Dear Fellow Shareholders,

America and the rest of the world are facing the confluence of three important and conflicting forces: 1) a strong U.S. economy, which, we hope, has COVID-19 in its rearview mirror; 2) high inflation, which means rising interest rates and, importantly, the reversal of quantitative easing (QE); and 3) the war in Ukraine and the accompanying humanitarian crisis, with its impact on the global economy in the short term, as well as its significant impact on the geopolitics of the future. These factors will likely have a meaningful effect on the economy over the next few years and on geopolitics for the next several decades.

I should remind the reader that we normally don’t worry about — or even try to predict — normal fluctuations of the economy. In all times, we are prepared for difficult markets and severe recessions, as well as for unpredictable events, not only so we will survive them but also so we can be there for our clients when they need us the most. However, sometimes there are powerful underlying structural trends that we must try to understand since their impact can be so large, with widespread impact on many parts of human existence.

The U.S. economy is strong.

In 2020 and 2021, enormous QE — approximately $4.4 trillion, or 18%, of 2021 gross domestic product (GDP) — and enormous fiscal stimulus (which has been and always will be inflationary) — approximately $5 trillion, or 21%, of 2021 GDP — stabilized markets and allowed companies to raise enormous amounts of capital. In addition, this infusion of capital saved many small businesses and put more than $2.5 trillion in the hands of consumers and almost $1 trillion into state and local coffers. These actions led to a rapid decline in unemployment, dropping from 15% to under 4% in 20 months — the magnitude and speed of which were both unprecedented. Additionally, the economy grew 7% in 2021 despite the arrival of the Delta and Omicron variants and the global supply chain shortages, which were largely fueled by the dramatic upswing in consumer spending and the shift in that spend from services to goods. Fortunately, during these two years, vaccines for COVID-19 were also rapidly developed and distributed.

In today’s economy, the consumer is in excellent financial shape (on average), with leverage among the lowest on record, excellent mortgage underwriting (even though we’ve had home price appreciation), plentiful jobs with wage increases and more than $2 trillion in excess savings, mostly due to government stimulus. Most consumers and companies (and states) are still flush with the money generated in 2020 and 2021, with consumer spending over the last several months 12% above pre-COVID-19 levels. (But we must recognize that the account balances in lower-income households, smaller to begin with, are going down faster and that income for those households is not keeping pace with rising inflation.)

Today’s economic landscape is completely different from the 2008 financial crisis when the consumer was extraordinarily overleveraged, as was the financial system as a whole — from banks and investment banks to shadow banks, hedge funds, private equity, Fannie Mae and many other entities. In addition, home price appreciation, fed by bad underwriting and leverage in the mortgage system, led to excessive speculation, which was missed by virtually everyone — eventually leading to nearly $1 trillion in actual losses.

During 2020 and 2021, many aberrant things also happened: 2 million people retired early; the supply of immigrant workers dropped by 1 million due to immigration policies; available jobs skyrocketed to 11 million (again unprecedented); and job seekers dropped to 5 million. Wage growth accelerated dramatically, particularly in low-income jobs. We should not be unhappy that wages are going up — and that workers have more choices and are making different decisions — in spite of the fact that this causes some difficulties for business. House prices surged during the pandemic (housing became and still is in extremely short supply), and asset prices remained high, some, in my view, in bubble territory. Inflation soared to 7%; while clearly some of this rise is transitory due to supply chain shortages, some is not, because higher wages, higher housing costs, and higher energy and commodity prices will persist (more to come on this later). All these factors will continue in 2022, driving further growth as well as continued inflation. One additional point: Consumer confidence and consumer spending have diverged dramatically, with consumer confidence dropping. Spending, however, is more important, and the drop in consumer confidence may be in reaction to ongoing fatigue from the pandemic shutdown and concerns over high inflation.

Persistent inflation will require rising interest rates and a massive but necessary shift from quantitative easing to quantitative tightening.

It is easy to second-guess complex decisions after the fact. The Federal Reserve (the Fed) and the government did the right thing by taking bold dramatic actions following the misfortune unleashed by the pandemic. In hindsight, it worked. But also in hindsight, the medicine (fiscal spending and QE) was probably too much and lasted too long.

I do not envy the Fed for what it must do next: The stronger the recovery, the higher the rates that follow (I believe that this could be significantly higher than the markets expect) and the stronger the quantitative tightening (QT). If the Fed gets it just right, we can have years of growth, and inflation will eventually start to recede. In any event, this process will cause lots of consternation and very volatile markets. The Fed should not worry about volatile markets unless they affect the actual economy. A strong economy trumps market volatility.

