v3.22.2.2
Fair value of financial instruments
 12 Months Ended
Oct. 31, 2022
Text Block [Abstract]  
Fair value of financial instruments
Note 3    Fair value of financial instruments
Carrying value and fair value of financial instruments
The following tables provide a comparison of the carrying and fair values for each classification of financial instruments. Embedded derivatives are presented on a combined basis with the host contracts. For measurement purposes, they are carried at fair value when conditions requiring separation are met.
 
    
As at October 31, 2022
  
   
Carrying value and fair value
        
Carrying value
        
Fair value
              
                     
(Millions of Canadian dollars)  
Financial
instruments
classified as
FVTPL
    
Financial
instruments
designated as
FVTPL
    
Financial
instruments
classified as
FVOCI
    
Financial
instruments
designated as
FVOCI
         
Financial
instruments
measured at
amortized cost
         
Financial
instruments
measured at
amortized cost
    
Total
carrying
amount
    
Total
fair value
  
Financial assets
                                                                        
Interest-bearing deposits with banks
  
$
–
 
  
$
84,468
 
  
$
–
 
  
$
–
 
  
 
  
$
23,543
 
  
 
  
$
23,543
 
  
$
108,011
 
  
$
108,011
 
Securities
                                                                        
Trading
  
 
138,507
 
  
 
9,698
 
  
 
–
 
  
 
–
 
      
 
–
 
      
 
–
 
  
 
148,205
 
  
 
148,205
 
Investment, net of applicable allowance
  
 
–
 
  
 
–
 
  
 
92,063
 
  
 
828
 
  
 
  
 
77,127
 
  
 
  
 
70,073
 
  
 
170,018
 
  
 
162,964
 

 
 
138,507
 
  
 
9,698
 
  
 
92,063
 
  
 
828
 
  
 
  
 
77,127
 
  
 
  
 
70,073
 
  
 
318,223
 
  
 
311,169
 
Assets purchased under reverse repurchase agreements and securities borrowed

  
 
264,665
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
  
 
53,180
 
  
 
  
 
53,180
 
  
 
317,845
 
  
 
317,845
 
Loans, net of applicable allowance
                                                                        
Retail
  
 
73
 
  
 
375
 
  
 
218
 
  
 
–
 
      
 
546,767
 
      
 
521,428
 
  
 
547,433
 
  
 
522,094
 
Wholesale
  
 
6,914
 
  
 
3,222
 
  
 
563
 
  
 
–
 
 
 
  
 
261,833
 
      
 
253,816
 
  
 
272,532
 
  
 
264,515
 

 
 
6,987
 
  
 
3,597
 
  
 
781
 
  
 
–
 
 
    
 
808,600
 
  
 
  
 
775,244
 
  
 
819,965
 
  
 
786,609
 
Other
                                                                        
Derivatives
  
 
154,439
 
  
 
–
 
  
 
–
 
  
 
–
 
      
 
–
 
      
 
–
 
  
 
154,439
 
  
 
154,439
 
Other assets
(1)
  
 
3,377
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
  
 
73,084
 
  
 
  
 
73,084
 
  
 
76,461
 
  
 
76,461
 
Financial liabilities
                                                                        
Deposits
                                                                        
Personal
  
$
298
 
  
$
21,959
 
                      
$
382,675
 
      
$
380,396
 
  
$
404,932
 
  
$
402,653
 
Business and government
(2)
  
 
447
 
  
 
152,119
 
                      
 
607,304
 
      
 
605,102
 
  
 
759,870
 
  
 
757,668
 
Bank
(3)
  
 
–
 
  
 
7,196
 
  
 

 
          
 
  
 
36,816
 
      
 
36,758
 
  
 
44,012
 
  
 
43,954
 

 
 
745
 
  
 
181,274
 
                  
 
  
 
1,026,795
 
      
 
1,022,256
 
  
 
1,208,814
 
  
 
1,204,275
 
Other
                                                                        
Obligations related to securities sold short
  
 
35,511
 
  
 
–
 
                      
 
–
 
      
 
–
 
  
 
35,511
 
  
 
35,511
 
Obligations related to assets sold under repurchase agreements
and securities loaned
  
 
–
 
  
 
248,835
 
                      
 
25,112
 
      
 
25,112
 
  
 
273,947
 
  
 
273,947
 
Derivatives
  
 
153,491
 
  
 
–
 
                      
 
–
 
      
 
–
 
  
 
153,491
 
  
 
153,491
 
Other liabilities
(4)
  
 
(360
) 
  
 
69
 
                      
 
90,348
 
      
 
90,160
 
  
 
90,057
 
  
 
89,869
 
Subordinated debentures
  
 
–
 
  
 
–
 
  
 
 
 
              
 
10,025
 
      
 
9,668
 
  
 
10,025
 
  
 
9,668
 
 
     As at October 31, 2021  
    Carrying value and fair value         Carrying value         Fair value              
                     
(Millions of Canadian dollars)   Financial
instruments
classified as
FVTPL		     Financial
instruments
designated as
FVTPL		     Financial
instruments
classified as
FVOCI		     Financial
instruments
designated as
FVOCI		          Financial
instruments
measured at
amortized cost		          Financial
instruments
measured at
amortized cost		     Total
carrying
amount		     Total
fair value		  
Financial assets
                                                                        
Interest-bearing deposits with banks
   $ –     $ 56,896     $ –     $ –         $ 22,742         $ 22,742     $ 79,638     $ 79,638  
Securities
                                                                        
Trading
     125,801       13,439       –       –           –           –       139,240       139,240  
Investment, net of applicable allowance
     –       –       77,802       533           67,149           66,823       145,484       145,158  
      125,801       13,439       77,802       533           67,149           66,823       284,724       284,398  
Assets purchased under reverse repurchase agreements and securities borrowed
     265,011       –       –       –           42,892           42,892       307,903       307,903  
Loans, net of applicable allowance
                                                                        
Retail
     –       241       327       –           500,621           502,277       501,189       502,845  
Wholesale
     8,428       2,769       813       –           204,376           204,683       216,386       216,693  
      8,428       3,010       1,140       –           704,997           706,960       717,575       719,538  
Other
                                                                        
Derivatives
     95,541       –       –       –           –           –       95,541       95,541  
Other assets
(1)
     4,109       –       –       –           58,483           58,483       62,592       62,592  
Financial liabilities
                                                                        
Deposits
                                                                        
Personal
   $ 321     $ 18,328                         $ 343,839         $ 344,040     $ 362,488     $ 362,689  
Business and government
(2)
     739       131,630                           563,984           565,106       696,353       697,475  
Bank
(3)
     –       17,251                           24,739           24,743       41,990       41,994  
      1,060       167,209                           932,562           933,889       1,100,831       1,102,158  
Other
                                                                        
Obligations related to securities sold short
     37,841       –                           –           –       37,841       37,841  
Obligations related to assets sold under repurchase agreements and securities loaned
     –       236,147                           26,054           26,054       262,201       262,201  
Derivatives
     91,439       –                           –           –       91,439       91,439  
Other liabilities
(4)
     654       171                           64,746           64,749       65,571       65,574  
Subordinated debentures
     –       –                           9,593           9,601       9,593       9,601  
 
(1)   Includes Customers’ liability under acceptances and financial instruments recognized in Other assets.
(2)   Business and government deposits include deposits from regulated deposit-taking institutions other than banks.
(3)   Bank deposits refer to deposits from regulated banks and central banks.
(4)   Includes Acceptances and financial instruments recognized in Other liabilities.
Financial assets designated as fair value through profit or loss
For our financial assets designated as FVTPL, we measure the change in fair value attributable to changes in credit risk as the difference between the total change in the fair value of the instrument during the period and the change in fair value calculated using the appropriate risk-free yield curves. For the year ended October 31, 2022, the change in fair value during the period attributable to changes in credit risk for positions still held was a loss of $662 million and the cumulative change in fair value attributable to changes in credit risk for positions still held was a loss of $490 million. For the year ended October 31, 2021, the change in fair value during the period attributable to changes in credit risk for positions still held was a gain of $613 million and the cumulative change in fair value attributable to changes in credit risk for positions still held was a gain of $173 million. As at October 31, 2022, the extent to which credit derivatives or similar instruments mitigate the maximum exposure to credit risk was $589 million (October 31, 2021 – $484 million).
Financial liabilities designated as fair value through profit or loss
For our financial liabilities designated as FVTPL, we take into account changes in our own credit spread and the expected duration of the instrument to measure the change in fair value attributable to changes in credit risk.
 
