JP Morgan Chase 2014 Annual Report Download - page 150

Management’s discussion and analysis
148 JPMorgan Chase & Co./2014 Annual Report
Capital ratios
The basis to calculate the Firm’s capital ratios (both risk-based and leverage) under Basel III during the transitional period and
when fully phased-in are shown in the table below.
Transitional period Fully Phased-In
2014 2015 – 2017 2018 2019+
Capital (Numerator) Basel III Transitional Capital(a) Basel III Capital
RWA (Denominator) Standardized
Approach Basel I with 2.5(b) Basel III Standardized
Advanced
Approach Basel III Advanced
Leverage (Denominator) Tier 1 Leverage Adjusted average assets(c)
Supplementary
leverage Adjusted average assets(c) + off-balance sheet exposures
(a) Trust preferred securities (“TruPS”) are being phased out from inclusion in Basel III capital commencing January 1, 2014, continuing through the end of 2021.
(b) Defined as Basel III Standardized Transitional for 2014. Beginning January 1, 2015, Basel III Standardized RWA is calculated under the Basel III definition of the Standardized
Approach.
(c) Adjusted average assets, for purposes of calculating the leverage ratio and SLR, includes total quarterly average assets adjusted for unrealized gains/(losses) on securities,
less deductions for disallowed goodwill and other intangible assets, investments in certain subsidiaries, and the total adjusted carrying value of nonfinancial equity
investments that are subject to deductions from Tier 1 capital.
Risk-based capital regulatory minimums
The Basel III rules include minimum capital ratio
requirements that are also subject to phase-in periods
through January 1, 2019.
In addition to the regulatory minimum capital
requirements, certain banking organizations, including the
Firm, will be required to hold an additional 2.5% of CET1
capital to serve as a “capital conservation buffer.” The
capital conservation buffer is intended to be used to absorb
potential losses in times of financial or economic stress; if
not maintained, the Firm could be limited in the amount of
capital that may be distributed, including dividends and
common equity repurchases. The capital conservation
buffer will be phased-in beginning January 1, 2016.
Moreover, G-SIBs will be required to maintain, in addition to
the capital conservation buffer, further amounts of capital
ranging from 1% to 2.5% across all tiers of regulatory
capital. In November 2014, based upon data as of
December 31, 2013, the Financial Stability Board (“FSB”)
indicated that certain G-SIBs, including the Firm, would be
required to hold the additional 2.5% of capital; the
requirement will be phased-in beginning January 1, 2016.
The Basel Committee has stated that G-SIBs could in the
future be required to hold 3.5% or more of additional
capital if their relative systemic importance were to
increase. Currently, no G-SIB is required to hold more than
the additional 2.5% of capital.
Consequently, based upon the final rules currently in effect,
the minimum Basel III CET1 capital ratio requirement for
the Firm is expected to be 9.5%, comprised of the
minimum ratio of 4.5% plus the 2.5% capital conservation
buffer and the 2.5% G-SIB requirement both beginning
January 1, 2019.
Basel III also establishes a minimum 6.5% CET1 standard
for the definition of “well capitalized” under the Prompt
Corrective Action (“PCA”) requirements of the FDIC
Improvement Act (“FDICIA”). The CET1 standard is effective
beginning with the first quarter of 2015.