UNITED STATES
`SECURITIES AND EXCHANGE COMMISSION
`WASHINGTON, D.C. 20549
`FORM 10-K
`Annual report pursuant to Section 13 or 15(d) of
`The Securities Exchange Act of 1934
`
`For the fiscal year ended
`
`December 31, 2013
`
`
`
`
`Commission file
`
`number 1-5805
`
`JPMorgan Chase & Co.
`
`(Exact name of registrant as specified in its charter)
`
`Delaware
`
`
`
`13-2624428
`
`
`
`
`
`(State or other jurisdiction of
`incorporation or organization)
`
`270 Park Avenue, New York, New York
`
`(Address of principal executive offices)
`
`
`
`
`
`
`Registrant’s telephone number, including area code: (212) 270­6000
`Securities registered pursuant to Section 12(b) of the Act:
`
`(I.R.S. employer
`identification no.)
`
`10017
`
`(Zip code)
`
`Title of each class
`
`Common stock
`
`
`
`
`
`Warrants, each to purchase one share of Common Stock
`
` Name of each exchange on which registered
`The New York Stock Exchange
`
`
`
`
`
`The London Stock Exchange
`
`The Tokyo Stock Exchange
`
`The New York Stock Exchange
`
`
`
`The New York Stock Exchange
`
`The New York Stock Exchange
`
`The New York Stock Exchange
`
`NYSE Arca, Inc.
`
`Depositary Shares, each representing a one-four hundredth interest in a share of 5.50% Non-
`Cumulative Preferred Stock, Series O
`Depositary Shares, each representing a one-four hundredth interest in a share of 5.45% Non-
`Cumulative Preferred Stock, Series P
`Guarantee of 6.70% Capital Securities, Series CC, of JPMorgan Chase Capital XXIX
`
`Alerian MLP Index ETNs due May 24, 2024
`
`
`
`
`Securities registered pursuant to Section 12(g) of the Act: None
`Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ý Yes o No
`Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. o Yes ý No
`Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 1 5 ( d ) of the Securities Exchange Act of 1934
`during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
`requirements for the past 90 days. ý Yes o No
`Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required
`to be submitted and posted pursuant to Rule 405 of Regulation S­T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period
`that the registrant was required to submit and post such files). ý Yes o No
`Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S­K (§229.405 of this chapter) is not contained herein, and will
`not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K
`or any amendment to this Form 10-K. o
`Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See
`definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b­2 of the Exchange Act.
`x Large accelerated filer o Accelerated filer
`o Non-accelerated filer
`o Smaller reporting company
`(Do not check if a smaller reporting company)
`Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o Yes ý No
`
`The aggregate market value of JPMorgan Chase & Co. common stock held by non-affiliates as of June 30, 2013: $ 1 9 7 , 9 3 1 , 0 2 4 , 3 8 5
`
`Number of shares of common stock outstanding as of January 31, 2014: 3 , 7 8 6 , 8 2 5 , 3 4 6
`
`Documents incorporated by reference: Portions of the registrant’s Proxy Statement for the annual meeting of stockholders to be held on May 20, 2014, are
`incorporated by reference in this Form 10-K in response to Items 10, 11, 12, 13 and 14 of Part III.
