JP Morgan Chase 2015 Annual Report Download - page 169

JPMorgan Chase & Co./2015 Annual Report 159
LIQUIDITY RISK MANAGEMENT
Liquidity risk is the risk that the Firm will be unable to meet
its contractual and contingent obligations or that it does not
have the appropriate amount, composition and tenor of
funding and liquidity to support its assets.
Liquidity risk oversight
The Firm has a liquidity risk oversight function whose
primary objective is to provide assessment, measurement,
monitoring, and control of liquidity risk across the Firm.
Liquidity risk oversight is managed through a dedicated
firmwide Liquidity Risk Oversight group. The CTC CRO, as
part of the independent risk management function, has
responsibility for firmwide Liquidity Risk Oversight.
Liquidity Risk Oversight’s responsibilities include but are
not limited to:
• Establishing and monitoring limits, indicators, and
thresholds, including liquidity appetite tolerances;
• Defining, monitoring, and reporting internal firmwide
and legal entity stress tests, and monitoring and
reporting regulatory defined stress testing;
• Monitoring and reporting liquidity positions, balance
sheet variances and funding activities;
• Conducting ad hoc analysis to identify potential
emerging liquidity risks.
Risk governance and measurement
Specific committees responsible for liquidity governance
include firmwide ALCO as well as line of business and
regional ALCOs, and the CTC Risk Committee. For further
discussion of the risk and risk-related committees, see
Enterprise-wide Risk Management on pages 107–111.
Internal Stress testing
Liquidity stress tests are intended to ensure sufficient
liquidity for the Firm under a variety of adverse scenarios.
Results of stress tests are therefore considered in the
formulation of the Firm’s funding plan and assessment of its
liquidity position. Liquidity outflow assumptions are
modeled across a range of time horizons and contemplate
both market and idiosyncratic stress. Standard stress tests
are performed on a regular basis and ad hoc stress tests are
performed in response to specific market events or
concerns. Stress scenarios are produced for JPMorgan
Chase & Co. (“Parent Company”) and the Firm’s major
subsidiaries.
Liquidity stress tests assume all of the Firm’s contractual
obligations are met and then take into consideration
varying levels of access to unsecured and secured funding
markets. Additionally, assumptions with respect to potential
non-contractual and contingent outflows are contemplated.
Liquidity management
Treasury is responsible for liquidity management. The
primary objectives of effective liquidity management are to
ensure that the Firm’s core businesses are able to operate
in support of client needs, meet contractual and contingent
obligations through normal economic cycles as well as
during stress events, and to manage optimal funding mix,
and availability of liquidity sources. The Firm manages
liquidity and funding using a centralized, global approach in
order to optimize liquidity sources and uses.
In the context of the Firm’s liquidity management, Treasury
is responsible for:
• Analyzing and understanding the liquidity characteristics
of the Firm, lines of business and legal entities’ assets
and liabilities, taking into account legal, regulatory, and
operational restrictions;
• Defining and monitoring firmwide and legal entity
liquidity strategies, policies, guidelines, and contingency
funding plans;
• Managing liquidity within approved liquidity risk
appetite tolerances and limits;
• Setting transfer pricing in accordance with underlying
liquidity characteristics of balance sheet assets and
liabilities as well as certain off-balance sheet items.
Contingency funding plan
The Firm’s contingency funding plan (“CFP”), which is
reviewed by ALCO and approved by the DRPC, is a
compilation of procedures and action plans for managing
liquidity through stress events. The CFP incorporates the
limits and indicators set by the Liquidity Risk Oversight
group. These limits and indicators are reviewed regularly to
identify the emergence of risks or vulnerabilities in the
Firm’s liquidity position. The CFP identifies the alternative
contingent liquidity resources available to the Firm in a
stress event.
Parent Company and subsidiary funding
The Parent Company acts as a source of funding to its
subsidiaries. The Firm’s liquidity management is intended to
maintain liquidity at the Parent Company, in addition to
funding and liquidity raised at the subsidiary operating
level, at levels sufficient to fund the operations of the
Parent Company and its subsidiaries for an extended period
of time in a stress environment where access to normal
funding sources is disrupted. The Parent Company currently
holds sufficient liquidity to withstand peak outflows over a
one year liquidity stress horizon, assuming no access to
wholesale funding markets.