JP Morgan Chase 2014 Annual Report Download - page 212

Notes to consolidated financial statements
210 JPMorgan Chase & Co./2014 Annual Report
The following tables present information regarding certain financial instrument collateral received and transferred as of
December 31, 2014 and 2013, that is not eligible for net presentation under U.S. GAAP. The collateral included in these tables
relates only to the derivative instruments for which appropriate legal opinions have been obtained; excluded are (i) additional
collateral that exceeds the fair value exposure and (ii) all collateral related to derivative instruments where an appropriate
legal opinion has not been either sought or obtained.
Derivative receivable collateral
2014 2013
December 31, (in millions) Net derivative receivables
Collateral not
nettable on the
Consolidated
balance sheets Net exposure Net derivative receivables
Collateral not
nettable on the
Consolidated
balance sheets Net exposure
Derivative receivables with appropriate legal opinions $ 58,258 $ (16,194) (a) $ 42,064 $ 50,025 $ (12,414) (a) $ 37,611
Derivative payable collateral(b)
2014 2013
December 31, (in millions) Net derivative payables
Collateral not
nettable on the
Consolidated
balance sheets Net amount(c) Net derivative payables
Collateral not
nettable on the
Consolidated
balance sheets Net amount(c)
Derivative payables with appropriate legal opinions $ 52,046 $ (10,505) (a) $ 41,541 $ 41,617 $ (6,873) (a) $ 34,744
(a) Represents liquid security collateral as well as cash collateral held at third party custodians. For some counterparties, the collateral amounts of financial instruments may
exceed the derivative receivables and derivative payables balances. Where this is the case, the total amount reported is limited to the net derivative receivables and net
derivative payables balances with that counterparty.
(b) Derivative payable collateral relates only to OTC and OTC-cleared derivative instruments. Amounts exclude collateral transferred related to exchange-traded derivative
instruments.
(c) Net amount represents exposure of counterparties to the Firm.
Liquidity risk and credit-related contingent features
In addition to the specific market risks introduced by each
derivative contract type, derivatives expose JPMorgan
Chase to credit risk — the risk that derivative counterparties
may fail to meet their payment obligations under the
derivative contracts and the collateral, if any, held by the
Firm proves to be of insufficient value to cover the payment
obligation. It is the policy of JPMorgan Chase to actively
pursue, where possible, the use of legally enforceable
master netting arrangements and collateral agreements to
mitigate derivative counterparty credit risk. The amount of
derivative receivables reported on the Consolidated balance
sheets is the fair value of the derivative contracts after
giving effect to legally enforceable master netting
agreements and cash collateral held by the Firm.
While derivative receivables expose the Firm to credit risk,
derivative payables expose the Firm to liquidity risk, as the
derivative contracts typically require the Firm to post cash
or securities collateral with counterparties as the fair value
of the contracts moves in the counterparties’ favor or upon
specified downgrades in the Firm’s and its subsidiaries’
respective credit ratings. Certain derivative contracts also
provide for termination of the contract, generally upon a
downgrade of either the Firm or the counterparty, at the
fair value of the derivative contracts. The following table
shows the aggregate fair value of net derivative payables
related to OTC and OTC-cleared derivatives that contain
contingent collateral or termination features that may be
triggered upon a ratings downgrade, and the associated
collateral the Firm has posted in the normal course of
business, at December 31, 2014 and 2013.
OTC and OTC-cleared derivative payables containing
downgrade triggers
December 31, (in millions) 2014 2013
Aggregate fair value of net derivative
payables $ 32,303 $ 24,631
Collateral posted 27,585 20,346
The following table shows the impact of a single-notch and
two-notch downgrade of the long-term issuer ratings of
JPMorgan Chase & Co. and its subsidiaries, predominantly
JPMorgan Chase Bank, National Association (“JPMorgan
Chase Bank, N.A.”), at December 31, 2014 and 2013,
related to OTC and OTC-cleared derivative contracts with
contingent collateral or termination features that may be
triggered upon a ratings downgrade. Derivatives contracts
generally require additional collateral to be posted or
terminations to be triggered when the predefined threshold
rating is breached. A downgrade by a single rating agency
that does not result in a rating lower than a preexisting
corresponding rating provided by another major rating
agency will generally not result in additional collateral,
except in certain instances in which additional initial margin
may be required upon a ratings downgrade, or termination
payment requirements. The liquidity impact in the table is
calculated based upon a downgrade below the lowest
current rating of the rating agencies referred to in the
derivative contract.