ECB Sanctions J.P. Morgan for Misreporting Capital Requirements

WHY THIS MATTERS: The €12.18 million penalty imposed by the European Central Bank (ECB) on J.P. Morgan SE, while small in absolute terms for a global banking titan, carries significant weight in the realm of regulatory compliance and supervision. The extended timeline of the breaches—spanning up to 21 consecutive quarters—is particularly alarming, highlighting persistent and systematic deficiencies in internal controls, even within highly sophisticated institutions. This incident serves as a sharp reminder to the industry that supervisors are focused intensely on data integrity and the foundation of capital adequacy. By miscalculating Risk-Weighted Assets (RWAs) for both corporate exposures and Credit Valuation Adjustment (CVA) risk, the bank presented a misleading picture of its loss-absorption capacity. This penalty strongly reinforces the ECB’s commitment to strict application of the Basel framework, indicating zero tolerance for lax internal processes that compromise the supervisory body’s comprehensive view of systemic risk.

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.

FF NEWS TAKE: This sanction decisively moves the needle by proving that the ECB is willing to enforce supervisory standards with severity, regardless of the bank’s stature. The focus on “serious negligence” due to poor internal processes underscores a major regulatory compliance theme: the need for continuous, robust data quality controls. We should watch for the immediate market response regarding the reliability of capital ratio reporting across other SIFIs under ECB supervision. Furthermore, attention will turn to whether the penalized bank opts to legally challenge the “severe” classification before the Court of Justice of the European Union, which could establish a key legal precedent in supervisory enforcement.