Business sense / JPMorgan Chase

Growth needs capital as well as deposits.

CET1 is qualifying common equity capital divided by risk-weighted assets.

How the choices connect

Analytical map · test the links rather than assuming causation
  1. 01

    Earn a spread

    Loan yield minus funding cost starts the income bridge.

  2. 02

    Absorb losses

    Expected credit losses and expenses reduce profit.

  3. 03

    Risk-weight assets

    Risk-weighted exposure determines capital demand.

  4. 04

    Preserve a buffer

    Compare post-stress capital with a stated target.

The economic question

A larger loan book can produce more income while using scarce equity. Compare risk-adjusted contribution per unit of required capital, not yield alone. Deposits provide funding; they do not replace loss-absorbing common equity.

What to investigate

Stress credit losses and funding outflows separately. This simplified ratio exercise omits taxes, risk-weight changes, earnings and regulatory buffers; it is a casing method, not a bank solvency assessment.

Explore the capital stress test →

Separate the fact from the inference

Reported · historical snapshot

JPMorgan Chase reported a standardized common equity Tier 1 capital ratio of 15.7% at year-end 2024. The ratio compares qualifying common equity capital with risk-weighted assets, rather than with total deposits.

JPMorgan Chase FY2024 annual report · Capital risk management ↗

Reporting period is stated above; this is not a live financial feed.

Method · Harper analysis

For a lending expansion, estimate interest income less funding cost, expected credit losses and operating cost. Then calculate additional risk-weighted assets and the equity capital needed to maintain the target ratio.

A falsifying check

Stress credit losses and deposit withdrawals separately: capital absorbs losses, while liquidity meets cash outflows. A high capital ratio alone does not demonstrate that every asset can be sold quickly.

Would you prefer a higher-yield loan portfolio if it requires substantially more equity? Compare profit per unit of required capital under base and stressed losses.

Original case lab · illustrative, not company results

What does a credit loss do to lending capacity?

Synthetic bank: $15.7bn CET1; $100bn risk-weighted assets (RWA); management target 12%. Loss reduces CET1 one-for-one; RWA held constant initially. The 12% target is illustrative, not JPMorgan guidance or a regulatory minimum.

Post-loss ratio = (15.7 − loss) ÷ 100. RWA headroom = (15.7 − loss) ÷ 12% − 100.

Negative headroom means the bank would need more capital or lower RWA to meet this target. It does not measure cash liquidity.

Carry the method into a complete fictional case. The Studio exercise practices a related skill; it does not simulate JPMorgan Chase.

Open related Case Studio practice →Read the framework →