`
`Source: JPMORGAN CHASE & CO, 10-K, 2/20/2014 | Powered by Intelligize
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`

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`Form 10-K Index
`
`Part I
`Item 1
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`
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`
`
`
`
`Item 1A
`Item 1B
`Item 2
`Item 3
`Item 4
`
`Part II
`Item 5
`
`Item 6
`Item 7
`Item 7A
`Item 8
`Item 9
`Item 9A
`Item 9B
`
`Part III
`Item 10
`Item 11
`Item 12
`
`Item 13
`Item 14
`
`Part IV
`Item 15
`
`
`Business
`Overview
`Business segments
`Competition
`Supervision and regulation
`Distribution of assets, liabilities and stockholders’ equity; interest rates and interest differentials
`Return on equity and assets
`Securities portfolio
`Loan portfolio
`Summary of loan and lending-related commitments loss experience
`Deposits
`Short-term and other borrowed funds
`Risk factors
`Unresolved SEC Staff comments
`Properties
`Legal proceedings
`Mine safety disclosures
`
`
`Market for registrant’s common equity, related stockholder matters and issuer purchases of equity
`securities
`Selected financial data
`Management’s discussion and analysis of financial condition and results of operations
`Quantitative and qualitative disclosures about market risk
`Financial statements and supplementary data
`Changes in and disagreements with accountants on accounting and financial disclosure
`Controls and procedures
`Other information
`
`
`Directors, executive officers and corporate governance
`Executive compensation
`
`Security ownership of certain beneficial owners and management and related stockholder matters
`Certain relationships and related transactions, and director independence
`Principal accounting fees and services
`
`
`Exhibits, financial statement schedules
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`Page
`1
`1
`1
`1
`1-9
`346-350
`62, 339, 346
`351
`117-138, 258-283, 352-357
`139-141, 284-287, 358-359
`305, 360
`361
`9-18
`18
`18-19
`19
`19
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`20-21
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`21
`21
`21
`21
`21
`22
`22
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`23
`24
`24
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`24
`24
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`25-27
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`Source: JPMORGAN CHASE & CO, 10-K, 2/20/2014 | Powered by Intelligize
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`Part I
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`
`
`ITEM 1: BUSINESS
`Overview
`JPMorgan Chase & Co. (“JPMorgan Chase” or the “Firm”), a
`financial holding company incorporated under Delaware law in
`1968, is a leading global financial services firm and one of the
`largest banking institutions in the United States of America
`(“U.S.” or “United States”), with operations worldwide; the Firm
`had $2.4 trillion in assets and $211.2 billion in stockholders’
`equity as of December 31, 2013. The Firm is a leader in
`investment banking, financial services for consumers and small
`businesses, commercial banking, financial transaction processing,
`asset management and private equity. Under the J.P. Morgan and
`Chase brands, the Firm serves millions of customers in the U.S.
`and many of the world’s most prominent corporate, institutional
`and government clients.
`JPMorgan Chase’s principal bank subsidiaries are JPMorgan
`Chase Bank, National Association (“JPMorgan Chase Bank, N.A.”),
`a national bank with U.S. branches in 23 states, and Chase Bank
`USA, National Association (“Chase Bank USA, N.A.”), a national
`bank that is the Firm’s credit card­issuing bank. JPMorgan
`Chase’s principal nonbank subsidiary is J.P. Morgan Securities
`LLC (“JPMorgan Securities”), the Firm’s U.S. investment banking
`firm. The bank and nonbank subsidiaries of JPMorgan Chase
`operate nationally as well as through overseas branches and
`subsidiaries, representative offices and subsidiary foreign banks.
`One of the Firm’s principal operating subsidiaries in the United
`Kingdom (“U.K.”) is J.P. Morgan Securities plc (formerly J.P.
`Morgan Securities Ltd.), a wholly owned subsidiary of JPMorgan
`Chase Bank, N.A.
`The Firm’s website is www.jpmorganchase.com. JPMorgan
`Chase makes available free of charge, through its website,
`annual reports on Form 10-K, quarterly reports on Form 10-Q,
`current reports on Form 8-K, and any amendments to those
`reports filed or furnished pursuant to Section 13(a) or Section
`15(d) of the Securities Exchange Act of 1934, as soon as
`reasonably practicable after it electronically files such material
`with, or furnishes such material to, the U.S. Securities and
`Exchange Commission (the “SEC”). The Firm has adopted, and
`posted on its website, a Code of Ethics for its Chairman and Chief
`Executive Officer, Chief Financial Officer, Chief Accounting Officer
`and other finance professionals of the Firm.
`Business segments
`JPMorgan Chase’s activities are organized, for management
`reporting purposes, into four major reportable business
`segments, as well as a Corporate/Private Equity segment. The
`Firm’s consumer business is the Consumer & Community Banking
`segment. The Corporate & Investment Bank, Commercial
`Banking, and Asset Management segments comprise the Firm’s
`wholesale businesses.
`
`A description of the Firm’s business segments and the products
`and services they provide to their respective client bases is
`provided in the “Business segment results” section of
`Management’s discussion and analysis of financial condition and
`results of operations (“MD&A”), beginning on page 64 and in Note
`33 on pages 334-337.
