JP Morgan Chase 2014 Annual Report Download - page 108

Management’s discussion and analysis
106 JPMorgan Chase & Co./2014 Annual Report
The following sections outline the key risks that are inherent in the Firm’s business activities.
Risk Definition Key risk management metrics Page references
Capital risk The risk the Firm has an insufficient level and composition of capital to support the
Firm’s business activities and associated risks during normal economic environments
and stressed conditions.
Risk-based capital ratios, Supplementary Leverage
ratio 146-155
Compliance
risk The risk of fines or sanctions or of financial damage or loss due to the failure to comply with laws, rules, and regulations. Not Applicable 144
Country risk The risk that a sovereign event or action alters the value or terms of contractual
obligations of obligors, counterparties and issuers or adversely affects markets
related to a particular country.
Default exposure at 0% recovery, Stress 137-138
Credit risk The risk of loss arising from the default of a customer, client or counterparty. Total exposure; industry, geographic and customer
concentrations; risk ratings; delinquencies; loss
experience; stress
110-130
Fiduciary
risk The risk of a failure to exercise the applicable high standard of care, to act in the best interests of clients or to treat clients fairly, as required under applicable law or
regulation.
Not Applicable 145
Legal risk The risk of loss or imposition of damages, fines, penalties or other liability arising
from failure to comply with a contractual obligation or to comply with laws or
regulations to which the Firm is subject.
Not Applicable 144
Liquidity
risk The risk that the Firm will not have the appropriate amount, composition and tenor of funding and liquidity in support of its assets, and that the Firm will be unable to meet
its contractual and contingent obligations through normal economic cycles and
market stress events.
LCR; Stress 156-160
Market risk The risk of loss arising from potential adverse changes in the value of the Firm’s
assets and liabilities resulting from changes in market variables such as interest rates,
foreign exchange rates, equity prices, commodity prices, implied volatilities or credit
spreads.
VaR, Stress, Sensitivities 131-136
Model risk The risk of the potential for adverse consequences from decisions based on incorrect
or misused model outputs and reports. Model Status, Model Tier 139
Non-USD FX
risk The risk arising from capital investments, forecasted expense and revenue, investment securities portfolio or issuing debt in denominations other than the U.S.
dollar.
FX Net Open Position (“NOP”) 203,
211-213
Operational
risk The risk of loss resulting from inadequate or failed processes or systems or due to external events that are neither market nor credit-related. Firm-specific loss experience; industry loss experience; business environment and internal
control factors (“BEICF”)
140-143
Principal
risk The risk of an adverse change in the value of privately-held financial assets and instruments, typically representing an ownership or junior capital position. These
positions have unique risks due to their illiquidity or for which there is less observable
market or valuation data.
Carrying Value, Stress 140
Reputation
risk The risk that an action, transaction, investment or event will reduce the trust that clients, shareholders, employees or the broader public has in the Firm’s integrity or
competence.
Not Applicable 145
Structural
interest
rate risk
The risk resulting from the Firm’s traditional banking activities (both on- and off-
balance sheet positions) arising from the extension of loans and credit facilities,
taking deposits and issuing debt (collectively referred to as “non-trading activities”),
and also the impact from the CIO investment securities portfolio and other related
CIO, Treasury activities.
Earnings-at-risk 136
Risk organization
The LOBs are responsible for managing the risks inherent in
their respective business activities. The Risk organization
operates independently from the revenue-generating
businesses, providing a credible challenge to them. The CRO
is the head of the Risk organization and is responsible for
the overall direction of Risk oversight. The CRO is supported
by individuals and organizations that align to lines of
business and corporate functions, as well as others that
align to specific risk types.
The Firm’s Risk Management Organization and other
Firmwide functions with risk-related responsibilities (i.e.,
Regulatory Capital Management Office (“RCMO”), Firmwide
Oversight and Control Group, Valuation Control Group
(“VCG”), Legal and Compliance) provide independent
oversight of the monitoring, evaluation and escalation of
risk.
Risk governance
The independent stature of the Risk organization is
supported by a governance structure that provides for
escalation of risk issues up to senior management and the
Board of Directors.