JP Morgan Chase 2014 Annual Report Download - page 140

Management’s discussion and analysis
138 JPMorgan Chase & Co./2014 Annual Report
The Firm also has indirect exposures to country risk (for
example, related to the collateral received on securities
financing receivables or related to client clearing activities).
These indirect exposures are managed in the normal course
of business through the Firm’s credit, market, and
operational risk governance, rather than through Country
Risk Management.
The Firm’s internal country risk reporting differs from the
reporting provided under the Federal Financial Institutions
Examination Council (“FFIEC”) bank regulatory
requirements as there are significant differences in
reporting methodology. For further information on the
FFIEC’s reporting methodology, see Cross-border
outstandings on page 325.
Country risk stress testing
The country risk stress framework aims to identify potential
losses arising from a country crisis by capturing the impact
of large asset price movements in a country based on
market shocks combined with counterparty specific
assumptions. Country Risk Management periodically defines
and runs ad hoc stress scenarios for individual countries in
response to specific market events and sector performance
concerns.
Country risk monitoring and control
The Country Risk Management Group establishes guidelines
for sovereign ratings reviews and limit management.
Country stress and nominal exposures are measured under
a comprehensive country limit framework. Country ratings
and limits activity are actively monitored and reported on a
regular basis. Country limit requirements are reviewed and
approved by senior management as often as necessary, but
at least annually. In addition, the Country Risk Management
group uses surveillance tools for early identification of
potential country risk concerns, such as signaling models
and ratings indicators.
Country risk reporting
The following table presents the Firm’s top 20 exposures by
country (excluding the U.S.) as of December 31, 2014. The
selection of countries is based solely on the Firm’s largest
total exposures by country, based on the Firm’s internal
country risk management approach, and does not represent
the Firm’s view of any actual or potentially adverse credit
conditions. Country exposures may fluctuate from period-
to-period due to normal client activity and market flows.
Top 20 country exposures
December 31, 2014
(in billions) Lending(a) Trading and investing(b)(c) Other(d) Total exposure
United Kingdom $ 25.8 $ 31.1 $ 1.4 $ 58.3
Germany 23.5 21.6 0.2 45.3
Netherlands 6.1 19.2 2.1 27.4
France 11.4 15.2 0.2 26.8
China 10.8 7.0 0.5 18.3
Japan 11.5 5.5 0.4 17.4
Australia 6.4 10.8 — 17.2
Canada 12.4 4.2 0.3 16.9
Switzerland 9.3 1.7 2.3 13.3
India 5.8 6.2 0.6 12.6
Brazil 6.3 6.3 — 12.6
Korea 5.1 5.2 0.1 10.4
Spain 3.4 3.5 — 6.9
Hong Kong 1.7 4.1 1.0 6.8
Italy 2.4 3.4 0.2 6.0
Belgium 3.1 2.6 0.1 5.8
Taiwan 2.2 3.5 — 5.7
Singapore 3.1 1.9 0.5 5.5
Mexico 2.5 3.0 — 5.5
Luxembourg 3.5 0.3 1.1 4.9
(a) Lending includes loans and accrued interest receivable, net of
collateral and the allowance for loan losses, deposits with banks,
acceptances, other monetary assets, issued letters of credit net of
participations, and undrawn commitments to extend credit. Excludes
intra-day and operating exposures, such as from settlement and
clearing activities.
(b) Includes market-making inventory, securities held in AFS accounts,
counterparty exposure on derivative and securities financings net of
collateral and hedging.
(c) Includes single-name and index and tranched credit derivatives for
which one or more of the underlying reference entities is in a country
listed in the above table.
(d) Includes capital invested in local entities and physical commodity
inventory.
The Firm’s country exposure to Russia was $4.2 billion at
December 31, 2014. The Firm is closely monitoring events
in the region, and assessing the impact of falling oil prices,
a weakening currency, ongoing sanctions and potential
countermeasures such as capital controls. The Firm is also
focused on possible contagion effects, via trade, financial or
political channels.