JP Morgan Chase 2014 Annual Report Download - page 159

JPMorgan Chase & Co./2014 Annual Report 157
On September 3, 2014, the U.S. banking regulators
approved the final LCR rule (“U.S. LCR”), which became
effective on January 1, 2015. Under the final rules, the LCR
is required to be 80% at January 1, 2015, increasing by
10% each year until reaching 100% at January 1, 2017. At
December 31, 2014, the Firm was compliant with the fully
phased-in U.S. LCR based on its current understanding of
the final rule. The Firm’s LCR may fluctuate from period-to-
period due to normal flows from client activity.
On October 31, 2014, the Basel Committee issued the final
standard for the NSFR which will become a minimum
standard by January 1, 2018. At December 31, 2014, the
Firm was compliant with the NSFR based on its current
understanding of the final Basel rule. The U.S. Banking
Regulators are expected to issue a proposal on the NSFR
that would outline requirements specific to U.S. banks.
HQLA
HQLA is the estimated amount of assets that qualify for
inclusion in the U.S. LCR. HQLA primarily consists of cash
and certain unencumbered high quality liquid assets as
defined in the rule.
As of December 31, 2014, HQLA was estimated to be
approximately $600 billion, as determined under the U.S.
LCR final rule, compared with $522 billion as of December
31, 2013, which was calculated using the Basel
Committee’s definition of HQLA. The increase in HQLA was
due to higher cash balances largely driven by higher deposit
balances, partially offset by the impact of the application of
the U.S. LCR rule which excludes certain types of securities
that are permitted under the Basel Rules. HQLA may
fluctuate from period-to-period primarily due to normal
flows from client activity.
The following table presents the estimated HQLA included
in the U.S. LCR broken out by HQLA-eligible cash and HQLA-
eligible securities as of December 31, 2014.
(in billions) December 31, 2014
HQLA
Eligible cash(a) $ 454
Eligible securities(b) 146
Total HQLA $ 600
(a) Predominantly cash on deposit at central banks.
(b) Predominantly includes U.S. agency mortgage-backed securities, U.S.
Treasuries, and sovereign bonds.
In addition to HQLA, as of December 31, 2014, the Firm has
approximately $321 billion of unencumbered marketable
securities, such as equity securities and fixed income debt
securities, available to raise liquidity, if required.
Furthermore, the Firm maintains borrowing capacity at
various Federal Home Loan Banks (“FHLBs”), the Federal
Reserve Bank discount window and various other central
banks as a result of collateral pledged by the Firm to such
banks. Although available, the Firm does not view the
borrowing capacity at the Federal Reserve Bank discount
window and the various other central banks as a primary
source of liquidity. As of December 31, 2014, the Firm’s
remaining borrowing capacity at various FHLBs and the
Federal Reserve Bank discount window was approximately
$143 billion. This borrowing capacity excludes the benefit
of securities included above in HQLA or other
unencumbered securities held at the Federal Reserve Bank
discount window for which the Firm has not drawn liquidity.
Funding
Sources of funds
Management believes that the Firm’s unsecured and
secured funding capacity is sufficient to meet its on- and
off-balance sheet obligations.
The Firm funds its global balance sheet through diverse
sources of funding including a stable deposit franchise as
well as secured and unsecured funding in the capital
markets. The Firm’s loan portfolio (aggregating
approximately $757.3 billion at December 31, 2014), is
funded with a portion of the Firm’s deposits (aggregating
approximately $1,363.4 billion at December 31, 2014)
and through securitizations and, with respect to a portion of
the Firm’s real estate-related loans, with secured
borrowings from the FHLBs. Deposits in excess of the
amount utilized to fund loans are primarily invested in the
Firm’s investment securities portfolio or deployed in cash or
other short-term liquid investments based on their interest
rate and liquidity risk characteristics. Capital markets
secured financing assets and trading assets are primarily
funded by the Firm’s capital markets secured financing
liabilities, trading liabilities and a portion of the Firm’s long-
term debt and stockholders’ equity.
In addition to funding capital markets assets, proceeds from
the Firm’s debt and equity issuances are used to fund
certain loans, and other financial and non-financial assets,
or may be invested in the Firm’s investment securities
portfolio. See the discussion below for additional
disclosures relating to Deposits, Short-term funding, and
Long-term funding and issuance.
Deposits
A key strength of the Firm is its diversified deposit
franchise, through each of its lines of business, which
provides a stable source of funding and limits reliance on
the wholesale funding markets. As of December 31, 2014,
the Firm’s loans-to-deposits ratio was 56%, compared with
57% at December 31, 2013.
As of December 31, 2014, total deposits for the Firm were
$1,363.4 billion, compared with $1,287.8 billion at
December 31, 2013 (58% of total liabilities at both
December 31, 2014 and 2013). The increase was due to
growth in both wholesale and consumer deposits. For
further information, see Balance Sheet Analysis on pages
72–73.