6,561 78
2022 Financial assets
Cash and deposits with banks $ 62,193 $ 1,668 $ – $ – $ 63,861 $ 63,861 $ –
Securities 52,484 67,296 – 56,099 175,879 173,663 (2,216 )
Cash collateral on securities borrowed 15,326 – – – 15,326 15,326 –
Securities purchased under resale agreements 53,626 15,587 – – 69,213 69,213 –
Loans
Residential mortgages 269,409 4 – – 269,413 262,865 (6,548 )
Personal 44,527 – – – 44,527 44,394 (133 )
Credit card 15,695 – – – 15,695 15,775 80
Business and government 186,485 758 205 – 187,448 186,967 (481 )
Derivative instruments – 43,035 – – 43,035 43,035 –
Customers’ liability under acceptances 11,574 – – – 11,574 11,574 –
Other assets 26,387 – – – 26,387 26,387 –
Financial liabilities
Deposits
Personal $ 220,244 $ – $ 11,851 $ – $ 232,095 $ 231,532 $ (563 )
Business and government 383,502 – 13,686 – 397,188 397,145 (43 )
Bank 22,523 – – – 22,523 22,523 –
Secured borrowings 44,110 – 1,656 – 45,766 45,507 (259 )
Derivative instruments – 52,340 – – 52,340 52,340 –
Acceptances 11,586 – – – 11,586 11,586 –
Obligations related to securities sold short – 15,284 – – 15,284 15,284 –
Cash collateral on securities lent 4,853 – – – 4,853 4,853 –
Obligations related to securities sold under repurchase agreements 73,084 – 4,087 – 77,171 77,171 –
Other liabilities 19,830 102 22 – 19,954 19,954 –
Subordinated indebtedness 6,292 – – – 6,292 6,329 37 Fair value of derivative instruments
$ millions, as at October 31 2023 2022
Positive Negative Net Positive Negative Net
Held for trading
Interest rate derivatives
Over-the-counter – Forward rate agreements $ 550 $ 47 $ 503 $ – $ 1 $ (1 )
– Swap contracts 8,259 16,934 (8,675 ) 6,688 12,762 (6,074 )
– Purchased options 411 – 411 491 – 491
– Written options – 365 (365 ) – 354 (354 )
9,220 17,346 (8,126 ) 7,179 13,117 (5,938 )
Exchange-traded – Futures contracts – – – 3 1 2
– Purchased options 1 – 1 3 – 3
– Written options – 1 (1 ) – – –
1 1 – 6 1 5
Total interest rate derivatives 9,221 17,347 (8,126 ) 7,185 13,118 (5,933 )
Foreign exchange derivatives
Over-the-counter – Forward contracts 7,395 6,978 417 10,650 11,798 (1,148 )
– Swap contracts 5,423 8,013 (2,590 ) 8,252 10,198 (1,946 )
– Purchased options 446 – 446 561 – 561
– Written options – 364 (364 ) – 481 (481 )
Total foreign exchange derivatives 13,264 15,355 (2,091 ) 19,463 22,477 (3,014 )
Credit derivatives
Over-the-counter – Credit default swap contracts – protection purchased 47 11 36 53 12 41
– Credit default swap contracts – protection sold 17 52 (35 ) 6 51 (45 )
Total credit derivatives 64 63 1 59 63 (4 )
Equity derivatives
Over-the-counter 2,899 3,396 (497 ) 2,338 3,110 (772 )
Exchange-traded 2,331 2,406 (75 ) 2,775 3,220 (445 )
Total equity derivatives 5,230 5,802 (572 ) 5,113 6,330 (1,217 )
Precious metal and other commodity derivatives
Over-the-counter 2,874 1,791 1,083 8,163 2,989 5,174
Exchange-traded 154 251 (97 ) 118 1,301 (1,183 )
Total precious metal and other commodity derivatives 3,028 2,042 986 8,281 4,290 3,991
Total held for trading 30,807 40,609 (9,802 ) 40,101 46,278 (6,177 )
Held for ALM
Interest rate derivatives
Over-the-counter – Forward rate agreements 1 – 1 696 62 634
– Swap contracts 179 (1,752 ) 1,931 391 1,194 (803 )
– Purchased options 6 1 5 1 – 1
– Written options – 3 (3 ) – 10 (10 )
Total interest rate derivatives 186 (1,748 ) 1,934 1,088 1,266 (178 )
Foreign exchange derivatives
Over-the-counter – Forward contracts 23 63 (40 ) 29 129 (100 )
– Swap contracts 2,222 2,259 (37 ) 1,805 4,623 (2,818 )
Total foreign exchange derivatives 2,245 2,322 (77 ) 1,834 4,752 (2,918 )
