JPMORGAN CHASE WHALE TRADES: A CASE HISTORY OF DERIVATIVES RISKS AND ABUSES

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• “A stressed value-at-risk (SVaR) model, which adds to the VaR-based capital
requirements in Basel II. SVaR is intended to capture more adequately the
potential consequences of more volatile market conditions than those encountered
in the historical prices on which their VaR models are based.
• The incremental risk charge (IRC), which aims to capture default and credit
migration risk.
• New standardized charges for securitization and resecuritization positions.
• The comprehensive risk measure (CRM) for correlation trading positions, which
assesses default and migration risk of the underlying exposures.” 1056
Because these measures were relatively new, 1057 JPMorgan Chase’s revised RWA model,
together with its component CRM model, were put into effect for the first time in 2011, and were
still being evaluated and fine-tuned in 2012. 1058 In addition, some business segments, like the
CIO, were attempting either to modify the bankwide models or win approval to use their own
variations. 1059
At the CIO, CRM was used to measure risk and capital requirements related to credit
tranche positions and their associated hedges. 1060 While CRM is a component of RWA and thus
used to determine capital requirements, Mr. Venkatakrishnan told the Subcommittee that it can
also be used to gauge the risk of a portfolio. 1061
(b) Challenging the CRM Results
JPMorgan Chase applied the CRM risk metric to the Synthetic Credit Portfolio beginning
in 2011. 1062 In December 2011, the bank decided to combine the CIO’s CRM results with those
of the Investment Bank, which “produced a diversification benefit” and lowered the CRM totals
for both. 1063 In January 2012, however, the CIO’s CRM totals suddenly began to skyrocket. On
January 4, CRM was calculated at $1.966 billion. 1064 On January 11, it was $2.344 billion. 1065
On January 18, it reached $3.154 billion. 1066
1056 Id.
1057 See 2/2011 “Revisions to the Basel II Market Risk Framework,” Basel Committee on Banking Supervision,
http://www.bis.org/publ/bcbs193.pdf.
1058 Subcommittee interview of John Hogan and Ashley Bacon, JPMorgan Chase (9/4/2012).
1059 See, e.g., 12/22/2011 email from Javier Martin Artajo, CIO, to Ina Drew, CIO, and others, “RWA –
Tranche Book,” JPM-CIO-PSI 0000032 (advocating a change in the QR CRM model to produce an
estimated $5 billion reduction in the SCP’s RWA total); Subcommittee interview of Patrick Hagan, CIO
(2/7/2013).
1060 See id.; Subcommittee interview of C.S. Venkatakrishnan, JPMorgan Chase (10/25/2012).
1061 Subcommittee interview of C.S. Venkatakrishnan, JPMorgan Chase (10/25/2012).
1062 Subcommittee interview of Peter Weiland, CIO (8/29/2012).
1063 See 1/9/2012 email from Keith Enfield, CIO, to Achilles Macris, CIO, and others, “CRM Results for Q4,” JPM-
CIO-PSI 0000085. See also 1/9-10/2012 email exchanges among CIO personnel, “CRM results for Q4,” JPM-CIO-
PSI 0000083-84.
1064 3/2/2012 email from Kevin Krug, JPMorgan Chase, to Peter Weiland, CIO, and others, “CIO CRM Results,”
JPM-CIO-PSI 0000338-339, at 339.
1065 Id.
1066 Id. See also 3/8/2012, email from Javier Martin-Artajo, CIO, to Ina Drew, CIO, and others, “CIO CRM
Results,” JPM-CIO-PSI 0008773-8775, at 8775; 3/22/2012 email from C.S. Venkatakrishnan, JPMorgan Chase, to
Bruce Broder, JPMorgan Chase, “Privileged and Confidential,” JPM-CIO-PSI 0036179-81, at 180-81.