JPM, §1A diff (2016 → 2017)

Item 1A. Risk Factors. The following discussion sets forth the material risk factors that could affect JPMorgan Chase’s financial condition and operations. Readers should not consider any descriptions of these factors to be a complete set of all potential risks that could affect the Firm. Regulatory JPMorgan Chase’s businesses are highly regulated, and the laws and regulations that apply to JPMorgan Chase have a significant impact on its operations. JPMorgan Chase is a financial services firm with operations worldwide. JPMorgan Chase must comply with the laws and regulations that apply to its operations in all of the jurisdictions around the world in which it does business. The regulation of financial services activities is typically extensive and comprehensive. In recent years, legislators and regulators adopted a wide range of new laws and regulations affecting the financial services industry, both within and outside the U.S. The supervision of financial services firms also expanded significantly during this period. The wave of increased regulation and supervision of JPMorgan Chase has affected the way that it conducts and structures its operations. Existing and new laws and regulations and expanded supervision could require JPMorgan Chase to make further changes to its operations. These changes could result in JPMorgan Chase incurring additional costs for complying with laws and regulations or losing a significant amount of revenue, and could reduce JPMorgan Chase’s profitability. More specifically, existing and new laws and regulations could require JPMorgan Chase to: • limit the products and services that it offers • reduce the liquidity that it can provide through its market-making activities • stop or discourage it from engaging in business opportunities that it might otherwise pursue • recognize losses in the value of assets that it holds • pay higher assessments, levies or other governmental charges • dispose of certain assets, and do so at times or prices that are disadvantageous • impose restrictions on certain business activities, or • increase the prices that it charges for products and services, which could reduce the demand for them. Differences in financial services regulation can be disadvantageous for JPMorgan Chase’s business. The content and application of laws and regulations affecting financial services firms sometimes vary according to factors such as the size of the firm, the jurisdiction in which it is organized or operates, or other criteria. For example: • larger firms are often subject to more stringent supervision and regulation • financial technology companies and other competitors may not be subject to banking regulation, or may be supervised by a national or state regulatory agency that does not have the same resources or regulatory priorities as the regulatory agencies which supervise more diversified financial services firms, or • the financial services regulatory framework in a particular jurisdiction may favor financial institutions that are based in that country. There can also be significant differences in the ways that similar regulatory initiatives affecting the financial services industry are implemented in the U.S. and in different countries and regions in which JPMorgan Chase does business. For example, legislative and regulatory initiatives within the EU could require JPMorgan Chase to make significant modifications to its operations and legal entity structure in that region in order to comply with those requirements. These include laws and regulations that have been adopted or proposed relating to: • the resolution of financial institutions • the establishment by non-EU financial institutions of intermediate holding companies in the EU • the separation of trading activities from core banking services • mandatory on-exchange trading • position limits and reporting rules for derivatives • governance and accountability regimes • conduct of business requirements, and • restrictions on compensation. These types of differences in financial services regulation, or inconsistencies or conflicts between laws and regulations between different jurisdictions, could require JPMorgan Chase to, among other things: • divest assets or restructure its operations • absorb increased operational, capital and liquidity costs • change the prices that it charges for its products and services • curtail the products and services that it offers to its customers and clients, or • incur higher costs for complying with different legal and regulatory frameworks. Any or all of these factors could harm JPMorgan Chase’s ability to compete against other firms that are not subject to the same laws and regulations or supervisory oversight, or harm JPMorgan Chase’s businesses, results of operations and profitability. Governments in some countries in which JPMorgan Chase does business have adopted laws or regulations which require that JPMorgan Chase subsidiaries which operate in those countries maintain minimum amounts of capital or liquidity on a stand-alone basis. Some regulators outside the U.S. have also proposed that large banks which conduct certain businesses in their jurisdictions operate through separate subsidiaries located in those countries. These requirements, and any future laws or regulations that impose restrictions on the way JPMorgan Chase organizes its businesses or increase the capital or liquidity requirements that would apply to JPMorgan Chase subsidiaries, could hinder JPMorgan Chase’s ability to efficiently manage its operations, increase its funding and liquidity costs, and result in lower profitability. Heightened regulatory scrutiny of JPMorgan Chase’s businesses has increased its compliance costs and could result in restrictions on its operations. JPMorgan Chase’s operations are subject to heightened oversight and scrutiny from regulatory authorities in many jurisdictions where JPMorgan Chase does business. JPMorgan Chase has paid significant fines or provided other monetary relief in connection with resolving several investigations and enforcement actions by governmental agencies. JPMorgan Chase could become subject to similar regulatory settlements or other actions in the future, and addressing the requirements of any such settlement could result in JPMorgan Chase incurring higher operational and compliance costs. In connection with resolving specific regulatory investigations or enforcement actions, certain regulators have required JPMorgan Chase and other financial institutions to admit wrongdoing with respect to the activities that gave rise to the settlement. These types of admissions can lead to: • greater exposure in civil litigation • damage to reputation • disqualification from doing business with certain clients or customers, or in specific jurisdictions, or Part I • other direct and indirect adverse effects. Furthermore, U.S. government officials have demonstrated a willingness to bring criminal actions against financial institutions and have increasingly demanded that institutions plead guilty to criminal offenses or admit other wrongdoing in connection with resolving regulatory investigations or enforcement actions. In the case of JPMorgan Chase, these resolutions have included: • JPMorgan Chase’s agreement in May 2015 to plead guilty to a single violation of federal antitrust law in connection with its settlements with certain government authorities relating to its foreign exchange sales and trading activities and controls related to those activities, and • the non-prosecution agreement entered into by a subsidiary of JPMorgan Chase with the U.S. Department of Justice in November 2016 in connection with settlements to resolve various governmental investigations relating to a former hiring program for candidates referred by clients, potential clients and government officials in the Asia Pacific region. Resolutions of this type can have significant collateral consequences for the subject financial institution, including loss of clients, customers and business, the inability to offer certain products or services, or losing permission to operate certain businesses, either temporarily or permanently. JPMorgan Chase expects that it and other financial services firms will continue to be subject to expanded regulatory scrutiny and governmental investigations and enforcement actions. JPMorgan Chase also expects that regulators will continue to insist that financial institutions be penalized for actual or deemed violations of law with formal and punitive enforcement actions, including the imposition of significant monetary and other sanctions, rather than resolving these matters through informal supervisory actions. Furthermore, if JPMorgan Chase fails to meet the requirements of any governmental settlements and other actions to which it is subject, or to maintain risk and control processes that meet the heightened standards established by its regulators, it could be required to, among other things: • enter into further orders and settlements • pay additional regulatory fines, penalties or judgments, or • accept material regulatory restrictions on, or changes in the management of, its businesses. The extent of JPMorgan Chase’s exposure to legal and regulatory matters can be unpredictable and could, in some cases, exceed the amount of reserves that JPMorgan Chase has established for those matters. Requirements for the orderly resolution of JPMorgan Chase could result in JPMorgan Chase having to restructure or reorganize its businesses. JPMorgan Chase is required under the Dodd-Frank Act and Federal Reserve and FDIC rules to prepare and submit periodically to those agencies a detailed plan for rapid and orderly resolution in bankruptcy without extraordinary government support, in the event of material financial distress or failure. The agencies’ evaluation of the Firm’s resolution plan may change, and the requirements for resolution plans may be modified from time to time. Any such determinations or modifications could result in JPMorgan Chase making changes to its legal entity structure or to certain internal or external activities that could increase funding or operational costs. If the Federal Reserve and the FDIC were to determine that a future resolution plan submitted by JPMorgan Chase has deficiencies, they could jointly impose more stringent capital, leverage or liquidity requirements or restrictions on JPMorgan Chase’s growth, activities or operations. After two years, if the deficiencies are not cured, the agencies could also require that JPMorgan Chase restructure, reorganize or divest assets or businesses in ways that could materially and adversely affect JPMorgan Chase’s operations and strategy. Holders of JPMorgan Chase & Co.’s debt and equity securities will absorb losses if it were to enter into a resolution. Federal Reserve rules require that JPMorgan Chase & Co. (the “holding company”) maintain minimum levels of unsecured external long-term debt and other loss-absorbing capacity with specific terms (“eligible LTD”) for purposes of recapitalizing JPMorgan Chase’s operating subsidiaries if the holding company were to enter into a resolution either: • in a bankruptcy proceeding under Chapter 11 of the U.S. Bankruptcy Code, or • in a receivership administered by the FDIC under Title II of the Dodd-Frank Act (“Title II”). If the holding company were to enter into a resolution, holders of eligible LTD and other debt and equity securities of the holding company will absorb the losses of the holding company and its affiliates. The preferred “single point of entry” strategy under JPMorgan Chase’s resolution plan contemplates that only the holding company would enter bankruptcy proceedings. JPMorgan Chase’s subsidiaries would be recapitalized as needed so that they could continue normal operations or