Equity derivatives
Over-the-counter 5 107 (102 ) 12 44 (32 )
Total equity derivatives 5 107 (102 ) 12 44 (32 )
Total held for ALM 2,436 681 1,755 2,934 6,062 (3,128 )
Total fair value 33,243 41,290 (8,047 ) 43,035 52,340 (9,305 )
Less: effect of netting (21,787 ) (21,787 ) – (25,999 ) (25,999 ) –
$ 11,456 $ 19,503 $ (8,047 ) $ 17,036 $ 26,341 $ (9,305 ) Financial assets and liabilities not carried on the consolidated balance sheet at fair value The table below presents the fair values by level within the fair value hierarchy for those financial instruments in which fair value is not assumed to equal the carrying value:
Level 1 Level 2 Level 3
Quoted market price Valuation technique – Valuation technique – non-observable Total 2023 Total 2022
$ millions, as at October 31 2023 2022 2023 2022 2023 2022
Financial assets
Amortized cost securities $ – $ – $ 64,530 $ 49,576 $ 742 $ 692 $ 65,272 $ 50,268
Loans
Residential mortgages – – – – 268,400 262,861 268,400 262,861
Personal – – – – 44,454 44,394 44,454 44,394
Credit card – – – – 17,909 15,775 17,909 15,775
Business and government – – – – 192,457 186,004 192,457 186,004
Financial liabilities
Deposits
Personal $ – $ – $ 82,701 $ 62,636 $ 2,242 $ 1,899 $ 84,943 $ 64,535
Business and government – – 187,216 179,182 5,796 1,766 193,012 180,948
Bank – – 9,079 10,724 – – 9,079 10,724
Secured borrowings – – 43,996 40,913 3,971 2,938 47,967 43,851
Subordinated indebtedness – – 6,561 6,329 – – 6,561 6,329 Financial instruments carried on the consolidated balance sheet at The table below presents the fair values of financial instruments by level within the fair value hierarchy:
Level 1 Level 2 Level 3
Quoted market price Valuation technique – Valuation technique – non-observable Total Total 2022
$ millions, as at October 31 2023 2022 2023 2022 2023 2022
Financial assets
Deposits with banks $ – $ – $ – $ 1,668 $ – $ – $ – $ 1,668
Debt securities mandatorily measured and designated at FVTPL
Government issued or guaranteed 4,194 2,611 25,128 25,539 – – 29,322 28,150
Corporate debt – – 4,455 3,609 – 2 4,455 3,611
Mortgage- and asset-backed – – 3,056 3,656 151 207 3,207 3,863
4,194 2,611 32,639 32,804 151 209 36,984 35,624
Loans mandatorily measured at FVTPL
Business and government – – 126 276 144 (1) 687 (1) 270 963
Residential mortgages – – 3 4 – – 3 4
– – 129 280 144 687 273 967
Debt securities measured at FVOCI
Government issued or guaranteed 3,468 4,888 48,717 42,200 – – 52,185 47,088
Corporate debt – – 6,658 6,967 – – 6,658 6,967
Mortgage- and asset-backed – – 1,916 1,522 – – 1,916 1,522
3,468 4,888 57,291 50,689 – – 60,759 55,577
Corporate equity mandatorily measured at FVTPL and designated at FVOCI 44,852 30,962 872 773 587 459 46,311 32,194
Securities purchased under resale agreements measured at FVTPL – – 18,387 15,587 – – 18,387 15,587
Derivative instruments
Interest rate 1 6 9,385 8,249 21 18 9,407 8,273
Foreign exchange – – 15,509 21,297 – – 15,509 21,297
Credit – – 18 14 46 45 64 59
Equity 2,331 2,776 2,900 2,345 4 4 5,235 5,125
Precious metal and other commodity 15 94 3,013 8,187 – – 3,028 8,281
2,347 2,876 30,825 40,092 71 67 33,243 43,035
Total financial assets $ 54,861 $ 41,337 $ 140,143 $ 141,893 $ 953 $ 1,422 $ 195,957 $ 184,652
Financial liabilities
Deposits and other liabilities (2) $ – $ – $ (35,671 ) $ (26,908 ) $ (242 ) $ (409 ) $ (35,913 ) $ (27,317 )
Obligations related to securities sold short (6,265 ) (5,499 ) (12,401 ) (9,785 ) – – (18,666 ) (15,284 )
Obligations related to securities sold under repurchase agreements – – (4,715 ) (4,087 ) – – (4,715 ) (4,087 )
