Off–balance sheet lending-related financial instruments, guarantees, and other commitments

JPMorgan Chase provides lending-related financial instruments (e.g., commitments and guarantees) to meet the financing needs of its customers. The contractual amount of these financial instruments represents the maximum possible credit risk to the Firm should the counterparty draw upon the commitment or the Firm be required to fulfill its obligation under the guarantee, and should the counterparty subsequently fail to perform according to the terms of the contract. Most of these commitments and guarantees expire without being drawn or a default occurring. As a result, the total contractual amount of these instruments is not, in the Firm’s view, representative of its actual future credit exposure or funding requirements.

To provide for probable credit losses inherent in consumer (excluding credit card) and wholesale lending commitments, an allowance for credit losses on lending-related commitments is maintained. See Note 15 on pages 284–287 of this Annual Report for further discussion regarding the allowance for credit losses on lending-related commitments. The following table summarizes the contractual amounts and carrying values of off-balance sheet lending-related financial instruments, guarantees and other commitments at December 31, 2013 and 2012. The amounts in the table below for credit card and home equity lending-related commitments represent the total available credit for these products. The Firm has not experienced, and does not anticipate, that all available lines of credit for these products will be utilized at the same time. The Firm can reduce or cancel credit card lines of credit by providing the borrower notice or, in some cases, without notice as permitted by law. The Firm may reduce or close home equity lines of credit when there are significant decreases in the value of the underlying property, or when there has been a demonstrable decline in the creditworthiness of the borrower. Also, the Firm typically closes credit card lines when the borrower is 60 days or more past due.



Off–balance sheet lending-related financial instruments, guarantees and other commitments
	Contractual amount												Carrying value^(g)
	2013										2012		2013			2012
By remaining maturity at December 31, (in millions)	Expires in 1 year or less		Expires after 1 year through 3 years		Expires after 3 years through 5 years		Expires after 5 years		Total		Total
Lending-related
Consumer, excluding credit card:
Home equity – senior lien	$	2,471	$	4,411	$	4,202	$	2,074	$	13,158	$	15,180	$	—		$	—
Home equity – junior lien	3,918		6,908		4,865		2,146		17,837		21,796		—			—
Prime mortgage	4,817		—		—		—		4,817		4,107		—			—
Subprime mortgage	—		—		—		—		—		—		—			—
Auto	7,992		191		115		11		8,309		7,185		1			1
Business banking	10,282		548		101		320		11,251		11,092		7			6
Student and other	108		111		4		462		685		796		—			—
Total consumer, excluding credit card	29,588		12,169		9,287		5,013		56,057		60,156		8			7
Credit card	529,383		—		—		—		529,383		533,018		—			—
Total consumer	558,971		12,169		9,287		5,013		585,440		593,174		8			7
Wholesale:
Other unfunded commitments to extend credit^(a)(b)	61,459		79,519		97,139		8,378		246,495		243,225		432			377
Standby letters of credit and other financial guarantees^(a)(b)(c)	25,223		32,331		32,773		2,396		92,723		100,929		943			647
Unused advised lines of credit	88,443		12,411		423		717		101,994		85,087		—			—
Other letters of credit^(a)	4,176		722		107		15		5,020		5,573		2			2
Total wholesale	179,301		124,983		130,442		11,506		446,232		434,814		1,377			1,026
Total lending-related	$	738,272	$	137,152	$	139,729	$	16,519	$	1,031,672	$	1,027,988	$	1,385		$	1,033
Other guarantees and commitments
Securities lending indemnification agreements and guarantees^(d)	$	169,709	$	—	$	—	$	—	$	169,709	$	166,493	NA			NA
Derivatives qualifying as guarantees	1,922		765		16,061		37,526		56,274		61,738		$	72		$	42
Unsettled reverse repurchase and securities borrowing agreements^(e)	38,211		—		—		—		38,211		34,871		—			—
Loan sale and securitization-related indemnifications:
Mortgage repurchase liability	NA		NA		NA		NA		NA		NA		681			2,811
Loans sold with recourse	NA		NA		NA		NA		7,692		9,305		131			141
Other guarantees and commitments^(f)	654		256		1,484		4,392		6,786		6,780		(99		)	(75		)

(a)

At December 31, 2013 and 2012, reflects the contractual amount net of risk participations totaling $476 million and $473 million, respectively, for other unfunded commitments to extend credit; $14.8 billion and $16.6 billion, respectively, for standby letters of credit and other financial guarantees; and $622 million and $690 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk participations.