subsequently be divested or wound down in an orderly manner. As a result, the holding company’s losses and any losses incurred by its subsidiaries would be imposed first on holders of the holding company’s equity securities and thereafter on its unsecured creditors, including holders of eligible LTD and other debt securities. Claims of holders of those securities would have a junior position to the claims of creditors of JPMorgan Chase’s subsidiaries and to the claims of priority (as determined by statute) and secured creditors of the holding company. Accordingly, in a resolution of the holding company in bankruptcy, holders of eligible LTD and other debt securities of the holding company would realize value only to the extent available to the holding company as a shareholder of JPMorgan Chase Bank, N.A. and its other subsidiaries, and only after any claims of priority and secured creditors of the holding company have been fully repaid. The FDIC has similarly indicated that a single point of entry recapitalization model could be a desirable strategy to resolve a systemically important financial institution, such as the holding company, under Title II. However, the FDIC has not, to date, formally adopted a single point of entry resolution strategy. If the holding company were to enter into a resolution, none of the holding company, the Federal Reserve or the FDIC is obligated to follow JPMorgan Chase’s preferred strategy, and losses to holders of eligible LTD and other debt and equity securities of the holding company, under whatever strategy is ultimately followed, could be greater. Political Political developments can cause uncertainty concerning the regulatory environment in which JPMorgan Chase operates its businesses. Recent elections and referendums in the U.S. and abroad have introduced uncertainty regarding the regulatory environment in which JPMorgan Chase and other financial services firms will operate in the future. For example, the U.K.’s planned departure from the EU has engendered significant uncertainty concerning the regulatory framework under which global financial services institutions, including JPMorgan Chase, will need to conduct their business in the U.K. and the EU. Depending on the nature of the arrangements agreed between the U.K. and the EU, including with respect to the ability of financial services companies to engage in business in the EU from legal entities organized in or operating from the U.K., JPMorgan Chase may need to make significant changes to its legal entity structure and operations and the locations in which it operates. These types of structural and operational changes could result in JPMorgan Chase needing to implement an operating model across its European legal entities that is less efficient or cost-effective. The result of an election may suggest that the new administration will ease the regulatory requirements that apply to financial services firms. However, it is equally possible that the potential for reduced regulation does not occur or is reversed by another regulator or by a subsequent administration, or that deregulation measures that are ultimately enacted deliver significant competitive advantages to financial services firms that are structured differently or serve different markets than JPMorgan Chase. JPMorgan Chase cannot predict political developments of this nature, or whether they will have favorable or unfavorable long-term effects on its businesses. Economic uncertainty caused by political developments can hurt JPMorgan Chase’s businesses. The economic environment and market conditions in which JPMorgan Chase operates continue to be uncertain due to recent political developments in the U.S. and abroad. Certain policy proposals, including isolationist foreign policies, protectionist trade policies or the possible withdrawal or reduction of government support for GSEs, could cause a contraction in U.S. and global economic growth and higher volatility in the financial markets. These types of political developments could, among other things: • erode investor confidence in the U.S. economy and financial markets • heighten concerns about whether the U.S. government will be funded, and its outstanding debt serviced, at any particular time, and • undermine the status of the U.S. dollar as a safe haven currency. These factors could lead to greater market volatility, large-scale sales of U.S. government debt and other U.S. debt and equity securities, the widening of credit spreads and other market dislocations. Any of these potential outcomes could cause JPMorgan Chase to suffer losses in its investment securities portfolio, reduce its capital levels, hamper its ability to deliver products and services to its clients and customers, and weaken its results of operations. Political developments in other parts of the world have also led to uncertainty in global economic conditions, including: • concerns about the capabilities and intentions of the government of North Korea, and • regional hostilities, and political or social upheavals, in other parts of the world. JPMorgan Chase’s results of operations can be adversely affected by the uncertainty arising from significant political developments and any market volatility or disruption that results from that uncertainty. The positive impact of U.S. tax reform legislation on JPMorgan Chase may diminish over time. The long-term impact of the tax reform legislation recently enacted in the U.S. on JPMorgan Chase and the U.S. economy is not yet known. While the tax reform will have a positive impact on JPMorgan Chase’s net income, the competitive environment and other factors will influence the extent to which these benefits are retained by JPMorgan Chase over the longer term. In addition, the specific impact on JPMorgan Chase’s businesses, products and geographies may vary. Market JPMorgan Chase’s businesses are materially affected by economic and market conditions. JPMorgan Chase’s results of operations can be negatively affected by adverse changes in any of the following: • the liquidity in the U.S. and global financial markets • the level and volatility of market prices and rates, including those for debt and equity instruments, Part I currencies, commodities, interest rates and other market indices • investor, consumer and business sentiment • events that reduce confidence in the financial markets • inflation and unemployment • the availability and cost of capital and credit • the economic effects of natural disasters, severe weather conditions, health emergencies or pandemics, cyberattacks, outbreaks of hostilities, terrorism or other geopolitical instabilities • monetary and fiscal policies and actions taken by governmental authorities, including the Federal Reserve and other central banks, and • the health of the U.S. and global economies. JPMorgan Chase’s consumer businesses are particularly affected by U.S. domestic economic conditions, including: • U.S. interest rates • the rate of unemployment • housing prices • the level of consumer confidence • changes in consumer spending, and • the number of personal bankruptcies. Sustained low growth in the U.S. economy could diminish customer demand for the products and services offered by JPMorgan Chase’s consumer businesses. It could also increase the cost to provide those products and services. Adverse economic conditions could also lead to an increase in delinquencies in mortgage, credit card, auto and other loans and higher net charge-offs, which can reduce JPMorgan Chase’s earnings. These consequences could be significantly worse in certain geographies where high levels of unemployment have resulted from declining industrial or manufacturing activity. JPMorgan Chase’s earnings from its consumer businesses could also be adversely affected by changes in government policies that affect consumers, including those relating to medical insurance, immigration and employment status, as well as governmental policies aimed at the economy more broadly, such as infrastructure spending and global trade, which could result in, among other things, higher inflation or reductions in consumer disposable income. In JPMorgan Chase’s wholesale businesses, market and economic factors can affect the volume of transactions that JPMorgan Chase executes for its clients and, therefore, the revenue that JPMorgan Chase receives from those transactions. These factors can also influence the willingness of other financial institutions and investors to participate in capital markets transactions that JPMorgan Chase manages, such as loan syndications or securities underwritings. Furthermore, if a significant and sustained deterioration in market conditions were to occur, the profitability of JPMorgan Chase’s capital markets businesses could be reduced to the extent that those businesses: • earn less fee revenue due to lower transaction volumes, including when clients are unwilling or unable to refinance their outstanding debt obligations in unfavorable market conditions • dispose of portions of credit commitments, such as loan syndications or securities underwritings, at a loss, or • hold larger residual positions in credit commitments that cannot be sold at favorable prices. JPMorgan Chase’s investment securities portfolio and market-making positions can suffer losses due to adverse economic, market and political events and conditions. JPMorgan Chase generally maintains positions in various fixed income instruments in its investment securities portfolio, and positions in various fixed income, currency, commodity, credit and equity instruments as part of its market-making activities. Market-making positions are intended to facilitate demand from JPMorgan Chase’s clients for these instruments and to provide liquidity for clients. The value of the positions that JPMorgan Chase holds can be significantly affected by factors such as: • JPMorgan Chase’s ability to effectively hedge market and other risks on its positions • volatility in interest rates and debt, equity and commodities markets • changes in interest rates and credit spreads, and • the availability of liquidity in the capital markets. All of these are affected by global economic, market and political events and conditions, as well as regulatory restrictions on market-making activities. JPMorgan Chase’s investment securities portfolio and market-making businesses can also suffer losses due to unanticipated market events, including: • severe declines in asset values • unexpected credit events • unforeseen events or conditions that may cause previously uncorrelated factors to become correlated (and vice versa), or • other market risks that may not have been appropriately taken into account in the development, structuring or pricing of a financial instrument. If JPMorgan Chase experiences significant losses in its investment securities portfolio or from market-making activities, this could reduce JPMorgan Chase’s profitability and its capital levels, and thereby constrain the growth of its businesses. JPMorgan Chase’s asset and wealth management and custody businesses may earn lower fee revenue during adverse macroeconomic conditions. The fees that JPMorgan Chase earns from managing third-party assets or holding assets in custody for clients could be diminished by declining asset values or other adverse macroeconomic conditions. For example, higher interest rates or a downturn in financial markets could affect the valuations of the client assets that JPMorgan Chase manages or holds in custody, which, in turn, could affect JPMorgan Chase’s revenue from fees that are based on the amount of assets under management or custody. Similarly, adverse macroeconomic or market conditions could prompt outflows from JPMorgan Chase funds or accounts, or cause clients to invest in products that generate lower revenue. Substantial