JP Morgan Chase 2015 Annual Report Download - page 298

Notes to consolidated financial statements
288 JPMorgan Chase & Co./2015 Annual Report
Note 27 – Restrictions on cash and
intercompany funds transfers
The business of JPMorgan Chase Bank, National Association
(“JPMorgan Chase Bank, N.A.”) is subject to examination
and regulation by the Office of the Comptroller of the
Currency. The Bank is a member of the U.S. Federal Reserve
System, and its deposits in the U.S. are insured by the FDIC.
The Federal Reserve requires depository institutions to
maintain cash reserves with a Federal Reserve Bank. The
average required amount of reserve balances deposited by
the Firm’s bank subsidiaries with various Federal Reserve
Banks was approximately $14.4 billion and $10.6 billion in
2015 and 2014, respectively.
Restrictions imposed by U.S. federal law prohibit JPMorgan
Chase & Co. (“Parent Company”) and certain of its affiliates
from borrowing from banking subsidiaries unless the loans
are secured in specified amounts. Such secured loans
provided by any banking subsidiary to the Parent Company
or to any particular affiliate, together with certain other
transactions with such affiliate, (collectively referred to as
“covered transactions”), are generally limited to 10% of the
banking subsidiary’s total capital, as determined by the risk-
based capital guidelines; the aggregate amount of covered
transactions between any banking subsidiary and all of its
affiliates is limited to 20% of the banking subsidiary’s total
capital.
The principal sources of JPMorgan Chase’s income (on a
parent company-only basis) are dividends and interest from
JPMorgan Chase Bank, N.A., and the other banking and
nonbanking subsidiaries of JPMorgan Chase. In addition to
dividend restrictions set forth in statutes and regulations,
the Federal Reserve, the Office of the Comptroller of the
Currency (“OCC”) and the FDIC have authority under the
Financial Institutions Supervisory Act to prohibit or to limit
the payment of dividends by the banking organizations they
supervise, including JPMorgan Chase and its subsidiaries
that are banks or bank holding companies, if, in the banking
regulator’s opinion, payment of a dividend would constitute
an unsafe or unsound practice in light of the financial
condition of the banking organization.
At January 1, 2016, JPMorgan Chase’s banking subsidiaries
could pay, in the aggregate, approximately $25 billion in
dividends to their respective bank holding companies
without the prior approval of their relevant banking
regulators. The capacity to pay dividends in 2016 will be
supplemented by the banking subsidiaries’ earnings during
the year.
In compliance with rules and regulations established by U.S.
and non-U.S. regulators, as of December 31, 2015 and
2014, cash in the amount of $12.6 billion and $16.8
billion, respectively, were segregated in special bank
accounts for the benefit of securities and futures brokerage
customers. Also, as of December 31, 2015 and 2014, the
Firm had receivables within other assets of $16.2 billion
and $14.9 billion, respectively, consisting of cash deposited
with clearing organizations for the benefit of customers.
Securities with a fair value of $20.0 billion and $10.1
billion, respectively, were also restricted in relation to
customer activity. In addition, as of December 31, 2015 and
2014, the Firm had other restricted cash of $3.7 billion and
$3.3 billion, respectively, primarily representing cash
reserves held at non-U.S. central banks and held for other
general purposes.
Note 28 – Regulatory capital
The Federal Reserve establishes capital requirements,
including well-capitalized standards, for the consolidated
financial holding company. The OCC establishes similar
capital requirements and standards for the Firm’s national
banks, including JPMorgan Chase Bank, N.A. and
Chase Bank USA, N.A.
Basel III capital rules, for large and internationally active
U.S. bank holding companies and banks, including the Firm
and its insured depository institution (“IDI”) subsidiaries,
revised, among other things, the definition of capital and
introduced a new common equity tier 1 capital (“CET1
capital”) requirement. Basel III presents two comprehensive
methodologies for calculating risk-weighted assets (“RWA”),
a general (Standardized) approach, which replaced Basel I
RWA effective January 1, 2015 (“Basel III Standardized”)
and an advanced approach, which replaced Basel II RWA
(“Basel III Advanced”); and sets out minimum capital ratios
and overall capital adequacy standards. Certain of the
requirements of Basel III are subject to phase-in periods
that began on January 1, 2014 and continue through the
end of 2018 (“transitional period”).
There are three categories of risk-based capital under the
Basel III Transitional rules: CET1 capital, as well as Tier 1
capital and Tier 2 capital. CET1 capital predominantly
includes common stockholders’ equity (including capital for
AOCI related to debt and equity securities classified as AFS
as well as for defined benefit pension and OPEB plans), less
certain deductions for goodwill, MSRs and deferred tax
assets that arise from NOL and tax credit carryforwards.
Tier 1 capital predominantly consists of CET1 capital as well
as perpetual preferred stock. Tier 2 capital includes long-
term debt qualifying as Tier 2 and qualifying allowance for
credit losses. Total capital is Tier 1 capital plus Tier 2
capital.