(b)

At December 31, 2013 and 2012, included credit enhancements and bond and commercial paper liquidity commitments to U.S. states and municipalities, hospitals and other non-profit entities of $18.9 billion and $21.3 billion, respectively, within other unfunded commitments to extend credit; and $17.2 billion and $23.2 billion, respectively, within standby letters of credit and other financial guarantees. These commitments also include liquidity facilities to nonconsolidated municipal bond VIEs; for further information, see Note 16 on pages 288–299 of this Annual Report.


(c)	At December 31, 2013 and 2012, included unissued standby letters of credit commitments of $42.8 billion and $44.4 billion, respectively.


(d)	At December 31, 2013 and 2012, collateral held by the Firm in support of securities lending indemnification agreements was $176.4 billion and $165.1 billion, respectively. Securities lending collateral comprises primarily cash and securities issued by governments that are members of the Organisation for Economic Co-operation and Development (“OECD”) and U.S. government agencies.

(e)

At December 31, 2013 and 2012, the amount of commitments related to forward-starting reverse repurchase agreements and securities borrowing agreements were $9.9 billion and $13.2 billion, respectively. Commitments related to unsettled reverse repurchase agreements and securities borrowing agreements with regular-way settlement periods were $28.3 billion and $21.7 billion, at December 31, 2013 and 2012, respectively.

(f)

At December 31, 2013 and 2012, included unfunded commitments of $215 million and $370 million, respectively, to third-party private equity funds; and $1.9 billion and $1.5 billion, respectively, to other equity investments. These commitments included $184 million and $333 million, respectively, related to investments that are generally fair valued at net asset value as discussed in Note 3 on pages 195–215 of this Annual Report. In addition, at both December 31, 2013 and 2012, included letters of credit hedged by derivative transactions and managed on a market risk basis of $4.5 billion.


(g)	For lending-related products, the carrying value represents the allowance for lending-related commitments and the guarantee liability; for derivative-related products, the carrying value represents the fair value.

Other unfunded commitments to extend credit

Other unfunded commitments to extend credit generally comprise commitments for working capital and general corporate purposes, extensions of credit to support commercial paper facilities and bond financings in the event that those obligations cannot be remarketed to new investors as well as committed liquidity facilities to clearing organizations.

Also included in other unfunded commitments to extend credit are commitments to noninvestment-grade counterparties in connection with leveraged and acquisition finance activities, which were $18.3 billion at December 31, 2013. In the fourth quarter of 2013, the Firm implemented prospectively interagency guidance that revised the Firm’s definition of leveraged lending to include all Commercial and Industrial borrowers, whether or not they are affiliated with financial sponsors, which meet certain leverage criteria and use of proceeds purpose tests related to a buyout, acquisition or capital distribution. Prior to this change, the Firm defined leveraged lending as primarily being affiliated with a financial sponsor-related company and used internal risk grades to identify the leveraged lending portfolio. For further information, see Note 3 and Note 4 on pages 195–215 and 215–218 respectively, of this Annual Report.

In addition, the Firm acts as a clearing and custody bank in the U.S. tri-party repurchase transaction market. In its role as clearing and custody bank, the Firm is exposed to intra-day credit risk of the cash borrowers, usually broker-dealers; however, this exposure is secured by collateral and typically extinguished through the settlement process by the end of the day. Tri-party repurchase daily balances averaged $307 billion and $370 billion for the years ended December 31, 2013 and 2012, respectively.

