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4Q18 Basel Pillar 3 Report

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4Q18 Basel Pillar 3 Report PILLAR 3 REGULATORY CAPITAL DISCLOSURES For the quarterly period ended December 31, 2018 Table of Contents Disclosure map 1 Introduction 2 Report overview 2 Basel III overview 2 Enterprise-wide risk management 3 Governance and oversight 4 Regulatory capital 5 Components of capital 5 Risk-weighted assets 6 Capital adequacy 8 Supplementary leverage ratio 9 Impact of a Bank Holding Company Resolution Event 10 Credit risk 11 Retail credit risk 13 Wholesale credit risk 16 Counterparty credit risk 18 Securitization 20 Equity risk in the banking book 23 Market risk 25 Material portfolio of covered positions 25 Value-at-risk 25 Regulatory market risk capital models 26 Independent review 30 Stress testing 31 Operational risk 32 Capital measurement 32 Interest rate risk in the banking book 33 Supplementary leverage ratio 34 Appendix 35 Valuation process 35 Estimations and model risk management 36 References 37 DISCLOSURE MAP Pillar 3 Report page 2018 Form 10-K page Pillar 3 Requirement Description reference reference Capital structure Terms and conditions of capital instruments 5 1, 257, 259 Capital components 5 152, 259, 260 Capital adequacy Capital adequacy assessment process 8 85, 91 Risk-weighted assets by risk stripe 7 Regulatory capital metrics 8 269 Credit risk: general Policies and practices 11 102, 182, 211, 219, 239, disclosures 271 Credit risk exposures 12 102, 133 Retail Distribution of exposure 12 106, 224, 234, 272 Impaired loans and ALLL 12 225, 242 Wholesale Distribution of exposure 12 112, 211, 236, 272 Impaired loans and ALLL 12 238, 242 Credit risk: IRB Parameter estimation methods 13, 16 RWA 11, 14, 17, 19 Counterparty credit Parameter estimation methods 18 Policies and practices 12 184, 216, 277 Counterparty credit risk exposure 19 106, 112, 184, 216 Credit derivatives purchased and sold 12 118, 195 Credit risk mitigation Policies and practices 11 184, 219, 277 Exposure covered by guarantees and CDS 17, 19 Securitization Objectives, vehicles, accounting policies 20 53, 61, 159, 184, 244 Securitization RWA 21 Securitization exposure 22 Assets securitized 22 Current year securitization activity 22 Market risk Material portfolio of covered positions 25 Value-at-risk 25 126 Regulatory market risk capital models 26 Stress testing 31 129 Operational risk Operational risk management policies 32 134 Description of AMA 32 134 Equity investments in Policies and practices 23 123, 153, 159, 164, 201, the banking book 211 Carrying value and fair value 24 Realized and unrealized gains/(losses) 24 Equity investments by risk weight 24 Interest rate risk in Nature, assumptions, frequency of measurement 33 129 the banking book Earnings sensitivity to rate shocks 33 130 Supplementary Overview of SLR 9 91 leverage ratio (SLR) Components of SLR 34 1 INTRODUCTION JPMorgan Chase & Co., (“JPMorgan Chase” or the “Firm”) Basel III overview a financial holding company incorporated under Delaware The Basel framework consists of a three “Pillar” approach: law in 1968, is a leading global financial services firm and • Pillar 1 establishes minimum capital requirements, one of the largest banking institutions in the United States defines eligible capital instruments, and prescribes of America (“U.S.”), with operations worldwide; JPMorgan rules for calculating RWA. Chase had $2.6 trillion in assets and $256.5 billion in • Pillar 2 requires banks to have an internal capital stockholders’ equity as of December 31, 2018. The Firm is adequacy assessment process and requires that a leader in investment banking, financial services for banking supervisors evaluate each bank’s overall risk consumers and small businesses, commercial banking, profile as well as its risk management and internal financial transaction processing and asset management. control processes. Under the J.P. Morgan and Chase brands, the Firm serves millions of customers in the U.S. and globally many of the • Pillar 3 encourages market discipline through world’s most prominent corporate, institutional and disclosure requirements which allow market government clients. participants to assess the risk and capital profiles of banks. JPMorgan Chase’s principal bank subsidiaries are JPMorgan Chase Bank, National Association (“JPMorgan Capital rules under Basel III establish minimum capital Chase Bank, N.A.”), a national banking association with ratios and overall capital adequacy standards for large and U.S. branches in 27 states and the District of Columbia as internationally active U.S. bank holding companies (“BHC”) of December 31, 2018, and Chase Bank USA, National and banks, including the Firm and its insured depository Association (“Chase Bank USA, N.A.”), a national banking institution (“IDI”) subsidiaries. Basel III sets