JP Morgan Chase 2013 Annual Report Download - page 155

JPMorgan Chase & Co./2013 Annual Report 161
to ensure that large bank holding companies have sufficient
capital during periods of economic and financial stress, and
have robust, forward-looking capital assessment and
planning processes in place that address each bank holding
company’s unique risks to enable them to have the ability to
absorb losses under certain stress scenarios. Through the
CCAR, the Federal Reserve evaluates each bank holding
company’s capital adequacy and internal capital adequacy
assessment processes, as well as its plans to make capital
distributions, such as dividend payments or stock
repurchases.
The Firm’s CCAR process is integrated into and employs the
same methodologies utilized in the Firm’s ICAAP process.
On January 7, 2013, the Firm submitted its capital plan to
the Federal Reserve under the Federal Reserve’s 2013
CCAR process. On March 14, 2013, the Federal Reserve
informed the Firm that it did not object to the Firm’s 2013
capital plan, but asked the Firm to submit an additional
capital plan.
On September 18, 2013, the Firm submitted the additional
capital plan which addressed the weaknesses the Federal
Reserve had identified in the Firm’s original 2013
submission. On December 2, 2013, the Federal Reserve
informed the Firm it did not object to the Firm’s 2013
capital plan, as resubmitted.
On January 6, 2014, the Firm submitted its 2014 capital
plan to the Federal Reserve under the Federal Reserve’s
2014 CCAR process. The Firm expects to receive the Federal
Reserve’s final response to its plan no later than March 14,
2014.
For additional information on the Firm’s capital actions, see
Capital actions on pages 166–167, and Notes 22 and 23 on
pages 309 and 310, respectively, of this Annual Report.
Capital Disciplines
The Firm uses three primary capital disciplines:
• Regulatory capital
• Economic capital
• Line of business equity
Regulatory capital
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The Office of the Comptroller of
the Currency (“OCC”) establishes similar capital
requirements and standards for the Firm’s national banks,
including JPMorgan Chase Bank, N.A. and
Chase Bank USA, N.A.
In connection with the U.S. Government’s Supervisory
Capital Assessment Program in 2009 (“SCAP”), U.S.
banking regulators developed an additional measure of
capital, Tier 1 common, which is defined as Tier 1 capital
less elements of Tier 1 capital not in the form of common
equity, such as perpetual preferred stock, noncontrolling
interests in subsidiaries and trust preferred securities. In
2013, the Federal Reserve employed a minimum 5% Tier 1
common ratio standard for CCAR purposes, in addition to
other minimum capital requirements, to assess a bank
holding company’s capital adequacy. For the 2014 CCAR
process, the Federal Reserve has introduced a requirement
to include, in addition to the Basel I Tier 1 common
standards, a Basel III Tier 1 common test with a minimum of
4% for 2014 projections and 4.5% for 2015 projections.
Basel I and Basel 2.5
The minimum U.S. risk-based capital requirements in effect
on December 31, 2013, follow the Capital Accord (“Basel
I”) of the Basel Committee. In June 2012, U.S. federal
banking agencies published the final rule that specifies
revised market risk regulatory capital requirements (“Basel
2.5”). While the Firm is still subject to the capital
requirements of Basel I, Basel 2.5 rules also became
effective for the Firm on January 1, 2013. The Basel 2.5
final rule revised the scope of positions subject to the
market risk capital requirements and introduced new
market risk measures, which resulted in additional capital
requirements for covered positions as defined. The
implementation of Basel 2.5 in the first quarter of 2013
resulted in an increase of approximately $150 billion in
RWA compared with the Basel I rules at March 31, 2013.
The implementation of these rules also resulted in
decreases of the Firm’s Tier 1 capital, Total capital and Tier
1 common capital ratios by 140 basis points, 160 basis
points and 120 basis points, respectively, at March 31,
2013.