   
   
As at or for the year ended October 31, 2022
(1)		  
         
   
Contractual
maturity
amount
    
Carrying value
    
Difference
between
carrying value
and contractual
maturity amount
    
Changes in fair value attributable
to changes in credit risk included
in OCI for positions still held
  
(Millions of Canadian dollars)  
During the period
    
Cumulative
(2)		  
Term deposits
                                        
Personal
  
$
22,328
 
  
$
21,959
 
  
$
(369
) 
  
$
(238
) 
  
$
(166
) 
Business and government
(3)
  
 
160,775
 
  
 
152,119
 
  
 
(8,656
) 
  
 
(2,135
) 
  
 
(1,718
) 
Bank
(4)
  
 
7,208
 
  
 
7,196
 
  
 
(12
) 
  
 
–
 
  
 
–
   
 
190,311
 
  
 
181,274
 
  
 
(9,037
) 
  
 
(2,373
) 
  
 
(1,884
) 
Obligations related to assets sold under repurchase agreements and securities loaned
  
 
248,963
 
  
 
248,835
 
  
 
(128
) 
  
 
1
 
  
 
1
 
Other liabilities
  
 
69
 
  
 
69
 
  
 
–
 
  
 
–
 
  
 
–
 
   
$
439,343
 
  
$
430,178
 
  
$
  (9,165
) 
  
$
  (2,372
) 
  
$
  (1,883
) 
 
 
   
    As at or for the year ended October 31, 2021 (1)  
         
   
Contractual
maturity
amount
     Carrying value    
Difference
between
carrying value
and contractual
maturity amount
     Changes in fair value attributable
to changes in credit risk included
in OCI for positions still held		  
(Millions of Canadian dollars)
   During the period     Cumulative (2)  
Term deposits
                                        
Personal
   $ 18,205     $ 18,328     $     123     $ (17 )    $ 72  
Business and government
(3)
     131,830       131,630       (200 )      (75 )          416  
Bank
(4)
     17,253       17,251       (2 )      –       –  
 
     167,288       167,209       (79 )      (92 )      488  
Obligations related to assets sold under repurchase agreements and securities loaned
     236,164       236,147       (17 )      (8 )      –  
Other liabilities
     171       171       –                   –       –  
 
   $ 403,623     $ 403,527     $ (96 )    $ (100 )    $ 488  
 
(1)   $97 million in changes in fair value attributable to changes in credit risk were recognized in income for the year ended October 31, 2022, and $97 million in cumulative changes in credit risk were included in income for positions still held life-to-date (October 31, 2021 – $nil and $nil respectively).
(2)   The cumulative change is measured from the initial designation of the liabilities as FVTPL. For the year ended October 31, 2022, $3
million of fair value gains previously included in OCI relate to financial liabilities derecognized during the year (October 31, 2021
 – $25 million of fair value losses).
(3)   Business and government term deposits include amounts from regulated deposit-taking institutions other than regulated banks.
(4)   Bank term deposits refer to amounts from regulated banks and central banks.
Net gains (losses) from financial instruments classified and designated as fair value through profit or loss
Financial instruments classified as FVTPL, which includes mainly trading securities, derivatives, trading liabilities, and financial assets and liabilities designated as FVTPL are measured at fair value with realized and unrealized gains and losses recognized in
Non-interest
income.
 
      For the year ended  
       
(Millions of Canadian dollars)
   
October 31
2022
           October 31
2021		  
Net gains (losses)
(1)
                      
Classified as fair value through profit or loss
(2)
   
$
(7,382
 )        $ 3,447  
Designated as fair value through profit or loss
(3)
   
 
8,543
 
  
 
      (1,407 ) 
 
   
$
1,161
 
  
 
    $ 2,040  
By product line
(1)
                      
Interest rate and credit
(4)
   
$
1,251
 
        $ 1,033  
Equities
   
 
(843
 )          57  
Foreign exchange and commodities
   
 
753
 
  
 
 
 		   950  
 
   
$
1,161
 
  
 
 
 		 $ 2,040  
 
(1)  
Excludes the following amounts related to our insurance operations and included in Insurance premiums, investment and fee income in the Consolidated Statements of Income: Net losses from financial instruments designated as FVTPL of 
$2,805
 
million (October 31, 2021 – losses of $14 million).
(2)   Excludes derivatives designated in a hedging relationship. Refer to Note 9 for net gains (losses) on these derivatives.
(3)   For the year ended October 31, 2022, $8,536
 
million of net fair value gains on financial liabilities designated as FVTPL, other than those attributable to changes in our own credit risk, were included in
Non-interest
income (October 31, 2021 – losses of $1,408 million).
(4)   Includes gains (losses) recognized on cross currency interest rate swaps.
Net interest income from financial instruments
Interest and dividend income arising from financial assets and financial liabilities and the associated costs of funding are reported in Net interest income.
 
      For the year ended  
(Millions of Canadian dollars)
   
October 31
2022
           October 31
2021		  
Interest and dividend income
(1), (2)
                      
Financial instruments measured at fair value through profit or loss
   
$
10,999
 
        $ 4,551  
Financial instruments measured at fair value through other comprehensive income
   
 
1,177
 
          375  
Financial instruments measured at amortized cost
   
 
28,595
 
  
 
 
 		   23,219  
 
   
 
40,771
 
  
 
 
 		   28,145  
Interest expense
(1)
                      
Financial instruments measured at fair value through profit or loss
   
$
8,336
 
        $ 2,865  
Financial instruments measured at amortized cost
(3)
   
 
9,718
 
  
 
 
 		   5,278  
 
   
 
18,054
 
  
 
 
 		   8,143  
Net interest income
   
$
22,717
 
  
 
    $ 20,002  
 
(1)  
Excludes 
the following amounts related to our insurance operations and included in Insurance premiums, investment and fee income in the Consolidated Statements of Income: Interest income of $601 million (October 31, 2021 – $576 million), and Interest expense of $6 million (October 31, 2021 – $4 million).
(2)   Includes dividend income for the year ended October 31, 2022 of $2,954 million (October 31, 2021 – $2,436 million), which is presented in Interest and dividend income in the Consolidated Statements of Income.
(3)   Includes interest expense on lease liabilities for the year ended October 31, 2022 of $112
million (October 31, 2021
 – $110 million).
 
Fee income arising from financial instruments
For the year ended October 31, 2022, we earned $6,118
million
 
in fees from banking services (October 31, 2021 – $5,583 million). For the year ended October 31,
 
2022, we also earned $14,932
million
 
in fees from investment management, trust, custodial, underwriting, brokerage and other similar fiduciary
 
services to retail
 
and institutional clients (October 31, 2021 – $15,167 million). These fees are included in
Non-interest
income.
Fair value of assets and liabilities measured at fair value on a recurring basis and classified using the fair value hierarchy
 
    
 
   As at
 
  
   
 
October 31, 2022
 
        
 
October 31, 2021
 
  
   
Fair value
measurements using
    
Netting
adjustments
    
Fair value
         Fair value
measurements using		    
Netting
adjustments
     Fair value  
(Millions of Canadian dollars)
  
 
Level 1
 
  
 
Level 2
 
  
 
Level 3
 
         Level 1       Level 2       Level 3  
Financial assets
                                                                                    
Interest-bearing deposits with banks
  
$
–
 
  
$
84,468
 
  
$
–
 
  
$
 
 
  
$
84,468
 
       $ –     $ 56,896     $ –     $       $ 56,896  
Securities
                                                                                    
Trading
                                                                                    
Debt issued or guaranteed by:
                                                                                    
Canadian government (1)
                                                                                    
Federal
  
 
15,024
 
  
 
3,779
 
  
 
–
 
          
 
18,803
 
         8,977       2,380       –               11,357  
Provincial and municipal
  
 
–
 
  
 
13,257
 
  
 
–
 
          
 
13,257
 
         –       11,068       –               11,068  
U.S. federal, state, municipal and agencies (1)
, (2)
  
 
1,254
 
  
 
35,570
 
  
 
4
 
          
 
36,828
 
         215       22,738       25               22,978  
Other OECD government (
3
)
  
 
1,325
 
  
 
3,452
 
  
 
–
 
          
 
4,777
 
         2,729       5,730       –               8,459  
Mortgage-backed securities (1)
  
 
–
 
  
 
2
 
  
 
–
 
          
 
2
 
         –       4       –               4  
Asset-backed securities
                                                                                    
Non-CDO
securities (
4
)
  
 
–
 
  
 
1,308
 
  
 
2
 
          
 
1,310
 
         –       891       2               893  
Corporate debt and other debt
  
 
–
 
  
 
21,162
 
  
 
7
 
          
 
