IndexIntroductionBusiness SegmentsRisk ManagementRegulatoryIntroduction As 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 City and operating primarily in the United States, JPMorgan Chase also serves some of the world's largest corporate, institutional and government clients. Throughout its history, JPMorgan Chase and its predecessors have been serial acquirers, merging with rival 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 by total assets . JPMorgan Chase was founded as a result of the combination of several large US banking companies in 1996 and earlier, 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 banking model, resulting in a comprehensive portfolio of banking products and services available to a variety of customers. Looking at JPMorgan Chase, we see four major business segments of the company operating and offering a wide variety of financial services to a full range of customers around the world. As a large multinational bank, JPMorgan Chase faces different types of risks. We examine not only how these risks are measured, but also how JPMorgan Chase typically protects itself against them. Given the history of fraudulent cases and illegal acts 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 tailor-made essay on "Why Violent Video Games Shouldn't Be Banned"? Get an Original Essay Business Segments At scale, JPMorgan Chase has four operating segments: Consumer and Community Banking, Corporate and Investment Banking, Commercial Banking, and Wealth Management. The largest of the four, contributing 46% of the company's total revenue, is consumer and community banking, while corporate and investment banking comes in second place with 34% of revenue. Asset management and commercial banks contribute 12% and 7% respectively (King, 2015). In 2012, JPMorgan Chase Chase took a substantial step forward by combining Chase's three major retail businesses: consumer and business banking, mortgage banking and cards, merchant services and auto financing into a single franchise: consumer and community banking. This branch serves consumers and businesses through personal services such as ATM, 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. Under credit card services, credit cards are issued to consumers and small businesses to provide payment services to the corporate and public sectors. This subsection also offers auto and student loan services to customers. Finally, mortgage banking includes mortgage orientation and portfolios consisting of residential mortgages and home equity loans (2014 Annual Report). Another key segment of JPMorgan Chase is corporate and investment banking. Here the company is committed to providing strategic advice and solutions, including capital raising, risk management and underwriting. This segment is split into twomain components: banking services and markets and investor services. The former offers a full range of investment banking products, including raising capital in the stock and bond markets, as well as lending. This service also includes treasury services, which include transaction services regarding cash management and liquidity solutions. On the other hand, the Markets and Investor Services segment is a global market maker that offers myriad risk management solutions and also includes the securities services business that oversees lending products sold to investment funds and insurance companies (annual report 2014). When it comes to commercial banking services, the company aims to provide extensive industry knowledge, local expertise and dedicated service to both US and international clients. Overall, the company provides comprehensive financial solutions covering lending, investment banking and wealth management (Annual Report 2014). This segment is further broken down into four primary customer segments: Middle Market Banking (covering corporate, municipal, and nonprofit customers, with annual revenues typically ranging from $20 million to $500 million), Corporate Customer Banking (covering covers clients with annual revenues typically ranging from $500 million to $2 billion and focuses on clients who have broader investment banking needs), commercial term loans (providing term financing to real estate investors), and real estate banking services (which provide comprehensive banking services to investors and developers). This segment aims to further differentiate the company's service and capabilities to continue improving in the future, increasing the customer base and building deeper relationships with customers (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 Appendix Chart 1). While clients are diverse, the majority of wealth management client assets are in actively managed portfolios (2014 Annual Report). There are two distinct service lines within asset management: Global Investment Management, which provides global-scale investment services such as active risk budgeting strategies. The second is global wealth management which focuses on investment advisory and management as well as specialized wealth advisory services. JP Morgan Chase prides itself on the unique combination of the two (see Appendix Chart 2). Furthermore, customer segments within wealth management can be divided into private banking, including high net worth and ultra-high net worth individuals, institutional, including corporate and public institutions, and finally retail customers composed of financial intermediaries and individual investors. These business segments have a global footprint comparable in scale to JPMorgan Chase's largest institutional clients and in the geographic diversity of their smaller retail clients. The company operates in more than 60 countries with a primary focus in North America. However, given JPMorgan Chase's size, the scope of operations in each smaller foreign market remains large. In 2014, JPMorgan Chase reported revenues of more than $34 billion, 50% of which was earned from consumers and clients outside the United States. Of this $17 billion in international revenue, 66% comes from the EMEA (Europe, Middle East and Africa) region, which represents a market whereJPMorgan Chase's business is mature and well-known. 