Regulatory Capital

3 Months Ended

Mar. 31, 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 March 31, 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 March 31, 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, in the first quarter of 2013, of rules that provide for additional capital requirements for trading positions and securitizations (“Basel 2.5”). Implementation of Basel 2.5 resulted in an increase to the Firm’s RWA of approximately $150 billion, resulting in a decrease to the Firm’s Tier 1 capital and Total capital ratios of 140 basis points and 160 basis points, respectively and an increase to JPMorgan Chase Bank, N.A.’s RWA of approximately $140 billion, resulting in a decrease to JPMorgan Chase Bank, N.A.’s Tier 1 capital and Total capital ratios of 130 basis points and 150 basis points, respectively. 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)	March 31, 2013			December 31, 2012			March 31, 2013			December 31, 2012			March 31, 2013			December 31, 2012
Regulatory capital
Tier 1(a)	$	163,807		$	160,002		$	116,268		$	111,827		$	10,426		$	9,648
Total	198,926			194,036			152,611			146,870			13,842			13,131
Assets
Risk-weighted(b)	$	1,406,948		$	1,270,378		$	1,212,582		$	1,094,155		$	98,613		$	103,593
Adjusted average(c)	2,255,697			2,243,242			1,836,492			1,815,816			104,019			103,688
Capital ratios
Tier 1(a)	11.6		%	12.6		%	9.6		%	10.2		%	10.6		%	9.3		%	6.0	%		4.0	%
Total	14.1			15.3			12.6			13.4			14.0			12.7			10.0			8.0
Tier 1 leverage	7.3			7.1			6.3			6.2			10.0			9.3			5.0		(f)	3.0		(g)

(a) At March 31, 2013, trust preferred capital debt securities included in Tier 1 capital were $10.2 billion and $600 million, for JPMorgan Chase and JPMorgan Chase Bank, N.A., respectively. If these securities were excluded from the calculation at March 31, 2013, Tier 1 capital would be $153.6 billion and $115.7 billion, respectively, and the Tier 1 capital ratio would be 10.9% and 9.5%, respectively. At March 31, 2013, Chase Bank USA, N.A. had no trust preferred securities.

(b) Included off–balance sheet RWA at March 31, 2013, of $310.7 billion, $300.3 billion and $15 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 $267 million and $291 million at March 31, 2013, and December 31, 2012, respectively; and deferred tax liabilities resulting from tax-deductible goodwill of $2.6 billion and $2.5 billion at March 31, 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)	March 31, 2013			December 31, 2012
Tier 1 capital
Total stockholders’ equity	$	207,086		$	204,069
Effect of certain items in AOCI excluded from Tier 1 capital	(3,600		)	(4,198		)
Qualifying hybrid securities and noncontrolling interests(a)	10,607			10,608
Less: Goodwill(b)	45,482			45,663
Other intangible assets(b)	2,233			2,311
Fair value DVA on structured notes and derivative liabilities related to the Firm’s credit quality	1,653			1,577
Investments in certain subsidiaries	918			926
Total Tier 1 capital	163,807			160,002
Tier 2 capital
Long-term debt and other instruments qualifying as Tier 2	17,433			18,061
Qualifying allowance for credit losses	17,698			15,995
Other	(12		)	(22		)
Total Tier 2 capital	35,119			34,034
Total qualifying capital	$	198,926		$	194,036

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

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