Guarantees

U.S. GAAP requires that a guarantor recognize, at the inception of a guarantee, a liability in an amount equal to the fair value of the obligation undertaken in issuing the guarantee. U.S. GAAP defines a guarantee as a contract that contingently requires the guarantor to pay a guaranteed party based upon: (a) changes in an underlying asset, liability or equity security of the guaranteed party; or (b) a third party’s failure to perform under a specified agreement. The Firm considers the following off–balance sheet lending-related arrangements to be guarantees under U.S. GAAP: standby letters of credit and financial guarantees, securities lending indemnifications, certain indemnification agreements included within third-party contractual arrangements and certain derivative contracts.

As required by U.S. GAAP, the Firm initially records guarantees at the inception date fair value of the obligation assumed (e.g., the amount of consideration received or the net present value of the premium receivable). For certain types of guarantees, the Firm records this fair value amount in other liabilities with an offsetting entry recorded in cash (for premiums received), or other assets (for premiums receivable). Any premium receivable recorded in other assets is reduced as cash is received under the contract, and the fair value of the liability recorded at inception is amortized into income as lending and deposit-related fees over the life of the guarantee contract. For indemnifications provided in sales agreements, a portion of the sale proceeds is allocated to the guarantee, which adjusts the gain or loss that would otherwise result from the transaction. For these indemnifications, the initial liability is amortized to income as the Firm’s risk is reduced (i.e., over time or when the indemnification expires). Any contingent liability that exists as a result of issuing the guarantee or indemnification is recognized when it becomes probable and reasonably estimable. The contingent portion of the liability is not recognized if the estimated amount is less than the carrying amount of the liability recognized at inception (adjusted for any amortization). The recorded amounts of the liabilities related to guarantees and indemnifications at December 31, 2013 and 2012, excluding the allowance for credit losses on lending-related commitments, are discussed below.

Standby letters of credit and other financial guarantees

Standby letters of credit (“SBLC”) and other financial guarantees are conditional lending commitments issued by the Firm to guarantee the performance of a customer to a third party under certain arrangements, such as commercial paper facilities, bond financings, acquisition financings, trade and similar transactions. The carrying values of standby and other letters of credit were $945 million and $649 million at December 31, 2013 and 2012, respectively, which were classified in accounts payable and other liabilities on the Consolidated Balance Sheets; these carrying values included $265 million and $284 million, respectively, for the allowance for lending-related commitments, and $680 million and $365 million, respectively, for the guarantee liability and corresponding asset.

The following table summarizes the types of facilities under which standby letters of credit and other letters of credit arrangements are outstanding by the ratings profiles of the Firm’s customers, as of December 31, 2013 and 2012.

Standby letters of credit, other financial guarantees and other letters of credit



	2013					2012
December 31, (in millions)	Standby letters of credit and other financial guarantees			Other letters of credit		Standby letters of credit and other financial guarantees			Other letters of credit
Investment-grade^(a)		$	69,109	$	3,939		$	77,081	$	3,998
Noninvestment-grade^(a)		23,614		1,081			23,848		1,575
Total contractual amount		$	92,723	$	5,020		$	100,929	$	5,573
Allowance for lending-related commitments		$	263	$	2		$	282	$	2
Commitments with collateral		40,410		1,473			42,654		1,145


(a)	The ratings scale is based on the Firm’s internal ratings which generally correspond to ratings as defined by S&P and Moody’s.

Advised lines of credit

An advised line of credit is a revolving credit line which specifies the maximum amount the Firm may make available to an obligor, on a nonbinding basis. The borrower receives written or oral advice of this facility. The Firm may cancel this facility at any time by providing the borrower notice or, in some cases, without notice as permitted by law.

