Jpmorgan-Chase-Letter-20160413

April 12, 2016 Mr. James Dimon Chairman and Chief Executive Of?cer JPMorgan Chase Co. 270 Park Avenue, 48th Floor New York, New York 10017-2014 Dear Mr. Dimon: On July 1, 2015, the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation (FDIC) (together, the Agencies) received the annual resolution plan submission (2015 Plan) of JPMorgan Chase Co. (JPMC) required by section 165(d) of the Dodd?Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), 12 U.S.C. 5365(d), and the jointly issued implementing regulation, 12 CFR Part 243 and 12 CFR Part 381 (the Resolution Plan Rule). The Agencies have reviewed the 2015 Plan taking into consideration section 165(d) of the Dodd?Frank Act, the Resolution Plan Rule, the letter that the Agencies provided to JPMC in August 2014 (the 2014 Letter) regarding 2013 resolution plan submission, the communication the Agencies made to JPMC in February 2015 clarifying the 2014 Letter (the 2015 Communication), other guidance provided by the Agencies, and other supervisory information available to the Agencies. In reviewing the 2015 Plan, the Agencies noted improvements over prior resolution plan submissions of JPMC. Nonetheless, the Agencies have jointly determined pursuant to section 165(d) of the Dodd?Frank Act and section of the Resolution Plan Rule that the 2015 Plan is not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code. Section II of this letter identi?es the aspects of the 2015 Plan that the Agencies jointly determined to be de?cient. JPMC must provide a submission that addresses the de?ciencies jointly identi?ed by the Agencies and otherwise satis?es the requirements of section 5(0) of the Resolution Plan Rule by October 1, 2016 (2016 Submission). 7 The 2016 Submission must include a separate public section that explains the actions the ?rm has taken to address the jointly identi?ed de?ciencies. The 2016 Submission will satisfy the informational requirements of annual resolution plan submission for 2016 the 2016 Submission is not required to contain informational content other than as speci?ed in this letter). In the event that the 2016 Submission does not adequately remedy the de?ciencies identi?ed by the Agencies in this letter, the Agencies may jointly determine pursuant to section .6 of the Resolution Plan Rule that JPMC or any of its subsidiaries shall be subject to more stringent capital, leverage, or liquidity requirements, or restrictions on their growth, activities, or operations. In addition, the Agencies have identi?ed shortcomings in the 2015 Plan. The Agencies will review the plan due on July 1, 2017 (2017 Plan), to determine if JPMC has satisfactorily addressed the shortcomings identi?ed in Section below. If the Agencies jointly decide that these matters are not satisfactorily addressed in the 2017 Plan, the Agencies may determine jointly that the 2017 Plan is not credible or would not facilitate an orderly resolution under the U.S. Bankruptcy Code. The 2016 Submission should include a status report on actions to address the shortcomings. The public section of the 2016 Submission also should explain, at a high level, the actions the ?rm plans to take to address the shortcomings. I. Background Section 165(d) of the Dodd-Frank Act requires that each bank holding company'with $50 billion or more in total consolidated assets and each designated nonbank ?nancial company report to the Agencies the plan of such company for its rapid and orderly resolution in the event of material ?nancial distress or failure. Under the statute, the Agencies may jointly determine, based on their review, that the plan is ?not credible or would not facilitate an orderly resolution of the company under Title 11, United States Code.?1 The statute and the Resolution Plan Rule provide a process by which the de?ciencies jointly identi?ed by the Agencies in such a plan may be remedied. In addition to the Resolution Plan Rule, the Agencies have provided supplemental written information and guidance to assist development of a resolution plan that satis?es the requirements of section 165(d) of the Dodd-Frank Act. This information and guidance included: 0 The April 2013 joint guidance to 2012 plan ?lers, which addressed a number of resolution plan issues and detailed ?ve signi?cant obstacles to orderly resolution in bankruptcy (multiple competing insolvencies, global cooperation, operations and interconnections, counterparty actions, and liquidity and funding).2 The 2014 Letter, which outlined a number of shortcomings in the 2013 resolution plan submission and speci?c issues to be addressed in the 2015 Plan. The 2014 Letter explicitly reminded JPMC that failure to make demonstrable progress in addressing these shortcomings and in taking the additional actions set forth in the 2014 Letter could result in a joint determination that 2015 Plan is not credible or would not facilitate orderly resolution in bankruptcy. 1 12 U.S.C. 5365(d)(4). 