`Competition
`JPMorgan Chase and its subsidiaries and affiliates operate in a
`highly competitive environment. Competitors include other banks,
`brokerage firms, investment banking companies, merchant
`banks, hedge funds, commodity trading companies, private equity
`firms, insurance companies, mutual fund companies, investment
`managers, credit card companies, mortgage banking companies,
`trust companies, securities processing companies, automobile
`financing companies, leasing companies, e-commerce and other
`Internet-based companies, and a variety of other financial
`services and advisory companies. JPMorgan Chase’s businesses
`generally compete on the basis of the quality and range of their
`products and services, transaction execution, innovation and
`price. Competition also varies based on the types of clients,
`customers, industries and geographies served. With respect to
`some of its geographies and products, JPMorgan Chase competes
`globally; with respect to others, the Firm competes on a regional
`basis. The Firm’s ability to compete also depends on its ability to
`attract and retain professional and other personnel, and on its
`reputation.
`The financial services industry has experienced consolidation and
`convergence in recent years, as financial institutions involved in a
`broad range of financial products and services have merged and,
`in some cases, failed. This is expected to continue. Consolidation
`could result in competitors of JPMorgan Chase gaining greater
`capital and other resources, such as a broader range of products
`and services and geographic diversity. It is likely that competition
`will become even more intense as the Firm’s businesses continue
`to compete with other financial institutions that may have a
`stronger local presence in certain geographies or that operate
`under different rules and regulatory regimes than the Firm.
`Supervision and regulation
`The Firm is subject to regulation under state and federal laws in
`the United States, as well as the applicable laws of each of the
`various jurisdictions outside the United States in which the Firm
`does business.
`Regulatory reform: On July 21, 2010, President Obama signed
`into law the Dodd-Frank Wall Street Reform and Consumer
`Protection Act (the “Dodd­Frank Act”), which is intended to make
`significant structural reforms to the financial services industry.
`The Dodd-Frank Act instructs U.S. federal banking and other
`regulatory agencies to conduct approximately 285 rule-makings
`and 130 studies and reports. These regulatory agencies include
`the Commodity Futures Trading Commission (the “CFTC”); the
`Securities and Exchange Commission (the “SEC”); the Board of
`Governors of the Federal Reserve System (the “Federal
`
`
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`Part I
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`Reserve”); the Office of the Comptroller of the Currency (the
`“OCC”); the Federal Deposit Insurance Corporation (the “FDIC”);
`the Bureau of Consumer Financial Protection (the “CFPB”); and
`the Financial Stability Oversight Council (the “FSOC”). As a result
`of the Dodd-Frank Act rule-making and other regulatory reforms,
`the Firm is currently experiencing a period of unprecedented
`change in regulation and such changes could have a significant
`impact on how the Firm conducts business. The Firm continues to
`work diligently in assessing and understanding the implications of
`the regulatory changes it is facing, and is devoting substantial
`resources to implementing all the new regulations, while, at the
`same time, best meeting the needs and expectations of its
`clients. Given the current status of the regulatory developments,
`the Firm cannot currently quantify the possible effects on its
`business and operations of all of the significant changes that are
`currently underway. For more information, see “Risk Factors” on
`pages 9-18. Certain of these changes include the following:
`(cid:0) Comprehensive Capital Analysis and Review (“CCAR”) and
`stress testing. In December 2011, the Federal Reserve issued
`final rules regarding the submission of capital plans by bank
`holding companies with total assets of $50 billion or more.
`Pursuant to these rules, the Federal Reserve requires the
`Firm to submit a capital plan on an annual basis. In October
`2012, the Federal Reserve and the OCC issued rules
`requiring the Firm and certain of its bank subsidiaries to
`perform stress tests under one stress scenario created by
`the Firm as well as three scenarios (baseline, adverse and
`severely adverse) mandated by the Federal Reserve. The
`Firm will be unable to make any capital distributions unless
`approved by the Federal Reserve if the Federal Reserve
`objects to the Firm’s capital plan. For more information, see
`“CCAR and stress testing” on pages 5-6.
