Regulatory Capital

6 Months Ended

Jun. 30, 2013

Banking and Thrift [Abstract]

Regulatory Capital

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.

There are two categories of risk-based capital: Tier 1 capital and Tier 2 capital. Tier 1 capital consists of common stockholders’ equity, perpetual preferred stock, noncontrolling interests in subsidiaries and trust preferred securities, less goodwill and certain other adjustments. Tier 2 capital consists of preferred stock not qualifying as Tier 1 capital, subordinated long-term debt and other instruments qualifying as Tier 2 capital, and the aggregate allowance for credit losses up to a certain percentage of risk-weighted assets (“RWA”). Total capital is Tier 1 capital plus Tier 2 capital. RWA consist of on- and off-balance sheet assets that are assigned to one of several broad risk categories and weighted by factors representing their risk and potential for default. On-balance sheet assets are risk-weighted based on the perceived credit risk associated with the obligor or counterparty, the nature of any collateral, and the guarantor, if any. Off-balance sheet assets, such as lending-related commitments, guarantees, and derivatives, are risk-weighted by multiplying the contractual amount by the appropriate credit conversion factor to determine the on-balance sheet credit-equivalent amount, which is then risk-weighted based on the same factors used for on-balance sheet assets. RWA also incorporate a measure for the market risk related to applicable trading assets–debt and equity instruments, and foreign exchange and commodity derivatives. The resulting risk-weighted values for each of the risk categories are then aggregated to determine total RWA.

Under the risk-based capital guidelines of the Federal Reserve, JPMorgan Chase is required to maintain minimum ratios of Tier 1 and Total capital to RWA, as well as minimum leverage ratios (which are defined as Tier 1 capital divided by adjusted quarterly average assets). Failure to meet these minimum requirements could cause the Federal Reserve to take action. Banking subsidiaries also are subject to these capital requirements by their respective primary regulators. As of June 30, 2013, and December 31, 2012, JPMorgan Chase and all of its banking subsidiaries were well-capitalized and met all capital requirements to which each was subject.

The following table presents the regulatory capital, assets and risk-based capital ratios for JPMorgan Chase and its significant banking subsidiaries at June 30, 2013, and December 31, 2012. These amounts are determined in accordance with regulations issued by the Federal Reserve and/or OCC. The table reflects the Firm’s and JPMorgan Chase Bank, N.A.’s implementation of rules that provide for additional capital requirements for trading positions and securitizations (“Basel 2.5”). Basel 2.5 rules became effective for the Firm and JPMorgan Chase Bank, N.A. on January 1, 2013. The implementation of these rules in the first quarter of 2013 resulted in an increase of approximately $150 billion and $140 billion, respectively, in the Firm’s and JPMorgan Chase Bank, N.A.’s risk-weighted assets compared with the Basel I rules at March 31, 2013. The implementation of these rules also resulted in decreases of the Firm’s Tier 1 capital and Total capital ratios of 140 basis points and 160 basis points, respectively, at March 31, 2013, and decreases of JPMorgan Chase Bank, N.A.’s Tier 1 capital and Total capital ratios of 130 basis points and 150 basis points, respectively, at March 31, 2013. Implementation of Basel 2.5 in the first quarter of 2013 did not impact Chase Bank USA, N.A.’s RWA or Tier 1 capital and Total capital ratios.

	JPMorgan Chase & Co.(d)						JPMorgan Chase Bank, N.A.(d)						Chase Bank USA, N.A.(d)						Well-capitalized ratios(e)			Minimum capital ratios(e)
(in millions, except ratios)	June 30, 2013			December 31, 2012			June 30, 2013			December 31, 2012			June 30, 2013			December 31, 2012
Regulatory capital
Tier 1(a)	$	164,027		$	160,002		$	120,912		$	111,827		$	11,142		$	9,648
Total	199,148			194,036			155,502			146,870			14,582			13,131
Assets
Risk-weighted(b)	$	1,410,081		$	1,270,378		$	1,207,865		$	1,094,155		$	101,014		$	103,593
Adjusted average(c)	2,333,416			2,243,242			1,905,940			1,815,816			104,119			103,688
Capital ratios
Tier 1(a)	11.6		%	12.6		%	10.0		%	10.2		%	11.0		%	9.3		%	6.0	%		4.0	%
Total	14.1			15.3			12.9			13.4			14.4			12.7			10.0			8.0
Tier 1 leverage	7.0			7.1			6.3			6.2			10.7			9.3			5.0		(f)	3.0		(g)