and unexpected withdrawals from a JPMorgan Chase fund can also hamper the investment performance of the fund, particularly if the outflows create the need for the fund to dispose of fund assets at disadvantageous times or prices, and could lead to further withdrawals based on the weaker investment performance. Changes in interest rates and credit spreads can adversely affect certain of JPMorgan Chase’s revenue and income streams. JPMorgan Chase can generally be expected to earn higher net interest income when interest rates are high or increasing. However, higher interest rates can also lead to: • fewer originations of commercial and residential loans • lower returns on JPMorgan Chase’s investment securities portfolio, and • the loss of deposits to the extent that JPMorgan Chase makes incorrect assumptions about depositor behavior. All of these outcomes could adversely affect JPMorgan Chase’s revenues and capital levels. Higher interest rates can also negatively affect the payment performance on loans within JPMorgan Chase’s consumer and wholesale loan portfolios that are linked to variable interest rates. If borrowers of variable rate loans are unable to afford higher interest payments, those borrowers may reduce or stop making payments, thereby causing JPMorgan Chase to incur losses and increased operational costs related to servicing a higher volume of delinquent loans. On the other hand, a low interest rate environment may cause JPMorgan Chase’s net interest margins to be compressed, which could reduce: • the amounts that JPMorgan Chase earns on its investment securities portfolio to the extent that it is unable to reinvest contemporaneously in higher-yielding instruments, and • the value of JPMorgan Chase’s mortgage servicing rights (“MSRs”) asset, thereby reducing its net interest income and other revenues. When credit spreads widen, it becomes more expensive for JPMorgan Chase to borrow. JPMorgan Chase’s credit spreads may widen or narrow not only in response to events and circumstances that are specific to JPMorgan Chase but also as a result of general economic and geopolitical events and conditions. Changes in JPMorgan Chase’s credit spreads will affect, positively or negatively, JPMorgan Chase’s earnings on certain liabilities, such as derivatives, that are recorded at fair value. High market volatility can impact JPMorgan Chase’s markets businesses. While JPMorgan Chase’s markets businesses may earn higher flow revenue during periods of elevated market volatility, sudden and significant volatility in the prices of securities, loans, derivatives and other instruments can: • curtail the trading markets for those instruments • make it difficult to sell or hedge those instruments • increase JPMorgan Chase’s funding costs, or • adversely affect JPMorgan Chase’s profitability, capital or liquidity. The Federal Reserve has observed that market volatility may be exacerbated by regulatory restrictions. It noted that market participants that are subject to the Volcker Rule are likely to decrease their market-making activities, and thereby constrain market liquidity, during periods of market stress. Furthermore, market participants that are not required to hold substantial amounts of capital may retreat more quickly from volatile markets, which could further reduce market liquidity. In a difficult or less liquid market environment, JPMorgan Chase’s risk management strategies may not be effective because other market participants may be attempting to use the same or similar strategies. In these circumstances, it may be difficult for JPMorgan Chase to reduce its risk positions due to the activity of other market participants or widespread market dislocations. Sustained volatility in the financial markets may also negatively affect consumer or investor confidence, which could lead to lower client activity and reduce JPMorgan Chase’s revenues. Credit JPMorgan Chase can be adversely affected by the financial condition of its clients, customers and counterparties. JPMorgan Chase routinely executes transactions with brokers and dealers, commercial and investment banks, mutual and hedge funds, investment managers and other types of financial institutions. Many of these transactions expose JPMorgan Chase to the credit risk of its clients and counterparties, and can involve JPMorgan Chase in disputes and litigation in the event that a client or counterparty defaults. JPMorgan Chase can also be subject to losses or liability where a financial institution that it has appointed to Part I provide custody services for assets of JPMorgan Chase’s clients becomes insolvent. Disputes may arise with counterparties to derivatives contracts with regard to the terms, the settlement procedures or the value of underlying collateral. The disposition of those disputes could cause JPMorgan Chase to incur unexpected transaction, operational and legal costs, or result in credit losses. These consequences can also impair JPMorgan Chase’s ability to effectively manage its credit risk exposure from its market activities. JPMorgan Chase’s markets businesses can be harmed by the insolvency of a significant market participant. The failure of a significant market participant, or concerns about the creditworthiness of such a firm, can have a cascading effect within the financial markets. JPMorgan Chase’s markets businesses could be significantly disrupted by such an event, particularly if it leads to other market participants incurring significant losses, experiencing liquidity issues or defaulting. JPMorgan Chase’s clearing services business is exposed to the risk of client or counterparty default. As part of its clearing services activities, JPMorgan Chase is a member of various central counterparty clearinghouses (“CCPs”). In the event that another member of such an organization defaults on its obligations to the CCP, JPMorgan Chase may be required to pay a portion of any losses incurred by the CCP as a result of that default. As a clearing member, JPMorgan Chase is also exposed to the risk of non-performance by its clients, which it seeks to mitigate by requiring clients to provide adequate collateral. JPMorgan Chase is exposed to intra-day credit risk of its clients in connection with providing cash management, clearing, custodial and other transaction services to those clients. If a client for which JPMorgan Chase provides these services becomes bankrupt or insolvent, JPMorgan Chase may incur losses, become involved in disputes and litigation with one or more CCPs, the client’s bankruptcy estate and other creditors, or be subject to regulatory investigations. All of the foregoing events can increase JPMorgan Chase’s operational and litigation costs, and JPMorgan Chase may suffer losses to the extent that any collateral that it has received is insufficient to cover those losses. JPMorgan Chase may suffer losses if the value of collateral declines in stressed market conditions. During periods of market stress or illiquidity, JPMorgan Chase’s credit risk may be further increased when JPMorgan Chase cannot realize the fair value of the collateral held by it or when collateral is liquidated at prices that are not sufficient to recover the full amount of the loan, derivative or other exposure due to it. Furthermore, disputes with counterparties concerning the valuation of collateral may increase in times of significant market stress, volatility or illiquidity, and JPMorgan Chase could suffer losses during these periods if it is unable to realize the fair value of collateral or to manage declines in the value of collateral. JPMorgan Chase could incur significant losses arising from concentrations of credit and market risk. JPMorgan Chase is exposed to greater credit and market risk to the extent that groupings of its clients or counterparties: • engage in similar businesses • do business in the same geographic region, or • have business profiles, models or strategies that could cause their ability to meet their obligations to be similarly affected by changes in economic conditions. For example, a significant deterioration in the credit quality of one of JPMorgan Chase’s borrowers or counterparties could lead to concerns about the creditworthiness of other borrowers or counterparties in similar, related or dependent industries. This type of interrelationship could exacerbate JPMorgan Chase’s credit and market risk exposure and potentially cause it to incur losses, including fair value losses in its trading businesses. Similarly, challenging economic conditions that affect a particular industry or geographic area could lead to concerns about the credit quality of JPMorgan Chase’s borrowers or counterparties not only in that particular industry or geography but in related or dependent industries, wherever located. These conditions could also heighten concerns about the ability of customers of JPMorgan Chase’s consumer businesses who live in those areas or work in those affected industries or related or dependent industries to meet their obligations to JPMorgan Chase. JPMorgan Chase regularly monitors various segments of its credit and market risk exposures to assess the potential risks of concentration or contagion, but its efforts to diversify or hedge its exposures against those risks may not be successful. JPMorgan Chase’s consumer businesses can also be harmed by an excessive, industry-wide expansion of consumer credit. For example, heightened competition among financial institutions for certain types of consumer loans, including credit card, mortgage, auto or other loans, could prompt significant reductions in the pricing of those loans and thereby decrease their profitability, or result in loans being extended to less-creditworthy borrowers. If large numbers of consumers subsequently default on their loans, whether due to weak credit profiles, an economic downturn or other factors, this could impair their ability to repay obligations owed to JPMorgan Chase and result in higher charge-offs and other credit-related losses. More broadly, widespread defaults on consumer debt could lead to recessionary conditions in the U.S. economy, and JPMorgan Chase’s consumer businesses may earn lower revenues in such an environment. Disruptions in the liquidity or transparency of the financial markets could cause JPMorgan Chase to be unable to sell, syndicate or realize the value of its positions in various debt instruments, loans, derivatives and other obligations, and thereby lead to increased risk concentrations. If JPMorgan Chase is unable to reduce positions effectively during a market dislocation, this can increase both the market and credit risks associated with those positions and the level of risk-weighted assets (“RWA”) that JPMorgan Chase holds on its balance sheet. These factors could increase JPMorgan Chase’s capital requirements and funding costs and adversely affect the profitability of JPMorgan Chase’s businesses. Liquidity Liquidity is critical to JPMorgan Chase’s ability to fund and operate its businesses. JPMorgan Chase’s liquidity could be impaired at any given time by factors such as: • market-wide illiquidity or disruption • unforeseen cash or capital requirements • inability to sell assets, or to sell assets at favorable times or prices • default by a CCP or other significant market participant • unanticipated outflows of cash or collateral, and • lack of market or customer confidence in JPMorgan Chase or financial institutions in general. A diminution of JPMorgan Chase’s liquidity may be caused by events over which it has little or no control. For example, during the 2008-2009 financial crisis, periods of low investor confidence and significant market illiquidity resulted in higher funding costs for JPMorgan Chase and limited its access to some of its traditional sources of liquidity, including