forth two association that is the Firm’s principal credit card-issuing comprehensive approaches for calculating RWA: a bank. In January 2019, the Office of the Comptroller of the standardized approach (“Basel III Standardized”), and an Currency ("OCC") approved an application of merger which advanced approach (“Basel III Advanced”). Certain of the was filed by JPMorgan Chase Bank, N.A. and Chase Bank requirements of Basel III were subject to phase-in periods USA, N.A. in December 2018 and which contemplates that that began on January 1, 2014 and continued through the Chase Bank USA, N.A. will merge with and into JPMorgan end of 2018 (“transitional period”). While the required Chase Bank, N.A., with JPMorgan Chase Bank, N.A. as the capital remained subject to the transitional rules during surviving bank. JPMorgan Chase’s principal nonbank 2018, the Firm’s capital ratios as of December 31, 2018 subsidiary is J.P. Morgan Securities LLC (“J.P. Morgan were equivalent whether calculated on a transitional or Securities”), a U.S. broker-dealer. The bank and non-bank fully phased-in basis. subsidiaries of JPMorgan Chase operate nationally as well Basel III also includes a requirement for Advanced as through overseas branches and subsidiaries, Approach banking organizations, including the Firm, to representative offices and subsidiary foreign banks. The calculate the supplementary leverage ratio (“SLR”) which Firm’s principal operating subsidiary in the U.K is J.P. also became fully phased-in as of January 1, 2018. Morgan Securities plc, a subsidiary of JPMorgan Chase Ø Bank, N.A. Refer to pages 1–6 of the 2018 Form 10-K for information on Basel III Reforms. Ø For additional information, refer to the Supervision and Regulation section on pages 1-3 of the JPMorgan Chase's Annual Report on Form 10-K for the year ended December 31, 2018 ("2018 Form 10-K ") Pillar 3 report overview This report provides information on the Firm’s capital structure, capital adequacy, risk exposures, and risk- weighted assets (“RWA”) under the Basel III advanced approach. This report describes the internal models used to translate risk exposures into required capital. This report should be read in conjunction with the 2018 Form 10-K which has been filed with the U.S. Securities and Exchange Commission (“SEC”). 2 ENTERPRISE-WIDE RISK MANAGEMENT Risk is an inherent part of JPMorgan Chase’s business The Firm’s risks are generally categorized in the following activities. When the Firm extends a consumer or wholesale four risk types: loan, advises customers on their investment decisions, • Strategic risk is the risk associated with the Firm’s makes markets in securities, or offers other products or current and future business plans and objectives, services, the Firm takes on some degree of risk. The Firm’s including capital risk, liquidity risk, and the impact to overall objective is to manage its businesses, and the the Firm’s reputation. associated risks, in a manner that balances serving the interests of its clients, customers and investors and • Credit and investment risk is the risk associated with protects the safety and soundness of the Firm. the default or change in credit profile of a client, counterparty or customer; or loss of principal or a The Firm believes that effective risk management requires: reduction in expected returns on investments, including • Acceptance of responsibility, including identification consumer credit risk, wholesale credit risk, and and escalation of risk issues, by all individuals within investment portfolio risk. the Firm; • Market risk is the risk associated with the effect of • Ownership of risk identification, assessment, data and changes in market factors, such as interest and foreign management within each of the lines of business and exchange rates, equity and commodity prices, credit Corporate; and spreads or implied volatilities, on the value of assets • Firmwide structures for risk governance. and liabilities held for both the short and long term. • Operational risk is the risk associated with inadequate The Firm strives for continual improvement through efforts or failed internal processes, people and systems, or to enhance controls, ongoing employee training and from external events and includes compliance risk, development, talent retention, and other measures. The conduct risk, legal risk, and estimations and model risk. Firm follows a disciplined and balanced compensation framework with strong internal governance and There may be many consequences of risks manifesting, independent Board oversight. The impact of risk and including quantitative impacts such as reduction in control issues are carefully considered in the Firm’s earnings and capital, liquidity outflows, and fines or performance evaluation and incentive compensation penalties, or qualitative
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