• J.P. Morgan breached reporting rules on credit risk and credit valuation adjustment risk
• ECB imposes two penalties amounting to €12.18 million

The European Central Bank (ECB) has imposed two administrative penalties totalling €12.18 million (€12,180,000) on J.P. Morgan SE after the bank reported wrongly calculated risk-weighted assets.

Between 2019 and 2024, the bank reported lower risk-weighted assets than it should have done. This occurred because, for 15 consecutive quarters, the bank misclassified corporate exposures and applied a lower risk-weight for credit risk to them than what banking rules prescribe. The bank also, for 21 consecutive quarters, unduly excluded certain transactions when calculating risk-weighted assets for its credit valuation adjustment risk, which captures the risk that the counterparty to a derivative contract may default.

The bank committed both breaches with serious negligence, driven by evident deficiencies in its internal processes. The bank’s internal controls did not detect the breaches in a timely manner.

The bank reported wrongly calculated figures to the ECB, therefore preventing the ECB from having a comprehensive view of its risk profile. Risk-weighted assets are a measure of the risks a bank has on its books. They serve as a basis for banks to calculate their capital requirements. As a result of underestimating its risk-weighted assets, the bank reported higher capital ratios than it should have done. Capital ratios are key indicators of a bank’s capital strength and its ability to absorb losses.

When deciding on the amount of a penalty to sanction a bank, the ECB applies its Guide to the method of setting administrative pecuniary penalties. Out of the severity categories “minor”, “moderately severe”, “severe”, “very severe” and “extremely severe”, the ECB classified the credit risk breach and the credit valuation adjustment risk breach, respectively, as “severe” and “moderately severe”. More details on sanctions imposed by the ECB are available on our supervisory sanctions web page.

The bank may challenge the ECB’s decision before the Court of Justice of the European Union.

Source: ECB