Securities lending indemnifications

Through the Firm’s securities lending program, customers’ securities, via custodial and non-custodial arrangements, may be lent to third parties. As part of this program, the Firm provides an indemnification in the lending agreements which protects the lender against the failure of the borrower to return the lent securities. To minimize its liability under these indemnification agreements, the Firm obtains cash or other highly liquid collateral with a market value exceeding 100% of the value of the securities on loan from the borrower. Collateral is marked to market daily to help assure that collateralization is adequate. Additional collateral is called from the borrower if a shortfall exists, or collateral may be released to the borrower in the event of overcollateralization. If a borrower defaults, the Firm would use the collateral held to purchase replacement securities in the market or to credit the lending customer with the cash equivalent thereof.

Derivatives qualifying as guarantees

In addition to the contracts described above, the Firm transacts certain derivative contracts that have the characteristics of a guarantee under U.S. GAAP. These contracts include written put options that require the Firm to purchase assets upon exercise by the option holder at a specified price by a specified date in the future. The Firm may enter into written put option contracts in order to meet client needs, or for other trading purposes. The terms of written put options are typically five years or less. Derivative guarantees also include contracts such as stable value derivatives that require the Firm to make a payment of the difference between the market value and the book value of a counterparty’s reference portfolio of assets in the event that market value is less than book value and certain other conditions have been met. Stable value derivatives, commonly referred to as “stable value wraps”, are transacted in order to allow investors to realize investment returns with less volatility than an unprotected portfolio and are typically longer-term or may have no stated maturity, but allow the Firm to terminate the contract under certain conditions.

Derivative guarantees are recorded on the Consolidated Balance Sheets at fair value in trading assets and trading liabilities. The total notional value of the derivatives that the Firm deems to be guarantees was $56.3 billion and $61.7 billion at December 31, 2013 and 2012, respectively. The notional amount generally represents the Firm’s maximum exposure to derivatives qualifying as guarantees. However, exposure to certain stable value contracts is contractually limited to a substantially lower percentage of the notional amount; the notional amount on these stable value contracts was $27.0 billion and $26.5 billion at December 31, 2013 and 2012, respectively, and the maximum exposure to loss was $2.8 billion at both December 31, 2013 and 2012. The fair values of the contracts reflect the probability of whether the Firm will be required to perform under the contract. The fair value related to derivatives that the Firm deems to be guarantees were derivative payables of $109 million and $122 million and derivative receivables of $37 million and $80 million at December 31, 2013 and 2012, respectively. The Firm reduces exposures to these contracts by entering into offsetting transactions, or by entering into contracts that hedge the market risk related to the derivative guarantees.

In addition to derivative contracts that meet the characteristics of a guarantee, the Firm is both a purchaser and seller of credit protection in the credit derivatives market. For a further discussion of credit derivatives, see Note 6 on pages 220–233 of this Annual Report.

Unsettled reverse repurchase and securities borrowing agreements

In the normal course of business, the Firm enters into reverse repurchase agreements and securities borrowing agreements that settle at a future date. At settlement, these commitments require that the Firm advance cash to and accept securities from the counterparty. These agreements generally do not meet the definition of a derivative, and therefore, are not recorded on the Consolidated Balance Sheets until settlement date. At December 31, 2013 and 2012, the amount of commitments related to forward starting reverse repurchase agreements and securities borrowing agreements were $9.9 billion and $13.2 billion, respectively. Commitments related to unsettled reverse repurchase agreements and securities borrowing agreements with regular way settlement periods were $28.3 billion and $21.7 billion at December 31, 2013 and 2012, respectively.