securitized debt issuances. There is no assurance that severe conditions of this type will not occur in the future. JPMorgan Chase may need to raise funding from alternative sources if its access to stable and lower-cost sources of funding, such as bank deposits and borrowings from Federal Home Loan Banks, is reduced. Alternative sources of funding could be more expensive or limited in availability. JPMorgan Chase’s funding costs could also be negatively affected by actions that JPMorgan Chase may take in order to: • satisfy applicable liquidity coverage ratio and net stable funding ratio requirements • continue to satisfy requirements under the TLAC rules concerning the amount of eligible LTD that JPMorgan Chase must have outstanding • address obligations under its resolution plan, or • satisfy regulatory requirements in countries outside the U.S. relating to the pre-positioning of liquidity in subsidiaries that are material legal entities. More generally, if JPMorgan Chase fails to effectively manage its liquidity, this could constrain its ability to fund or invest in its businesses, and thereby adversely affect its results of operations. JPMorgan Chase & Co. is a holding company and depends on the cash flows of its subsidiaries to make payments on its outstanding securities. JPMorgan Chase & Co. is a holding company that holds the stock of JPMorgan Chase Bank, N.A. and an intermediate holding company, JPMorgan Chase Holdings LLC (the “IHC”). The IHC in turn holds the stock of substantially all of JPMorgan Chase’s subsidiaries other than JPMorgan Chase Bank, N.A. and its subsidiaries. The IHC also owns other assets and intercompany indebtedness owing to the holding company. The holding company is obligated to contribute to the IHC substantially all the net proceeds received from securities issuances (including issuances of senior and subordinated debt securities and of preferred and common stock). The ability of JPMorgan Chase Bank, N.A. and the IHC to make payments to the holding company is also limited. JPMorgan Chase Bank, N.A. is subject to restrictions on its dividend distributions, as well as capital adequacy and liquidity requirements and other regulatory restrictions on its ability to make payments to the holding company. The IHC is prohibited from paying dividends or extending credit to the holding company if certain capital or liquidity “thresholds” are breached or if limits are otherwise imposed by JPMorgan Chase’s management or Board of Directors. As a result of these arrangements, the ability of the holding company to make various payments is dependent on its receiving dividends from JPMorgan Chase Bank, N.A. and dividends and extensions of credit from the IHC. These limitations could affect the holding company’s ability to: • pay interest on its debt securities • pay dividends on its equity securities • redeem or repurchase outstanding securities, and • fulfill its other payment obligations. Collectively, these regulatory restrictions and limitations could significantly limit the holding company’s ability to pay dividends and satisfy its debt and other obligations. They could also result in the holding company seeking protection under bankruptcy laws at a time earlier than would have been the case absent the existence of those thresholds. Reductions in JPMorgan Chase’s credit ratings may adversely affect its liquidity and cost of funding. JPMorgan Chase & Co. and certain of its principal subsidiaries are rated by credit rating agencies. Rating agencies evaluate both general and firm- and industry-specific factors when determining their credit ratings for a particular financial institution, including: • economic and geopolitical trends • regulatory developments • expected future profitability Part I • risk management practices • legal expenses • assumptions about government support, and • ratings differentials between bank holding companies and their bank and non-bank subsidiaries. JPMorgan Chase closely monitors and manages, to the extent that it is able, factors that could influence its credit ratings. However, there is no assurance that JPMorgan Chase’s credit ratings will not be lowered in the future. Furthermore, any such downgrade could occur at times of broader market instability when JPMorgan Chase’s options for responding to events may be more limited and general investor confidence is low. A reduction in JPMorgan Chase’s credit ratings could curtail JPMorgan Chase’s business activities and reduce its profitability in a number of ways, including by: • reducing access to capital markets • materially increasing the cost of issuing and servicing securities • triggering additional collateral or funding requirements, and • decreasing the number of investors and counterparties that are willing or permitted to do business with or lend to JPMorgan Chase. Any rating reduction could also increase the credit spreads charged by the market for taking credit risk on JPMorgan Chase & Co. and its subsidiaries. This could, in turn, adversely affect the value of debt and other obligations of JPMorgan Chase & Co. and its subsidiaries. Regulation and reform of benchmarks could have adverse consequences on securities and other instruments that are linked to those benchmarks. Interest rate, equity, foreign exchange rate and other types of indices which are deemed to be “benchmarks” are the subject of recent international, national and other regulatory guidance and proposals for reform. Some of these reforms are already effective while others are still to be implemented. These reforms may cause benchmarks to perform differently than in the past, or to disappear entirely, or have other consequences which cannot be fully anticipated. Any of the international, national or other proposals for reform or the general increased regulatory scrutiny of benchmarks could also increase the costs and risks of administering or otherwise participating in the setting of benchmarks and complying with any such regulations or requirements. Such factors may have the effect of discouraging market participants from continuing to administer or contribute to certain benchmarks, trigger changes in the rules or methodologies used in certain benchmarks or lead to the disappearance of certain benchmarks. On July 27, 2017, the Chief Executive of the U.K. Financial Conduct Authority (the “FCA”), which regulates the London interbank offered rate (“LIBOR”), announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of the LIBOR benchmark after 2021. This announcement indicates that the continuation of LIBOR on the current basis cannot and will not be guaranteed after 2021, and it appears likely that LIBOR will be discontinued or modified by 2021. Any of the these developments, and any future initiatives to regulate, reform or change the manner of administration of benchmarks, could result in adverse consequences to the return on, value of and market for securities and other instruments whose returns are linked to any such benchmark, including those issued by JPMorgan Chase or its subsidiaries. Operational JPMorgan Chase’s businesses are highly dependent on the effectiveness of its operational systems and those of other market participants. JPMorgan Chase’s businesses rely comprehensively on the ability of JPMorgan Chase’s financial, accounting, trading, data processing and other operational systems to process, record, monitor and report a large number of transactions on a continuous basis, and to do so accurately and quickly. In addition to proper design, installation, maintenance and training, the effective functioning of JPMorgan Chase’s operational systems depends on, among other things: • the quality of the information contained in those systems, as inaccurate, outdated or corrupted data can significantly compromise the functionality of a particular operational system and other systems to which it transmits information, and • JPMorgan Chase’s ability to appropriately maintain and upgrade its systems on a regular basis, and to ensure that any changes introduced to its systems are managed carefully to ensure operational continuity. JPMorgan Chase also depends on its ability to access and use the operational systems of its vendors, custodians and other market participants, including clearing and payment systems, CCPs, securities exchanges and data processing, security and technology companies. The ineffectiveness, failure or other disruption of the operational systems of JPMorgan Chase or another significant market participant, including due to a cyberbreach, could result in unfavorable ripple effects in the financial markets and for JPMorgan Chase and its clients and customers, including: • delays or other disruptions in providing information, services and liquidity to clients and customers • the inability to settle transactions or obtain access to funds and other assets • the possibility that transactions such as funds transfers or capital markets trades are executed erroneously, illegally or with unintended consequences • financial losses, including possible restitution to clients and customers • higher operational costs associated with replacing services provided by a system that is unavailable • customer dissatisfaction and loss of confidence in JPMorgan Chase’s products and services, and • harm to reputation. Furthermore, the interconnectivity of multiple financial institutions with central agents, CCPs, payment processors, securities exchanges, clearing houses and other financial market infrastructures, and the increased importance of these entities, increases the risk that an operational failure at one institution or entity may cause an industry-wide operational failure that could materially affect JPMorgan Chase’s ability to conduct business. As the speed, frequency, volume and complexity of transactions increases, it becomes more challenging to effectively maintain JPMorgan Chase’s operational systems and infrastructure, especially due to the heightened risks that: • errors, whether inadvertent or malicious, cause widespread system disruption • isolated or seemingly insignificant errors in operational systems compound, or migrate to other systems over time, to become larger issues • failures in synchronization or encryption software, or degraded performance of microprocessors due to design flaws, causes disruptions in operational systems, or the inability of systems to communicate with each other, and • third parties attempt to block the use of key technology solutions by claiming that the use infringes on their intellectual property rights. If JPMorgan Chase’s operational systems, or those of third parties on which JPMorgan Chase’s businesses depend, are unable to meet the demanding standards of JPMorgan Chase’s businesses and operations, or if they fail or have other significant shortcomings, JPMorgan Chase could be materially and adversely affected. JPMorgan Chase relies on the skill and integrity of its employees and those of third parties in running its operational systems. The effective functioning of JPMorgan Chase’s operational systems also depends on the competence and reliability of its employees, as well as the employees of third parties on whom JPMorgan Chase depends for technological support, security or other services. JPMorgan Chase could be materially and adversely affected by a significant operational breakdown or failure caused by human error or misconduct by an employee of JPMorgan Chase or a third party. JPMorgan Chase can be negatively affected if it fails to identify and address operational risks associated with new products or processes. When JPMorgan Chase changes processes or introduces new products and services or new connectivity solutions, JPMorgan Chase may not fully appreciate or identify new operational risks that may arise from those changes, or may fail to