21,169
 
         –       23,085       25               23,110  
Equities
  
 
46,592
 
  
 
3,593
 
  
 
1,874
 
          
 
52,059
 
         56,826       3,015       1,530               61,371  
   
 
64,195
 
  
 
82,123
 
  
 
1,887
 
          
 
148,205
 
         68,747       68,911       1,582               139,240  
Investment
                                                                                    
Debt issued or guaranteed by:
                                                                                    
Canadian government (1)
                                                                                    
Federal
  
 
1,226
 
  
 
2,555
 
  
 
–
 
          
 
3,781
 
         1,973       1,730       –               3,703  
Provincial and municipal
  
 
–
 
  
 
2,124
 
  
 
–
 
          
 
2,124
 
         –       3,132       –               3,132  
U.S. federal, state, municipal and agencies (1)
, (2)
  
 
440
 
  
 
43,918
 
  
 
–
 
          
 
44,358
 
         12       34,815       –               34,827  
Other OECD government
  
 
–
 
  
 
5,144
 
  
 
–
 
          
 
5,144
 
         –       5,956       –               5,956  
Mortgage-backed securities (1)
  
 
–
 
  
 
2,860
 
  
 
28
 
          
 
2,888
 
         –       2,727       20               2,747  
Asset-backed securities
                                                                                    
CDO
  
 
–
 
  
 
7,524
 
  
 
–
 
          
 
7,524
 
         –       7,074       –               7,074  
Non-CDO
securities
  
 
–
 
  
 
524
 
  
 
–
 
          
 
524
 
         –       586       –               586  
Corporate debt and other debt
  
 
–
 
  
 
25,569
 
  
 
151
 
          
 
25,720
 
         –       19,625       152               19,777  
Equities
  
 
36
 
  
 
395
 
  
 
397
 
          
 
828
 
         46       153       334               533  
   
 
1,702
 
  
 
90,613
 
  
 
576
 
          
 
92,891
 
         2,031       75,798       506               78,335  
Assets purchased under reverse repurchase agreements and
securities borrowed
  
 
–
 
  
 
264,665
 
  
 
–
 
          
 
264,665
 
         –       265,011       –               265,011  
Loans
  
 
–
 
  
 
9,673
 
  
 
1,692
 
          
 
11,365
 
         –       11,501       1,077               12,578  
Other
                                                                                    
Derivatives
                                                                                    
Interest rate contracts
  
 
–
 
  
 
39,804
 
  
 
263
 
          
 
40,067
 
         –       33,857       320               34,177  
Foreign exchange contracts
  
 
–
 
  
 
99,424
 
  
 
13
 
          
 
99,437
 
         –       41,224       74               41,298  
Credit derivatives
  
 
–
 
  
 
388
 
  
 
–
 
          
 
388
 
         –       34       –               34  
Other contracts
  
 
3,939
 
  
 
14,786
 
  
 
62
 
          
 
18,787
 
         3,175       17,955       26               21,156  
Valuation adjustments
  
 
–
 
  
 
(2,100
) 
  
 
45
 
          
 
(2,055
) 
         –       (819 )      9               (810 ) 
Total gross derivatives
  
 
3,939
 
  
 
152,302
 
  
 
383
 
          
 
156,624
 
         3,175       92,251       429               95,855  
Netting adjustments
                          
 
(2,185
) 
  
 
(2,185
) 
                                 (314 )      (314 ) 
Total derivatives
                                  
 
154,439
 
                                         95,541  
Other assets
  
 
1,221
 
  
 
2,141
 
  
 
15
 
          
 
3,377
 
         1,474       2,635       –               4,109  
   
$
71,057
 
  
$
685,985
 
  
$
4,553
 
  
$
(2,185
) 
  
$
759,410
 
       $ 75,427     $ 573,003     $ 3,594     $ (314 )    $ 651,710  
Financial liabilities
                                                                                    
Deposits
                                                                                    
Personal
  
$
–
 
  
$
22,016
 
  
$
241
 
  
$
 
 
 
  
$
22,257
 
       $ –     $ 18,498     $ 151     $       $ 18,649  
Business and government
  
 
–
 
  
 
152,566
 
  
 
–
 
          
 
152,566
 
         –       132,369       –               132,369  
Bank
  
 
–
 
  
 
7,196
 
  
 
–
 
          
 
7,196
 
         –       17,251       –               17,251  
Other
                                                                                    
Obligations related to securities sold short
  
 
16,383
 
  
 
19,128
 
  
 
–
 
          
 
35,511
 
         18,345       19,496       –               37,841  
Obligations related to assets sold under repurchase agreements and securities loaned
  
 
–
 
  
 
248,835
 
  
 
–
 
          
 
248,835
 
         –       236,147       –               236,147  
Derivatives
                                                                                    
Interest rate contracts
  
 
–
 
  
 
39,592
 
  
 
1,122
 
          
 
40,714
 
         –       28,566       955               29,521  
Foreign exchange contracts
  
 
–
 
  
 
94,310
 
  
 
145
 
          
 
94,455
 
         –       40,484       27               40,511  
Credit derivatives
  
 
–
 
  
 
125
 
  
 
–
 
          
 
125
 
         –       120       –               120  
Other contracts
  
 
3,847
 
  
 
16,663
 
  
 
847
 
          
 
21,357
 
         3,699       17,456       419               21,574  
Valuation adjustments
  
 
–
 
  
 
(967
) 
  
 
(8
) 
          
 
(975
) 
         –       38       (11 )              27  
Total gross derivatives
  
 
3,847
 
  
 
149,723
 
  
 
2,106
 
          
 
155,676
 
         3,699       86,664       1,390               91,753  
Netting adjustments
                          
 
(2,185
) 
  
 
(2,185
) 
                                 (314 )      (314 ) 
Total derivatives
                                  
 
153,491
 
                                         91,439  
Other liabilities
  
 
341
 
  
 
(632
) 
  
 
–
 
          
 
(291
) 
         258       560       7               825  
   
$
20,571
 
  
$
598,832
 
  
$
2,347
 
  
$
(2,185
) 
  
$
619,565
 
       $ 22,302     $ 510,985     $ 1,548     $ (314 )    $ 534,521  
 
(1)   As at October 31, 2022, residential and commercial mortgage-backed securities (MBS) included in all fair value levels of trading securities were $12,273 million and $nil (October 31, 2021 – $13,124 million and $nil), respectively, and in all fair value levels of Investment securities were $23,362 million and $2,755 million (October 31, 2021 – $13,542 million and $2,592 million), respectively.
(2)
 
United States (U.S.).
(3)
 
Organisation for Economic
Co-operation
and Development (OECD).
(4)
 
Collateralized debt obligations (CDO).
 