Loan sales- and securitization-related indemnifications

Mortgage repurchase liability

In connection with the Firm’s mortgage loan sale and securitization activities with the GSEs and other mortgage loan sale and private-label securitization transactions, as described in Note 16 on pages 288–299 of this Annual Report, the Firm has made representations and warranties that the loans sold meet certain requirements. The Firm has been, and may be, required to repurchase loans and/or indemnify the GSEs (e.g., with “make-whole” payments to reimburse the GSEs for their realized losses on liquidated loans) and other investors for losses due to material breaches of these representations and warranties. To the extent that repurchase demands that are received relate to loans that the Firm purchased from third parties that remain viable, the Firm typically will have the right to seek a recovery of related repurchase losses from the third party. Generally, the maximum amount of future payments the Firm would be required to make for breaches of these representations and warranties would be equal to the unpaid principal balance of such loans that are deemed to have defects that were sold to purchasers (including securitization-related SPEs) plus, in certain circumstances, accrued interest on such loans and certain expense.

On October 25, 2013, the Firm announced that it had reached a $1.1 billion agreement with the FHFA to resolve, other than certain limited types of exposures, outstanding and future mortgage repurchase demands associated with loans sold to the GSEs from 2000 to 2008 (“FHFA Settlement Agreement”). The majority of the mortgage repurchase demands that the Firm had received from the GSEs related to loans originated from 2005 to 2008.

The Firm has recognized a mortgage repurchase liability of $681 million and $2.8 billion as of December 31, 2013 and 2012, respectively. The amount of the mortgage repurchase liability at December 31, 2013, relates to repurchase losses associated with loans sold in connection with loan sale and securitization transactions with the GSEs that are not covered by the FHFA Settlement Agreement (e.g., post-2008 loan sale and securitization transactions, mortgage insurance rescissions and certain mortgage insurance settlement-related exposures, as well as certain other specific exclusions).

The following table summarizes the change in the mortgage repurchase liability for each of the periods presented.



Summary of changes in mortgage repurchase liability
Year ended December 31, (in millions)	2013			2012			2011
Repurchase liability at beginning of period	$	2,811		$	3,557		$	3,285
Net realized losses^(a)(b)	(1,561		)	(1,158		)	(1,263		)
Reclassification to litigation reserve^(c)	(179		)	—			—
Provision for repurchase losses^(d)	(390		)	412			1,535
Repurchase liability at end of period	$	681		$	2,811		$	3,557


(a)	Presented net of third-party recoveries and include principal losses and accrued interest on repurchased loans, “make-whole” settlements, settlements with claimants, and certain related expense. Make-whole settlements were $414 million, $524 million and $640 million, for the years ended December 31, 2013, 2012 and 2011, respectively.


(b)	The 2013 amount includes $1.1 billion, for the FHFA Settlement Agreement.

(c)

Prior to December 31, 2013, in the absence of a repurchase demand by a party to the relevant contracts, the Firm’s decision to repurchase loans from private-label securitization trusts when it determined it had an obligation to do so was recognized in the mortgage repurchase liability. Pursuant to the terms of the RMBS Trust Settlement, all repurchase obligations relating to the subject private-label securitization trusts, whether resulting from a repurchase demand or otherwise, are now recognized in the Firm’s litigation reserves for this settlement. The RMBS Trust Settlement is fully accrued as of December 31, 2013.


(d)	Included a provision related to new loan sales of $20 million, $112 million and $52 million, for the years ended December 31, 2013, 2012 and 2011, respectively.

Private label securitizations

The liability related to repurchase demands associated with private label securitizations is separately evaluated by the Firm in establishing its litigation reserves.

On November 15, 2013, the Firm announced that it had reached a $4.5 billion agreement with 21 major institutional investors to make a binding offer to the trustees of 330 residential mortgage-backed securities trust issued by J.P.Morgan, Chase, and Bear Stearns (“RMBS Trust Settlement”) to resolve all representation and warranty claims, as well as all servicing claims, on all trust issued by J.P.Morgan, Chase, and Bear Stearns between 2005 and 2008. The RMBS Trust Settlement may be subject to court approval.

In addition, from 2005 to 2008, Washington Mutual made certain loan level representations and warranties in connection with approximately $165 billion of residential mortgage loans that were originally sold or deposited into private-label securitizations by Washington Mutual. Of the $165 billion, approximately $75 billion has been repaid. In addition, approximately $47 billion of the principal amount of such loans has liquidated with an average loss severity of 59%. Accordingly, the remaining outstanding principal balance of these loans as of December 31, 2013, was approximately $43 billion, of which $10 billion was 60 days or more past due. The Firm believes that any repurchase obligations related to these loans remain with the FDIC receivership.

