JP Morgan Chase 2003 Annual Report Download - page 47

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chaired by the Chief Risk Officer, focuses on credit risk, market
risk, operational risk, business risk, private equity risk and fiduci-
ary risk. Both risk committees have decision-making authority,
w ith major policy decisions and risk exposures subject to review
by the Office of the Chairman.
In addition to the Risk Policy Committee, the Audit Committee
of the Board of Directors is responsible for oversight of guide-
lines and policies to govern the process by which risk assess-
ment and management is undertaken. In addition, the Audit
Committee review s w ith management the system of internal
controls and financial reporting that is relied upon to provide
reasonable assurance of compliance w ith the Firm’s operational
risk management processes.
The Firm’s use of SVA, w hich incorporates a risk-adjusted capital
methodology as its primary performance measure, has strength-
ened its risk management discipline by charging the businesses
the cost of capital linked to the risks associated w ith their
respective activities.
For a discussion of capital allocation methodologies, see the
respective risk management sections on pages 46–74 of this
Annual Report.
Risk management at JPM organ Chase is guided by several
principles, including:
• defined risk governance
• independent oversight
• continual evaluation of risk appetite, managed through risk
limits
• portfolio diversification
• risk assessment and measurement, including Value-at-Risk
analysis and portfolio stress testing
• performance measurement (SVA) that allocates risk-adjusted
capital to business units and charges a cost against that capital.
Risk management and oversight begins w ith the Risk Policy
Committee of the Board of Directors, w hich reviews the gover-
nance of these activities, delegating the formulation of policy
and day-to-day risk oversight and management to the Office of
the Chairman and to two corporate risk committees: the Capital
Committee and Risk M anagement Committee.
The Capital Committee, chaired by the Chief Financial Officer,
focuses on Firm-w ide capital planning, internal capital allocation
and liquidity management. The Risk Management Committee,
Risk and Capital management
•Provides oversight and direction of the risk profile and risk appetite of
the Firm
•Reviews risk exposures on an integrated basis, including the interdependen-
cies among JPMorgan Chase’s various risk categories
•Provides a forum for appropriate discussion of risk issues
•Reviews and approves corporate policies and risk strategies to ensure that
risk management and monitoring accurately reflect the business mandate,
accepted practice, and legal and regulatory requirements
•Advises on aggregate limits and authorities to control risk
•Monitors significant risk exposures, concentrations of positions, asset quality,
and significant position and risk limit changes, paying particular attention to
stress scenarios
•Establishes sub-committees, as appropriate, to focus on specific risk
disciplines and correlations
Risk Policy Committee
of the Board of Directors
Capital Committee Risk Management Committee
•Oversees risk management
•Provides a forum for discussion of capital adequacy and liquidity issues
•Recommends targeted capital ratios and monitors adherence to those ratios
•Reviews the allocation of capital within the Firm
•Monitors Firm-wide and parent company liquidity and approves collateral
and liquidity planning policies
•Reviews the adequacy of the Firm’s capital and debt levels
•Recommends balance sheet limits by line of business
•Recommends dividend and stock repurchase policies
•Reviews funds transfer pricing policies and methodologies
• Formulation of policy
•Reviews major risk exposures
Office of the Chairman
J.P. Morgan Chase & Co. / 2003 Annual Report 45