2 See ?Guidance for 2013 ?165(d) Annual Resolution Plan Submissions by Domestic Covered Companies that Submitted Initial Resolution Plans in 2012? (2013 Guidance), issued jointly by the Agencies on April 15, 2013. The 2013 Guidance further noted that ?this list of Obstacles is not exhaustive and does not preclude other Obstacles from being identi?ed by the Agencies in the future, nor does it preclude Covered Companies from identifying and addressing other weaknesses or potential impediments to resolution.? The 2015 Communication, which provided additional staff guidance in response to December 2014 submission describing certain proposed elements of the 2015 Plan. Among other things, the 2015 Communication reminded ?rms to make conservative assumptions and provide substantial supporting analysis concerning certain of the proposed 2015 Plan elements. Furthermore, since the release of the 2014 Letter, the Agencies have made staff available to answer questions related to the 2015 Plan. In July 2015, the Agencies received the 2015 Plan and began their review. The Agencies reviewed 2015 Plan to determine whether it satis?es the requirements of section 165(d) of the Dodd-Frank Act and the Resolution Plan Rule. As part of their review, the Agencies assessed whether the 2015 Plan addresses each of the items identi?ed in the 2014 Letter and the 2015 Communication, including whether the ?rm has made demonstrable progress to improve resolvability under the US. Bankruptcy Code based on the actions that the ?rm had completed by the 2015 Plan date against the ?rm?s full?implementation schedule. Firms were expected to provide a timetable for completion of the remaining actions after the 2015 Plan date that included well-identi?ed interim achievement benchmarks against which the Agencies can measure progress. Planned future actions are generally expected to be fully implemented by the date of the ?rm?s 2017 Plan or earlier.3 Progress Made by JPMC Over the past several years, JPMC has taken important steps to enhance the firm?s resolvability and facilitate resolution of the ?rm in bankruptcy, including: - JPMC has recd uti coss?boer swee I I 3 The 2015 Communication explicitly advised that remaining actions required by the Agencies in the 2014 Letter and the 2015 Communication to improve resolvability generally are expected to be completed no later than July 1, 2017. .- .- - .. :5 ;an JC educed is reline on -erm wholesale funding, I .. - Since the 2015 Plan submission, JPMC has complied with the clean holding company guidance from the 2014 Letter and 2015 Communication. In addition, the ?rm has improved its overall capital position. 0 JPMC has enhanced collateral management information 3 stems, enabling it to track the sources and uses of its securities collateral has mapped internal and external shared service dependencie (including staff, technical infrastructure, systems, intellectual property, and real estate); has documented critical interaf?liate services in legal agreements that contain terms intended to ensure that these services would continue in resolution; and has invested in resolution-speci?c management information systemsthe Derivatives Association 2015 Universal Resolution Stay Protocol. II. De?ciencies and Remediation Notwithstanding the noted progress JPMC has made to date, the Agencies jointly identi?ed four aSpects of the 2015 Plan that are de?cient. QUIDITY The Agencies identi?ed a de?ciency regarding liquidity in the 2015 Plan. As described below, JPMC does not have appropriate models and processes for estimating and maintaining suf?cient liquidity at, or readily available to, material entities,4 or for estimating its liquidity needs to fund its material entities during the resolution period. 4 ?Material entities,? and ?critical operations? refer to the material entities, and critical operations identi?ed in the 2015 Plan. Resolution Liquidity Adequacy and Positioning (RLAP): JPMC does not have an appropriate model and process for estimating and maintaining suf?cient liquidity at, or readily available to, material entities in resolution (RLAP model).5 This is notable given liquidity pro?le in its 2015 Plan, which relies on the ?rm?s ability to shift substantial amounts of liquidity around the organization during stress, as needed. As explained below, liquidity pro?le is vulnerable to adverse actions by third parties. As an illustration of this de?ciency in the ?rm?s RLAP model, 2015 Plan relied on roughly I3. of parent liquidity support being injected into various material entities, including its US. broker-dealers, during the period immediately preceding bankruptcy ?ling. This includes reliance on ?nds in foreign entities that may be subject to defensive ring- fencing during a time of ?nancial stress. For example, under the 2015 Plan, JPMC (parent) plans to withdraw cash from its I including deposited I branch as of the date of the 2015 Plan. If all or a portion of the funds deposited at the f. branch are not returned to the parent in a