`(cid:0) Resolution plan. In September 2011, the FDIC and the
`Federal Reserve issued, pursuant to the Dodd-Frank Act, a
`final rule that requires bank holding companies with assets of
`$50 billion or more and companies designated as
`systemically important by the FSOC to submit periodically to
`the Federal Reserve and the FDIC a plan for resolution under
`the Bankruptcy Code in the event of material distress or
`failure (a “resolution plan”). In January 2012, the FDIC also
`issued a final rule that requires insured depository institutions
`with assets of $50 billion or more to submit periodically to
`the FDIC a plan for resolution under the Federal Deposit
`Insurance Act (the “FDIA”) in the event of failure. The Firm’s
`initial resolution plan submissions were filed by July 1, 2012;
`annual updates to these resolution plan submissions are due
`by July 1 each year (although the 2013 plans were permitted
`to be filed in October 2013).
`(cid:0) Derivatives. Under the Dodd-Frank Act, the Firm is subject to
`comprehensive regulation of its derivatives business
`(including capital and margin requirements,
`
`central clearing of standardized over-the-counter derivatives
`and the requirement that they be traded on regulated trading
`platforms) and heightened supervision. Further, some of the
`rules for derivatives apply extraterritorially to U.S. firms
`doing business with clients outside of the United States. In
`addition, commencing July 2015, certain derivatives
`transactions now executed by JPMorgan Chase Bank, N.A.,
`will be required to be executed through subsidiaries or
`affiliates of JPMorgan Chase Bank, N.A. The effect of these
`rules issued under the Dodd-Frank Act will necessitate
`banking entities, such as the Firm, to significantly restructure
`their derivatives businesses, including by changing the legal
`entities through which their derivatives activities are
`conducted. In the European Union (the “EU”), the
`implementation of the European Market Infrastructure
`Regulation (“EMIR”) and the revision of the Markets in
`Financial Instruments Directive (“MiFID II”) will result in
`comparable, but not identical, changes to the European
`regulatory regime for derivatives. The combined effect of the
`U.S. and EU requirements, and the conflicts between them,
`present challenges and risks to the structure and operating
`model of the Firm’s derivatives businesses.
`(cid:0) Volcker Rule. The Firm will also be affected by the
`requirements of Section 619 of the Dodd-Frank Act, and
`specifically the provisions prohibiting proprietary trading and
`restricting the activities involving private equity and hedge
`funds (the “Volcker Rule”). On December 10, 2013,
`regulators adopted final regulations to implement the Volcker
`Rule. Under the final rules, “proprietary trading” is defined as
`the trading of securities, derivatives, or futures (or options on
`any of the foregoing) as principal, where such trading is
`principally for the purpose of short-term resale, benefiting
`from actual or expected short-term price movements and
`realizing short-term arbitrage profits or hedges of such
`positions. In order to distinguish permissible from
`impermissible principal risk taking, the final rules require the
`establishment of a complex compliance regime that includes
`the measurement and monitoring of seven metrics. The final
`rules specifically allow market-making-related activity, certain
`government-issued securities trading and certain risk
`management activities. The Firm has ceased all prohibited
`proprietary trading activities. The Firm must conform its
`remaining activities and investments to the Volcker Rule by
`July 21, 2015.
`(cid:0) Money Market Fund Reform. In November 2012, the FSOC
`and the Financial Stability Board (the “FSB”) issued separate
`proposals regarding money market fund reform. Pursuant to
`Section 120 of the Dodd-Frank Act, the FSOC published
`proposed recommendations that the SEC proceed with
`structural reforms of money market funds, including, among
`other possibilities, requiring that money market funds adopt a
`floating net asset value, mandating a capital buffer and
`requiring a hold-back on redemptions for
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`certain shareholders. On June 5, 2013, the SEC approved the
`publication of proposed structural reforms of money market
`funds. The proposal considered two reform alternatives that
`could be adopted either alone or in combination: (i) requiring
`prime and tax-exempt institutional money market funds to
`“float” their net asset values or (ii) requiring all non­
`governmental money market funds to impose liquidity fees of
`up to 2% and to have the option to temporarily suspend
`redemptions (or “gate” the money market fund) upon the
`occurrence of specified events indicating that the fund may
`be under stress. It is currently anticipated that the SEC will
`adopt final structural reforms in 2014. The Financial Stability
`Board (the “FSB”) has endorsed and published for public
`consultation 15 policy recommendations proposed by the
`International Organization of Securities Commissions,
`including requiring money market funds to adopt a floating
`net asset value. In addition, in September 2013 the European
`Commission (the “EC”) released a proposal for a new
`regulation on money market funds in the EU. The EC
`proposed two options for stable net asset value money
`market funds: either (i) maintain a capital buffer of at least
`three percent of assets under management or (ii) float the
`net asset value of the money market fund. The EC proposal
`is currently being reviewed by the European Parliament and
`the Council of Member States as co-legislators, and is
`expected to be approved in 2014. For further information on
`international regulatory initiatives, see “Significant
`international regulatory initiatives” on pages 8-9.
