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. For further discussion of lending-related commitments and guarantees, and the Firm’s related accounting policies, see Note 29 of JPMorgan Chase’s 2014 Annual Report.

To provide for probable credit losses inherent in wholesale and certain consumer lending-related commitments, an allowance for credit losses on lending-related commitments is maintained. See Note 14 for further information 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 September 30, 2015, and December 31, 2014. 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 as permitted by law, without notice. In addition, the Firm typically closes credit card lines when the borrower is 60 days or more past due. 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.



Off–balance sheet lending-related financial instruments, guarantees and other commitments
	Contractual amount												Carrying value^(j)
	September 30, 2015										Dec 31, 2014		Sep 30, 2015			Dec 31, 2014
By remaining maturity (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	$	1,632	$	4,082	$	835	$	4,312	$	10,861	$	11,807	$	—		$	—
Home equity – junior lien	2,604		4,782		793		4,208		12,387		14,859		—			—
Prime mortgage^(a)	13,959		—		—		—		13,959		8,579		—			—
Auto	8,380		1,416		165		25		9,986		10,462		2			2
Business banking	10,998		781		90		489		12,358		11,894		12			11
Student and other	8		4		—		442		454		552		—			—
Total consumer, excluding credit card	37,581		11,065		1,883		9,476		60,005		58,153		14			13
Credit card	526,433		—		—		—		526,433		525,963		—			—
Total consumer^(b)	564,014		11,065		1,883		9,476		586,438		584,116		14			13
Wholesale:
Other unfunded commitments to extend credit^(c)(d)	70,201		77,449		110,713		6,710		265,073		272,676		386			374
Standby letters of credit and other financial guarantees^(c)(d)(e)	23,666		26,670		33,421		1,511		85,268		89,874		774			788
Other letters of credit^(c)	3,362		586		59		—		4,007		4,331		1			1
Total wholesale^(f)(g)	97,229		104,705		144,193		8,221		354,348		366,881		1,161			1,163
Total lending-related	$	661,243	$	115,770	$	146,076	$	17,697	$	940,786	$	950,997	$	1,175		$	1,176
Other guarantees and commitments
Securities lending indemnification agreements and guarantees^(h)	$	184,227	$	—	$	—	$	—	$	184,227	$	171,059	$	—		$	—
Derivatives qualifying as guarantees	1,421		441		11,337		38,990		52,189		53,589		258			80
Unsettled reverse repurchase and securities borrowing agreements	56,525		—		—		—		56,525		40,993		—			—
Loan sale and securitization-related indemnifications:
Mortgage repurchase liability	NA		NA		NA		NA		NA		NA		184			275
Loans sold with recourse	NA		NA		NA		NA		4,685		6,063		89			102
Other guarantees and commitments⁽ⁱ⁾	1,429		1,556		2,206		1,619		6,810		5,720		(101		)	(121		)


(a)	Includes certain commitments to purchase loans from correspondents.


(b)	Predominantly all consumer lending-related commitments are in the U.S.

(c)

At September 30, 2015, and December 31, 2014, reflects the contractual amount net of risk participations totaling $321 million and $243 million, respectively, for other unfunded commitments to extend credit; $11.7 billion and $13.0 billion, respectively, for standby letters of credit and other financial guarantees; and $409 million and $469 million, respectively, for other letters of credit. In regulatory filings with the Federal Reserve these commitments are shown gross of risk participations.

(d)

At September 30, 2015, and December 31, 2014, included credit enhancements and bond and commercial paper liquidity commitments to U.S. states and municipalities, hospitals and other non-profit entities of $13.0 billion and $14.8 billion, respectively, within other unfunded commitments to extend credit; and $10.0 billion and $13.3 billion, respectively, within standby letters of credit and other financial guarantees. Other unfunded commitments to extend credit also include liquidity facilities to nonconsolidated municipal bond VIEs; for further information, see Note 15.


(e)	At September 30, 2015, and December 31, 2014, included commitments that could be utilized for standby letters of credit commitments of $45.1 billion and $45.6 billion, respectively.


(f)	At September 30, 2015, and December 31, 2014, the U.S. portion of the contractual amount of total wholesale lending-related commitments was 77% and 73%, respectively.

(g)

Effective January 1, 2015, the Firm no longer includes within its disclosure of wholesale lending-related commitments the unused amount of advised uncommitted lines of credit as it is within the Firm’s discretion whether or not to make a loan under these lines, and the Firm’s approval is generally required prior to funding. Prior period amounts have been revised to conform with the current period presentation.