27% were generated from the Asian region and the final 7% from the Latin America region, a place where management believes its ability to grow and develop the JPMorgan Chase brand may be the greatest (2014 Annual Report ). The majority of revenue from international markets is generated through JPMorgan Chase's corporate banking, investment banking and asset management business segments. Risk Management JP 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 were $2,573,126 (see Appendix Chart 4). These assets included cash and bank fees and deposits with banks, federal funds sold, and securities purchased under resale agreements. Cash items on a bank's balance sheet generally consist of reserves, cash in the process of being collected, and deposits at other banks (Mishkin 402). Also included are trading activities, which were driven by clients' market making activities in corporate banking and investment banking. Furthermore, securities accounted for a large chunk amounting to $348,004, and these are generally made up of debt instruments because banks are not allowed to hold shares (Mishkin 402). Other assets that played a role in JPMorgan Chase's account statements were loans and the credit loss allowance. These reflect likely credit losses occurring across consumer and wholesale loan portfolios. These losses are estimated using statistical analyses. Furthermore, the interest accrued on the loans was the direct result of market making activities and sales of securities. Additionally, other assets are listed that may be the result of physical capital and private equity investments due to sales (Annual Report 2014). Liabilities can also be further broken down (see Appendix Chart 3). Deposits made up the majority of liabilities at $1,363,427 and are made up of consumer and wholesale deposits driven by customer activity and growth. Another large liability on JPMorgan's balance sheet is purchased federal funds and securities lent or sold under repurchase agreements. This liability is attributable to the company's increased financing of debt and equity trading. Commercial paper is also a liability for the institution. The increase in commercial paper issuance can be attributed to short-term financing plans that consist primarily of securities lent or sold through repurchase transactions. Another liability, accounts payable, can increase due to both customer short positions and stock purchases that go unpaid, and the final component is long-term debt. This debt is the result of long-term financing, most of which is issued by the parent company to provide flexibility and additional liquidity to the company. Long-term financing objectives include maximizing market access and optimizing financing costs (annual report 2014). JPMorgan Chase, like most major banks and financial institutions, faces eight major types of risk. These risks are credit risk, market risk, operational risk, liquidity risk, reputational risk, business risk, systemic risk and moral hazard risk. The first three risks are the most important, but the next three are also important. The latter two are generally unrelated toJPMorgan Chase's day-to-day operations, but they still deserve consideration, as they can still affect profits. 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 counterparty, will fail to meet its payment obligations in accordance with the terms agreed to with the bank ." (Market Realist, 2014) This type of risk is measured through credit scoring, credit analysis, stress testing (annual report 2014) and through the use of credit ratings through rating services companies such as Standard and Poor's through grades in letters AAA to D Regarding market risk, the Market Realist website states that "The Basel Committee on Banking Supervision defines market risk as the risk of losses in on- or off-balance sheet positions resulting from the movement of market prices". Since JPMorgan Chase is heavily involved in investment banking, this is of particular concern to them. 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, zoom, etc. Operational risk includes any risk of loss due to some failure of internal processes, which may involve legal risks. Management, IT and process risks are also among the forms of operational risk. In measuring operational risks, JPMorgan Chase uses statistical measurements, scenario-based approaches and scorecard approaches, in addition to “value at risk” (VaR). Liquidity risk of any institution refers to the risk of not having enough liquidity on hand to meet its daily obligations and expenses. This type of risk can sometimes lead to a bank run. Measuring liquidity risk (particularly financing liquidity risk) involves normalizing bank offers and building an aggregate proxy of financing liquidity risk by summing the adjusted offers from all banks. Reputational risk is any risk to the bank's image in the eyes of consumers resulting from any action taken by the bank. This can lead to a loss of public confidence in the bank. JPMorgan's reputational 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 affect public perception, as well as through market investigations. A bank's business risk refers to the risks borne by the bank's long-term strategies or trade-offs the bank must make to remain competitive. This mainly concerns a bank choosing the wrong strategy. Measurements that a bank can use to gauge 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 could be negatively disrupted. It is the risk that the entire industry and market are facing. 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 persons), or organization is likely to have a tendency or willingness to take a high-level risk , even if it is economically unstable. Thereasoning is that the person, group or organization knows that the costs of such risk taking, if they materialise, will not be borne by the person, group or organization taking the risk”. Price elasticity 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 from each of these risk factors are listed below in their respective order: Credit risk: creating provisions when disbursing the loan and acquiring a business, raise capital immediately in ordinary shares 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 segments and senior management (2014 Annual Report). Operational risk: implementation of management and system controls and monitoring of key risk indicators (KRIs). JPMorgan Chase has a company-wide review committee (FCC) that reviews and discusses operational risk and company-wide risk metrics (2014 Annual Report). Liquidity Risk: JPMorgan has a Liquidity Risk Oversight Group that provides independent assessments, measurements and controls of liquidity risk. They can also borrow from the Central Bank Reputational risk: bank advertising, branding, regulatory compliance and transparency. Business risk: avoid rapid growth strategies, maintain management skills, hire consultants. Specifically, JPMorgan has a number of corporate risk committees that address this (2014 Annual Report). Systemic risk: maintaining capital and liquidity, establishing more resilient market structures and maintaining supervisory practices. They are also performing ongoing analyzes on this type of risk. Moral Hazard Risk: Offering incentives, implementing policies to prevent unethical behavior, and regularly monitoring. Regulation JPMorgan Chase is a financial holding company. Therefore, there are other companies operating under JPMorgan Chase. The principal 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 Chart 5 in the Appendix for organizational framework) Because each grant does a different job, there are different regulations regarding JPMorgan Chase subsidiaries. The company is regulated for its commercial banking activities, investment banking activities and investment management activities. For commercial banking there are three main regulators who 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 an umbrella regulator, meaning it has authority over the entire company. This right was granted to the Federal Reserve System by the Dodd-Frank Act, passed by the US Congress in 2010, to increase 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 from money laundering and other crimes related to.