Table of ContentsIntroductionBusiness SegmentsRisk ManagementRegulationIntroductionAs one of the world's oldest and largest financial institutions, JPMorgan Chase & Co. (JPM) serves millions of consumers around the world. Headquartered in New York and operating primarily in the United States, JPMorgan Chase also serves some of the world's most significant corporate, institutional and government clients. Throughout its history, JPMorgan Chase and its predecessors have been serial acquirers, merging with peers and competing firms to achieve the global scale of what is now the largest bank in the United States and the sixth largest bank in the world in terms of total assets. JPMorgan Chase was formed as a result of the consolidation of several major U.S. banking companies in 1996 and before, including Chase Manhattan Bank, JP Morgan & Co., Bank One, Bear Stearns and Washington Mutual. The company and name JPMorgan Chase were formalized in 2000 (JPMorgan Chase). JPMorgan Chase integrated these acquisitions into its integrated universal bank model, resulting in a comprehensive portfolio of banking products and services available to a variety of customers. When we look at JPMorgan Chase, we see four main business segments of the company that operate and offer a wide variety of financial services to a full range of clients around the world. As a large multinational bank, JPMorgan Chase faces different types of risks. We look not only at how these risks are measured, but also at how JPMorgan Chase generally protects itself from them. Given the history of fraudulent cases and illegal acts committed by similar companies, we will also examine a number of institutions, both foreign and domestic, that supervise and regulate JPMorgan Chase and its subsidiaries (JPMorgan Chase).Say no to plagiarism. Get a Custom Essay on “Why Violent Video Games Should Not Be Banned”?Get the original essayBusiness SegmentsLargely, JPMorgan Chase has four operating segments: consumer and community banking, corporate and investment banking, banking commercial and asset management. . The largest of the four, contributing 46% to the company's total revenue, is personal and community banking, followed by corporate and investment banking which comes in second with 34%. income. Asset management and commercial banking contribute 12% and 7%, respectively (King, 2015). In 2012, JPMorgan Chase Chase took a substantial step forward by consolidating Chase's three core retail businesses: personal and business banking, mortgage and cards, merchant services, and auto financing. in a single franchise: banking services to individuals and communities. This branch serves consumers and businesses with personalized services such as ATMs, online, mobile and telephone banking. Consumer and business banking provides deposit and investment products and services to consumers and small businesses are offered loans, deposits and cash management. Within credit card services, credit cards are issued to consumers and small businesses to provide payment services to businesses and the public sector. This subsection also offers its customers automobile and student loan services. Finally, banking servicesmortgages include a mortgage focus and portfolios comprised of residential mortgages and home equity loans (2014 Annual Report). Another key segment of JPMorgan Chase is its corporate and investment banking business. Here, the firm strives to provide strategic advice and solutions, including capital raising, risk management and underwriting. This segment is divided into two main components: banking and markets services and investor services. The former offers a full range of investment banking products, including capital raising in equity and debt markets as well as loan origination. This service also includes treasury services, which are composed of transaction services dealing with treasury and liquidity management solutions. On the other hand, the Markets and Investor Services segment is a global market maker offering a myriad of risk management solutions and also includes the securities services business that oversees lending products sold to investment funds. investment and insurance companies (Annual Report 2014). In commercial banking, the company aims to provide in-depth industry knowledge, local expertise and dedicated service to U.S. and international clients. Overall, the company offers comprehensive financial solutions that deal with lending, investment banking and asset management (Annual Report 2014). This segment is divided into four main customer segments: Mid-market banking (covering corporate, municipal and non-profit customers, with annual revenue typically between $20 million and $500 million dollars), corporate banking (covering clients with annual revenues typically ranging from $500 million to $2 billion and focusing on clients with broader investment banking needs), commercial term loans (providing term financing to real estate investors) and real estate banking (providing comprehensive banking service to investors and developers). This segment aims to further differentiate the company's service and capabilities to continue improving in the future by increasing the customer base and building deeper customer relationships (Annual Report 2014). The asset management division offers investment management across all major asset classes, including equities, fixed income, multi-asset solutions and alternative investments (see Figure 1 in the appendix). Although there is a wide variety of clients, the majority of asset management clients' assets are in actively managed portfolios (Annual Report 2014). There are two distinct service lines within Asset Management: Global Investment Management, which provides investment services on a global scale, such as active risk budgeting strategies. The second is global wealth management which focuses on investment advisory and investment management as well as specialized wealth advisory services. JP Morgan Chase prides itself on the unique combination of the two (see graph 2 in the appendix). Furthermore, client segments within asset management can be broken down into private banking, comprising high net worth and ultra-high net worth individuals, institutional clients, including corporates and public institutions, and finally retail clientele which is made up of financial intermediaries and individual investors. The segments have a comparable global footprint in termsof scale to JPMorgan Chase's largest institutional clients and the geographic diversity of their smaller retail clients. The company operates in more than 60 countries, with a primary focus on North America. However, given JPMorgan Chase's size, the scale of operations in each smaller foreign market remains significant. In 2014, JPMorgan Chase reported more than $34 billion in revenue, 50% of which was acquired from consumers and clients outside the United States. Of this $17 billion in international revenue, 66% came from the EMEA (Europe, Middle East and Africa) region, representing a market where JPMorgan Chase's business is mature and well-known. 