timely manner?cg, due to defensive ring?fencing if .3: not have access to suf?cient funds to support the recapitalization or funding needs of key material entities. The risk of. ring-fencing is heightened by the stand-alone liquidity risk pro?le of the- branch, which in stress could be exposed to substantial out?ows: (A) to third parties that interact with the branch directly, (B) to - which lends substantial amounts of overnight funds directly to the - branch, and (C) to 5 ?Model? refers to the set of calculations estimating the net liquidity surplus/de?cit at each legal entity and for the ?rm in aggregate based on assumptions regarding available liquidity, high-quality liquid assets (HQLA), and third party and interaf?liate net out?ows. 3-3: 9 which relies on the flit branch for material amounts of if" funding. Speci?cally, with respect to (C) above, the ?nancial interconnectedness between the branch and if}: presents notable challenges. The -5i? "is-ii? branch has committed to which could be drawn up to the full amount or up magnitude and nature of this interconnectedness highlight the need for the RLAP model to have detailed analysis of the interaf?liate liquidity risk pro?les and associated mitigants for the branch and . Subsequent to the submission of the 2015 Plan, legal entity liquidity pro?le appeared to have changed. "3 raises new uncertainty about the RLAP model the ?rm follows in positioning liquidity and the suf?ciency of the liquidity available to the parent to fund its material entities in times of ?nancial stress and to execute its resolution plan. This highlights the need for a clearly stated RLAP model that the ?rm consistently follows to determine and position the amount of liquidity needed at material entities and for ensuring suf?cient liquidity is readily available to its material entities. To address this de?ciency, JPMC must demonstrate in the 2016 Submission that the ?rm has developed and implemented an appropriate RLAP model that is enhanced to address the weaknesses above. Speci?cally, IPMC should be able to measure the stand?alone liquidity position of each material entity (including material entities that are non-U.S. branches)ii.e., the HQLA at the material entity less net out?ows to third parties and af?liateswand ensure that liquidity is readily available to meet any de?cits. The RLAP model should cover a period of at least 30 days and re?ect the liquidity pro?le and risk of the ?rm. The model should balance the reduction in frictions associated with holding liquidity directly at material entities with the ?exibility provided by holding HQLA at the parent available to meet unanticipated out?ows at material entities. Thus, the ?rm should not rely exclusively on either full pre?positioning or the parent. The RLAP model should ensure that JPMC holds suf?cient HQLA (inclusive of deposits at the US. branch of the lead bank subsidiary) to cover the sum of all standalone material legal entity net liquidity de?cits. The stand?alone net liquidity position of each material entity (HQLA less net outflows) should be measured using the ?rm?s internal liquidity stress test assumptions and should treat interaf?liate exposures as third?party exposures. For example, an overnight unsecured exposure to an af?liate should be assumed to mature. Finally, the ?rm should not assume that a net liquidity surplus at one material entity can be moved to meet net liquidity deficits at other material entities or to augment parent resources. Additionally, the RLAP methodology should take into account (A) the daily contractual mismatches between inflows and out?ows; (B) the daily ?ows from movement of cash and collateral for all interaf?liate transactions, especially those between the - branch, - Ia and the I. branch; and (C) the daily stressed liquidity ?ows and trapped liquidity as a result of actions taken by clients, counterparties, key ?nancial market utilities, and foreign supervisors, among others. As noted, the magnitude and nature of the interconnectedness between the- branch warrants attention as JPMC enhances its RLAP branch, and the model to address the weaknesses described above. In the 2016 Submission, the ?rrn?s enhanced RLAP model must be supported by detailed analysis of the interconnectedness of the f" and the branch under business?as-usual conditions and in severe branch, stress. In addition, the ?rm must provide an analysis comparing the output of the existing RLAP model versus the enhanced RLAP model, along with an explanation of the changes IPMC has made in its approach to funding and in its funding pro?le in order to fully implement the enhanced model. Resolution Liquidity Execution Need (RLEN): As noted above, IPMC does not have an appropriate model and process for estimating its liquidity needs to fund its material entities during the resolution period. In particular, 2015 Plan did not suf?ciently disclose or provide comprehensive support for estimating liquidity needs in resolution beyond the