Derivative instruments
Interest rate (1 ) (1 ) (13,781 ) (12,850 ) (1,817 ) (1,533 ) (15,599 ) (14,384 )
Foreign exchange – – (17,677 ) (27,229 ) – – (17,677 ) (27,229 )
Credit – – (11 ) (13 ) (52 ) (50 ) (63 ) (63 )
Equity (2,406 ) (3,220 ) (3,498 ) (3,151 ) (5 ) (3 ) (5,909 ) (6,374 )
Precious metal and other commodity (68 ) (365 ) (1,974 ) (3,925 ) – – (2,042 ) (4,290 )
(2,475 ) (3,586 ) (36,941 ) (47,168 ) (1,874 ) (1,586 ) (41,290 ) (52,340 )
Total financial liabilities $ (8,740 ) $ (9,085 ) $ (89,728 ) $ (87,948 ) $ (2,116 ) $ (1,995 ) $ (100,584 ) $ (99,028 )
(1) Includes $144 million related to loans designated at FVTPL (2022: $205 million).
(2) Comprises deposits designated at FVTPL of $35,639 million (2022: $26,802 million), net bifurcated embedded derivative liabilities of $139 million (2022: net bifurcated embedded derivative liabilities of $391 million), other liabilities designated at FVTPL of $16 million (2022: $22 million), and other financial liabilities measured at fair value of $119 million (2022: $102 million). Transfers between levels in the fair value hierarchy are deemed to have occurred at the beginning of the year in which the transfer occurred. Transfers between can The following table presents the changes in fair value of financial assets and liabilities in Level 3. These instruments are measured at fair value utilizing non-observable
Net gains (losses) (1)
$ millions, for the year ended October 31 Opening Realized (2) Unrealized (2)(3) Net (4) Transfer Transfer Purchases/ Sales/ Closing
2023
Debt securities mandatorily measured and designated at FVTPL
Corporate debt $ 2 $ – $ – $ – $ – $ – $ – $ (2 ) $ –
Mortgage- and asset-backed 207 – – – – – 159 (215 ) 151
Loans mandatorily measured at FVTPL
Business and government 687 – 6 (2 ) – – – (547 ) 144
Corporate equity mandatorily measured at
FVTPL and designated at FVOCI 459 6 53 16 – – 213 (160 ) 587
Derivative instruments
Interest rate 18 – – – – (10 ) 12 1 21
Foreign exchange – – 24 – – (24 ) – – –
Credit 45 (3 ) 5 – – – – (1 ) 46
Equity 4 1 – – 4 (2 ) 5 (8 ) 4
Total assets $ 1,422 $ 4 $ 88 $ 14 $ 4 $ (36 ) $ 389 $ (932 ) $ 953
Deposits and other liabilities (5) $ (409 ) $ (40 ) $ 85 $ – $ (2 ) $ 1 $ (129 ) $ 252 $ (242 )
Derivative instruments
Interest rate (1,533 ) – (728 ) – – 407 (11 ) 48 (1,817 )
Credit (50 ) 3 (5 ) – – – – – (52 )
Equity (3 ) – (1 ) – (5 ) 6 (3 ) 1 (5 )
Total liabilities $ (1,995 ) $ (37 ) $ (649 ) $ – $ (7 ) $ 414 $ (143 ) $ 301 $ (2,116 )
2022
Debt securities mandatorily measured and designated at FVTPL
Corporate debt $ 2 $ – $ – $ – $ – $ – $ – $ – $ 2
Mortgage- and asset-backed 55 – – – – – 205 (53 ) 207
Loans mandatorily measured at FVTPL
Business and government 1,038 – (15 ) 59 – – 58 (453 ) 687
Corporate equity mandatorily measured at
FVTPL and designated at FVOCI 396 11 53 (21 ) – – 102 (82 ) 459
Derivative instruments
Interest rate 35 – (46 ) – 27 – 1 1 18
Credit 49 (8 ) 4 – – – – – 45
Equity 13 1 (2 ) – 12 (21 ) 3 (2 ) 4
Total assets $ 1,588 $ 4 $ (6 ) $ 38 $ 39 $ (21 ) $ 369 $ (589 ) $ 1,422
Deposits and other liabilities (5) $ (742 ) $ (68 ) $ 58 $ – $ – $ 3 $ (131 ) $ 471 $ (409 )
Derivative instruments
Interest rate (136 ) – (1,288 ) – – 11 (95 ) (25 ) (1,533 )
Credit (54 ) 8 (4 ) – – – – – (50 )
Equity (77 ) 4 (15 ) – (1 ) 75 (5 ) 16 (3 )
Total liabilities $ (1,009 ) $ (56 ) $ (1,249 ) $ – $ (1 ) $ 89 $ (231 ) $ 462 $ (1,995 )
(1) Cumulative AOCI gains or losses related to equity securities designated at FVOCI are reclassified from AOCI to retained earnings at the time of disposal or derecognition.
