Fitch has reported a reduction for JP Morgan in its so-called Method 2 G-SIB surcharge, following the bank's managing down non-operating deposits, OTC derivatives, and Level 3 assets by some $15bio. As a result, it has been able to pare back its capital surcharge to the less onerous 3.5 % bucket. Operating deposits are a new definition requiring quantitative substantiation of their use to support transactional activity... otherwise it is a non-operating deposit and less attractive to deposit taking firms.
Such decisions really drive for me to the heart of the tension between risk appetite such as OTC derivative outstandings, linked to profitability, and the need to hit risk appetite limits such as defined capital targets in the risk appetite statement. Such trade offs are increasingly common at banks and JP Morgan appears to be able to make these calls and live with the client and profitability consequences. Recent performance reports show a small decline in FICC income for example according the IFR.
The so-called G-SIB capital buffer is included in regulatory CCAR reporting, forcing banks to hold more capital before dividends are paid and thus requiring active capital and risk management and thus tough risk appetite decisions. The risk appetite/return trade off is just another example of the game of banking twister faced by so many banks today involving board input. The Fitch report can be found here: https://www.fitchratings.com/site/fitch-home/pressrelease?id=997887
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