assumptions used for intraday reserves, buffer for postfailure severe stress out?ows, and operating expenses. Speci?cally, the 2015 Plan did not suf?ciently provide daily cash ?ow forecasts for the period following the parent bankruptcy ?ling required to stabilize the material entities and did not provide a breakout of all interaf?liate transactions and arrangements that could impact liquidity forecast estimates. For example, the 2015 Plan only provided daily cash ?ows for the ?rst seven days and last four days of the runway period, and for the ?rst three days after bankruptcy ?ling. Regarding af?liate transactions, the liquidity methodology provided cash ?ow forecasts associated with secured and unsecured ?nancing arrangements among af?liates but did not provide a comprehensive breakout of liquidity ?ows from other interaf?liate ?nancial arrangements, such as the movement of collateral from interaf?liate derivative trades based on their margining requirements. To address this de?ciency, JPMC must provide in the 2016 Submission an enhanced model and process for estimating the minimum liquidity needed to fund material entities in resolution to ensure that material entities could continue operating consistent with regulatory requirements, market expectations, and postfailure strategy. The 2016 Submission should describe the model and process enhancements and their impacts on the estimation of the liquidity needed to execute the ?rm?s strategy in resolution. Such enhancements should include greater detail on the estimation of the minimum operating liquidity required by each material entity and the estimate of the peak daily funding needs of each material entity throughout the entire stabilization period. The estimate of the operating liquidity need should not only capture intraday liquidity requirements but also include ?Jnding frictions from interaf?liate transactions, other funding frictions, working capital needs, and any other conservative buffers needed to ensure that material entities could operate without disruption throughout the resolution period. Moreover, given the related weakness associated with RLAP model, JPMC should enhance its RLEN model to conservatively re?ect the interconnectedness and potential funding I and the branch. frictions between the branch, {35:753. The estimate of the minimum liquidity needed to fund material entities in resolution relative to the ?rm?s available liquidity should be used to inform the board of directors of when the parent company may need to ?le for bankruptcy. 10 LEGAL ENTITY RATIONALIZATION The Agencies also identi?ed a de?ciency in the 2015 Plan regarding the criteria for a rational and lessncomplex legal entity structure. In order to substantially mitigate the risk that material ?nancial distress and failure would have systemic effects, JPMC should ensure that its legal entity structure promotes resolvability under the preferred resolution strategy across a range of failure scenarios. Flexibility?or ?optionality??within the resolution strategy helps mitigate risks that, if not overcome, could otherwise undermine successful execution of the preferred strategy and, more broadly, pose serious adverse effects to the ?nancial stability of the United States. The 2014 Letter directed JPMC to develop a set of criteria for a rational legal entity structure that would consider the best alignment of legal entities and business lines to improve the ?rm?s resolvability. While JPMC has provided over i: ?Target?State Principles? or criteria for rational legal entity structure (LER Criteria), the LER Criteria are not appropriately focused on resolution considerations, as many of the criteria do not mandate or clearly lead to actions or arrangements that promote the best alignment of legal entities and business lines to improve the ?rm?s resolvability. Speci?cally, a number of criteria in the 2015 Plan provide a significant amount of discretion to determine that increased complexity may be permitted without regard to the effects of that complexity on resolvability. This discretion could be used, for example, to prioritize business?as-usual needs over resolution needs in determining which project plans are undertaken. Other criteria do not focus on complexity at all, such as While conducting business as usual in an ef?cient way is an important factor in designing the structure of the firm, the resolution plan must include an adequate framework for determining 11 when the bene?ts of planning for resolution outweigh increased complexity, and, importantly, how the ?rm would address the impediments to resolution that are created by increased complexity that might serve business as usual needs. Further, the LER Criteria do not include facilitating the recapitalization of material entities. Different legal entity structures impact the timeliness and certainty with which recapitalizations can occur. For example, the lead bank subsidiary, owns the UK broker?dealer, JPMS plc, through multiple Edge