Fair values of our significant assets and liabilities measured on a recurring basis are determined and classified in the fair value hierarchy table using the following valuation techniques and inputs.
Interest-bearing deposits with banks
The majority of our Interest-bearing deposits with banks are designated as FVTPL. These FVTPL deposits are composed of short-dated deposits placed with banks, and are included in Interest-bearing deposits with banks in the fair value hierarchy table. The fair values of these instruments are determined using the discounted cash flow method. The inputs to the valuation models include interest rate swap curves and credit spreads, where applicable. They are classified as Level 2 instruments in the hierarchy as the inputs are observable.
Government bonds (Canadian, U.S. and other OECD governments)
Government bonds are included in Canadian government debt, U.S. federal, state, municipal and agencies debt, Other OECD government debt and Obligations related to securities sold short in the fair value hierarchy table. The fair values of government issued or guaranteed debt securities in active markets are determined by reference to recent transaction prices, broker quotes, or third-party vendor prices and are classified as Level 1 in the hierarchy. The fair values of securities that are not traded in active markets are based on either security prices, or valuation techniques using implied yields and risk spreads derived from prices of actively traded and similar government securities. Securities with observable prices or rate inputs as compared to transaction prices, dealer quotes or vendor prices are classified as Level 2 in the hierarchy. Securities where inputs are unobservable are classified as Level 3 in the hierarchy.
Corporate and U.S. municipal bonds
The fair values of corporate and U.S. municipal bonds, which are included in Corporate debt and other debt, U.S. federal, state, municipal and agencies debt and Obligations related to securities sold short in the fair value hierarchy table, are determined using either recently executed transaction prices, broker quotes, pricing services, or in certain instances, the discounted cash flow method using rate inputs such as benchmark yields (CDOR, Secured Overnight Financing Rate (SOFR) and other similar reference rates) and risk spreads of comparable securities. Securities with observable prices or rate inputs are classified as Level 2 in the hierarchy. Securities where inputs are unobservable are classified as Level 3 in the hierarchy.
Asset-backed securities and Mortgage-backed securities
Asset-backed securities (ABS) and MBS are included in Asset-backed securities, Mortgage-backed securities, Canadian government debt, U.S. federal, state, municipal and agencies debt, and Obligations related to securities sold short in the fair value hierarchy table. Inputs for valuation of ABS and MBS are, when available, traded prices, dealer or lead manager quotes, broker quotes and vendor prices of the identical securities. When prices of the identical securities are not readily available, we use industry standard models with inputs such as discount margins, yields, default, prepayment and loss severity rates that are implied from transaction prices, dealer quotes or vendor prices of comparable instruments. Where security prices and inputs are observable, ABS and MBS are classified as Level 2 in the hierarchy. Otherwise, they are classified as Level 3 in the hierarchy.
Equities
Equities consist of listed and unlisted common shares, private equities, mutual funds and hedge funds with certain redemption restrictions and are included in equities and obligations for securities sold short. The fair values of common shares are based on quoted prices in active markets, where available, and are classified as Level 1 in the hierarchy. Where quoted prices in active markets are not readily available, fair value is determined based on quoted market prices for similar securities or through valuation techniques, such as multiples of earnings and the discounted cash flow method with forecasted cash flows and discount rate as inputs. Private equities are classified as Level 3 in the hierarchy as their inputs are not observable. Hedge funds are valued using Net Asset Values (NAV). If we can redeem a hedge fund at NAV prior to the next quarter end, the fund is classified as Level 2 in the hierarchy. Otherwise, it is classified as Level 3 in the hierarchy.
Loans
Loans include base metal loans, corporate loans, banker acceptances and asset-backed financing loans. Fair values are determined based on market prices, if available, or discounted cash flow method using the following inputs: market interest rates, base metal commodity prices, market based spreads of assets with similar credit ratings and terms to maturity, LGD, expected default frequency implied from credit derivative prices, if available, and relevant pricing information such as contractual rate, origination and maturity dates, redemption price, coupon payment frequency and day count convention. Loans with market prices or observable inputs are classified as Level 2 in the hierarchy and loans with unobservable inputs that have significant impacts on the fair values are classified as Level 3 in the hierarchy.
Derivatives
The fair values of exchange-traded derivatives, such as interest rate and equity options and futures, are based on quoted market prices and are typically classified as Level 1 in the hierarchy. OTC derivatives primarily consist of interest rate contracts, foreign exchange contracts and credit derivatives. The exchange-traded or OTC interest rate, foreign exchange and equity derivatives are included in Interest rate contracts, Foreign exchange contracts and Other contracts, respectively, in the fair value hierarchy table. The fair values of OTC derivatives are determined using valuation models when quoted market prices or third-party consensus pricing information are not available. The valuation models, such as discounted cash flow method or Black-Scholes option model, incorporate observable or unobservable inputs for interest and foreign exchange rates, equity and commodity prices (including indices), credit spreads, corresponding market volatility levels, and other market-based pricing factors. Other adjustments to fair value include
bid-offer,
CVA, FVA, OIS, parameter and model uncertainties, and unrealized gain or loss at inception of a transaction. A derivative instrument is classified as Level 2 in the hierarchy if observable market inputs are available or the unobservable inputs are not significant to the fair value. Otherwise, it is classified as Level 3 in the hierarchy.
Securities borrowed or purchased under resale agreements and securities loaned or sold under repurchase agreements
In the fair value hierarchy table, these instruments are included in Assets purchased under reverse repurchase agreements and securities borrowed, and Obligations related to assets sold under repurchase agreements and securities loaned. The fair values
of these contracts are determined using valuation techniques such as the discounted cash flow method using interest rate curves as inputs. They are classified as Level 2 instruments in the hierarchy as the inputs are observable.
Deposits
A majority of our deposits are measured at amortized cost but certain deposits are designated as FVTPL. These FVTPL deposits include deposits taken from clients, issuances of certificates of deposits and promissory notes, and interest rate and equity linked notes. The fair values of these instruments are determined using the discounted cash flow method and derivative option valuation models. The inputs to the valuation models include benchmark yield curves, credit spreads, interest rates, equity and interest rate volatility, dividends and correlation, where applicable. They are classified as Level 2 or 3 instruments in the hierarchy, depending on the significance of the unobservable credit spreads, volatility, dividend and correlation rates.
Quantitative information about fair value measurements using significant unobservable inputs (Level 3 Instruments)
The following table presents fair values of our significant Level 3 financial instruments,
v
aluation techniques used to determine their fair values, ranges and weighted averages of unobservable inputs. 
 
 
As at October 31, 2022 (Millions of Canadian dollars, except for prices, percentages and ratios)
 
 
 
 
 
Fair value
 
 
 
 
 
 
 
 
Range of input values
(1), (2)
 
                   
Products
 
Reporting line in the fair value
hierarchy table
 
Assets
 
 
Liabilities
 
 
Valuation
techniques
 
Significant
unobservable
inputs (3)
 
  
 
Low
 
 
High
 
 
Weighted
average /
Inputs
distribution
 
Corporate debt and related derivatives
 
  
 
 
 
 
 
 
 
 
 
Price-based
 
Prices
 
 
 
$
1.00
 
 
$
111.90
 
 
$
85.64
 
 
 
 
Corporate debt and other debt
  
$
7
 
           Discounted cash flows   Credit spread      
 
1.67%
 
  
 
10.73%
 
  
 
6.20%
 
 
 
Loans
  
 
1,692
 
               Credit enhancement      
 
11.70%
 
  
 
15.60%
 
  
 
13.00%
 
 
 
Derivative related liabilities
          
$
130
 
                                    
Government debt and municipal bonds
 
                                
 
  
 
  
 
  
 
  
 
  
 
 
Corporate debt and other debt
  
 
151
 
           Discounted cash flows   Yields      
 
7.85%
 
  
 
10.72%
 
  
 
8.92%
 
Private equities, hedge fund investments and related
equity derivatives
 
                     Market comparable   EV/EBITDA multiples      
 
3.97X
 
  
 
14.31X
 
  
 
8.59X
 
 
Equities
  
 
2,271
 
           Price-based   P/E multiples      
 
8.47X
 
  
 
24.04X
 
  
 
12.46X
 
 
Derivative related liabilities
          
 
2
 
   Discounted cash flows   EV/Rev multiples      
 
0.35X
 
  
 
5.77X
 
  
 
3.88X
 
 
 
                         Liquidity discounts (4)      
 
10.00%
 
  
 
40.00%
 
  
 
17.35%
 
 
 
                         Discount rate      
 
10.80%
 
  
 
10.80%
 
  
 
10.80%
 
 
 
 
                      
NAV / prices (5)
 
 
 
 
n.a.
 
 
 
n.a.
 
 
 
n.a.
 
Interest rate derivatives and interest-rate-linked structured notes (6), (7)
 
                     Discounted cash flows   Interest rates      
 
1.88%
 
  
 
4.49%
 
  
 
High
 
 
Derivative related assets
  
 
270
 
           Option pricing model   CPI swap rates      
 
1.98%
 
  
 
2.59%
 
  
 
Even
 
 
Derivative related liabilities
          
 
1,216
 
      
IR-IR
correlations		      
 
19.00%
 
  
 
67.00%
 
  
 
Even
 
 
 
                        
FX-IR
correlations		      
 
29.00%
 
  
 
56.00%
 
  
 
Even
 
 
 
 
                      
FX-FX
correlations		      
 
68.00%
 
  
 
68.00%
 
  
 
Even
 
Equity derivatives and equity-linked structured notes (6), (7)
 
                    
Discounted cash flows
  
Dividend yields
      
 
(0.63)%
 
  
 
8.28%
 
  
 
Lower
 
 
Derivative related assets
  
 
62
 
           Option pricing model   Equity
(EQ)-EQ
correlations		      
 
33.00%
 
  
 
94.90%
 
  
 
Middle
 
 
 
Deposits
          
 
241
 
      
EQ-FX
correlations		      
 
(83.15)%
 
  
 
38.44%
 
  
 
Middle
 
 
 
Derivative related liabilities
          
 
655
 
       EQ volatilities      
 
7.00%
 
  
 
129.00%
 
  
 
Upper
 
Other (8)
 
                                                      
 
 
Asset-backed securities
  
 
2
 
                                            
 
 
Derivative related assets
  
 
51
 
                                            
 
 
Other assets
  
 
15
 
                                            
 
 
Mortgage-backed securities
  
 
28
 
                                            
 
 
U.S. state, municipal and agencies
debt
  
 
4
 
                                            
 
