JP Morgan Chase 2015 Annual Report Download - page 18

1616
many of the processes we implemented for
CCAR and AML/KYC had to be done quickly,
and many were eectively handled outside
our normal processes. Eventually, CCAR will
be embedded into our normal forecasting
and budgeting systems. And we are trying to
build the data collection part of KYC into a
utility that the entire industry can use – not
just for us and our peer group but, equally
important, for the client’s benefit (the client
would essentially only have to fill out one
form, which then could be used by all banks).
In addition, throughout the company, contin-
ually creating straight-through processing,
online client service and other initiatives
will both improve the client experience and
decrease our costs.
What is all this talk of regulatory optimization, and don’t some of these things hurt clients?
When will you know the final rules?
In the last year, we took some dramatic
actions to reduce our GSIB capital surcharge,
which we now have successfully reduced
from 4.5% to an estimate of 3.5%. These
steps included reducing non-operating
deposits by approximately $200 billion, level
3 assets by $22 billion and notional deriva-
tives amounts by $15 trillion. We did this
faster than we, or anyone, thought we could.
We still will be working to further reduce the
GSIB surcharge, but any reduction from this
point will take a few years.
Like us, most banks are modifying their
business models and client relationships to
accomplish their regulatory objectives. We
are doing this by managing our constraints
at the most granular level possible – by
product, client or business. Clearly, some
of these constraints, including GSIB and
CCAR, cannot be fully pushed down to
the client. Importantly, we are focused on
client-friendly execution – and we recog-
nize that these constraints are of no direct
concern to clients.
To protect the company and to meet standards of safety and soundness, don’t you have to earn a
fair profit? Many banks say that the cost of all the new rules makes this hard to do.
Having enough capital and liquidity, and
even the most solid fortress controls, doesn’t
make you completely safe and sound. Deliv-
ering proper profit margins and maintaining
profitability through a normal credit cycle
also are important. A business does this by
having the appropriate business mix, making
good loans and managing expenses over time.
Clearly, some of the new rules create
expenses and burdens on our company.
Some of these expenses will eventually be
passed on to clients, but we have many ways
to manage our expenses. Simplifying our
business, streamlining our procedures, and
automating and digitizing processes, some of
which previously were being done eectively
by hand, all will bring relief. For example,
In the new world, our company has approxi-
mately 20 new or significantly enhanced
balance sheet and liquidity-related regulatory
requirements – the most critical ones are the
GSIB capital surcharge, CCAR, the Liquidity
Coverage Ratio, the Supplementary Leverage
Ratio and Basel III capital. Banks must neces-
sarily optimize across these constraints to be
able to meet all their regulatory requirements
and, importantly, earn a profit. Every bank
has a dierent binding constraint, and, over
time, that constraint may change. Currently,
our overriding constraint is the GSIB capital
surcharge. Our shareholders should bear in
mind that the U.S. government requires a
GSIB capital surcharge that is double that
of our international competitors. And this
additional charge may ultimately put some
U.S. banks at a disadvantage vs. international
competitors. This is one reason why we
worked so hard to reduce the GSIB capital
surcharge – we do not want to be an outlier
in the long run because of it.