Act corporations and intermediate holding companies. Funding arrangements between these entities vary in amounts, tenors, and seniority. The complexity of the ownership structure and funding chain could complicate and/or delay any recapitalization of IPMS plc. While a direct recapitalization by the parent company, JPMC, of JPMS could be executed more simply and quickly, this direct approach to recapitalization could trigger the quantitative and qualitative limits of section 23A of the Federal Reserve Act with respect to PMS plc. This approach could complicate the current funding arrangement for IPMS plc, which relies on funding from The LER Criteria also must support the alignment of legal entities and business lines to improve the ?rm?s resolvability?e.g., to promote identi?cation of actionable options to sell, transfer, or wind down discrete operations. The LER Criteria do not result in divestiture options that would provide meaningful optionality in resolution to support critical operations. Speci?cally, the 2015 Plan presented a limited set of divestiture options: These divestiture options do not appear to provide suf?cient optionality under different market conditions. 12 The divestiture Options in the 2015 Plan also were not sufficiently actionable, as the 2015 Plan sections for did not contain detailed, tailored, and complete separability analyses. For example, only one obstacle to divestiture to the . _key vendor adequately analyzed; the analysis of the other key obstacles citedmregulatory approvals, client communications, 7 i w?Were labeled in the 2015 Plan as obstacles ?that would need to be addressed at the time of the transaction.? In addition, the discussions of potential buyers and structuring for if} the 2015 Plan?s divestiture options are generic and could be applied to any business line. To address this de?ciency, 2016 Submission must establish criteria that (A) are clear and actionable and promote the best alignment of legal entities and business lines to improve the ?rm?s resolvability, and (B) include the facilitation of the recapitalization of material entities prior to the resolution period. With regard to the latter, JPMC should provide speci?c analysis regarding the recapitalization of JPMS under a range of failure scenarios. The 2016 Submission also should re?ect that JPMC has established governance procedures to ensure its revised LER Criteria are applied on an ongoing basis. The 2016 Submission must include divestiture options that enable meaningful optionality and that support successful execution of the preferred strategy under different market conditions. Each divestiture option should include detailed, business-line?specific analysis of the full range of obstacles to divestiture and associated mitigants, as well as an identification of potential buyers. This analysis should have specific, detailed project plans for making each option actionable. 13 DERIVATIVES AND TRADING ACTIVITIES The Agencies also identi?ed a de?ciency in the 2015 Plan regarding trading activities. Speci?cally, the 2015 Plan did not contain analysis of how trading portfolios could be managed down in an orderly manner Should counterparties choose to cease transacting with JPMorgan Securities, LLC (IPMS LLC), JPMorgan Clearing Corporation and JPMS plc?e.g., following rating agency downgrades or withdrawal of ratings for those entities. Rather, the executability of the 2015 Plan relied too heavily on the assumption that the liquidity support and recapitalization would facilitate an orderly ?shrink? strategy with regards to the ?rm?s trading activities. As previously described, the 2015 Plan had not established an adequate framework for maintaining suf?cient ?nancial resources at the material entities or addressing the notable challenges associated with the material ?nancial interconnectedness with . structure and resulting operational dependencies raise questions regarding strategy in the event the ?nancial connections cannot be maintained or ?nancial support cannot be provided. I Accordingly, the 2016 Submission must address the de?ciency by: (A) including an analysis and rating agency playbook for maintaining, re~establishing or establishing investment grade ratings for JPMS LLC, and IPMS plc, and (B) estimating the ?nancial resources required to support an orderly active wind down of the derivatives portfolio in the event that investment-grade ratings for the trading entities fail to be maintained, or re?established post-bankruptcy ?ling and a passive wind?down strategy is suboptimal. JPMC also should provide detailed active wind?down estimates, as per the tables in the Appendix, along with an 14 accompanying narrative describing at least one pathway for segmenting, packaging, and winding down the derivatives portfolio. The pathway and data should take into account: (A) The nature, concentration, maturity, and liquidity of derivatives positions; (B) The proportion of centrally cleared versus uncleared derivatives; (C) The