JP Morgan Chase 2013 Annual Report Download - page 310

Notes to consolidated financial statements
316 JPMorgan Chase & Co./2013 Annual Report
Note 27 – Restrictions on cash and
intercompany funds transfers
The business of JPMorgan Chase Bank, National Association
(“JPMorgan Chase Bank, N.A.”) is subject to examination
and regulation by the OCC. The Bank is a member of the U.S.
Federal Reserve System, and its deposits in the U.S. are
insured by the FDIC.
The Federal Reserve requires depository institutions to
maintain cash reserves with a Federal Reserve Bank. The
average amount of reserve balances deposited by the Firm’s
bank subsidiaries with various Federal Reserve Banks was
approximately $5.3 billion and $5.6 billion in 2013 and
2012, respectively.
Restrictions imposed by U.S. federal law prohibit JPMorgan
Chase and certain of its affiliates from borrowing from
banking subsidiaries unless the loans are secured in
specified amounts. Such secured loans to the Firm or to
other affiliates are generally limited to 10% of the banking
subsidiary’s total capital, as determined by the risk-based
capital guidelines; the aggregate amount of all such loans is
limited to 20% of the banking subsidiary’s total capital.
The principal sources of JPMorgan Chase’s income (on a
parent company-only basis) are dividends and interest from
JPMorgan Chase Bank, N.A., and the other banking and
nonbanking subsidiaries of JPMorgan Chase. In addition to
dividend restrictions set forth in statutes and regulations,
the Federal Reserve, the OCC and the FDIC have authority
under the Financial Institutions Supervisory Act to prohibit
or to limit the payment of dividends by the banking
organizations they supervise, including JPMorgan Chase and
its subsidiaries that are banks or bank holding companies,
if, in the banking regulator’s opinion, payment of a dividend
would constitute an unsafe or unsound practice in light of
the financial condition of the banking organization.
At January 1, 2014, JPMorgan Chase’s banking subsidiaries
could pay, in the aggregate, $29.8 billion in dividends to
their respective bank holding companies without the prior
approval of their relevant banking regulators. The capacity
to pay dividends in 2014 will be supplemented by the
banking subsidiaries’ earnings during the year.
In compliance with rules and regulations established by U.S.
and non-U.S. regulators, as of December 31, 2013 and
2012, cash in the amount of $17.2 billion and $25.1
billion, respectively, and securities with a fair value of $1.5
billion and $0.7 billion, respectively, were segregated in
special bank accounts for the benefit of securities and
futures brokerage customers. In addition, as of
December 31, 2013 and 2012, the Firm had other
restricted cash of $3.9 billion and $3.4 billion, respectively,
primarily representing cash reserves held at non-U.S.
central banks and held for other general purposes.
Note 28 – Regulatory capital
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The 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.
There are two categories of risk-based capital: Tier 1 capital
and Tier 2 capital. Tier 1 capital consists of common
stockholders’ equity, perpetual preferred stock,
noncontrolling interests in subsidiaries and trust preferred
securities, less goodwill and certain other adjustments. Tier
2 capital consists of preferred stock not qualifying as Tier 1
capital, subordinated long-term debt and other instruments
qualifying as Tier 2 capital, and the aggregate allowance for
credit losses up to a certain percentage of risk-weighted
assets. Total capital is Tier 1 capital plus Tier 2 capital.
Under the risk-based capital guidelines of the Federal
Reserve, JPMorgan Chase is required to maintain minimum
ratios of Tier 1 and Total capital to risk-weighted assets, as
well as minimum leverage ratios (which are defined as Tier
1 capital divided by adjusted quarterly average assets).
Failure to meet these minimum requirements could cause
the Federal Reserve to take action. Banking subsidiaries
also are subject to these capital requirements by their
respective primary regulators. As of December 31, 2013
and 2012, JPMorgan Chase and all of its banking
subsidiaries were well-capitalized and met all capital
requirements to which each was subject.