 
Derivative related liabilities
          
 
103
 
                                    
 
 
Other liabilities
 
         
 
–
 
                                    
Total
 
    
$
4,553
 
  
$
2,347
 
                                    
 
 
As at October 31, 2021 (Millions of Canadian dollars, except for prices, percentages and ratios)
 
 
 
 
 
Fair value
 
 
 
 
 
 
  
 
Range of input values (1), (2)
 
Products
 
Reporting line in the fair value
hierarchy table
 
Assets
 
 
Liabilities
 
 
Valuation
techniques
 
Significant
unobservable
inputs (3)
 
Low
 
 
High
 
 
Weighted
average /
Inputs
distribution
 
Corporate debt and related derivatives
 
 
 
 
 
 
 
 
 
 
 
Price-based
 
Prices
 
 
 
$
29.18
 
 
$
127.09
 
 
$
96.36
 
 
  
Corporate debt and other debt
   $ 27             Discounted cash flows   Credit spread         1.15%       6.92%       4.04%  
   
Loans
     1,077                 Credit enhancement         11.92%       15.90%       13.25%  
 
  
Derivative related liabilities
  
 
 
 
   $ 9    
 
  
 
  
 
  
 
 
 
  
 
 
 
  
 
 
 
Government debt and municipal bonds
  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Corporate debt and other debt
     150    
 
 
 
   Discounted cash flows   Yields  
 
    
3.91
%		       8.17%       5.91%  
Private equities, hedge fund investments and related
equity derivatives
                       Market comparable   EV/EBITDA multiples         8.82X       26.00X       9.16X  
  Equities     1,864             Price-based   P/E multiples         9.40X       38.00X       10.96X  
  Derivative related liabilities             2     Discounted cash flows   EV/Rev multiples         1.14X       20.80X       5.40X  
                          Liquidity discounts (4)         10.00%       40.00%       16.40%  
                          Discount rate         10.65%       10.65%       10.65%  
 
 
 
 
 
 
 
 
 
 
 
 
 
NAV / prices (5)
 
 
 
 
n.a.
 
 
 
n.a.
 
 
 
n.a.
 
Interest rate derivatives and interest-rate-linked structured
notes (6), (7)
                       Discounted cash flows   Interest rates         0.13%       2.46%       High  
  Derivative related assets     367             Option pricing model   CPI swap rates         1.76%       2.42%       Even  
  Derivative related liabilities             974        
IR-IR
correlations		         19.00%       67.00%       Even  
                         
FX-IR
correlations		         29.00%       56.00%       Even  
 
 
  
 
 
 
  
 
 
 
  
 
  
FX-FX
correlations
  
 
     68.00%       68.00%       Even  
Equity derivatives and equity-linked structured
notes (6), (7)
                      
Discounted cash flows
  
Dividend yields
      
 
0.00%
 
  
 
6.37%
 
  
 
Lower
 
  Derivative related assets     25             Option pricing model  
Equity (EQ)-EQ correlations
         32.00%       95.00%       Middle  
  Deposits             151        
EQ-FX
correlations		         (60.60)%       27.30%       Middle  
  Derivative related liabilities  
 
 
 
     381    
 
   EQ volatilities  
 
     8.00%       128.00%       Upper  
Other (8)
                                                        
    Asset-backed securities     2                                              
    Derivative related assets     37                                              
    Other assets     –                                              
    Mortgage-backed securities     20                                              
    U.S. state, municipal and agencies debt     25                                              
    Derivative related liabilities             24                                      
    Other liabilities             7                                      
Total
  
 
   $ 3,594     $ 1,548                                      
 
(1)   The low and high input values represent the actual highest and lowest level inputs used to value a group of financial instruments in a particular product category. These input ranges do not reflect the level of input uncertainty, but are affected by the different underlying instruments within the product category. The input ranges will therefore vary from period to period based on the characteristics of the underlying instruments held at each balance sheet date. Where provided, the weighted average of the input values is calculated based on the relative fair values of the instruments within the product category. The weighted averages for derivatives are not presented in the table as they would not provide a comparable metric; instead, distribution of significant unobservable inputs within the range for each product category is indicated in the table.
(2)   Price-based inputs are significant for certain debt securities and are based on external benchmarks, comparable proxy instruments or
pre-quarter-end
trade data. For these instruments, the price input is expressed in dollars for each $100 par value. For example, with an input price of $105, an instrument is valued at a premium over its par value.
(3)   The significant unobservable inputs include the following: (i) Enterprise Value (EV); (ii) Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA); (iii) Price / Earnings (P/E); (iv) Revenue (Rev); (v) Consumer Price Index (CPI); (vi) Interest Rate (IR); (vii) Foreign Exchange (FX); and (viii) Equity (EQ).
(4)   Fair value of securities with liquidity discount inputs totalled $373 million (October 31, 2021 – $385 million).
(5)   NAV of a hedge fund is total fair value of assets less liabilities divided by the number of fund units. Private equities are valued based on NAV or valuation techniques. The range for NAV per unit or price per share has not been disclosed for the hedge funds or private equities due to the dispersion of prices given the diverse nature of the investments.
(6)   The level of aggregation and diversity within each derivative instrument category may result in certain ranges of inputs being wide and inputs being unevenly distributed across the range. In the table, we indicated whether the majority of the inputs are concentrated toward the upper, middle, or lower end of the range, or evenly distributed throughout the range.
(7)   The structured notes contain embedded equity or interest rate derivatives with unobservable inputs that are similar to those of the equity or interest rate derivatives.
(8)   Other primarily includes certain insignificant instruments such as auction rate securities, commodity derivatives, foreign exchange derivatives, contingent considerations, bank-owned life insurance and retractable shares.
n.a.   not applicable
Sensitivity to unobservable inputs and interrelationships between unobservable inputs
Yield, credit spreads/discount margins
A financial instrument’s yield is the interest rate used to discount future cash flows in a valuation model. An increase in the yield, in isolation, would result in a decrease in a fair value measurement and vice versa. A credit spread/discount margin is the difference between a debt instrument’s yield and a benchmark instrument’s yield. Benchmark instruments have high credit quality ratings, similar maturities and are often government bonds. The credit spread/discount margin therefore represents the discount rate used to determine the present value of future cash flows of an asset to reflect the market return required for uncertainty in the estimated cash flows. The credit spread/discount margin for an instrument forms part of the yield used in a discounted cash flow method.
Funding spread
Funding spreads are credit spreads specific to funding or deposit rates. A decrease in funding spreads, on its own, will increase the fair value of our liabilities, and vice versa.
Default rates
A default rate is the rate at which borrowers fail to make scheduled loan payments. A decrease in the default rate will typically increase the fair value of the loan, and vice versa. This effect will be significantly more pronounced for a
non-government
guaranteed loan than a government guaranteed loan.
 