(2) Includes foreign currency gains and losses related to debt securities measured at FVOCI.
(3) Comprises unrealized gains and losses relating to these assets and liabilities held at the end of the reporting year.
(4) Foreign exchange translation on loans mandatorily measured at FVTPL held by foreign operations and denominated in the same currency as the foreign operations is included in OCI.
(5) Includes deposits designated at FVTPL of $115 million (2022: $70 million), net bifurcated embedded derivative liabilities of $111 million (2022: net bifurcated embedded derivative liabilities of $317 million) and other liabilities designated at FVTPL of $14 million (2022: $22 million). Quantitative information about significant non-observable Valuation techniques using one or more non-observable The non-observable
Range of inputs
$ millions, as at October 31 2023 Valuation techniques Key non-observable Low High
Securities mandatorily measured and designated at FVTPL
Mortgage- and asset-backed $ 151 Discounted cash flow Credit spread 6.6 % 7.2 %
Market proxy or direct broker quote Market proxy or direct broker quote 0.5 % 0.5 %
Corporate equity mandatorily measured at FVTPL and designated at FVOCI
Limited partnerships and private companies 587 Adjusted net asset value (1) Net asset value (2) n/a n/a
Valuation multiple Earnings multiple 9.8 x 16.3 x
Proxy share price Proxy share price n/a n/a
Loans mandatorily measured at FVTPL Business and government 144 Discounted cash flow Credit spread 2.1 % 2.1 %
Derivative instruments
Interest rate 21 Proprietary model (3) n/a n/a n/a
Option model Market volatility 57.2 % 143.3 %
Probability assumption 100.0 % 100.0 %
Credit 46 Market proxy or direct broker quote Market proxy or direct broker quote 34.3 % 34.3 %
Equity 4 Option model Market correlation 41.8 % 96.3 %
Total assets $ 953
Deposits and other liabilities
Deposits designated at FVTPL and net bifurcated embedded derivative liabilities $ (226 ) Option model Market volatility 15.1 % 19.1 %
Market correlation (100.0 )% 100.0 %
Other liabilities designated at FVTPL (16 ) Option model Funding ratio 34.5 % 34.5 %
Derivative instruments
Interest rate (1,817 ) Proprietary model (3) n/a n/a n/a
Option model Market volatility 57.2 % 143.3 %
Probability assumption 100.0 % 100.0 %
Credit (52 ) Market proxy or direct broker quote Market proxy or direct broker quote 34.3 % 34.3 %
Equity (5 ) Option model Market correlation 36.8 % 98.4 %
Total liabilities $ (2,116 )
(1) Adjusted net asset value is determined using reported net asset values obtained from the fund manager or general partner of the limited partnership or the limited liability company and may be adjusted for current market levels where appropriate.
(2) The range of net asset value price or proxy share price has not been disclosed due to the wide range and diverse nature of the investments.
(3) Using valuation techniques that we consider to be non-observable.
n/a Not applicable. Sensitivity of Level 3 financial assets and liabilities The following section describes the significant non-observable non-observable The fair value of our limited partnerships is determined based on the net asset value provided by the fund managers, adjusted as appropriate. The fair value of limited partnerships is sensitive to changes in the net asset value, and by adjusting the net asset value within a reasonably possible range, the aggregate fair value of our limited partnerships would increase or decrease by $138 million (2022: $109 million). While our standalone derivatives are recorded as derivative assets or derivative liabilities, our derivatives embedded in our structured note deposit liabilities or deposit liabilities designated at FVTPL are recorded within deposits |