implement adequate controls to mitigate the risks associated with new business activities. Any of these occurrences could diminish JPMorgan Chase’s ability to operate one or more of its businesses or result in: • potential liability to clients and customers • increased operating expenses • higher litigation costs, including regulatory fines, penalties and other sanctions • damage to JPMorgan Chase’s reputation • impairment of JPMorgan Chase’s liquidity • regulatory intervention, or • weaker competitive standing. Any of the foregoing consequences could materially and adversely affect JPMorgan Chase’s businesses and results of operations. JPMorgan Chase’s connections to third-party operational systems expose it to greater operational risks. Third parties with which JPMorgan Chase does business, as well as retailers, data aggregators and other third parties with which JPMorgan Chase’s customers do business, can also be sources of operational risk to JPMorgan Chase. This is particularly the case where activities of customers or those third parties are beyond JPMorgan Chase’s security and control systems, including through the use of the internet, personal smart phones and other mobile devices or services. If a third party obtains access to customer account data on JPMorgan Chase’s systems, and that third party experiences a cyberbreach of its own systems or misappropriates that data, this could result in a variety of negative outcomes for JPMorgan Chase and its customers, including: • heightened risk that third parties will be able to execute fraudulent transactions using JPMorgan Chase’s systems • losses from fraudulent transactions, as well as potential liability for losses that exceed thresholds established in consumer protection laws and regulations • increased operational costs to remediate the consequences of the third party’s security breach, and • harm to reputation arising from the perception that JPMorgan Chase’s systems may not be secure. Part I As JPMorgan Chase’s interconnectivity with customers and other third parties expands, JPMorgan Chase increasingly faces the risk of operational failure with respect to their systems. Security breaches affecting JPMorgan Chase’s customers, or systems breakdowns or failures, security breaches or human error or misconduct affecting those other third parties, may require JPMorgan Chase to take steps to protect the integrity of its own operational systems or to safeguard confidential information. These actions can increase JPMorgan Chase’s operational costs and potentially diminish customer satisfaction. JPMorgan Chase faces substantial legal and operational risks in safeguarding personal information. JPMorgan Chase’s businesses are subject to complex and evolving laws and regulations, both within and outside the U.S., governing the privacy and protection of personal information of individuals. The protected parties can include: • JPMorgan Chase’s clients and customers • clients and customers of JPMorgan Chase’s clients and customers • JPMorgan Chase’s employees, and • employees of JPMorgan Chase’s suppliers, counterparties and other third parties. Ensuring that JPMorgan Chase’s collection, use, transfer and storage of personal information comply with all applicable laws and regulations in all relevant jurisdictions, including where the laws of different jurisdictions are in conflict, can: • increase JPMorgan Chase’s operating costs • affect the development of new products or services • demand significant oversight by JPMorgan Chase’s management, and • require JPMorgan Chase to structure its businesses, operations and systems in less efficient ways. Furthermore, JPMorgan Chase cannot ensure that all of its clients and customers, suppliers, counterparties and other third parties have appropriate controls in place to protect the confidentiality of the information exchanged between them and JPMorgan Chase, particularly where information is transmitted by electronic means. JPMorgan Chase could be exposed to litigation or regulatory fines, penalties or other sanctions if personal, confidential or proprietary information of clients, customers, employees or others were to be mishandled or misused, such as situations where such information is: • erroneously provided to parties who are not permitted to have the information, or • intercepted or otherwise compromised by third parties. Concerns regarding the effectiveness of JPMorgan Chase’s measures to safeguard personal information, or even the perception that those measures are inadequate, could cause JPMorgan Chase to lose existing or potential clients and customers, and thereby reduce JPMorgan Chase’s revenues. Furthermore, any failure or perceived failure by JPMorgan Chase to comply with applicable privacy or data protection laws and regulations may subject it to inquiries, examinations and investigations that could result in requirements to modify or cease certain operations or practices, significant liabilities or regulatory fines, penalties or other sanctions. Any of these could damage JPMorgan Chase’s reputation and otherwise adversely affect its businesses. JPMorgan Chase’s operations and results could be vulnerable to catastrophes or other events that disrupt its business. JPMorgan Chase’s business and operational systems could be seriously disrupted by events that are wholly or partially beyond its control, including: • cyberbreaches or breaches of physical premises • electrical or telecommunications outages • failures of, or loss of access to, operational systems, including computer systems, servers, networks and other technology assets • damage to or loss of property or assets • natural disasters or severe weather conditions • health emergencies or pandemics, or • events arising from local or larger-scale political events, including outbreaks of hostilities or terrorist acts. JPMorgan Chase maintains a global resiliency and crisis management program that is intended to ensure the ability to recover critical business functions and supporting assets, including staff, technology and facilities, in the event of a business interruption. There can be no assurance that JPMorgan Chase’s resiliency plans will fully mitigate all potential business continuity risks to JPMorgan Chase or its clients and customers. Any significant failure or disruption of JPMorgan Chase’s operations or operational systems could, among other things: • hinder its ability to provide services to its clients and customers • require it to expend significant resources to correct the failure or disruption • cause it to incur financial losses, both from loss of revenue and damage to or loss of property, and • expose it to litigation or regulatory fines, penalties or other sanctions. A successful cyberattack against JPMorgan Chase could cause significant harm to JPMorgan Chase or its clients and customers. JPMorgan Chase experiences numerous cyberattacks on its computer systems, software, networks and other technology assets on a daily basis. These cyberattacks can take many forms, but a common objective of many of these attacks is to introduce computer viruses or malware into JPMorgan Chase’s systems. These viruses or malicious code are typically designed to, among other things: • obtain unauthorized access to confidential information belonging to JPMorgan Chase or its clients and customers • manipulate or destroy data • disrupt, sabotage or degrade service on JPMorgan Chase’s systems, or • steal money. JPMorgan Chase has also been the target of significant distributed denial-of-service attacks which are intended to disrupt online banking services. JPMorgan Chase devotes significant resources to maintain and regularly upgrade its systems to protect them against cyberattacks. However, JPMorgan Chase has experienced security breaches due to cyberattacks in the past, and it is inevitable that additional breaches will occur in the future. Any such breach could result in serious and harmful consequences for JPMorgan Chase or its clients and customers. A principal reason that JPMorgan Chase cannot provide absolute security against cyberattacks is that it may not always be possible to anticipate, detect or recognize threats to JPMorgan Chase’s systems, or to implement effective preventive measures against all breaches. This is because, among other things: • the techniques used in cyberattacks change frequently and may not be recognized until launched • cyberattacks can originate from a wide variety of sources, including third parties who are or may be involved in organized crime or linked to terrorist organizations or hostile foreign governments, and • third parties may seek to gain access to JPMorgan Chase’s systems either directly or using equipment or security passwords belonging to employees, customers, third-party service providers or other users of JPMorgan Chase’s systems. The risk of a security breach due to a cyberattack could increase in the future as JPMorgan Chase continues to expand its mobile-payment and other internet-based product offerings and its internal use of web-based products and applications. A successful penetration or circumvention of the security of JPMorgan Chase’s systems or the systems of a supplier, governmental body or another market participant could cause serious negative consequences, including: • significant disruption of JPMorgan Chase’s operations and those of its clients, customers and counterparties, including losing access to operational systems • misappropriation of confidential information of JPMorgan Chase or that of its clients, customers, counterparties or employees • damage to computers or systems of JPMorgan Chase and those of its clients, customers and counterparties • inability to fully recover and restore data that has been stolen, manipulated or destroyed, or to prevent systems from processing fraudulent transactions • violations by JPMorgan Chase of applicable privacy and other laws • financial loss to JPMorgan Chase or to its clients and customers • loss of confidence in JPMorgan Chase’s cybersecurity measures • client and customer dissatisfaction • significant exposure to litigation and regulatory fines, penalties or other sanctions, or • harm to JPMorgan Chase’s reputation. JPMorgan Chase could also suffer some of the above consequences if a third party were to misappropriate confidential information obtained by intercepting signals or communications from mobile devices used by JPMorgan Chase’s employees. JPMorgan Chase may not be able to immediately address the consequences of a security breach due to a cyberattack. A successful breach of JPMorgan Chase’s computer systems, software, networks or other technology assets due to a cyberattack could occur and persist for an extended period of time before being detected due to, among other things: • the breadth of JPMorgan Chase’s operations and the high volume of transactions that it processes • the large number of customers, counterparties and third-party service providers with which JPMorgan Chase does business • the proliferation and increasing sophistication of cyberattacks, and • the possibility that a third party, after establishing a foothold on an internal network without being detected, might obtain access to other networks and systems. The extent of a particular cyberattack and the steps that JPMorgan Chase may need to take to investigate the attack may not be immediately clear, and it may take a significant amount of time before such an investigation can be completed and full and reliable information about the attack is known. While such an investigation is ongoing, JPMorgan Chase may not necessarily know the extent of the harm or how best to remediate it, and certain errors or actions could be repeated or compounded before they are discovered and remediated, any or all of which could Part I further increase the