JPMorgan Chase gets top scores from large bank systemic risk monitor – including in new ‘contagion index’

JPMorgan Chase bank ranks at the top of the largest banks in three key measures for monitoring their systemic risks to the global financial system, according to a report issued Tuesday by the federal agency that provides data and analysis about the nation’s financial institutions.

The Treasury Department’s Office of Financial Research (OFR) said the New York-based bank scored at the top in three categories of the Bank Systemic Risk Monitor (BSRM), published Tuesday: Basel scores, U.S. global systemically important banks (G-SIBs) and a new “contagion index.” That third category measures the exposure of the financial system to banks in the listings.

Those three categories – plus two others – are designed to monitor the largest banks and their interconnections, the OFR said.

According to the BSRM, JP Morgan Chase scored 437 for Basel scores among international banks (earning the bank a Basel G-SIB capital surcharge – or capital add-on – of 2.5%, the highest of the 30 banks listed on the score chart). The lowest score on the chart, for Group BPCE, a French bank, is 129. That bank earned a Basil G-SIB capital surcharge of 1%.

Under the rankings of U.S. G-SIBs, JPMorgan Chase earned the top score of 690 (earning a 3.5% G-SIB capital surcharge – the highest of the 30 U.S. banks on the list). The lowest score on the chart is for Regions Financial at 20. That bank is exempt from the U.S. G-SIB capital surcharge.

On the new “contagion index” – which OFR said measures the loss that could spill over to the rest of the financial system if a given bank were to default – JPMorgan Chase scored 349, well above (about 148%) of the next highest-scoring bank, Citigroup, at 236. The lowest score (that is, above zero) was for Regions Bank at 2.

OFR said the components of the contagion index are connectivity, net worth and outside leverage. “Connectivity” is measured as the share of the bank’s unsecured liabilities that are held by other financial institutions; the ratio of the bank’s liabilities within the financial system to the bank’s total liabilities. “With higher connectivity, a bank’s failure has a potentially broader impact on the rest of the financial system,” the agency said.

OFR noted that net worth (the difference between a bank’s assets and its liabilities) is used as a component because “a larger bank’s failure can have a broader impact on the financial system, other things being equal.”

“Outside leverage,” the third component, OFR said, “captures the vulnerability of the bank to shocks from the real side of the economy. It is the ratio of a bank’s claims on nonfinancial entities to its net worth.”

The formula for calculating the index scores is connectivity x net worth x (outside leverage -1), according to OFR.

Rounding out the top 10 listings of the contagion index are:

  • Bank of New York Mellon (score of 174)
  • Wells Fargo (161)
  • State Street (136)
  • Bank of America (118)
  • Goldman Sachs (60)
  • Morgan Stanley (45)
  • HSBC North America (37)
  • Credit Suisse USA (34)

The BSRM contains two other categories: leverage/assets/equity; and short-term wholesale funding.

Charles Schwab leads the list of the leverage ratio with 13% capital; JPMorgan Chase is at the top in assets with $2.76 trillion; and Bank of America leads the equity list with $268 billion.

On short-term wholesale funding – with three sub-measures of short-term wholesale funding (STFA) amounts to average risk-weighted assets, percentage of that measure to the bank’s total liabilities (STF-dependence), and a comparison of the STFA to average weighted high-quality liquid assets (STF-coverage) – DB USA scored 119 in the first subcategory, Barclays US scored 52 in the second, and Barclays US scored 474 in the third group.

OFR Bank Systemic Risk Monitor