`(cid:0) Capital. In October 2013, U.S. federal banking agencies
`published the interim final rules implementing Basel III in the
`U.S. Under these rules the treatment of trust preferred
`securities as Tier 1 capital for regulatory capital purposes will
`be phased out from inclusion as Tier 1 capital, but included
`as Tier 2 capital, beginning in 2014 through the end of 2015
`and phased out from inclusion as Tier 2 capital beginning in
`2016 through the end of 2021. In addition, in June 2011, the
`Basel Committee and the FSB announced that certain global
`systemically important banks (“GSIBs”) would be required to
`maintain additional capital, above the Basel III Tier 1
`common equity minimum, in amounts ranging from 1% to
`2.5%, depending upon the bank’s systemic importance. In
`June 2012, the Federal Reserve, the OCC and the FDIC
`issued final rules for implementing ratings alternatives for the
`computation of risk-based capital for market risk exposures,
`which will result in significantly higher capital requirements
`for many securitization exposures. For more information, see
`“Capital requirements” on pages 4-5.
`(cid:0) FDIC Deposit Insurance Fund Assessments. Effective April 1,
`2011, the method for calculating the deposit insurance
`assessment rate changed. This resulted in a substantial
`increase in the assessments that the Firm’s
`
`bank subsidiaries pay annually to the FDIC. For more
`information, see “Deposit insurance” on page 6.
`(cid:0) Consumer Financial Protection Bureau. The Dodd-Frank Act
`established the CFPB as a new regulatory agency. The CFPB
`has authority to regulate providers of credit, payment and
`other consumer financial products and services. The CFPB
`has examination authority over large banks, such as
`JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., with
`respect to the banks’ consumer financial products and
`services. The CFPB issued final regulations regarding
`mortgages, which became effective on January 10, 2014. For
`more information, see “CFPB and other consumer
`regulations” on page 7.
`(cid:0) Debit interchange. On October 1, 2011, the Federal Reserve
`adopted final rules implementing the “Durbin Amendment”
`provisions of the Dodd-Frank Act, which limit the amount the
`Firm can charge for each debit card transaction it processes.
`In July 2013, the U.S. District Court for the District of
`Columbia ruled that the Federal Reserve exceeded its
`authority in the manner it set a cap on debit card transaction
`interchange fees and established network exclusivity
`prohibitions in its regulation implementing the Durbin
`Amendment. The Federal Reserve announced in August 2013
`that it was appealing the decision, and argument was heard
`in January 2014. On January 17, 2014, the Court of Appeals
`for the District of Columbia Circuit heard an appeal by the
`Federal Reserve of the District Court’s decision. The Federal
`Reserve’s regulations remain in effect until the appeal is
`decided.
`Systemically important financial institutions: The Dodd-
`Frank Act creates a structure to regulate systemically important
`financial institutions, and subjects them to heightened prudential
`standards, including heightened capital, leverage, liquidity, risk
`management, resolution plan, single-counterparty credit limits
`and early remediation requirements. JPMorgan Chase is
`considered a systemically important financial institution. On
`December 20, 2011, the Federal Reserve issued proposed rules
`to implement certain of the heightened prudential standards.