anticipated size, composition, and complexity of the portfolio at the end of the wind? down period the residual or stub); (D) Challenges with novating less~liquid, longer?dated derivatives; and (E) The costs and challenges of obtaining timely consents from counterparties and potential acquirers (step?in banks). The losses and liquidity required to support the active wind?down analysis should be incorporated into estimates of the ?rm?s resolution capital and liquidity execution needs. GOVERNANCE MECHANISMS Playbooks and Triggers: In the 2015 Communication, the Agencies directed JPMC to identify the governance mechanisms in place or in deve10pment that would ensure execution of the required board actions at the appropriate time (as anticipated under preferred strategy), to include pre?action triggers and existing agreements for such actions. Such governance mechanisms are critical to resolution strategy because of its direct relationship to the de?ciency noted above concerning the ?rm?s process for maintaining suf?ciently positioned liquidity and because the 2015 Plan relies upon, among other things, the timely of signi?cant ?nancial resources from the parent to IPMCB and the US. broker?dealers (Support). In other words, appropriately calibrated mechanisms are vital to the timely, successful recapitalization of the key operating subsidiaries prior to bankruptcy to ensure they are suf?ciently supported to enable them to operate or wind down outside the bankruptcy of 15 the parent company. The Agencies identi?ed a de?ciency regarding the governance framework necessary to facilitate timely execution of the planned subsidiary funding and recapitalizations. JPMC has not demonstrated adequate governance mechanisms for the timely execution of the ?rm?s resolution strategy. The Board of Directors playbooks contained in the 2015 Plan lack detail regarding speci?c triggers, procedures for escalating information to senior management and the board, and actions required upon reaching a trigger event. Although the Board of Directors playbooks list many actions that would be taken during the runway period, these actions are not linked to any speci?c trigger, raising uncertainty regarding whether key actions would be taken when required for successfully executing the ?rm?s preferred strategy. For example, the 2015 Plan stated which raises questions as to how and whether the directors would obtain information about the ?rm?s condition in a timely manner. In addition, the ?rm?s governance playbook did not contain triggers linking the estimates of the capital and liquidity needed to support material entities in resolution with the timely execution of a bankruptcy ?ling, which raises uncertainty as to whether bank and US. broker?dealer subsidiaries would have suf?cient resources to facilitate an orderly ?shrink? of their trading activities at the time JPMC ?les for bankruptcy. These weaknesses could undermine the executability of the ?rm?s ?recap and shrink? strategy outlined in 201 5 Plan. To address this de?ciency, the 2016 Submission must amend, or include a project plan to amend, the board?s playbooks submitted in the 2015 Plan. The amended playbooks must include clearly identi?ed triggers linked to speci?c actions for: 16 (A) the escalation of information to senior management and the board(s) to potentially take the corresponding actions at each stage of distress post?recovery leading eventually to the decision to ?le for bankruptcy; and (B) the timely execution of a bankruptcy ?ling and related pre-?ling actions.6 These triggers should be based, at a minimum, on capital, liquidity, and market metrics, and should incorporate methodologies for forecasting the liquidity and capital needed to operate following a bankruptcy ?ling. Moreover, the triggers and related actions under the mechanism must be speci?c. Shortcomings IPMC must address the shortcomings identi?ed in this letter in its 2017 Plan. If the Agencies jointly decide that these matters are not satisfactorily addressed in the 2017 Plan, the Agencies may determine jointly that the 2017 Plan is not credible or would not facilitate an orderly resolution under the US. Bankruptcy Code. GOVERNANCE MECHANISMS Free?Bankruptcy Parent Support: As noted, JPMC is developing its Capital Contribution Agreement (CCA) as a means of recapitalizing certain subsidiaries prior to bankruptcy ?ling. The Agencies identi?ed a shortcoming in the 2015 Plan regarding limited analysis of the range of potential legal challenges that could adversely affect the Support. To address this shortcoming, the 2017 Plan should further develop a detailed legal analysis of the potential state law and bankruptcy law challenges and mitigants to the planned 6 Key pre-?ling actions include the preparation of any emergency motion required to be decided on the ?rst day of the ?rm?s bankruptcy. 