JP Morgan Chase 2015 Annual Report Download - page 170

Management’s discussion and analysis
160 JPMorgan Chase & Co./2015 Annual Report
LCR and NSFR
The Firm must comply with the U.S. LCR rule, which is
intended to measure the amount of HQLA held by the Firm
in relation to estimated net cash outflows within a 30-day
period during an acute stress event. The LCR is required to
be 80% at January 1, 2015, increasing by 10% each year
until reaching the 100% minimum by January 1, 2017. At
December 31, 2015, the Firm was compliant with the fully
phased-in U.S. LCR.
On October 31, 2014, the Basel Committee issued the final
standard for the net stable funding ratio (“NSFR”) — which
is intended to measure the “available” amount of stable
funding relative to the “required” amount of stable funding
over a one-year horizon. NSFR will become a minimum
standard by January 1, 2018 and requires that this ratio be
equal to at least 100% on an ongoing basis. At December
31, 2015, the Firm was compliant with the NSFR based on
its current understanding of the final Basel rule. The U.S.
banking regulators are expected to issue an NPR that would
outline requirements specific to U.S. banks.
HQLA
HQLA is the amount of assets that qualify for inclusion in
the U.S. LCR. HQLA primarily consists of cash and certain
unencumbered high quality liquid assets as defined in the
final rule.
As of December 31, 2015, the Firm’s HQLA was $496
billion, compared with $600 billion as of December 31,
2014. The decrease in HQLA was due to lower cash
balances largely driven by lower non-operating deposit
balances; however, the Firm remains LCR-compliant given
the corresponding reduction in estimated net cash outflows
associated with those deposits. HQLA may fluctuate from
period to period primarily due to normal flows from client
activity.
The following table presents the estimated HQLA included in
the LCR broken out by HQLA-eligible cash and securities as
of December 31, 2015.
(in billions) December 31, 2015
HQLA
Eligible cash(a) $ 304
Eligible securities(b) 192
Total HQLA $ 496
(a) Cash on deposit at central banks.
(b) Predominantly includes U.S. agency mortgage-backed securities, U.S.
Treasuries, and sovereign bonds net of applicable haircuts under U.S.
LCR rules.
In addition to HQLA, as of December 31, 2015, the Firm has
approximately $249 billion of unencumbered marketable
securities, such as equity securities and fixed income debt
securities, available to raise liquidity, if required.
Furthermore, the Firm maintains borrowing capacity at
various Federal Home Loan Banks (“FHLBs”), the Federal
Reserve Bank discount window and various other central
banks as a result of collateral pledged by the Firm to such
banks. Although available, the Firm does not view the
borrowing capacity at the Federal Reserve Bank discount
window and the various other central banks as a primary
source of liquidity. As of December 31, 2015, the Firm’s
remaining borrowing capacity at various FHLBs and the
Federal Reserve Bank discount window was approximately
$183 billion. This remaining borrowing capacity excludes
the benefit of securities included above in HQLA or other
unencumbered securities currently held at the Federal
Reserve Bank discount window for which the Firm has not
drawn liquidity.
Funding
Sources of funds
Management believes that the Firm’s unsecured and
secured funding capacity is sufficient to meet its on- and
off-balance sheet obligations.
The Firm funds its global balance sheet through diverse
sources of funding including a stable deposit franchise as
well as secured and unsecured funding in the capital
markets. The Firm’s loan portfolio ($837.3 billion at
December 31, 2015), is funded with a portion of the Firm’s
deposits ($1,279.7 billion at December 31, 2015)
and through securitizations and, with respect to a portion of
the Firm’s real estate-related loans, with secured
borrowings from the FHLBs. Deposits in excess of the
amount utilized to fund loans are primarily invested in the
Firm’s investment securities portfolio or deployed in cash or
other short-term liquid investments based on their interest
rate and liquidity risk characteristics. Securities borrowed
or purchased under resale agreements and trading assets-
debt and equity instruments are primarily funded by the
Firm’s securities loaned or sold under agreements to
repurchase, trading liabilities–debt and equity instruments,
and a portion of the Firm’s long-term debt and
stockholders’ equity. In addition to funding securities
borrowed or purchased under resale agreements and
trading assets-debt and equity instruments, proceeds from
the Firm’s debt and equity issuances are used to fund
certain loans and other financial and non-financial assets,
or may be invested in the Firm’s investment securities
portfolio. See the discussion below for additional
information relating to Deposits, Short-term funding, and
Long-term funding and issuance.