`Permissible business activities: JPMorgan Chase elected to
`become a financial holding company as of March 13, 2000,
`pursuant to the provisions of the Gramm-Leach-Bliley Act. If a
`financial holding company or any depository institution controlled
`by a financial holding company ceases to meet certain capital or
`management standards, the Federal Reserve may, pursuant to its
`bank supervisory authority, impose corrective capital and/or
`managerial requirements on the financial holding company and
`place limitations on its ability to conduct the broader financial
`activities permissible for financial holding companies. In addition,
`the Federal Reserve may require divestiture of the holding
`company’s depository institutions if the deficiencies persist.
`Federal regulations also provide that if any depository institution
`controlled by a financial holding company fails to maintain a
`satisfactory rating under the Community
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`Part I
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`
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`Reinvestment Act (the “CRA”), the Federal Reserve must prohibit
`the financial holding company and its subsidiaries from engaging
`in any additional activities other than those permissible for bank
`holding companies that are not financial holding companies.
`The Federal Reserve has proposed rules under which the Federal
`Reserve could impose restrictions on systemically important
`financial institutions that are experiencing financial weakness,
`which restrictions could include limits on acquisitions, among
`other things. For more information on the restrictions, see
`“Prompt corrective action and early remediation” on page 6.
`Financial holding companies and bank holding companies are
`required to obtain the approval of the Federal Reserve before
`they may acquire more than 5% of the voting shares of an
`unaffiliated bank. Pursuant to the Riegle-Neal Interstate Banking
`and Branching Efficiency Act of 1994 (the “Riegle­Neal Act”), the
`Federal Reserve may approve an application for such an
`acquisition without regard to whether the transaction is
`prohibited under the law of any state, provided that the acquiring
`bank holding company, before or after the acquisition, does not
`control more than 10% of the total amount of deposits of insured
`depository institutions in the United States or more than 30% (or
`such greater or lesser amounts as permitted under state law) of
`the total deposits of insured depository institutions in the state in
`which the acquired bank has its home office or a branch. In
`addition, the Dodd-Frank Act restricts acquisitions by financial
`companies if, as a result of the acquisition, the total liabilities of
`the financial company would exceed 10% of the total liabilities of
`all financial companies. For non-U.S. financial companies,
`liabilities are calculated using only the risk-weighted assets of
`their U.S. operations. U.S. financial companies must include all of
`their risk-weighted assets (including assets held overseas). This
`could have the effect of allowing a non-U.S. financial company to
`grow to hold significantly more than 10% of the U.S. market
`without exceeding the concentration limit. Under the Dodd-Frank
`Act, the Firm must provide written notice to the Federal Reserve
`prior to acquiring direct or indirect ownership or control of any
`voting shares of any company with over $10 billion in assets that
`is engaged in “financial in nature” activities.
`Dividend restrictions: Federal law imposes limitations on the
`payment of dividends by national banks. Dividends payable by
`JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., as
`national bank subsidiaries of JPMorgan Chase, are limited to the
`lesser of the amounts calculated under a “recent earnings” test
`and an “undivided profits” test. Under the recent earnings test, a
`dividend may not be paid if the total of all dividends declared by a
`bank in any calendar year is in excess of the current year’s net
`income combined with the retained net income of the two
`preceding years, unless the national bank obtains the approval of
`the OCC. Under the undivided profits test, a dividend may not be
`paid in excess of a bank’s “undivided profits.” See Note 27 on
`page 316 for the amount of
`
`dividends that the Firm’s principal bank subsidiaries could pay, at
`January 1, 2014, to their respective bank holding companies
`without the approval of their banking regulators.
`In addition to the dividend restrictions described above, the OCC,
`the Federal Reserve and the FDIC have authority to prohibit or
`limit the payment of dividends by the banking organizations they
`supervise, including JPMorgan Chase and its bank and bank
`holding company subsidiaries, 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. Under proposed rules issued by the Federal
`Reserve, dividends are restricted once any one of three risk-
`based capital ratios (tier 1 common, tier 1 capital, or total
`capital) falls below their respective minimum capital ratio
`requirement (inclusive of the GSIB surcharge) plus 2.5%.
