JP Morgan Chase 2015 Annual Report Download - page 162

Management’s discussion and analysis
152 JPMorgan Chase & Co./2015 Annual Report
Firm’s capital position and to compare the Firm’s capital to
that of other financial services companies.
The Firm’s estimates of its Basel III Standardized and
Advanced Fully Phased-In capital, RWA and capital ratios
and of the Firm’s, JPMorgan Chase Bank, N.A.’s, and Chase
Bank USA, N.A.’s SLRs reflect management’s current
understanding of the U.S. Basel III rules based on the
current published rules and on the application of such rules
to the Firm’s businesses as currently conducted. The actual
impact on the Firm’s capital ratios and SLR as of the
effective date of the rules may differ from the Firm’s current
estimates depending on changes the Firm may make to its
businesses in the future, further implementation guidance
from the regulators, and regulatory approval of certain of
the Firm’s internal risk models (or, alternatively, regulatory
disapproval of the Firm’s internal risk models that have
previously been conditionally approved).
Risk-based capital regulatory minimums
The following chart presents the Basel III minimum CET1 capital ratio during the transitional periods and on a fully phased-in
basis under the Basel III rules currently in effect.
At December 31, 2015 and 2014, JPMorgan Chase
maintained Basel III Standardized Transitional and Basel III
Advanced Transitional capital ratios in excess of the well-
capitalized standards established by the Federal Reserve.
Additional information regarding the Firm’s capital ratios, as
well as the U.S. federal regulatory capital standards to
which the Firm is subject, is presented in Note 28. For
further information on the Firm’s Basel III measures, see the
Firm’s Pillar 3 Regulatory Capital Disclosures reports, which
are available on the Firm’s website (http://
investor.shareholder.com/jpmorganchase/basel.cfm).
All banking institutions are currently required to have a
minimum capital ratio of 4.5% of CET1 capital. Certain
banking organizations, including the Firm, will be required
to hold additional amounts of capital to serve as a “capital
conservation buffer.” The capital conservation buffer is
intended to be used to absorb potential losses in times of
financial or economic stress. If not maintained, the Firm
could be limited in the amount of capital that may be
distributed, including dividends and common equity
repurchases. The capital conservation buffer is to be
phased-in over time, beginning January 1, 2016 through
January 1, 2019.
When fully phased-in, the capital conservation buffer
requires an additional 2.5% of CET1 capital, as well as
additional levels of capital in the form of a GSIB surcharge
and the recently implemented countercyclical capital buffer.
On July 20, 2015, the Federal Reserve issued a final rule
requiring GSIBs to calculate their GSIB surcharge, on an
annual basis, under two separately prescribed methods, and
to be subject to the higher of the two. The first method
(“Method 1”) reflects the GSIB surcharge as prescribed by
Basel rules, and is calculated across five criteria: size, cross-
jurisdictional activity, interconnectedness, complexity and
substitutability. The second method (“Method 2”) modifies
the requirements to include a measure of short-term
wholesale funding in place of substitutability, and
introduces a GSIB score “multiplication factor.” Based upon
data as of December 31, 2015, the Firm estimates its fully
phased-in GSIB surcharge would be 2% of CET1 capital
under Method 1 and 3.5% under Method 2. On July 20,
2015, the date of the last published estimate, the Federal
Reserve had estimated the Firm’s GSIB surcharge to be
2.5% under Method 1 and 4.5% under Method 2 as of
December 31, 2014.