costs and consequences of a cyberattack. JPMorgan Chase’s risk management framework and procedures may not be effective in identifying and mitigating every risk to JPMorgan Chase. JPMorgan Chase’s risk management framework is intended to mitigate risk and loss. JPMorgan Chase has established processes and procedures to identify, measure, monitor, report and analyze the types of risk to which JPMorgan Chase is subject. However, there are inherent limitations to risk management strategies because there may be existing or future risks that JPMorgan Chase has not appropriately anticipated or identified. JPMorgan Chase could be exposed to unexpected losses, and JPMorgan Chase’s financial condition or results of operations could be materially and adversely affected, by any inadequacy or lapse in its risk management framework, governance structure, procedures and practices, models or reporting systems. An inadequacy or lapse could: • require significant resources to remediate • attract heightened regulatory scrutiny • expose JPMorgan Chase to regulatory investigations or legal proceedings • subject it to litigation or regulatory fines, penalties or other sanctions • harm its reputation, or • diminish confidence in JPMorgan Chase. JPMorgan Chase relies on data to assess its various risk exposures. Any deficiencies in the quality or effectiveness of JPMorgan Chase’s data gathering and validation processes could result in ineffective risk management practices. These deficiencies could also result in inaccurate risk reporting. JPMorgan Chase establishes allowances for probable credit losses that are inherent in its credit exposures. It then employs stress testing and other techniques to determine the capital and liquidity necessary in the event of adverse economic or market events. These processes are critical to JPMorgan Chase’s results of operations and financial condition. They require difficult, subjective and complex judgments, including forecasts of how economic conditions might impair the ability of JPMorgan Chase’s borrowers and counterparties to repay their loans or other obligations. It is possible that JPMorgan Chase will fail to identify the proper factors or that it will fail to accurately estimate the impact of factors that it identifies. Many of JPMorgan Chase’s risk management strategies and techniques consider historical market behavior. These strategies and techniques are based to some degree on management’s subjective judgment. For example, many models used by JPMorgan Chase are based on assumptions regarding correlations among prices of various asset classes or other market indicators. In times of market stress, including difficult or less liquid market environments, or in the event of other unforeseen circumstances, previously uncorrelated indicators may become correlated. Conversely, previously-correlated indicators may make unrelated movements at those times. Sudden market movements and unanticipated or unidentified market or economic movements have, in some circumstances, limited the effectiveness of JPMorgan Chase’s risk management strategies, causing it to incur losses. JPMorgan Chase could incur significant losses and face greater regulatory scrutiny if its models or estimations are inadequate. JPMorgan Chase has developed and uses a variety of models and other analytical and judgment-based estimations to assess and implement mitigating controls over its market, credit, operational and other risks. These models and estimations are based on a variety of assumptions and historical trends, and are periodically reviewed and modified as necessary. The models and estimations that JPMorgan Chase uses may not be effective in all cases to observe and mitigate risk due to a variety of factors, such as: • reliance on historical trends that may not accurately predict future events, including assumptions underlying the models and estimations which predict correlation among certain market indicators or asset prices • inherent limitations associated with forecasting uncertain economic and financial outcomes • historical trend information may be incomplete, or may not anticipate severely negative market conditions such as extreme volatility, dislocation or lack of liquidity • technology that is introduced to run models or estimations may not perform as expected, or may not be well understood by the personnel using the technology • models and estimations may contain erroneous data, valuations, formulas or algorithms, and • review processes may fail to detect flaws in models and estimations. JPMorgan Chase could incur substantial losses, its capital levels could be reduced and it could face greater regulatory scrutiny if its models or estimations prove to be inadequate. Some of the models and other analytical and judgment-based estimations used by JPMorgan Chase in managing risks are subject to review by, and require the approval of, JPMorgan Chase’s regulators. These reviews are required before JPMorgan Chase may use those models and estimations in connection with calculating market risk RWA, credit risk RWA and operational risk RWA under Basel III. If JPMorgan Chase’s models or estimations are not approved by its regulators, it may be subject to higher capital charges, which could adversely affect its financial results or limit the ability to expand its businesses. JPMorgan Chase’s capital actions could also be constrained if a CCAR submission is not approved by its banking regulators due to the perceived inadequacy of its models or estimations. Enhanced standards for vendor risk management can result in higher costs and other potential exposures. JPMorgan Chase must comply with enhanced standards for the assessment and management of risks associated with doing business with vendors and other third-party service providers. These requirements are contained both in bank regulatory regulations and guidance and in certain consent orders to which JPMorgan Chase has been subject. JPMorgan Chase incurs significant costs and expenses in connection with its initiatives to address the risks associated with oversight of its third party relationships. JPMorgan Chase’s failure to appropriately assess and manage third-party relationships, especially those involving significant banking functions, shared services or other critical activities, could materially adversely affect JPMorgan Chase. Specifically, any such failure could subject JPMorgan Chase to: • potential liability to clients and customers • regulatory fines, penalties or other sanctions • increased operational costs, or • harm to its reputation. Requirements for physical settlement and delivery in trading agreements could expose JPMorgan Chase to operational and other risks. Certain of JPMorgan Chase’s markets transactions require the physical settlement by delivery of securities or other obligations that JPMorgan Chase does not own. If JPMorgan Chase is unable to obtain the obligations within the required timeframe, JPMorgan Chase could forfeit payments otherwise due. Failures could also result in settlement delays, which could damage JPMorgan Chase’s reputation and ability to transact business. Failure to timely settle and confirm transactions could also subject JPMorgan Chase to heightened credit and operational risk, and in the event of a default, market and operational losses. JPMorgan Chase could incur unexpected losses if estimates and judgments underlying its financial statements are incorrect. Under U.S. generally accepted accounting principles (“U.S. GAAP”), JPMorgan Chase is required to use estimates and apply judgments in preparing its financial statements, including in determining allowances for credit losses and reserves related to litigation, among other items. Certain financial instruments require a determination of their fair value in order to prepare JPMorgan Chase’s financial statements, including: • trading assets and liabilities • instruments in the investment securities portfolio • certain loans • MSRs • structured notes, and • certain repurchase and resale agreements. Where quoted market prices are not available for these types of instruments, JPMorgan Chase may make fair value determinations based on internally developed models or other means which ultimately rely to some degree on management estimates and judgment. Sudden illiquidity in markets or declines in prices of certain loans and securities may make it more difficult to value certain balance sheet items, which could lead to valuations being subsequently changed or adjusted. If estimates or judgments underlying JPMorgan Chase’s financial statements prove to have been incorrect, JPMorgan Chase may experience material losses. Lapses in controls over disclosure or financial reporting could materially affect JPMorgan Chase’s profitability or reputation. There can be no assurance that JPMorgan Chase’s disclosure controls and procedures will be effective in every circumstance, or that a material weakness or significant deficiency in internal control over financial reporting will not occur. Any such lapses or deficiencies could: • materially and adversely affect JPMorgan Chase’s business and results of operations or financial condition • restrict its ability to access the capital markets • require it to expend significant resources to correct the lapses or deficiencies • expose it to litigation or regulatory fines, penalties or other sanctions • harm its reputation, or • otherwise diminish investor confidence in JPMorgan Chase. Strategic If JPMorgan Chase’s management fails to develop and execute effective business strategies, JPMorgan Chase’s competitive standing and results could suffer. JPMorgan Chase’s business strategies significantly affect its competitive standing and results of operations. These strategies relate to: • the products and services that JPMorgan Chase offers • the geographies in which it operates • the types of clients and customers that it serves • the counterparties with which it does business, and • the methods and distribution channels by which it offers products and services. The franchise values and growth prospects of JPMorgan Chase’s businesses, and its earnings and results of operations, may suffer and revenues could decline if management makes choices about these strategies and goals that: • prove to be incorrect Part I • do not accurately assess the competitive landscape and industry trends, or • fail to address changing regulatory and market environments in the U.S. and abroad. JPMorgan Chase’s growth and prospects also depend on management’s ability to develop and execute effective business plans to address these strategic priorities, both in the near term and over longer time horizons. Management’s effectiveness in this regard will affect JPMorgan Chase’s ability to develop and enhance its resources, control expenses and return capital to shareholders. Each of these objectives could be adversely affected by management’s failure to: • devise effective business plans and strategies • effectively implement business decisions, including by minimizing bureaucratic processes • institute controls that appropriately address the risks associated with business activities and any changes in those activities • offer products and services that meet the expectations of clients and customers, and in ways that enhance their satisfaction with those products and services • allocate capital to JPMorgan Chase’s businesses in a manner that promotes their long-term profitability • adequately respond to regulatory requirements • appropriately address shareholder concerns • react quickly to changes in market conditions or market structures, or • develop and enhance the operational, technology, risk, financial and managerial resources necessary to grow and manage JPMorgan Chase’s businesses. Additionally, JPMorgan Chase’s Board of Directors plays