JP Morgan Chase 2013 Annual Report Download - page 78

Management’s discussion and analysis
84 JPMorgan Chase & Co./2013 Annual Report
BUSINESS SEGMENT RESULTS
The Firm is managed on a line of business basis. There are
four major reportable business segments – Consumer &
Community Banking, Corporate & Investment Bank,
Commercial Banking and Asset Management. In addition,
there is a Corporate/Private Equity segment.
The business segments are determined based on the
products and services provided, or the type of customer
served, and they reflect the manner in which financial
information is currently evaluated by management. Results
of these lines of business are presented on a managed
basis. For a definition of managed basis, see Explanation
and Reconciliation of the Firm’s use of non-GAAP financial
measures, on pages 82–83 of this Annual Report.
Description of business segment reporting methodology
Results of the business segments are intended to reflect
each segment as if it were essentially a stand-alone
business. The management reporting process that derives
business segment results allocates income and expense
using market-based methodologies. The Firm continues to
assess the assumptions, methodologies and reporting
classifications used for segment reporting, and further
refinements may be implemented in future periods.
Revenue sharing
When business segments join efforts to sell products and
services to the Firm’s clients, the participating business
segments agree to share revenue from those transactions.
The segment results reflect these revenue-sharing
agreements.
Funds transfer pricing
Funds transfer pricing is used to allocate interest income
and expense to each business and transfer the primary
interest rate risk exposures to the Treasury group within
Corporate/Private Equity. The allocation process is unique
to each business segment and considers the interest rate
risk, liquidity risk and regulatory requirements of that
segment as if it were operating independently, and as
compared with its stand-alone peers. This process is
overseen by senior management and reviewed by the Firm’s
Asset-Liability Committee (“ALCO”).
Business segment capital allocation changes
Each business segment is allocated capital by taking into
consideration stand-alone peer comparisons, regulatory
capital requirements (as estimated under Basel III) and
economic risk measures. The amount of capital assigned to
each business is referred to as equity. Effective January 1,
2013, the Firm refined the capital allocation framework to
align it with the line of business structure described above.
The increase in equity levels for the lines of businesses is
largely driven by evolving regulatory requirements and the
higher capital targets the Firm has established under the
Basel III Advanced Approach. For further information about
these capital changes, see Line of business equity on pages
165–166 of this Annual Report.