Prepayment rates
A prepayment rate is the rate at which a loan will be repaid in advance of its expected amortization schedule. Prepayments change the future cash flows of a loan. An increase in the prepayment rate in isolation will result in an increase in fair value when the loan interest rate is lower than the current reinvestment rate, and a decrease in the prepayment rate in isolation will result in a decrease in fair value when the loan interest rate is lower than the current reinvestment rate. Prepayment rates are generally negatively correlated with interest rates.
Recovery and loss severity rates
A recovery rate is an estimation of the amount that can be collected in a loan default scenario. The recovery rate is the recovered amount divided by the loan balance due, expressed as a percentage. The inverse concept of recovery is loss severity. Loss severity rate is an estimation of the loan amount not collected when a loan defaults. The loss severity rate is the loss amount divided by the loan balance due, expressed as a percentage. Generally, an increase in the recovery rate or a decrease in the loss severity rate will increase the loan fair value, and vice versa.
Volatility rates
Volatility measures the potential variability of future prices and is often measured as the standard deviation of price movements. Volatility is an input to option pricing models used to value derivatives and issued structured notes. Volatility is used in valuing equity, interest rate, commodity and foreign exchange options. A higher volatility rate means that the underlying price or rate movements are more likely to occur. Higher volatility rates may increase or decrease an option’s fair value depending on the option’s terms. The determination of volatility rates is dependent on various factors, including but not limited to, the underlying’s market price, the strike price and maturity.
Dividend yields
A dividend yield is the underlying equity’s expected dividends expressed as an annual percentage of its price. Dividend yield is used as an input for forward equity price and option models. Higher dividend yields will decrease the forward price, and vice versa. A higher dividend yield will increase or decrease an option’s value, depending on the option’s terms.
Correlation rates
Correlation is the linear relationship between the movements in two different variables. Correlation is an input to the valuation of derivative contracts and issued structured notes when an instrument’s payout is determined by correlated variables. When variables are positively correlated, an increase in one variable will result in an increase in the other variable. When variables are negatively correlated, an increase in one variable will result in a decrease in the other variable. The referenced variables can be within a single asset class or market (equity, interest rate, commodities, credit and foreign exchange) or between variables in different asset classes (equity to foreign exchange, or interest rate to foreign exchange). Changes in correlation will either increase or decrease a financial instrument’s fair value depending on the terms of the instrument.
Interest rates
An interest rate is the percentage amount charged on a principal or notional amount. Increasing interest rates will decrease the discounted cash flow value of a financial instrument, and vice versa.
Consumer Price Index swap rates
A CPI swap rate is expressed as a percentage of an increase in the average price of a basket of consumer goods and services, such as transportation, food and medical care. An increase in the CPI swap rate will cause inflation swap payments to be larger, and vice versa.
EV/EBITDA multiples, P/E multiples, EV/Rev multiples, and liquidity discounts
Private equity valuation inputs include EV/EBITDA multiples, P/E multiples and EV/Rev multiples. These are used to calculate either enterprise value or share value of a company based on a multiple of earnings or revenue estimates. Higher multiples equate to higher fair values for all multiple types, and vice versa. A liquidity discount may be applied when few or no transactions exist to support the valuations.
Credit Enhancement
Credit enhancement is an input to the valuation of securitized transactions and is the amount of loan loss protection for a senior tranche. Credit enhancement is expressed as a percentage of the transaction sizes. An increase in credit enhancement will cause the credit spread to decrease and the tranche fair value to increase, and vice versa.
Interrelationships between unobservable inputs
Unobservable inputs, including the above discount margin, default rate, prepayment rate, and recovery and loss severity rates, may not be independent of each other. For example, the discount margin can be affected by a change in default rate, prepayment rate, or recovery and loss severity rates. Discount margins will generally decrease when default rates decline or when recovery rates increase.
 
Changes in fair value measurement for instruments measured on a recurring basis and categorized in Level 3
 
    
For the year ended October 31, 2022
  
                   
(Millions of Canadian dollars)  
Fair value
at beginning
of period
    
Gains
(losses)
included in
earnings
    
Gains
(losses)
included
in OCI 
(1)		    
Purchases
(issuances)
    
Settlement
(sales) and
other
(2)		    
Transfers
into
Level 3
    
Transfers
out of
Level 3
    
Fair value
at end of
period
    
Gains
(losses) included
in earnings for
positions still held
  
Assets
                                                                        
Securities
                                                                        
Trading
                                                                        
Debt issued or guaranteed by:
                                                                        
U.S. state, municipal and agencies
  
$
25
 
  
$
–
 
  
$
2
 
  
$
–
 
  
$
(23
) 
  
$
–
 
  
$
–
 
  
$
4
 
  
      $
–
 
Asset-backed securities
                                                                        
Non-CDO
securities
  
 
2
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
2
 
  
 
–
 
Corporate debt and other debt
  
 
25
 
  
 
(3
) 
  
 
–
 
  
 
–
 
  
 
(6
) 
  
 
9
 
  
 
(18
) 
  
 
7
 
  
 
–
 
Equities
  
 
1,530
 
  
 
14
 
  
 
100
 
  
 
314
 
  
 
(82
) 
  
 
1
 
  
 
(3
) 
  
 
1,874
 
  
 
43
 
 
  
 
1,582
 
  
 
11
 
  
 
102
 
  
 
314
 
  
 
(111
) 
  
 
10
 
  
 
(21
) 
  
 
1,887
 
  
 
43
 
Investment
                                                                        
Mortgage-backed securities
  
 
20
 
  
 
–
 
  
 
8
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
28
 
  
 
n.a.
  
Corporate debt and other debt
  
 
152
 
  
 
–
 
  
 
2
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
(3
) 
  
 
151
 
  
 
n.a.
  
Equities
  
 
334
 
  
 
–
 
  
 
51
 
  
 
11
 
  
 
(1
) 
  
 
37
 
  
 
(35
) 
  
 
397
 
  
 
n.a.
  
 
  
 
506
 
  
 
–
 
  
 
61
 
  
 
11
 
  
 
(1
) 
  
 
37
 
  
 
(38
) 
  
 
576
 
  
 
n.a.
  
Loans
  
 
1,077
 
  
 
(25
) 
  
 
(37
) 
  
 
407
 
  
 
(466
) 
  
 
802
 
  
 
(66
) 
  
 
1,692
 
  
 
(78
 )
Other
                                                                        
Net derivative balances
(3)
                                                                        
Interest rate contracts
  
 
(635
) 
  
 
(187
) 
  
 
(5
) 
  
 
17
 
  
 
64
 
  
 
(13
) 
  
 
(100
) 
  
 
(859
) 
  
 
(16
) 
Foreign exchange contracts
  
 
47
 
  
 
(103
) 
  
 
(2
) 
  
 
(22
) 
  
 
3
 
  
 
5
 
  
 
(60
) 
  
 
(132
) 
  
 
(90
) 
Other contracts
  
 
(393
) 
  
 
165
 
  
 
(34
) 
  
 
(245
) 
  
 
70
 
  
 
(406
) 
  
 
58
 
  
 
(785
) 
  
 
271
 
Valuation adjustments
  
 
20
 
  
 
–
 
  
 
–
 
  
 
25
 
  
 
(11
) 
  
 
19
 
  
 
–
 
  
 
53
 
  
 
–
 
Other assets
  
 
–
 
  
 
–
 
  
 
1
 
  
 
15
 
  
 
(1
) 
  
 
–
 
  
 
–
 
  
 
15
 
  
 
–
 
 
  
$
2,204
 
  
$
(139
) 
  
$
86
 
  
$
522
 
  
$
(453
) 
  
$
454
 
  
$
(227
) 
  
$
2,447
 
  
      $
130
 
Liabilities
                                                                        
Deposits
  
$
(151
) 
  
$
2
 
  
$
(3
) 
  
$
(120
) 
  
$
26
 
  
$
(143
) 
  
$
148
 
  
$
(241
) 
  
      $
19
 
Other
                                                                        
Other liabilities
  
 
(7
) 
  
 
(1
) 
  
 
–
 
  
 
–
 
  
 
8
 
  
 
–
 
  
 
–
 
  
 
–
 
  
 
–
 
 
  
$
(158
) 
  
$
1
 
  
$
(3
) 
  
$
(120
) 
  
$
34
 
  
$
(143
) 
  
$
148
 
  
$
(241
) 
  
      $
19
 
                                                       
     For the year ended October 31, 2021  
                   
(Millions of Canadian dollars)   Fair value
at beginning
of period		     Gains
(losses)
included in
earnings		     Gains
(losses)
included
in OCI (1)		     Purchases
(issuances)		     Settlement
(sales) and
other (2)		     Transfers
into
Level 3		     Transfers
out of
Level 3		     Fair value
at end of
period		     Gains
(losses) included
in earnings for
positions still held		  
Assets
                                                                        
Securities
                                                                        
Trading
                                                                        
Debt issued or guaranteed by:
                                                                        
U.S. state, municipal and agencies
   $ 44     $ –     $ (2 )    $ –     $ (17 )    $ –     $ –     $ 25           $ 1  
Asset-backed securities
                                                                        
Non-CDO
securities
     2       –       –       –       –       –       –       2       –  
Corporate debt and other debt
     30       (2 )      –       12       (5 )      14       (24 )      25       (1 ) 
Equities
     1,261       96       (60 )      338       (125 )      26       (6 )      1,530       164  
 
     1,337       94       (62 )      350       (147 )      40       (30 )      1,582       164  
Investment
                                                                        
Mortgage-backed securities
     27       –       (7 )      –       –       –       –       20       n.a.  
Corporate debt and other debt
     160       –       (12 )      –       4       –       –       152       n.a.  
Equities
     335       –       34       5       (2 )      –       (38 )      334       n.a.  
 