This is in no way traditional Fed tightening — and there are no models that can even remotely give us the answers. I have always been critical of people’s excessive reliance on models — since they don’t capture major catalysts, such as culture, character and technological advances. And in our current situation, the Fed needs to deal with things it has never dealt with before (and are impossible to model), including supply chain issues, sanctions, war and a reversal of QE in the face of unparalleled inflation. Obviously, the Fed always needs to be data-dependent, and this is true today more than ever before. However, the data will likely continue to be inconsistent and volatile — and hard to read. The Fed should strive for consistency but not when it’s impossible to achieve.

One thing the Fed should do, and seems to have done, is to exempt themselves — give themselves ultimate flexibility — from the pattern of raising rates by only 25 basis points and doing so on a regular schedule. And while they may announce how they intend to reduce the Fed balance sheet, they should be free to change this plan on a moment’s notice in order to deal with actual events in the economy and the markets. A Fed that reacts strongly to data and events in real time will ultimately create more confidence. In any case, rates will need to go up substantially. The Fed has a hard job to do so let’s all wish them the best.

The shift from QE to QT will cause a massive change in the flow of funds in and out of Treasury bonds and, therefore, all securities. Our situation today is completely unlike the monetary policy adjustments following the great financial crisis of 2008. When central banks were buying bonds from 2008 to 2014, there was a tremendous amount of deleveraging in the rest of the financial world. Clearly, this deleveraging slowed growth, which in turn reduced the need for business investment. In addition, banks were required to buy Treasuries to meet their new liquidity requirements. This action reduced both lending and the money supply in the years after the great financial crisis. Low growth also led to less capital needed, and QE added to the savings glut. I am still convinced that these are some of the primary reasons our economy experienced low growth and so-called “secular stagnation.”

In today’s economic environment, countries’ central banks do not need to increase their foreign exchange reserves as they did after the great financial crisis, and banks don’t need to buy Treasuries to improve their liquidity ratios. This time around, business investment will likely be higher, both because of higher growth and because the capital required to combat climate change is estimated to be more than $4 trillion annually. Finally, governments will also need to borrow more money — not less.

This massive change in the flow of funds triggered by Fed tightening is certain to have market and economic effects that will be studied for decades to come. Our bank is prepared for drastically higher rates and more volatile markets.

The war in Ukraine and the sanctions on Russia, at a minimum, will slow the global economy — and it could easily get worse.

The effects of geopolitics on the economy are harder to predict. For as much attention as it gets, geopolitics over the past 50 years have rarely disrupted the global economy in the short run (think Afghanistan; Iraq; Korea; Vietnam; conflicts between Pakistan and India, India and China, China and Vietnam, Russia and China; and at least 10 other upheavals and wars in the Middle East). The 1973 Organization of the Petroleum Exporting Countries, or OPEC, oil embargo was an exception, when the sharp jump in oil prices pushed the world into a global recession. However, it’s important to point out that while past geopolitical events often did not have short-term economic effects, they frequently had large, longer-term consequences — such as America’s experience with the Vietnam War, which drove the great inflation of the 1970s and 1980s and tore the body politic apart.

As I write this letter, the war in Ukraine has been raging for well over a month and is creating a significant refugee crisis. We do not know what its outcome ultimately will be, but the hostilities in Ukraine and the sanctions on Russia are already having a substantial economic impact. They have roiled global oil, commodity and agricultural markets. We expect the fallout from the war and resulting sanctions to reduce Russia’s GDP by 12.5% by midyear (a decline worse than the 10% drop after the 1998 default). Our economists currently think that the euro area, highly dependent on Russia for oil and gas, will see GDP growth of roughly 2% in 2022, instead of the elevated 4.5% pace we had expected just six weeks ago. By contrast, they expect the U.S. economy to advance roughly 2.5% versus a previously estimated 3%. But I caution that these estimates are based upon a fairly static view of the war in Ukraine and the sanctions now in place.

Many more sanctions could be added — which could dramatically, and unpredictably, increase their effect. Along with the unpredictability of war itself and the uncertainty surrounding global commodity supply chains, this makes for a potentially explosive situation. I speak later about the precarious nature of the global energy supply, but for now, simply, that supply is easy to disrupt. (We should also keep in mind that, as a percentage of global GDP, oil is only about 40% of what it was in 1973 – but it is still essential and critical.)

The confluence of these factors may be unprecedented.

