JP Morgan Chase 2015 Annual Report Download - page 13

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In support of our main mission – to serve
our clients and our communities – there
is nothing more important than to protect
our company so that we are strong and can
continue to be here for all of those who
count on us. We have taken many actions
that should give our shareholders, clients and
regulators comfort and demonstrate that our
company is rock solid.
The actions we have taken to strengthen
our company.
In this section, we describe the many
actions that we have taken to make our
company stronger and safer: our fortress
balance sheet with enhanced capital and
liquidity, our ability to survive extreme
stress of multiple types, our extensive
de-risking and simplification of the busi-
ness, and the building of fortress controls in
meeting far more stringent regulatory stan-
dards. Taken together, these actions have
enabled us to make extraordinary progress
toward reducing and ultimately eliminating
the risk of JPMorgan Chase failing and
the cost of any failure being borne by the
American taxpayer or the U.S. economy.
II. WEMUSTANDWILLPROTECTOURCOMPANYAND
THOSEWESERVE
You say you have a “fortress balance sheet.” What does that mean? Can you handle the
extreme stress that seems to happen around the world from time to time?
Nearly every year since the Great Recession,
we have improved virtually every measure of
financial strength, including many new ones.
It’s important to note as a starting point that
in the worst years of 2008 and 2009, JPMorgan
Chase did absolutely fine – we never lost
money, we continued to serve our clients,
and we had the wherewithal and capability
to buy and integrate Bear Stearns and
Washington Mutual. That said, we none-
theless recognize that many Americans did
not do fine, and the financial crisis exposed
weaknesses in the mortgage market and
other areas. Later in this letter, I will also
describe what we are doing to strengthen
JPMorgan Chase and to help support the
entire economy.
The chart on page 12 shows many of the
measures of our financial strength – both
from the year preceding the crisis and our
improvement in the last year alone.
In addition, every year, the Federal Reserve puts
all large banks through a very severe and very
detailed stress test.
Among other things, last year’s stress test
assumed that unemployment would go to
10.1%, housing prices would fall 25%, equity
markets would decline by nearly 60%, real
gross domestic product (GDP) would decline
4.6%, credit spreads would widen dramati-
cally and oil prices would rise to $110 per
barrel. The stress test also assumed an instan-
taneous global market shock, eectively far
worse than the one that happened in 2009,
causing large trading losses. It also assumed
the failure of the largest counterparty (this
is meant to capture the failure of the global
bank that you have the most extensive deriva-
tive relationship with; e.g., a Lehman-type
event), which would cause additional losses.
The stress test assumed that banks would not
stop buying back stock – therefore depleting
their capital – and would continue to grow
dramatically. (Of course, growing dramati-
cally and buying back stock if your bank were
under stress would be irresponsible – and is
something we would never do.) Under this
assumed stress, the Federal Reserve esti-
mates that JPMorgan Chase would lose
* Footnote: Our Chief Operating
Ocer Matt Zames talks in his
letter on pages 52–55 about
many important initiatives to
protect our company, including
our physical security and
cybersecurity, so I will not
duplicate any of that information.