JP Morgan Chase 2014 Annual Report Download - page 43

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Liquidity and interest rate
risk management continue to
be important
Liquidity and interest rate risk
management are fundamental to how
we manage the firm and take on
increasing importance for the firm as
a G-SIB. As we advance our thinking
in response to an evolving set of reg-
ulatory requirements, we are driving
a coordinated approach to manage-
ment of the firm’s balance sheet.
2014 featured final versions of impor-
tant regulatory liquidity rules, nota-
bly the liquidity coverage ratio by
U.S. banking regulators and Basel’s
final rule on the net stable funding
ratio, with which we are compliant.
We devoted significant resources to
understanding the potential liquidity
impact of changing Fed monetary
policy and rising rates, particularly
the impact on our wholesale deposit
base. As a direct result of this eort,
we further refined and improved our
internal stress framework. We con-
tinue to be in compliance with our
internal measures.
We progressed our technology build-
out to enable more flexible and
timely liquidity stress testing for the
enterprise and major legal entities.
We further evolved the Liquidity
Risk Oversight group, which provides
independent assessment, measure-
ment, monitoring and control of
liquidity risk. We established a firm-
wide program to set up a best-in-class
intraday liquidity management proc-
ess and infrastructure in preparation
for a changing market environment
and emerging regulatory expectations.
We continue to actively manage our
investment securities portfolio of
over $340 billion, the primary vehi-
cle used to oset the firm’s loan and
deposit mismatch and moderate
firmwide structural interest rate
unit, which was completed in early
January 2015. We realized signifi-
cant savings through the reshaping
of our workforce and consolidation
of jobs in the right locations, creat-
ing eciencies in labor and real
estate costs and promoting consis-
tency in our control culture. We are
committed to managing expenses
tightly, eliminating waste, and
running the firm in a nimble and
flexible manner.
We continue to look for additional
opportunities to do business in
smarter ways. For example, over
the last few years, the firm made a
significant investment in telecom-
munications and collaboration tools
to facilitate alternatives to air
travel. We have rationalized the
population of vendors, in large part
through the establishment of pre-
ferred vendors in categories such as
information technology (IT), real
estate services, printing, and mar-
keting and advertising. In addition,
we are in the process of rationaliz-
ing our population of law firms and
physical security vendors.
We will not compromise on the con-
trol environment and, to that end,
continue to tighten data controls for
ourselves, as well as for our third
parties. This involves fortifying our
defenses to ensure all of our manag-
ers, employees and vendors are fol-
lowing the appropriate security and
hygiene practices with regard to work
email, password protection, data
encryption, system entitlements and
social media. We continue to carefully
monitor third-party systems and to
increase our oversight of all the ven-
dors with whom we work to make
sure their protections are adequate.
risk. In 2014, we further increased
the proportion of investment securi-
ties that we intend to hold to matu-
rity to nearly $50 billion, which will
help to mitigate Basel III capital vol-
atility in a rising rate environment.
The average yield of our investment
securities portfolio increased by 45
basis points from a yield of 2.32 in
2013 to 2.77 in 2014 despite gener-
ally lower interest rates, and we
maintained an average portfolio
rating of AA+.
Cybersecurity remains a top priority
In 2014, we experienced cyber
threats of an unprecedented scale.
This included a data breach we
incurred last summer, which we
voluntarily disclosed. We continue
to discover and block new and
unique malware, viruses and phish-
ing attempts to obtain access to our
data. Importantly, cyber attacks to
date have not resulted in material
harm to our clients or customers
and have not had a material adverse
impact on our results or operations.
To defend against these threats, we
spent more than $250 million in
2014 on our cyber capabilities. We
established three global Security
Operations Centers to monitor,
detect and defend the firm. We
organized cyber defense exercises
to test our capabilities and con-
ducted an independent assessment
of our cybersecurity program to
identify actions for continual
improvement. We doubled the
number of cybersecurity personnel
over the past two years and hired
top-notch security experts.
Over the next two years, we will
increase our cybersecurity spend by
nearly 80% and enhance our cyber
defense capabilities with robust
testing, advanced analytics and