     522       –       15       5       2       –       (38 )      506       n.a.  
Loans
     1,070       (5 )      (19 )      264       (8 )      73       (298 )      1,077       30  
Other
                                                                        
Net derivative balances
(3)
                                                                        
Interest rate contracts
     (588 )      84       (1 )      5       (109 )      (4 )      (22 )      (635 )      84  
Foreign exchange contracts
     22       14       –       38       (25 )      7       (9 )      47       1  
Other contracts
     (301 )      (20 )      11       (142 )      102       (276 )      233       (393 )      (10 ) 
Valuation adjustments
     40       –       –       6       (26 )      –       –       20       –  
Other assets
     53       (39 )      (2 )      –       (12 )      –       –       –       –  
 
   $ 2,155     $ 128     $ (58 )    $ 526     $ (223 )    $ (160 )    $ (164 )    $ 2,204           $ 269  
Liabilities
                                                                        
Deposits
   $ (139 )    $ (66 )    $ 5     $ (191 )    $ 51     $ (154 )    $ 343     $ (151 )          $ 6  
Other
                                                                        
Other liabilities
     (38 )      22       1       –       8       –       –       (7 )      23  
 
   $ (177 )    $ (44 )    $ 6     $ (191 )    $ 59     $ (154 )    $ 343     $ (158 )          $ 29  
 
(1)  
These amounts include the foreign currency translation gains or losses arising on consolidation of foreign subsidiaries relating to the Level 3 instruments, where applicable. The unrealized gains on Investment securities recognized in OCI were
 $50 million for the year ended October 31, 2022 (October 31, 2021 – gains of $46 million) excluding the translation gains or losses arising on consolidation.
(2)   Other includes amortization of premiums or discounts recognized in net income.
(3)   Net derivatives as at October 31, 2022 included derivative assets of $383 million (October 31, 2021 – $429 million) and derivative liabilities of $2,106 million (October 31, 2021 – $1,390 million).
n.a.   not applicable
 
Transfers between fair value hierarchy levels for instruments carried at fair value on a recurring basis
Transfers between Level 1 and Level 2, and transfers into and out of Level 3 are assumed to occur at the end of the period. For an asset or a liability that transfers into Level 3 during the period, the entire change in fair value for the period is excluded from the Gains (losses) included in earnings for positions still held column of the above reconciliation, whereas for transfers out of Level 3 during the period, the entire change in fair value for the period is included in the same column of the above reconciliation.
Transfers between Level 1 and 2 are dependent on whether fair value is obtained on the basis of quoted market prices in active markets (Level 1).
During the year ended October 31, 2022, there were no significant transfers out of Level 1 to Level 2. During the year ended October 31, 2021, transfers out of Level 1 to Level 2 included Obligations related to securities sold short of
$498 million.
During the year ended October 31, 2022, there were no significant transfers out of Level 2 to Level 1. During the year ended October 31, 2021, transfers out of Level 2 to Level 1 included Obligations related to securities sold short of
 $130 million.
Transfers between Level 2 and Level 3 are primarily due to either a change in the market observability for an input, or a change in an unobservable input’s significance to a financial instrument’s fair value.
During the year ended October 31, 2022, significant transfers out of Level 2 to Level 3 included:
 
•
 
$777 million of Loans, due to changes in the market observability of inputs.
 
•
 
$227 million of OTC equity options in Other contracts comprised of $57 million of derivative related assets and $284 million of derivative related liabilities, due to changes in the market observability of inputs and changes in the significance of unobservable inputs.
 
•
 
$127 million of
loan underwriting commitments
in derivative related liabilities of Other contracts, due to changes in the market observability of inputs.
During the year ended October 31, 2021, significant transfers out of Level 2 to Level 3 included:
  •  
$277 million of OTC equity options in Other contracts comprised of $17 million of derivative related assets and $294 million of derivative related liabilities, due to changes in the market observability of inputs and changes in the significance of unobservable inputs.
  •  
$154 million of Personal deposits, due to changes in the significance of unobservable inputs.
During the year ended October 31, 2022, there were no significant transfers out of Level 3 to Level 2.
During the year ended October 31, 2021, significant transfers out of Level 3 to Level 2 included:
  •  
$298 
million of Loans, due to changes in the significance of unobservable inputs. 
  •  
$245 million of OTC equity options in Other contracts comprised of $69 million of derivative related assets and $314 million of derivative related liabilities, due to changes in the market observability of inputs and changes in the significance of unobservable inputs.
  •  
$343 million of Personal deposits, due to changes in the significance of unobservable inputs.
Positive and negative fair value movements of Level 3 financial instruments from using reasonably possible alternative assumptions
A financial instrument is classified as Level 3 in the fair value hierarchy if one or more of its unobservable inputs may significantly affect the measurement of its fair value. In preparing the financial statements, appropriate levels for these unobservable input parameters are chosen so that they are consistent with prevailing market evidence or management judgment. Due to the unobservable nature of the prices or rates, there may be uncertainty about the valuation of these Level 3 financial instruments.
 
The following table summarizes the impacts to fair values of Level 3 financial instruments using reasonably possible alternative assumptions. This sensitivity disclosure is intended to illustrate the potential impact of the relative uncertainty in the fair value of Level 3 financial instruments. In reporting the sensitivities below, we offset balances in instances where: (i) the move in valuation factors cause an offsetting positive and negative fair value movement, (ii) both offsetting instruments are in Level 3, and (iii) exposures are managed and reported on a net basis. With respect to overall sensitivity, it is unlikely in practice that all reasonably possible alternative assumptions would simultaneously be realized.
 
           As at     
   
October 31, 2022
         October 31, 2021  
               
(Millions of Canadian dollars)  
Level 3
fair value
    
Positive fair value
movement from
using reasonably
possible
alternatives
    
Negative fair value
movement from
using reasonably
possible
alternatives
          Level 3
fair value		     Positive fair value
movement from
using reasonably
possible
alternatives		    
Negative fair value
movement from
using reasonably
possible
alternatives
  
Securities
                                                    
Trading
                                                    
Debt issued or guaranteed by:
                                                    
U.S. state, municipal and agencies
  
$
4
 
  
$
–
 
  
$
–
 
       $ 25     $ –     $ (1 ) 
Asset-backed securities
  
 
2
 
  
 
–
 
  
 
–
 
         2       –       –  
Corporate debt and other debt
  
 
7
 
  
 
–
 
  
 
–
 
         25       1       (1 ) 
Equities
  
 
1,874
 
  
 
27
 
  
 
(23
) 
         1,530       19       (16 ) 
Investment
                                                    
Mortgage-backed securities
  
 
28
 
  
 
4
 
  
 
(4
) 
         20       4       (4 ) 
Corporate debt and other debt
  
 
151
 
  
 
12
 
  
 
(10
) 
         152       14       (13 ) 
Equities
  
 
397
 
  
 
38
 
  
 
(39
) 
         334       33       (34 ) 
Loans
  
 
1,692
 
  
 
60
 
  
 
(62
) 
         1,077       23       (24 ) 
Derivatives
  
 
383
 
  
 
5
 
  
 
(3
) 
         429       7       (5 ) 
Other assets
  
 
15
 
  
 
–
 
  
 
–
 
  
 
     –       –       –  
 
  
$
4,553
 
  
$
146
 
  
$
(141
) 
  
 
   $       3,594     $ 101     $ (98 ) 
Deposits
  
$
(241
) 
  
$
9
 
  
$
(9
) 
       $ (151 )    $ –     $ –  
Derivatives
  
 
(2,106
) 
  
 
55
 
  
 
(57
) 
         (1,390 )      30       (77 ) 
Other
                                                    
Other liabilities
  
 
–
 
  
 
–
 
  
 
–
 
  
 
     (7 )      –       –  
 
  
$
(2,347
) 
  
$
64
 
  
$
(66
) 
  
 
   $ (1,548 )    $ 30     $ (77 ) 
Sensitivity results
As at October 31, 2022, the effects of applying other reasonably possible alternative assumptions to the Level 3 asset positions would be an increase of $146 million and a reduction of $141 million in fair value, of which $54 million and $53 million would be recorded in Other components of equity, respectively. The effects of applying these assumptions to the Level 3 liability positions would result in a decrease of $64 million and an increase of $66 million in fair value.
Level 3 valuation inputs and approaches to developing reasonably possible alternative assumptions
The following is a summary of the unobservable inputs used in the valuation of the Level 3 instruments and our approaches to developing reasonably possible alternative assumptions used to determine sensitivity.
 