17 provision of Support. Speci?cally, the analysis should identify any potential legal obstacles and explain how JPMC would seek to ensure that Support would be provided as planned. The 2017 Plan also should include the mitigant(s) to potential challenges to the planned Support that JPMC considers most effective. In identifying appropriate mitigants, JPMC should consider the effectiveness of mitigants other than, or in addition to, the CCA, such as pre? positioning of financial resources in material entities and the creation of an intermediate holding company. governance playbooks ?included in the 2017 Plan should incorporate any developments from further analysis of potential legal challenges regarding the Support, including any Support approach(es) JPMC has implemented. OPERATIONAL The firm should identify all material outsourced services that support critical Operations and could not be substituted. It should also evaluate the agreements governing these services to determine whether there are any that could be terminated despite continued performance upon bankruptcy ?ling. In the 2017 Plan, JPMC should describe a process to amend any such agreements governing these services to ensure that they would continue in the event of the ?rm?s entry into resolution. 18 IV. Conclusion If you have any questions about the information communicated in this letter, please contact the Agencies. Very truly yours, (Signed) Robert deV. Frierson Secretary of the Board Board of Governors of the Federal Reserve System 19 Very truly yours, (Sigmd) Robert E. Feldman Executive Secretary Federal Deposit Insurance Corporation Appendix Instructions for Preparation of Appendix Derivative Data Tables General Instructions Purpose To provide estimates related to the active wind down of reporting furns? derivatives portfolios for Title 1 resolution planning purposes. Who Must Report This Appendix is required to be included in the 2016 Submission of any firm for which the Agencies have jointly identi?ed a de?ciency with respect to Derivatives and Trading Activities. This Appendix also should be included in the 2017 Plans as per the joint Agencies? guidance. Organization of Schedules Schedule A To summarize the data captured in Schedule B. Schedule a To capture starting and ending notional and fair value derivatives data by material entity, as well as drivers of changes, capital and liquidity impacts ?oni wind-down, and select interraf?liate expo sures, between the lead bank subsidiary and UK broker-dealer. Schedule To comprehensiver capture inter-af?liate exposures between material entities across several dimensions as of the start of plan date. Key de?nitions Bilateral Refers to overuthe-counter derivatives (OTC) that are not listed or cleared through a central counter-party. Cleared Refers to derivatives that are listed on an exchange or cleared through a central counterparty (CCP). Firms may include derivatives that are eligible for clearing but are not currently centrally cleared in this category but should footnote the amount included. 1 General Instructions Gross Notional Firms should utilize the de?nition from Schedule HC-L Derivatives and Off? Balance-Sheet Items of Reporting Form FR Consolidated Financial Statements for Holding Companies. Figures should be reported in billions. Gross PositivefNegativc Fair Value Estimates of fair value should be consistent with those used in Form FR Y-9C Consolidated Financial Statements for Holding Companies. Gross positive/negative fair values should be reported without taking into account netting and collateral received/posted. Figures should be rcported in billions. Liquidity Impacts Estimates of net liquidity impacts over the relevant period should be reported in billions with net liquidity in?ows shown as positive and net liquidity out?ows shown as negative. Material Entity The definition of a material entity for this data appendix is the same as it is for ?nns? Title 1 resolution plans. Firms should report data for all material entities that are contractual counterparties to derivatives contracts and have active derivative positions as of the start of plan date. Material entities should be listed in descending order by total gross notional outstanding as of the start of plan date. This ordering should be maintained for all schedules in this data appendix. Impacts Estimates of gains or losses over the relevant period should be reported in billions with gains shown as positive and losses as negative. Runway Period For this data appendix, the runway period should commence with the start of plan date and end with the parent company ?ling for bankruptcy. Start of Plan Date The start of plan date should correspond with the ?trigger loss? and the commencement of the runway period in ?rms? resolution plans. For 2016 Submission, the ?rm should use March 31, 2016 as the start of plan date. For ?rms? 2017 Plan submissions, firms should utilize December 31, 2016 as their start of plan date. Wind-Down Period For this data appendix, the mind-down period should commence upon the parent company ?ling for bankruptcy and end when the firm estimates that it would no longer need to perform on its derivatives obligations. As such, the wind-down period here should include any ?stabilization? and post-stabilization period, to the extent such a phase may feature 2 General Instructions in a ?rm?s plan. The Mnd~down period should be no Shorter than 12 months and no longer than 18 months. Firms may select the duration of their wind-doum period within these: constraints. 