For additional information regarding litigation, see Note 31 on pages 326–332 of this Annual Report.

Loans sold with recourse

The Firm provides servicing for mortgages and certain commercial lending products on both a recourse and nonrecourse basis. In nonrecourse servicing, the principal credit risk to the Firm is the cost of temporary servicing advances of funds (i.e., normal servicing advances). In recourse servicing, the servicer agrees to share credit risk with the owner of the mortgage loans, such as Fannie Mae or Freddie Mac or a private investor, insurer or guarantor. Losses on recourse servicing predominantly occur when foreclosure sales proceeds of the property underlying a defaulted loan are less than the sum of the outstanding principal balance, plus accrued interest on the loan and the cost of holding and disposing of the underlying property. The Firm’s securitizations are predominantly nonrecourse, thereby effectively transferring the risk of future credit losses to the purchaser of the mortgage-backed securities issued by the trust. At December 31, 2013 and 2012, the unpaid principal balance of loans sold with recourse totaled $7.7 billion and $9.3 billion, respectively. The carrying value of the related liability that the Firm has recorded, which is representative of the Firm’s view of the likelihood it will have to perform under its recourse obligations, was $131 million and $141 million at December 31, 2013 and 2012, respectively.

Other off-balance sheet arrangements

Indemnification agreements – general

In connection with issuing securities to investors, the Firm may enter into contractual arrangements with third parties that require the Firm to make a payment to them in the event of a change in tax law or an adverse interpretation of tax law. In certain cases, the contract also may include a termination clause, which would allow the Firm to settle the contract at its fair value in lieu of making a payment under the indemnification clause. The Firm may also enter into indemnification clauses in connection with the licensing of software to clients (“software licensees”) or when it sells a business or assets to a third party (“third-party purchasers”), pursuant to which it indemnifies software licensees for claims of liability or damages that may occur subsequent to the licensing of the software, or third-party purchasers for losses they may incur due to actions taken by the Firm prior to the sale of the business or assets. It is difficult to estimate the Firm’s maximum exposure under these indemnification arrangements, since this would require an assessment of future changes in tax law and future claims that may be made against the Firm that have not yet occurred. However, based on historical experience, management expects the risk of loss to be remote.

Credit card charge-backs

Chase Paymentech Solutions, Card’s merchant services business and a subsidiary of JPMorgan Chase Bank, N.A., is a global leader in payment processing and merchant acquiring.

Under the rules of Visa USA, Inc., and MasterCard International, JPMorgan Chase Bank, N.A., is primarily liable for the amount of each processed credit card sales transaction that is the subject of a dispute between a cardmember and a merchant. If a dispute is resolved in the cardmember’s favor, Chase Paymentech will (through the cardmember’s issuing bank) credit or refund the amount to the cardmember and will charge back the transaction to the merchant. If Chase Paymentech is unable to collect the amount from the merchant, Chase Paymentech will bear the loss for the amount credited or refunded to the cardmember. Chase Paymentech mitigates this risk by withholding future settlements, retaining cash reserve accounts or by obtaining other security. However, in the unlikely event that: (1) a merchant ceases operations and is unable to deliver products, services or a refund; (2) Chase Paymentech does not have sufficient collateral from the merchant to provide customer refunds; and (3) Chase Paymentech does not have sufficient financial resources to provide customer refunds, JPMorgan Chase Bank, N.A., would recognize the loss.