27% came from the Asian region and the remaining 7% came from the Latin American region, a place where management believes its ability to grow and expand the JPMorgan Chase brand is perhaps greatest (Annual Report 2014) . Most revenue from international markets is generated by JPMorgan Chase's corporate and investment banking and asset management business segments. Risk ManagementJP Morgan's total assets and total liabilities both increased from December 31, 2013 by $157.4 billion and $136.6 billion, respectively. Assets for the period ending December 2014 totaled $2,573,126 (see graph 4 in the appendix). These assets included cash and bank charges and deposits with banks, federal funds sold, and securities purchased under resale agreements. Cash items on a bank's balance sheet typically consist of reserves, cash in collection, and deposits with other banks (Mishkin 402). The assets are also included in trading assets, which were driven by clients' market making activities in the areas of corporate and investment banking. Additionally, securities made up a large portion, $348,004, and these are usually made up of debt instruments because banks are not allowed to hold stocks (Mishkin 402). Other assets that played a role in JPMorgan Chase's bank statements were loans and loan loss allowance. These losses reflect probable credit losses occurring in the consumer and wholesale loan portfolios. These losses are estimated using statistical analyses. Additionally, interest accrued on accounts receivable was a direct result of market making activities and sales of securities. Additionally, other assets listed may be the result of physical capital as well as private equity investments due to sales (Annual Report 2014). Liabilities can also be broken down further (see graph 3 in the appendix). Deposits made up the majority of liabilities at $1,363,427 and are comprised of retail and wholesale deposits driven by customer activity and growth. Another significant liability on JPMorgan's balance sheet relates to federal funds purchased and securities loaned or sold under repurchase agreements. This liability is attributable to higher funding of the company's debt and equity trading activities. Commercial paper also constitutes a liability for the institution. The increase in commercial paper issuance can be attributed to short-term financing plans that consist primarily of securities loaned or sold under repurchase agreements. Another liability, accounts payable, can increase due to both customer short positions and purchases of securities that have not been settled, the latter item being long-term debt. This debt is the result of financing atlong term, the majority of which is issued by the parent holding company to provide additional flexibility and liquidity to the company. Long-term financing objectives include maximizing market access and optimizing financing costs (Annual Report 2014). JPMorgan Chase, like most large banks and financial institutions, faces eight main types of risks. These risks are credit risk, market risk, operational risk, liquidity risk, reputation risk, commercial risk, systemic risk and moral hazard risk. The first three risks are the most important, with the next three being equally important. The latter two are generally unrelated to JPMorgan Chase's day-to-day operations, but are nonetheless worth considering because they can still affect its financial results. According to the Market Realist website, “the Basel Committee on Banking Supervision (or BCBS) defines credit risk as the possibility that a bank borrower, or a counterparty, will fail to meet its payment obligations in accordance with the terms agreed with the bank. » (Market Realist, 2014) This type of risk is measured by credit rating, credit analysis, stress testing (Annual Report 2014) and by the use of credit ratings through credit rating companies. rating services such as Standard and Poor's via letter grades ranging from AAA to D. For market risk, the Market Realist website indicates that "The Basel Committee on Banking Supervision defines market risk as the risk of losses in on-balance sheet or off-balance sheet positions resulting from changes in market prices. » Given that JPMorgan Chase is heavily involved in investment banking, this is of particular concern to her. There are many ways to measure market risk, including gap analysis, duration analysis, scenario analysis, portfolio theory, and derivatives risk measures such as delta, gamma, vomma, zomma, etc. Operational risk includes any risk of loss due to failure. internal processes, which may include legal risk. Management, information technology, and process risks are also all forms of operational risks. To measure operational risks, JPMorgan Chase uses statistical measures, scenario-based approaches and dashboard approaches, in addition to Value at Risk (VaR). Liquidity risk of any institution refers to the risk of not having enough liquidity to meet its daily obligations and expenses. This type of risk can sometimes lead to a bank run. Measuring liquidity risk (particularly funding liquidity risk) involves standardizing banks' bids and constructing an overall approximation of funding liquidity risk by summing the adjusted bids of all banks. Reputational risk is any risk arising from the bank's image in the eyes of consumers and resulting from any action taken by the bank. This may lead to a loss of public confidence in the bank. JPMorgan's reputation risk can be measured by examining the reaction of a bank's stock price or sales of its products and services when the bank takes actions that negatively impact the public's perception of it, as well as through market research. A bank's business risk relates to the risks incurred by the bank's long-term strategies or the trade-offs it makes to remain competitive. This mainly concerns a bank choosing the wrong strategy. The measures that a bank canused to measure business risk include contribution margin ratio, operating leverage, financial