Each of these three factors mentioned above is unique in its own right: The dramatic stimulus-fueled recovery from the COVID-19 pandemic, the likely need for rapidly raising rates and the required reversal of QE, and the war in Ukraine and the sanctions on Russia. They present completely different circumstances than what we’ve experienced in the past – and their confluence may dramatically increase the risks ahead.

While it is possible, and hopeful, that all of these events will have peaceful resolutions, we should prepare for the potential negative outcomes. In the next section, I discuss immediate actions we should take to protect us from potential serious problems.

The war could affect geopolitics for decades.

Russian aggression is having another dramatic and important result: It is coalescing the democratic, Western world — across Europe and the North Atlantic Treaty Organization (NATO) countries to Australia, Japan and Korea. The United States and the West realize there is no replacement for strong allies and strong militaries.

The war and prior trade disputes with China also highlight the critical importance of economic relationships and trade, particularly trade that involves anything affecting national security. The outcome of these two issues will transcend Russia and likely will affect geopolitics for decades, potentially leading to both a realignment of alliances and a restructuring of global trade. How the West comports itself, and whether the West can maintain its unity, will likely determine the future global order and shape America’s (and its allies’) important relationship with China, which I talk more about later in this letter.

How are we managing our global bank in these difficult markets and complex times?

Our hearts go out to all of those affected by the war — JPMorgan Chase and its employees have already donated over $5 million to the Ukrainian humanitarian crisis, with more to come.

JPMorgan Chase has also played its part in the implementation of the Western world’s policies and sanctions regarding Russia. Of course, we are following both the letter of the law and the spirit of all the American and allied sanctions, working hand in hand with governments to implement complex policies and directives, and then some. Managing this has been an enormous undertaking. It is completely different from navigating a financial crisis or a severe recession. This entails sanctioning individuals, including their ownership of assets and companies; reducing exposures across multiple products and services; analyzing and stopping billions of dollars of payments as directed by governments; and many other actions.

We are not worried about our direct exposure to Russia, though we could still lose about $1 billion over time. But we are actively monitoring the impact of ongoing sanctions and Russia’s response, concerned as well about their secondary and collateral effects on so many companies and countries. We have been steadfast in our operating principles to be prepared for the unpredictable. Rest assured that our management teams, hundreds of us, globally, have been working around the clock to do the right thing.

The growing competition to banks from each other, shadow banks, fintechs and large technology companies is intensifying and clearly contributing to the diminishing role of banks and public companies in the United States and the global financial system. Before we give an update on the structural shifts taking place, it would be good to address the question: How did banks perform during the recent COVID-19 crisis?

Banks performed magnificently during the COVID-19 crisis.

Within days of realizing COVID-19 was a pandemic that would virtually close large parts of the world’s economies, the U.S. government moved with unprecedented speed. Fortunately, most banks were part of the solution — unlike during the Great Recession when many banks were not. And fortunately, unlike during the Great Recession, the U.S. economy was actually in good shape going into the COVID-19 recession.

Yes, of course, it is true that large government actions dramatically helped individuals, companies (including banks) and the economy overall. But it is also true that banks performed magnificently during the COVID-19 crisis. They extended a huge amount of credit, waived fees and postponed debt repayment, and were at the forefront of delivering Paycheck Protection Program (PPP) loans to small businesses. And they did it the right way, protecting government money by trying to make legitimate loans to borrowers in need. By contrast, nonbanks were involved in instances of illegitimate PPP loans and Economic Injury Disaster Loan assistance, as well as stimulus money fraud, often at rates almost five times those of traditional banks. As for us:

• JPMorgan Chase was the #1 PPP lender — over the life of the program, we funded more than 400,000 loans totaling over $40 billion.
• Since March 13, 2020, we delayed payments due and refunded fees for more than 3.5 million customer accounts — refunding more than $250 million for nearly 2 million consumer deposit and lending accounts and offering delayed payments and forbearance on more than 2 million mortgage, auto and credit card accounts, representing approximately $90 billion in loans.
• In 2020, we raised capital and provided credit totaling $2.3 trillion for customers and businesses of all sizes, helping them meet payroll, avoid layoffs and fund operations during that first year of the pandemic crisis.
• In 2020, we committed $250 million in global business and philanthropic initiatives, with particular focus on the people and communities most vulnerable and hardest hit by the pandemic.
• In addition, JPMorgan Chase launched several ambitious flagship programs, including our $30 billion commitment to help close the racial wealth gap and drive economic inclusion, which is described in more detail within this letter.