(h)

At September 30, 2015, and December 31, 2014, collateral held by the Firm in support of securities lending indemnification agreements was $190.3 billion and $177.1 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.

(i)

At September 30, 2015, and December 31, 2014, included unfunded commitments of $57 million and $147 million, respectively, to third-party private equity funds; and $1.4 billion and $961 million, at September 30, 2015, and December 31, 2014, respectively, to other equity investments. These commitments included $53 million and $150 million, respectively, related to investments that are generally fair valued at net asset value as discussed in Note 3. In addition, at September 30, 2015, and December 31, 2014, included letters of credit hedged by derivative transactions and managed on a market risk basis of $4.6 billion and $4.5 billion, respectively.


(j)	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 finance activities, which were $30.3 billion and $23.4 billion at September 30, 2015, and December 31, 2014, respectively.

The Firm acts as a settlement and custody bank in the U.S. tri-party repurchase transaction market. In its role as settlement and custody bank, the Firm is exposed to the intra-day credit risk of its cash borrower clients, usually broker-dealers. This exposure arises under secured clearance advance facilities that the Firm extends to its clients (i.e. cash borrowers); these facilities contractually limit the Firm’s intra-day credit risk to the facility amount

and must be repaid by the end of the day. As of September 30, 2015, and December 31, 2014, the secured clearance advance facility maximum outstanding commitment amount was $10.9 billion and $12.6 billion, respectively.

Guarantees

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. For a further discussion of the off–balance sheet lending-related arrangements the Firm considers to be guarantees, and the related accounting policies, see Note 29 of JPMorgan Chase’s 2014 Annual Report. The recorded amounts of the liabilities related to guarantees and indemnifications at September 30, 2015, and December 31, 2014, 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 $775 million and $789 million at September 30, 2015, and December 31, 2014, respectively, which were classified in accounts payable and other liabilities on the Consolidated balance sheets; these carrying values included $335 million and $235 million, respectively, for the allowance for lending-related commitments, and $440 million and $554 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 September 30, 2015, and December 31, 2014.

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



	September 30, 2015					December 31, 2014
(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)		$	60,841	$	3,362		$	66,856	$	3,476
Noninvestment-grade^(a)		24,427		645			23,018		855
Total contractual amount		$	85,268	$	4,007		$	89,874	$	4,331
Allowance for lending-related commitments		$	334	$	1		$	234	$	1
Commitments with collateral		36,148		1,126			39,726		1,509


(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.

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. For further information on these derivatives, see Note 29 of JPMorgan Chase’s 2014 Annual Report. The total notional value of the derivatives that the Firm deems to be guarantees was $52.2 billion and $53.6 billion at September 30, 2015, and December 31, 2014, 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 $28.2 billion and $27.5 billion at September 30, 2015, and December 31, 2014, respectively, and the maximum exposure to loss was $3.0 billion and $2.9 billion at September 30, 2015, and December 31, 2014. 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 $279 million and $102 million and derivative receivables of $21 million and $22 million at September 30, 2015, and December 31, 2014, 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 5.

Loan sales- and securitization-related indemnifications

Mortgage repurchase liability

In connection with the Firm’s mortgage loan sale and securitization activities with the GSEs, as described in Note 15 of this Form 10-Q, and Note 16 of JPMorgan Chase’s 2014 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). 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.

For additional information, see Note 29 of JPMorgan Chase’s 2014 Annual Report.

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



Summary of changes in mortgage repurchase liability
	Three months ended September 30,						Nine months ended September 30,
(in millions)	2015			2014			2015			2014
Repurchase liability at beginning of period	$	231		$	436		$	275		$	681
Net realized gains/(losses)^(a)	1			17			18			36
(Benefit)/provision for repurchase^(b)	(48		)	(62		)	(109		)	(326		)
Repurchase liability at end of period	$	184		$	391		$	184		$	391

(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 $2 million and $5 million for the three months ended September 30, 2015 and 2014, respectively, and $6 million and $8 million for the nine months ended September 30, 2015 and 2014, respectively.


(b)	Included a provision related to new loan sales of $1 million for each of the three months ended September 30, 2015 and 2014, and $3 million for each of the nine months ended September 30, 2015 and 2014.

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.

For additional information regarding litigation, see Note 23 of this Form 10-Q and Note 31 of JPMorgan Chase’s 2014 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 September 30, 2015, and December 31, 2014, the unpaid principal balance of loans sold with recourse totaled $4.7 billion and $6.1 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 $89 million and $102 million at September 30, 2015, and December 31, 2014, respectively.