leverage and total leverage. A bank's systemic risk refers to the likelihood that the entire financial sector will be negatively disrupted. This is the risk that the entire industry and market faces. Some of the metrics used to measure systemic risk include illiquidity and correlation, principal component analysis, regime switching models, and Granger causality tests. Referring again to the Market Realist site, a moral hazard risk “…refers to a situation in which a person, group (or people) or organization is likely to have a tendency or desire to take a high risk, even if it is not economically viable. The reasoning is that the person, group or organization knows that the costs of such risk taking, if it materializes, will not be borne by the person, group or organization taking the risk. Price elasticities of demand can be used (as an economic measure) to provide quantitative information on moral hazard risk. The main ways in which a bank can protect itself against each of these risk factors are listed below in respective order: Credit risk – Creating provisions at the time of loan disbursement and business acquisition, they immediately raise capital in common stock to protect the capital position (Annual Report 2014). Market risk – Asset allocation or diversification. In the case of JPMorgan Chase, limits are set based on market risk and are regularly updated and approved by business lines and senior management (2014 Annual Report). Operational risk: implementation of system and management controls and monitoring of key risk indicators (KRI). JPMorgan Chase has its Firmwide Control Committee (FCC) which reviews and discusses operational risks and company-wide risk metrics (Annual Report 2014). Liquidity Risk – JPMorgan has a Liquidity Risk Monitoring Group that provides independent assessments, measurement and monitoring of liquidity risk. They can also borrow from the central bank. Reputation risk: bank advertising, branding, regulatory compliance and transparency. Business risk: avoid rapid growth strategies, maintain managerial skills, hire consultants. Specifically, JPMorgan has a number of corporate risk committees that address this topic (2014 Annual Report). Systemic risk: maintaining capital and liquidity, instituting more resilient market structures and maintaining supervisory practices. They also carry out ongoing analyzes regarding this type of risk. Moral hazard risk: providing incentives, implementing policies to prevent immoral behavior and ensuring regular monitoring. Regulation JPMorgan Chase is a financial holding company. As such, there are other companies operating under JPMorgan Chase. The main banking subsidiaries of JPMorgan Chase are JPMorgan Chase Bank (NA- National Association) and Chase Bank USA (NA). The principal non-bank subsidiary is JP Morgan Securities LLC, which is the company's investment bank in the United States. The company also has an asset management unit. (see Figure 5 in the appendix for the organizational framework) As each grant carries out a different operation, there are different regulations regarding JPMorgan Chase subsidiaries. The company is regulated for its commercial banking activities, its securities activitiesinvestment banking and its investment management activities. For commercial banking activities, three main regulators oversee the company's activities. These regulators are the Federal Reserve Bank, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC). The Federal Reserve Bank is a general regulator, meaning it has authority over the entire business. This right was granted to the Federal Reserve by the Dodd-Frank Act, passed by the US Congress in 2010, to strengthen regulation of the financial sector after the financial crisis. The Office of the Comptroller of the Currency (OCC) is responsible for the soundness of the banking system. It also ensures equal access to financial services for all Americans. (OCC) Additionally, the Office of the Comptroller of the Currency is responsible for protecting the banking system against money laundering and other financial-related crimes. The Office of the Comptroller of the Currency is controlled by the Treasury of the United States Federal Deposit Insurance Corporation, which is also a government agency and is another regulator that provides insurance for bank accounts at member banks. Each depositor is protected up to $250,000 for each account ownership category of checking accounts, savings accounts, money market deposit accounts and certificates of deposit by the Federal Deposit Insurance Corporation. However, this insurance brings additional regulation to JPMorgan Chase. The company must report regularly to the Federal Deposit Insurance Corporation and meet certain requirements to maintain transparency. The investment bank is subject to regulation for its broker/dealer operations. The Securities and Exchange Commission regulates investment banking operations. The Securities and Exchange Commission regulates JPMorgan Chase's investment banking subsidiary with respect to licensing, accounting, compensation, reporting, filing, advertising, product offerings and fiduciary responsibilities (Securities and Exchange Commission). ). Additionally, certain activities related to futures and swaps are regulated by the Commodity Futures Trading Commission - CFTC. JPMorgan Chase's asset management activities are regulated by the Volcker Rule under the Dodd-Frank Act. Under the Volcker Rule, a firm may not engage in proprietary trading activities except for underwriting, market making, and risk mitigation purposes. The Company is also regulated for its derivatives transactions under the Dodd-Frank Act. The company's banking activities are regulated according to Basel III regulations. These regulations cover capital requirements and asset-liability management (Hummel 2015). Capital requirements consist of Tier 1 and Tier 2. Tier 1 refers to the bank's own funds (common stock and retained earnings) and, according to Basel III, the Tier 1 capital ratio ( Tier 1 capital to total risk-weighted assets). ) should be at least 6% (Bank of International). Tier 2 includes the bank's additional capital, including revaluation reserves, undisclosed reserves, hybrid instruments and subordinated term debt. Tier 2) The capital adequacy ratio (Tier 1 capital and Tier 2 capital to total risk-weighted assets) must be at least 8% (Bank For International). The capital conservation buffer (the additional capital the bank should hold relative to its risk-weighted assets) will come into effect..