JP Morgan Chase 2010 Annual Report Download - page 109

JPMorgan Chase & Co./2010 Annual Report 109
Risk monitoring and control
The Firm’s ability to properly identify, measure, monitor and report risk
is critical to both its soundness and profitability.
• Risk identification: The Firm’s exposure to risk through its daily
business dealings, including lending and capital markets activities,
is identified and aggregated through the Firm’s risk management
infrastructure. In addition, individuals who manage risk positions,
particularly those that are complex, are responsible for identifying
and estimating potential losses that could arise from specific or
unusual events that may not be captured in other models, and for
communicating those risks to senior management.
• Risk measurement: The Firm measures risk using a variety of
methodologies, including calculating probable loss, unexpected
loss and value-at-risk, and by conducting stress tests and making
comparisons to external benchmarks. Measurement models and
related assumptions are routinely subject to internal model review,
empirical validation and benchmarking with the goal of ensuring
that the Firm’s risk estimates are reasonable and reflective of the
risk of the underlying positions.
• Risk monitoring/control: The Firm’s risk management policies and
procedures incorporate risk mitigation strategies and include ap-
proval limits by customer, product, industry, country and business.
These limits are monitored on a daily, weekly and monthly basis,
as appropriate.
• Risk reporting: The Firm reports risk exposures on both a line of
business and a consolidated basis. This information is reported to
management on a daily, weekly and monthly basis, as appropriate.
There are eight major risk types identified in the business activities
of the Firm: liquidity risk, credit risk, market risk, interest rate risk,
private equity risk, operational risk, legal and fiduciary risk, and
reputation risk.