3 General Instructions Board of Governors of the Federal Reserve svstem Federal Deposit Insurance Corporation Title 1 Plan?Appendix Derivative Data Tables Start of Plan Date: Month Dev 3' Year Companv Information Legal Name of Entity Street Citv State zip Code Person to whom questions about this report should be directed: Name Title Area CodefPhone Number Area Codeme Number E-mail Address of Contact 2015 Pagelof? Schedule lit?Summary Tables Table 1 - Gross Nationals By Material Entity ME-Z ME-B ME-Q . 1012015 Schedule ?it?Continued Table 2 Capital and Liquidity Impacts Page 3 of i" PEIL Impact [Wind-Dpwn Period Only} Liquidity Impact [Wind-Down Period Only} By Material Entity from Terminations from Nayations from Other Actions. {Specify} Total Impact from Wind-Down Liquidity Impact from Terminatipns Liquidity impact from Maturities Liquidity Impact from Nouatiuns Liquidity Impact from Other Actions {Specify} Total Liquidity Impact from Wind-Down ME-1 E-2 E-3 E-4 E-S E-E E-B E-Q Page 4 of Scheduie B?General OTC Derivatives Volume Table Lilli?All OTC Derivatives (Sum of Table 1.3 and Table Start Balm as [Date [Be-r Title_1 flan] Terminations in Runway Maturing Derivatives in Runway -. -. IP51. By Material Trading . Termlnatlorls ota qm Impact Matu?m Grass Implant "ii. a Entities Unit or Gross [Losses] from from. Nationals from Maturlng Cleared Bilateral Cleared Bilateral Cleared Bilateral ?mm? Temm'm? ?mums mm? Table Manning Derivatives in Down "ovations in Wind Down Other Actions {Specify} in End of'Wind Down - I . a? material m? or - laminar ntitles Product Nationals mucosa-acts mam in? we} Geared Bilatm' Table 1. 81? Of which Third Party OTC Derivatives {same format as Table Table Of which Inter-af?liate OTC Derivatives [same format as Table 1 Table 13 The material entity?s gross derivative transactions with all third parties [in aggregate]. 1 Tabie 13 The material entity?s gross derivative transactions with all third parties [in aggregate]. urn-u.- Schedule B?Continued Page 5 of 7' Tables 1.C1 through 1.0: must be completed bv speci?c entities onlv, speci?cally: 1} the inter?af?liate derivative transactions between the lead bank subsidiarv and the UK broker-dealer and 2] the lead bank subsidiaryr and other material entities, such as unregulated capital services subsidiaries or ?rm sponsored Table OTC Derivatives Between Bank and UK Broker-Dealer From Bank Perspective Start Balame as Terminations in Iturrwav Metering Derivatives in Itqu Th? 32?7": IP I.i I I ?mam? raiding 1- Tenmnatlons ota BL qul mpact maturime a Dealer Unit or Gross [Losses] from from Nationals from Maturtng Pram-Id Cleared Bilateral Geared Bilateral cleared Bilateral nationals TEImthians Tammi? commas Table 1.C1?Continued From Bank Perspective Manning Derivatives in Wind Dawn "ovations in ??nd Dawn Other Actions [Specify] in ??nd-Dunn End ufw'ind noun: . . . . Palm Liquitity mun Impact enmity Actions- UIu'queltnur UK?Broker (?mg man-?ngers: '1 "5 Pal Other frornOther h?ac?tfrom . I Unitor ?w times from {Specify} m5 Other: - ea er Product ?3 National "ovations Hawaiians National - Cleared Table LEI?Inter-af?liate OTC Derivatives Between Bank and Other Material Entity {same format as Tahie Table OTC Derivatives Between Bank and Other Material Entity [same format as Table 1321] 3 Note: If there are "other" categories not captured in the novation, compression, terminations, and maturating derivatives categories in the example table, piease add and specifv. lemma Table OTC Derivatives Between Bank and Other Material Entityr [same format as Table 1.121] Schedule C?lnter-af?liate Exposures The lower triangle should be from the perspective of the MEs listed on column to the MEs listed in the rows. Page 5 of Ir' Matrix 1.a?Gross Notional of inter-af?iiate OTC Derivatives Trade {Start ofTItle 1 Plan Data Matrix Lil?Gross Notional of Inter-af?liate OTC Derivatives Trade [End of Mad-Down} HIE-2 ME-Z HIE-3 ME-i't? ME-E E-E ME-JD HIE-3 HIE-4 ME-S ME-E ME-S ME-Q ME- Matrix 2.a - Uncollateralized Current Exposure from Inter-af?liate OTC Derivatives (Start of Plan Date) (same format as Matrix La} 10! 20 16 ll Page Ta? of Ir' Matrix 2.b Uncollateralized Current Exposure from Inter-af?liate OTC Derivatives, Gross of Collateral (End of Wind-Down) (same format as Matrix Lb) Matrix 3.3 - Net Collateralizecl Current Exposure from Inter-af?liate OTC Derivatives [Start of Plan Date) (same format as Matrix La) Matrix 3.b - Net Collateralized Current Exposure from Inter-af?liate OTC Derivatives (Start of Plan Date) {same format as Matrix La) 1012016