an important role in exercising appropriate oversight of management’s strategic decisions, and a failure by the Board to perform this function could also impair JPMorgan Chase’s results of operations. Conduct Misconduct by JPMorgan Chase employees can harm its clients and customers, damage its reputation and trigger litigation and regulatory action. JPMorgan Chase’s employees interact with clients, customers and counterparties, and with each other, every day. All employees are expected to demonstrate values and exhibit the culture and behaviors that are an integral part of JPMorgan Chase’s How We Do Business Principles, including JPMorgan Chase’s commitment to “do first class business in a first class way.” JPMorgan Chase endeavors to embed culture and conduct risk management throughout an employee’s life cycle, including recruiting, onboarding, training and development, and performance management. Culture and conduct risk management are also important to JPMorgan Chase’s promotion and compensation processes. Notwithstanding these expectations, policies and practices, certain employees have in the past engaged in improper or illegal conduct resulting in litigation as well as settlements involving consent orders, deferred prosecution agreements and non-prosecution agreements, as well as other civil and criminal settlements with regulators and other governmental entities. There is no assurance that further inappropriate actions by employees will not occur or that any such actions will always be deterred or quickly prevented. JPMorgan Chase’s reputation could be harmed, and collateral consequences could result, from a failure by one or more employees to act consistently with JPMorgan Chase’s expectations, including by acting in ways that harm clients, customers, other market participants or other employees. Some examples of this include: • improperly selling and marketing JPMorgan Chase’s products or services • engaging in insider trading, market manipulation or unauthorized trading • facilitating illegal or aggressive tax-motivated transactions, or transactions designed to circumvent economic sanction programs • failing to fulfill fiduciary obligations or other duties owed to clients or customers • violating anti-trust or anti-competition laws by colluding with other market participants to manipulate markets, prices or indices • making risk decisions in ways that subordinate JPMorgan Chase’s risk appetite to employee compensation objectives, and • misappropriating property or confidential or proprietary information or technology belonging to JPMorgan Chase, its clients and customers or third parties. The consequences of any failure by employees to act consistently with JPMorgan Chase’s expectations could include litigation, or regulatory or other governmental investigations or enforcement actions. Any of these proceedings or actions could result in judgments, settlements, fines, penalties or other sanctions, or lead to: • financial losses • increased operational and compliance costs • greater regulatory scrutiny • requirements that JPMorgan Chase restructure, curtail or cease certain of its activities • the need for significant oversight by JPMorgan Chase’s management • the undermining of JPMorgan Chase’s culture • loss of clients or customers, and • harm to JPMorgan Chase’s reputation. Reputation Damage to JPMorgan Chase’s reputation could harm its businesses. Maintaining trust in JPMorgan Chase is critical to its ability to attract and retain clients, customers, investors and employees. Damage to JPMorgan Chase’s reputation can therefore cause significant harm to JPMorgan Chase’s business and prospects. Harm to JPMorgan Chase’s reputation can arise from numerous sources, including: • employee misconduct • security breaches • compliance failures • litigation or regulatory fines, penalties or other sanctions, or • regulatory investigations, enforcement actions or settlements. JPMorgan Chase’s reputation could also be harmed by the failure or perceived failure of certain third parties to comply with laws or regulations, including companies in which JPMorgan Chase has made principal investments, parties to joint ventures with JPMorgan Chase, and vendors and other third parties with which JPMorgan Chase does business. JPMorgan Chase’s reputation or prospects may be significantly damaged by adverse publicity or negative information regarding JPMorgan Chase, whether or not true, that may be posted on social media, non-mainstream news services or other parts of the internet, and this risk can be magnified by the speed and pervasiveness with which information is disseminated through those channels. Actions by the financial services industry generally or by certain members of or individuals in the industry can also affect JPMorgan Chase’s reputation. For example, concerns that consumers have been treated unfairly by a financial institution, or that a financial institution has acted inappropriately with respect to the methods used to offer products to customers, can damage the reputation of the industry as a whole. If JPMorgan Chase is perceived to have engaged in these types of behaviors, the measures needed to address the associated reputational issues could increase JPMorgan Chase’s operational and compliance costs and negatively affect its earnings. Furthermore, events that undermine JPMorgan Chase’s reputation can hinder its ability to attract and retain clients, customers, investors and employees. Failure to effectively manage potential conflicts of interest can result in litigation and enforcement actions, as well as damage JPMorgan Chase’s reputation. JPMorgan Chase’s ability to manage potential conflicts of interest has become increasingly complex as its business activities encompass more transactions, obligations and interests with and among JPMorgan Chase’s clients and customers. JPMorgan Chase can become subject to litigation and enforcement actions, and its reputation can be damaged, by the failure or perceived failure to, among other things: • adequately address or appropriately disclose conflicts of interest • deliver appropriate standards of service and quality • treat clients and customers fairly • use client and customer data responsibly and in a manner that meets legal requirements and regulatory expectations • provide fiduciary products or services in accordance with the applicable legal and regulatory standards, or • handle or use confidential information of customers or clients appropriately or in compliance with applicable data protection and privacy laws and regulations. In the future, a failure or perceived failure to appropriately address conflicts or fiduciary obligations could result in customer dissatisfaction, litigation and regulatory fines, penalties or other sanctions, and heightened regulatory scrutiny and enforcement actions, all of which can lead to lost revenue and higher operating costs and cause serious harm to JPMorgan Chase’s reputation. Country JPMorgan Chase can incur losses due to unfavorable economic developments around the world. JPMorgan Chase’s businesses and earnings are affected by the monetary, fiscal and other policies adopted by various U.S. and non-U.S. regulatory authorities and agencies. For example, the Federal Reserve regulates the supply of money and credit in the U.S. and its policies determine in large part the cost of funds for lending and investing in the U.S. and the return earned on those loans and investments. Changes in fiscal policies by central banks or regulatory authorities, and the manner in which those policies are executed, are beyond JPMorgan Chase’s control and may be difficult to predict. Consequently, unanticipated changes in these policies or the ways in which they are implemented could have a negative impact on JPMorgan Chase’s businesses and results of operations. JPMorgan Chase’s businesses and revenues are also subject to the risks inherent in investing and market-making in securities, loans and other obligations of companies worldwide. These risks include, among others: • negative effects from slowing growth rates or recessionary economic conditions • the risk of loss from unfavorable political, legal or other developments, including social or political instability, in the countries or regions in which those companies operate, and • the other risks and considerations discussed below. Part I Adverse economic and political developments in a country or region can have a wider negative impact on JPMorgan Chase’s businesses. Some countries or regions in which JPMorgan Chase operates or invests, or in which JPMorgan Chase may do business in the future, have in the past experienced severe economic disruptions particular to those countries or regions. In some cases, concerns regarding the fiscal condition of one or more countries can cause a contraction of available credit and reduced commercial activity among trading partners within the affected countries or region. These developments can also create market volatility which can lead to a contagion affecting other countries in the same region or beyond. Furthermore, governments in particular countries or regions in which JPMorgan Chase or its clients do business may choose to adopt protectionist economic or trade policies in response to concerns about domestic economic conditions. Any or all of these developments could lead to diminished cross-border trade and financing activity within that country or region, all of which could negatively affect JPMorgan Chase’s business and earnings in those jurisdictions. If JPMorgan Chase takes steps to reduce its market and credit risk exposure within a particular country or region that is experiencing economic or political disruption, it may incur losses that are higher than expected because it will be disposing of assets when market conditions are likely to be highly unfavorable. JPMorgan Chase’s business activities with governmental entities pose a greater risk of loss. Several of JPMorgan Chase’s businesses engage in transactions with, or trade in obligations of, governmental entities, including national, state, provincial, municipal and local authorities, both within and outside the U.S. These activities can expose JPMorgan Chase to enhanced sovereign, credit-related, operational and reputation risks, including the risks that a governmental entity may: • default on or restructure its obligations • claim that actions taken by government officials were beyond the legal authority of those officials, or • repudiate transactions authorized by a previous incumbent government. Any or all of these actions could adversely affect JPMorgan Chase’s financial condition and results of operations and could hurt its reputation, particularly if JPMorgan Chase pursues claims against a government obligor in a jurisdiction in which it has significant business relationships with clients or customers. JPMorgan Chase’s business and revenues in emerging markets can be hampered by local political, social and economic factors. Some of the countries in which JPMorgan Chase conducts business have economies or markets that are less developed and more volatile, and may have legal and regulatory regimes that are less established or predictable, than the U.S. and other developed markets in which JPMorgan Chase operates. Some of these countries have in the past experienced severe economic disruptions, including: • extreme currency fluctuations • high inflation • low or negative growth, or • defaults or potential defaults on sovereign debt. The governments in these countries have sometimes reacted to these developments by imposing restrictive monetary policies such as currency exchange controls and other laws and restrictions that adversely affect the local and regional business environment. In addition, these countries, as well as certain more developed