(a) At June 30, 2013, trust preferred securities included in Tier 1 capital were $5.3 billion and $600 million, for JPMorgan Chase and JPMorgan Chase Bank, N.A., respectively. If these securities were excluded from the calculation at June 30, 2013, Tier 1 capital would be $158.8 billion and $120.3 billion, respectively, and the Tier 1 capital ratio would be 11.3% and 10.0%, respectively. At June 30, 2013, Chase Bank USA, N.A. had no trust preferred securities.

(b) Included off–balance sheet RWA at June 30, 2013, of $318.5 billion, $309.0 billion and $14 million, and at December 31, 2012, of $304.5 billion, $297.1 billion and $16 million, for JPMorgan Chase, JPMorgan Chase Bank, N.A. and Chase Bank USA, N.A., respectively.

(c) Adjusted average assets, for purposes of calculating the leverage ratio, include total quarterly average assets adjusted for unrealized gains/(losses) on securities, less deductions for disallowed goodwill and other intangible assets, investments in certain subsidiaries, and the total adjusted carrying value of nonfinancial equity investments that are subject to deductions from Tier 1 capital.

(d) Asset and capital amounts for JPMorgan Chase’s banking subsidiaries reflect intercompany transactions; whereas the respective amounts for JPMorgan Chase reflect the elimination of intercompany transactions.

(e) As defined by the regulations issued by the Federal Reserve, OCC and FDIC.

(f) Represents requirements for banking subsidiaries pursuant to regulations issued under the FDIC Improvement Act. There is no Tier 1 leverage component in the definition of a well-capitalized bank holding company.

(g) The minimum Tier 1 leverage ratio for bank holding companies and banks is 3% or 4%, depending on factors specified in regulations issued by the Federal Reserve and OCC.

Note: Rating agencies allow measures of capital to be adjusted upward for deferred tax liabilities, which have resulted from both nontaxable business combinations and from tax-deductible goodwill. The Firm had deferred tax liabilities resulting from nontaxable business combinations totaling $242 million and $291 million at June 30, 2013, and December 31, 2012, respectively; and deferred tax liabilities resulting from tax-deductible goodwill of $2.6 billion and $2.5 billion at June 30, 2013, and December 31, 2012, respectively.

A reconciliation of the Firm’s Total stockholders’ equity to Tier 1 capital and Total qualifying capital is presented in the table below.

(in millions)	June 30, 2013			December 31, 2012
Tier 1 capital
Total stockholders’ equity	$	209,239		$	204,069
Effect of certain items in AOCI excluded from Tier 1 capital	(282		)	(4,198		)
Qualifying hybrid securities and noncontrolling interests(a)	5,618			10,608
Less: Goodwill(b)	45,414			45,663
Other intangible assets(b)	2,220			2,311
Fair value DVA on structured notes and derivative liabilities related to the Firm’s credit quality	1,869			1,577
Investments in certain subsidiaries and other	1,045			926
Total Tier 1 capital	164,027			160,002
Tier 2 capital
Long-term debt and other instruments qualifying as Tier 2	17,406			18,061
Qualifying allowance for credit losses	17,723			15,995
Other	(8		)	(22		)
Total Tier 2 capital	35,121			34,034
Total qualifying capital	$	199,148		$	194,036

(a) Primarily includes trust preferred securities of certain business trusts.

(b) Goodwill and other intangible assets are net of any associated deferred tax liabilities.