While the U.S. government’s actions were a benefit to the whole economy, including the banking industry, banks were more than able to weather the terrible financial storm while setting aside extensive reserves for potential future loan losses. Importantly, during this time, the Fed conducted two additional, severely adverse Comprehensive Capital Analysis and Review stress tests, which projected bank results under extreme unemployment, GDP loss, market disruption and a smaller government stimulus. The results showed that banks could withstand these extreme conditions while continuing to finance the economy.

I also have very little doubt that if the severely adverse scenario played out, JPMorgan Chase would perform far better than the stress test projections. One supporting data point: From March 5, 2020 to March 20, 2020, when the stock market fell 24% and the bond index spread gapped from 191 to 446 prior to major Fed intervention, our actual trading revenue was higher than normal as we actively made markets for our clients. By contrast, the hypothetical stress test had us losing a huge amount of money in market-making, based on the way it is calculated.

While I understand why regulators stress test this way — they are essentially trying to ensure that banks survive the worst-case scenario — the methodology clearly does not result in an accurate forecast of how our company would perform under adverse circumstances.

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The role of banks in the global financial system is diminishing.

Banks have advantages and disadvantages. Some of the advantages, including economies of scale, profitability and brand, may only diminish slowly. Unfortunately, it also seems likely that some of the disadvantages, such as uneven or costly regulation, may not diminish at all. Other disadvantages, like legacy systems, will diminish over time.

Regulations have consequences, both intended and unintended — but many regulations are crafted with little regard for their interplay with other policies and their cumulative effect. As a result, regulations often are disconnected from their likely outcomes. This is particularly true when trying to determine what products and services will remain inside the regulatory system as opposed to those likely to move outside of it.

Keep in mind that markets, not regulators, set capital requirements. If regulators set capital standards that are too high for banks to hold loans, then the markets will drive those loans outside of the banking system. There are also non-capital regulatory standards that can force activities out of the regulatory system, such as excessive reporting and social requirements, among others.

Banks around the world are already engaged in tough competition with each other. A quick review of the chart above shows the phenomenal size of nonbanks — from payments companies and fintechs to exchanges and Big Tech — that compete with traditional banks, but outside of the banking regulatory system, in providing certain financial services. And those don’t include many others, such as Schwab, Fidelity or Vanguard – which also provide banking-type services. The data also doesn’t show that last year alone, $130 billion was invested in fintech, allowing them to speed things up — and at scale.

The pace of change and the size of the competition are extraordinary, and activity is accelerating. Walmart, for good reason (over 200 million customers visit their stores each week) can use new digital technologies to efficiently bring banking-type services to their customers. Apple, already a strong presence in banking-type services with Apple Pay and the Apple Card, is actively extending services into other banking-type products, such as payment processing, credit risk assessment, person-to-person payment systems, merchant acquiring and buy-now-pay-later offers. The large tech companies, already 100% digital, have hundreds of millions of customers, enormous resources in data and proprietary systems — all of which give them an extraordinary competitive advantage.

Properly regulated banks are meant to protect and enhance the financial system. They are transparent with regulators, and they strive mightily to protect the system from terrorism financing and tax evasion as they implement know your customer (KYC) and anti-money laundering laws. They protect clients’ assets and clients’ money in movement. They also help customers — from protecting their data and minimizing fraud and cyber risk to providing financial education — and must abide by social requirements, such as the Community Reinvestment Act, which requires banks to extend their services into lower-income communities. Regulators need to figure out what they really want to achieve.

The chart above shows banks’ decreasing role in the global economy, but a few examples will put it in stark contrast.

• Banks’ size and market cap (U.S. global systemically important bank [G-SIB] market cap is $1.5 trillion) have dramatically diminished relative to their nonbank competitors.
• U.S. banks’ broker-dealer inventories have barely kept pace with the large increase in total markets. Banks’ dramatic decline in market-making ability relative to the size of the public markets is a factor in the periodic disruptions that occur in the public markets.
• U.S. banks’ loans in an 11-year period have only grown 65% and now represent only 8% of total U.S. debt and equity markets, down from 11% in 2010.
• Conversely, U.S. banks’ liquid assets are up more than 300% to $8.6 trillion, most of which is needed to meet liquidity requirements.
• Banks’ share of mortgage originations has gone from 91% to 32%.
• Banks’ share of the leveraged loan market has decreased over the last 20 years from 46% to 13%.
• Neobanks, now with over 50 million accounts, bypass the Durbin Amendment and so earn higher revenue per debit swipe — and they don’t have to abide by certain other regulatory or social requirements.
• Other companies providing banking-type services have hundreds of millions of accounts that hold consumer money, process payments, access bank accounts and extensively use customer data.
• A sizable and growing portion of equity trading has moved off transparent exchanges to nontraditional trading firms, causing a loss of access to on-exchange liquidity for many market participants.