`Moreover, the Federal Reserve has issued rules requiring bank
`holding companies, such as JPMorgan Chase, to submit to the
`Federal Reserve a capital plan on an annual basis and receive a
`notice of non-objection from the Federal Reserve before taking
`capital actions, such as paying dividends, implementing common
`equity repurchase programs or redeeming or repurchasing
`capital instruments. For more information, see “CCAR and stress
`testing” on pages 5-6.
`Capital requirements: Federal banking regulators have
`adopted risk-based capital and leverage guidelines that require
`the Firm’s capital­to­assets ratios to meet certain minimum
`standards.
`The risk-based capital ratio is determined by allocating assets
`and specified off-balance sheet financial instruments into risk-
`weighted categories, with higher levels of capital being required
`for the categories perceived as representing greater risk. Under
`the guidelines, capital is divided into two tiers: Tier 1 capital and
`Tier 2 capital. The amount of Tier 2 capital may not exceed the
`amount of Tier 1 capital. Total capital is the sum of Tier 1 capital
`and Tier 2 capital. Under the guidelines, banking organizations
`are required to maintain a total capital ratio (total capital to risk-
`weighted assets) of 8% and a Tier 1 capital ratio of 4%.
`The federal banking regulators also have established minimum
`leverage ratio guidelines. The leverage ratio is defined as Tier 1
`capital divided by adjusted average total assets. The minimum
`leverage ratio is 4% for bank holding companies. Bank holding
`companies may be expected to maintain ratios well above the
`minimum levels, depending upon their particular condition, risk
`profile and growth plans. The minimum risk-based capital
`requirements adopted by the federal banking agencies follow the
`Capital Accord of the Basel Committee on Banking Supervision
`(“Basel I”). In 2004, the Basel Committee published a revision to
`the Accord (“Basel II”). The goal of the Basel II Framework is to
`provide more risk-sensitive regulatory capital calculations and
`promote enhanced risk management practices among large,
`internationally active banking operations. In December 2010, the
`Basel Committee finalized further revisions to the Accord (“Basel
`
`4
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`
`
`
`
`Source: JPMORGAN CHASE & CO, 10-K, 2/20/2014 | Powered by Intelligize
`
`CHASE EX. 1007 - p. 6/866
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`

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`
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`III”) which narrowed the definition of capital, increased capital
`requirements for specific exposures, introduced short-term
`liquidity coverage and term funding standards, and established an
`international leverage ratio. In June 2011, the U.S. federal
`banking agencies issued rules to establish a permanent Basel I
`floor under Basel II/Basel III calculations.
`In October 2013, U.S. federal banking agencies published the
`interim final rules implementing Basel III in the U.S. The interim
`final rules narrowed the definition of capital, increased capital
`requirements for certain exposures, set higher capital ratio
`requirements and minimum floors with respect to the capital ratio
`requirements and included a supplementary leverage ratio. U.S.
`banking regulators and the Basel Committee have, in addition,
`proposed changes to the leverage ratios applicable to the Firm
`and its bank subsidiaries.
`In connection with the U.S. Government’s Supervisory Capital
`Assessment Program in 2009, U.S. banking regulators developed
`an additional measure of capital, Tier 1 common, which is
`defined as Tier 1 capital less elements of Tier 1 capital not in the
`form of common equity - such as perpetual preferred stock, non-
`controlling interests in subsidiaries and trust preferred capital
`debt securities. Tier 1 common, a non-GAAP financial measure, is
`used by banking regulators, investors and analysts to assess and
`compare the quality and composition of the Firm’s capital with
`the capital of other financial services companies. The Firm uses
`Tier 1 common along with the other capital measures to assess
`and monitor its capital position.In June 2012, the U.S. banking
`regulators revised, effective January 1, 2013, certain capital
`requirements for trading positions and securitizations (“Basel
`2.5”).
`GSIBs will be required to maintain additional capital, above the
`Basel III Tier 1 common equity minimum, in amounts ranging
`from 1% to 2.5%, depending upon the bank’s systemic
`importance. In November 2012, the FSB indicated that the Firm
`would be in the category subject to a 2.5% capital surcharge.
`Furthermore, in order to provide a disincentive for banks facing
`the highest required level of Tier 1 common equity to “increase
`materially their global systemic importance i