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J.P. Morgan Fortifying Its Balance Sheet

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Regulatory capital requirements for US Banks

J.P. Morgan Chase & Co. is a financial holding company based in the United States (SPY). It has a market cap of $228.2 billion as of October 13. With assets of over $2.4 trillion, it is one of the largest banks by assets in the United States.

Since the financial crisis of 2009, there has been intense pressure on US banks to raise capital levels to meet minimum requirements. Since then, they have worked hard to reduce leverage and fortify their balance sheets. Leverage ratios are measures of the quality of a bank’s assets. Leverage ratios are the proportion of a bank’s Tier 1 Capital ratio to its total assets.

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J.P. Morgan’s capital ratios

During the third quarter, J.P. Morgan’s (JPM) Common Tier 1 Capital rose to $172 billion from $169 billion in the previous quarter. The Common Tier 1 ratio for the third quarter under Basel III norms was 11.4%—up from the 11% reported in the previous quarter.

Tier 1 Capital rose from $194 billion in the second quarter to $198 billion. Correspondingly, its Tier 1 Capital ratio climbed to 13.1% from 12.7% in the previous quarter and 11.3% in 3Q14.

The company’s risk-weighted assets fell to $1,515 billion from $1,532 billion in the previous quarter and $1,613 in 3Q14. Total assets declined by $156 billion due to a reduction in nonoperating deposits. J.P. Morgan’s leverage ratio increased to 6.3% during the third quarter from 6.0% in 2Q15 and 5.5% in 3Q14.

J.P. Morgan is the first among the largest U.S. banks to report third quarter earnings. Its peers Citigroup (C), Goldman Sachs (GS), Wells Fargo (WFC), and Bank of America (BAC) also report their third quarter earnings this week.

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