countries, have been susceptible to unfavorable social developments arising from poor economic conditions and related governmental actions, including: • social unrest • general strikes and demonstrations • crime and corruption • security and personal safety issues • outbreaks of hostilities • overthrow of incumbent governments • terrorist attacks, or • other forms of internal discord. These economic, political and social developments have in the past resulted in, and in the future could lead to, conditions that can adversely affect JPMorgan Chase’s operations in those countries and impair the revenues, growth and profitability of those operations. If the legal and regulatory system in a particular country is less established or predictable, this can create a more difficult environment in which to conduct business. For example, any of the following could hamper JPMorgan Chase’s operations and reduce its earnings in countries with less established or predictable legal and regulatory regimes: • the absence of a statutory or regulatory basis or guidance for engaging in specific types of business or transactions • the adoption of conflicting or ambiguous laws and regulations, or the inconsistent application or interpretation of existing laws and regulations • uncertainty concerning the enforceability of contractual obligations • difficulty in competing in economies in which the government controls or protects all or a portion of the local economy or specific businesses, or where graft or corruption may be pervasive, and • the threat of arbitrary regulatory investigations, civil litigations or criminal prosecutions, the termination of licenses required to operate in the local market or the suspension of business relationships with governmental bodies. JPMorgan Chase’s operations in or involving emerging markets countries can also be affected by governmental actions such as: • monetary policies • expropriation, nationalization or confiscation of assets • price, capital or exchange controls, and • changes in laws and regulations. The impact of these actions could be accentuated in trading markets that are smaller, less liquid and more volatile than more-developed markets. These types of government actions can negatively affect JPMorgan Chase’s operations in the relevant country, either directly or by suppressing the business activities of local clients or multi-national clients that conduct business in the jurisdiction. For example, some or all of these governmental actions can result in funds belonging to JPMorgan Chase, or that it places with a local custodian on behalf of a client, being effectively trapped in a country. In addition to the ultimate risk of losing the funds entirely, JPMorgan Chase could be exposed for an extended period of time to the credit risk of a local custodian that is now operating in a deteriorating domestic economy. JPMorgan Chase’s revenues from international operations and trading in non-U.S. securities and other obligations can be negatively affected by the foregoing economic, political and social conditions in a particular country in which it does business. In addition, any of the above-mentioned events or circumstances in one country can affect JPMorgan Chase’s operations and investments in another country or countries, including in the U.S. JPMorgan Chase’s operations in the emerging markets can subject it to higher operational and compliance costs. Conducting business in countries with less-developed legal and regulatory regimes often requires JPMorgan Chase to devote significant additional resources to understanding, and monitoring changes in, local laws and regulations, as well as structuring its operations to comply with local laws and regulations and implementing and administering related internal policies and procedures. There can be no assurance that JPMorgan Chase will always be successful in its efforts to conduct its business in compliance with laws and regulations in countries with less predictable legal and regulatory systems or that JPMorgan Chase will be able to develop effective working relationships with local regulators. Complying with economic sanctions and anti-corruption and anti-money laundering laws and regulations can increase JPMorgan Chase’s operational and compliance costs and risks. JPMorgan Chase must comply with economic sanctions and embargo programs administered by OFAC and similar national and multi-national bodies and governmental agencies outside the U.S., as well as anti-corruption and anti-money laundering laws and regulations throughout the world. JPMorgan Chase can incur higher costs and face greater compliance risks in structuring and operating its businesses to comply with these requirements. Furthermore, a violation of a sanction or embargo program or anti-corruption or anti-money laundering laws and regulations could subject JPMorgan Chase, and individual employees, to regulatory enforcement actions as well as significant civil and criminal penalties. Competition The financial services industry is highly competitive, and JPMorgan Chase’s results of operations will suffer if it is not a strong and effective competitor. JPMorgan Chase operates in a highly competitive environment, and expects that competition in the U.S. and global financial services industry will continue to be intense. Competitors include: • other banks and financial institutions • trading, advisory and investment management firms • finance companies and technology companies, and • other firms that are engaged in providing similar products and services. JPMorgan Chase cannot provide assurance that the significant competition in the financial services industry will not materially and adversely affect its future results of operations. New competitors have emerged. For example, technological advances and the growth of e-commerce have made it possible for non-depository institutions to offer products and services that traditionally were banking products. These advances have also allowed financial institutions and other companies to provide electronic and internet-based financial solutions, including electronic securities trading, payment processing and online automated algorithmic-based investment advice. Furthermore, both financial institutions and their non-banking competitors face the risk that payment processing and other services could be disrupted by technologies, such as cryptocurrencies, that require no intermediation. New technologies have required and could require JPMorgan Chase to spend more to modify or adapt its products to attract and retain clients and customers or to match products and services offered by its competitors, including technology companies. Ongoing or increased competition may put downward pressure on prices and fees for JPMorgan Chase’s products and services or may cause JPMorgan Chase to lose market share. This competition may be on the basis of, among other factors, quality and variety of products and services offered, transaction execution, innovation, reputation and price. The failure of any of JPMorgan Chase’s businesses to Part I meet the expectations of clients and customers, whether due to general market conditions or underperformance, could affect JPMorgan Chase’s ability to attract or retain clients and customers. Any such impact could, in turn, reduce JPMorgan Chase’s revenues. Increased competition also may require JPMorgan Chase to make additional capital investments in its businesses, or to extend more of its capital on behalf of its clients in order to remain competitive. Non-U.S. competitors of JPMorgan Chase’s wholesale businesses outside the U.S. are typically subject to different, and in some cases, less stringent, legislative and regulatory regimes. The more restrictive laws and regulations applicable to JPMorgan Chase and other U.S. financial services institutions can put JPMorgan Chase and those firms at a competitive disadvantage to non-U.S. competitors. This could reduce the revenue and profitability of JPMorgan Chase’s wholesale businesses, resulting from: • prohibitions on engaging in certain transactions • higher capital and liquidity requirements • making JPMorgan Chase’s pricing of certain transactions more expensive for clients, and • adversely affecting JPMorgan Chase’s cost structure for providing certain products. People JPMorgan Chase’s ability to attract and retain qualified employees is critical to its success. JPMorgan Chase’s employees are its most important resource, and in many areas of the financial services industry, competition for qualified personnel is intense. JPMorgan Chase endeavors to attract talented and diverse new employees and retain and motivate its existing employees. If JPMorgan Chase were unable to continue to attract or retain qualified employees, including successors to the Chief Executive Officer or members of the Operating Committee, JPMorgan Chase’s performance, including its competitive position, could be materially and adversely affected. Changes in immigration policies could adversely affect JPMorgan Chase. There is the potential for changes in immigration policies in multiple jurisdictions around the world, including in the U.S. If immigration policies were to unduly restrict or otherwise make it more difficult for qualified employees to work in, or transfer among, jurisdictions in which JPMorgan Chase has operations or conducts its business, JPMorgan Chase could be adversely affected. Legal JPMorgan Chase faces significant legal risks from private actions and formal and informal regulatory investigations. JPMorgan Chase is named as a defendant or is otherwise involved in various legal proceedings, including class actions and other litigation or disputes with third parties. Actions currently pending against JPMorgan Chase may result in judgments, settlements, fines, penalties or other results adverse to JPMorgan Chase. Any of these matters could materially and adversely affect JPMorgan Chase’s business, financial condition or results of operations, or cause serious reputational harm. As a participant in the financial services industry, it is likely that JPMorgan Chase will continue to experience a high level of litigation related to its businesses and operations. Regulators and other government agencies conduct examinations of JPMorgan Chase and its subsidiaries both on a routine basis and in targeted exams, and JPMorgan Chase’s businesses and operations are subject to heightened regulatory oversight. This heightened regulatory scrutiny, or the results of such an investigation or examination, may lead to additional regulatory investigations or enforcement actions. There is no assurance that those actions will not result in regulatory settlements or other enforcement actions against JPMorgan Chase. Furthermore, a single event involving a potential violation of law or regulation may give rise to numerous and overlapping investigations and proceedings, either by multiple federal and state agencies and officials in the U.S. or, in some instances, regulators and other governmental officials in non-U.S. jurisdictions. If another financial institution violates a law or regulation relating to a particular business activity or practice, this will often give rise to an investigation by regulators and other governmental agencies of the same or similar activity or practice by JPMorgan Chase. These and other initiatives by U.S. and non-U.S. governmental authorities may subject JPMorgan Chase to judgments, settlements, fines or penalties, or require JPMorgan Chase to restructure its operations and activities or to cease offering certain products or services. All of these potential outcomes could harm JPMorgan Chase’s reputation or lead to higher operational costs, thereby reducing JPMorgan Chase’s profitability, or result in collateral consequences. Item 1B.