Chase Paymentech incurred aggregate losses of $14 million, $16 million, and $13 million on $750.1 billion, $655.2 billion, and $553.7 billion of aggregate volume processed for the years ended December 31, 2013, 2012 and 2011, respectively. Incurred losses from merchant charge-backs are charged to Other expense, with the offset recorded in a valuation allowance against Accrued interest and accounts receivable on the Consolidated Balance Sheets. The carrying value of the valuation allowance was $5 million and $6 million at December 31, 2013 and 2012, respectively, which the Firm believes, based on historical experience and the collateral held by Chase Paymentech of $208 million and $203 million at December 31, 2013 and 2012, respectively, is representative of the payment or performance risk to the Firm related to charge-backs.

Clearing Services - Client Credit Risk

The Firm provides clearing services for clients entering into securities purchases and sales and derivative transactions, with central counterparties (“CCPs”), including exchange traded derivatives (“ETDs”) such as futures and options, as well as cleared over-the-counter (“OTC-cleared”) derivative contracts. As a clearing member, the Firm stands behind the performance of its clients, collects cash and securities collateral (margin) as well as any settlement amounts due from or to clients, and remits them to the relevant CCP or client in whole or part. There are two types of margin. Variation margin is posted on a daily basis based on the value of clients’ derivative contracts. Initial margin is posted at inception of a derivative contract, generally on the basis of the potential changes in the variation margin requirement for the contract.

As clearing member, the Firm is exposed to the risk of non-performance by its clients, but is not liable to clients for the performance of the CCPs. Where possible, the Firm seeks to mitigate its risk to the client through the collection of appropriate amounts of margin at inception and throughout the life of the transactions and can also cease provision of clearing services if clients do not adhere to their obligations under the clearing agreement. In the event of non-performance by a client, the Firm would close out the client’s positions and access available margin. The CCP would utilize any margin it holds to make itself whole, with any remaining shortfalls required to be paid by the Firm as clearing member.

The Firm reflects its exposure to non-performance risk of the client through the recognition of margin payables or receivables to clients and CCPs, but does not reflect the clients underlying securities or derivative contracts in its Consolidated Financial Statements.

It is difficult to estimate the Firm’s maximum possible exposure through its role as clearing member, as this would require an assessment of transactions that clients may execute in the future. However, based upon historical experience, and the credit risk mitigants available to the Firm, management believes it is unlikely that the Firm will have to make any material payments under these arrangements and the risk of loss is expected to be remote.

For information on the derivatives that the Firm executes for its own account and records in its Consolidated Financial Statements, see Note 6 on pages 220–233 of this Annual Report.

Exchange & Clearing House Memberships

Through the provision of clearing services, the Firm is a member of several securities and derivative exchanges and clearinghouses, both in the U.S. and other countries. Membership in some of these organizations requires the Firm to pay a pro rata share of the losses incurred by the organization as a result of the default of another member. Such obligations vary with different organizations. These obligations may be limited to members who dealt with the defaulting member or to the amount (or a multiple of the amount) of the Firm’s contribution to the guarantee fund. Alternatively, these obligations may be a full pro-rata share of the residual losses after applying the guarantee fund. It is difficult to estimate the Firm’s maximum possible exposure under these membership agreements, since this would require an assessment of future claims that may be made against the Firm that have not yet occurred. However, based on historical experience, management expects the risk of loss to be remote.

Guarantees of subsidiaries

In the normal course of business, JPMorgan Chase & Co. (“Parent Company”) may provide counterparties with guarantees of certain of the trading and other obligations of its subsidiaries on a contract-by-contract basis, as negotiated with the Firm’s counterparties. The obligations of the subsidiaries are included on the Firm’s Consolidated Balance Sheets, or are reflected as off-balance sheet commitments; therefore, the Parent Company has not recognized a separate liability for these guarantees. The Firm believes that the occurrence of any event that would trigger payments by the Parent Company under these guarantees is remote.

The Parent Company has guaranteed certain debt of its subsidiaries, including both long-term debt and structured notes sold as part of the Firm’s market-making activities. These guarantees are not included in the table on page 319 of this Note. For additional information, see Note 21 on pages 306–308 of this Annual Report.