Financial assets or
liabilities
   
Sensitivity methodology
Asset-backed securities, corporate debt, government debt, municipal bonds and loans    Sensitivities are determined based on adjusting, plus or minus one standard deviation, the
bid-offer
spreads or input prices if a sufficient number of prices is received, adjusting input parameters such as credit spreads or using high and low vendor prices as reasonably possible alternative assumptions.
Private equities, hedge fund investments and related equity derivatives    Sensitivity of direct private equity investments is determined by (i) adjusting the discount rate by 2% when the discounted cash flow method is used to determine fair value, (ii) adjusting the price multiples based on the range of multiples of comparable companies when price-multiples-based models are used, or (iii) using an alternative valuation approach. The private equity fund, hedge fund and related equity derivative NAVs are provided by the fund managers, and as a result, there are no other reasonably possible alternative assumptions for these investments.
Interest rate derivatives    Sensitivities of interest rate and cross currency swaps are derived using plus or minus one standard deviation of the inputs, and an amount representing model and parameter uncertainty, where applicable.
Equity derivatives    Sensitivity of the Level 3 position is determined by shifting the unobservable model inputs by plus or minus one standard deviation of the pricing service market data including volatility, dividends or correlations, as applicable.
Bank funding and deposits    Sensitivities of deposits are calculated by shifting the funding curve by plus or minus certain basis points.
Structured notes    Sensitivities for interest-rate-linked and equity-linked structured notes are derived by adjusting inputs by plus or minus one standard deviation, and for other deposits, by estimating a reasonable move in the funding curve by plus or minus certain basis points.
 
Fair value for financial instruments that are carried at amortized cost and classified using the fair value hierarchy
 
    
As at October 31, 2022
  
   
Fair value
approximates
carrying value
(1)
     
 
Fair value may not approximate carrying value
         
    
Fair value measurements using
            
Total
fair value
  
(Millions of Canadian dollars)
   
Level 1
     
Level 2
     
Level 3
     
Total
  
Interest-bearing deposits with banks
  
$
23,543
 
   
$
–
 
   
$
–
 
   
$
–
 
   
$
–
 
   
$
23,543
 
Amortized cost securities
(2)
  
 
–
 
   
 
–
 
   
 
70,073
 
   
 
–
 
   
 
70,073
 
   
 
70,073
 
Assets purchased under reverse repurchase agreements and securities borrowed
  
 
42,224
 
   
 
–
 
   
 
10,956
 
   
 
–
 
   
 
10,956
 
   
 
53,180
 
Loans
                                                     
Retail
  
 
70,162
 
   
 
–
 
   
 
446,809
 
   
 
4,457
 
   
 
451,266
 
   
 
521,428
 
Wholesale
  
 
17,943
 
   
 
–
 
   
 
230,880
 
   
 
4,993
 
   
 
235,873
 
   
 
253,816
 
 
  
 
88,105
 
   
 
–
 
   
 
677,689
 
   
 
9,450
 
   
 
687,139
 
   
 
775,244
 
Other assets
  
 
72,198
 
   
 
–
 
   
 
716
 
   
 
170
 
   
 
886
 
   
 
73,084
 
 
  
 
226,070
 
   
 
–
 
   
 
759,434
 
   
 
9,620
 
   
 
769,054
 
   
 
995,124
 
Deposits
                                                     
Personal
  
 
271,414
 
   
 
–
 
   
 
108,549
 
   
 
433
 
   
 
108,982
 
   
 
380,396
 
Business and government
  
 
406,045
 
   
 
–
 
   
 
198,265
 
   
 
792
 
   
 
199,057
 
   
 
605,102
 
Bank
  
 
22,638
 
   
 
–
 
   
 
14,120
 
   
 
–
 
   
 
14,120
 
   
 
36,758
 
 
  
 
700,097
 
   
 
–
 
   
 
320,934
 
   
 
1,225
 
   
 
322,159
 
   
 
1,022,256
 
Obligations related to assets sold under repurchase agreements and securities loaned
  
 
25,112
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
–
 
   
 
25,112
 
Other liabilities
  
 
77,801
 
   
 
–
 
   
 
1,554
 
   
 
10,805
 
   
 
12,359
 
   
 
90,160
 
Subordinated debentures
  
 
–
 
   
 
–
 
   
 
9,608
 
   
 
60
 
   
 
9,668
 
   
 
9,668
 
 
  
$
803,010
 
   
$
–
 
   
$
332,096
 
   
$
12,090
 
   
$
344,186
 
   
$
1,147,196
 
                                          
    
As at October 31, 2021
  
   
Fair value
approximates
carrying value
(1)
      Fair value may not approximate carrying value         
     Fair value measurements using            
Total
fair value
  
(Millions of Canadian dollars)
    Level 1      Level 2      Level 3      Total  
Interest-bearing deposits with banks
   $ 22,742      $ –      $ –      $ –      $ –      $ 22,742  
Amortized cost securities
(2)
     –        1,025        65,798        –        66,823        66,823  
Assets purchased under reverse repurchase agreements and securities borrowed
     31,368        –        11,524        –        11,524        42,892  
Loans
                                                     
Retail
     68,377        –        429,672        4,228        433,900        502,277  
Wholesale
     16,228        –        184,055        4,400        188,455        204,683  
 
     84,605        –        613,727        8,628        622,355        706,960  
Other assets
     57,859        –        489        135        624        58,483  
 
     196,574        1,025        691,538        8,763        701,326        897,900  
Deposits
                                                     
Personal
     272,675        –        70,908        457        71,365        344,040  
Business and government
     418,185        –        146,334        587        146,921        565,106  
Bank
     16,943        –        7,792        8        7,800        24,743  
 
     707,803        –        225,034        1,052        226,086        933,889  
Obligations related to assets sold under repurchase agreements and securities loaned
     26,054        –        –        –        –        26,054  
Other liabilities
     55,495        –        1,256        7,998        9,254        64,749  
Subordinated debentures
     –        –        9,545        56        9,601        9,601  
 
   $ 789,352      $ –      $   235,835      $ 9,106      $   244,941      $     1,034,293  
 
(1)   Certain financial instruments have not been assigned to a level as the carrying amount approximates their fair values.
(2)   Included in Securities – Investment, net of applicable allowance on the Consolidated Balance Sheets.
Fair values of financial assets and liabilities carried at amortized cost and disclosed in the table above are determined using the following valuation techniques and inputs.
 
Amortized cost securities
Fair values of government bonds, corporate bonds, and ABS are based on quoted prices. Fair values of certain
Non-OECD
government bonds are based on vendor prices or the discounted cash flow method with yield curves of other countries’ government bonds as inputs. For ABS, where market prices are not available, the fair value is determined using the discounted cash flow method. The inputs to the valuation model generally include market interest rates, spreads and yields derived from comparable securities, prepayment, and LGD.
Assets purchased under reverse repurchase agreements and securities borrowed, and Obligations related to assets sold under repurchase agreements and securities loaned
Valuation methods used for the long-term instruments are described in the Fair value of assets and liabilities measured on a recurring basis and classified using the fair value hierarchy section of this note. The carrying values of short-term instruments generally approximate their fair values.
Loans – Retail
Retail loans include residential mortgages, personal and small business loans and credit cards. For residential mortgages, and personal and small business loans, we segregate the portfolio based on certain attributes such as product type, contractual interest rate, term to maturity and credit scores, if applicable. Fair values of these loans are determined by the discounted cash flow method using applicable inputs such as prevailing interest rates, contractual and posted client rates, client discounts, credit spreads, prepayment rates and
loan-to-value
(LTV) ratios. Fair values of credit card receivables are also calculated based on a discounted cash flow method with portfolio yields, write-offs and monthly payment rates as inputs. The carrying values of short-term and variable rate loans generally approximate their fair values.
Loans – Wholesale
Where market prices are available, wholesale loans are valued based on market prices. Otherwise, fair value is determined by the discounted cash flow method using the following inputs: market interest rates and market based spreads of assets with similar credit ratings and terms to maturity, LGD, expected default frequency implied from credit default swap prices, if available, and relevant pricing information such as contractual rate, origination and maturity dates, redemption price, coupon payment frequency and date convention.
Deposits
Deposits are comprised of demand, notice, and term deposits which include senior deposit notes we have issued to provide us with long-term funding. Fair values of term deposits are determined by one of several valuation techniques: (i) for term deposits and similar instruments, we segregate the portfolio based on term to maturity. Fair values of these instruments are determined by the discounted cash flow method using inputs such as client rates for new sales of the corresponding terms; and (ii) for senior deposit notes, we use actual traded prices, vendor prices or the discounted cash flow method using a market interest rate curve and our funding spreads as inputs. The carrying values of demand, notice, and short-term term deposits generally approximate their fair values.
Other assets and Other liabilities
Other assets and Other liabilities include receivables and payables relating to certain commodities. Fair values of the commodity receivables and payables are calculated by the discounted cash flow method using applicable inputs such as market interest rates, counterparties’ credit spreads, our funding spreads, commodity forward prices and spot prices.
Subordinated debentures
Fair values of Subordinated debentures are based on market prices, dealer quotes or vendor prices when available. Where prices cannot be observed, fair value is determined using the discounted cash flow method, with applicable inputs such as market interest rates and credit spreads.