I can go on and on, but suffice it to say, we must be prepared for this trend to continue.

It seems unlikely to me that all the banks, shadow banks and fintech companies will thrive as they strive to take share from each other over the next decade. I would expect to see many mergers among America’s 4,000+ banks — they need to do this, in some cases, to create more economies of scale to be able to compete. Other companies will try different strategies, including bank-fintech mergers or mergers just between fintechs. You should expect to see some winners and lots of casualties — it’s just not possible for everyone to perform well.

Possibly more important: The role of public companies in the global financial system is also diminishing.

In addition to banks’ shrinking global role, you can see that the number of public companies, which should have grown substantially over the past decade, is remarkably reduced. Instead, U.S. public companies peaked in 1996 at 7,300 and now total 4,800. Conversely, the number of private U.S. companies backed by private equity companies has grown from 1,600 to 10,100 — a remarkable increase.

This migration is worthy of serious study. The reasons are complex and may include public market factors, such as onerous reporting requirements, higher litigation expenses, costly regulations, cookie-cutter board governance, less compensation flexibility, heightened public scrutiny and the relentless pressure of quarterly earnings.

It’s incumbent upon us to figure out why so many companies and so much capital are being moved out of transparent public markets to less transparent private markets — and whether this is in the country’s long-term interest. We do need to ask some questions: Do we want public companies? Are we okay with more and more of our capital markets being private and, therefore, less regulated? If I were a shareholder of a company, I would ask myself, do I really think that all the rules we impose on public companies actually make them better? Finally, we need to consider, is it a good thing that many investors won’t have the opportunity to invest in these companies if and when they are private?

There are good and bad reasons why capital is going private. For example, private companies can raise money more easily now than in the past. Private companies’ boards and management teams can focus primarily on the business, and private investors can be more patient with capital — they are not necessarily worried about short-term results.

We need to study this public market diminishment thoughtfully and deeply — particularly since more regulation is coming that will affect this trend. This is a good time to think through and create the outcomes we want — and not just let multiple, often well-meaning but uncoordinated legal, regulatory and policy decisions take us where we do not want to go.

More regulation is coming — 10 years after the crisis, we are still rolling out Basel IV — and we need more thoughtful calibration of the rules.

Basel IV seems likely to increase capital requirements for banks on credit, loans, trading books and operational risk, some of which is unnecessary. These risks are real, but they need to be properly and rationally calculated. For example, operational risk is real; it exists in all enterprises and is usually handled in the ordinary course of business. If all large companies had to hold capital for operational risk, following the standard set for banks, trillions of dollars of additional capital would be permanently held in idle funds. The question for all capital requirements is: How much is enough?

If done properly, bank regulations could be recalibrated, adding virtually no additional risk, to make it easier for banks to make loans, intermediate markets and finance the economy. When it comes to political debate about banking regulations, there is little truth to the notion that regulations have been “loosened” – at least in the context of large banks.

We should keep in mind the enormous unintended consequences that could result from any policy (e.g., regulations) not being properly thought through. Policy with no forethought — designed without a comprehensive plan or instigated out of anger or false morality — can have bad outcomes. A few examples will suffice:

• The U.S. government management of student lending has been a disaster. In the 11 years since they’ve taken over student lending, they have extended an additional $1 trillion in loans. Prior to the pandemic, $300 billion of these loans were either severely delinquent or not being paid. We are not against student lending, but the disciplined use of capital should be applied here, too. I generally agree with the position that for loans that should not have been made and where the borrower reaped no benefit, there should be some forgiveness. However, many loans were properly made and brought the benefit that was expected. Government should reform its policies to stop making loans that should never be made.
• Fannie Mae and Freddie Mac contributed to the crisis in the mortgage market. In the mad rush to improve home ownership levels, these government-guaranteed institutions played a major part (along with many others engaged in the mortgage markets), over decades, in loosening mortgage underwriting standards. Ultimately, this proved catastrophic, leading to nearly $1 trillion in mortgage losses. Conversely, since then, mortgage regulations’ excessive tightening is not only pushing the mortgage market into the unregulated financial system but also making mortgages less available to mostly lower-income Americans.

How should we address our G-SIB conundrum?

The U.S. implementation of G-SIB requirements does not enable a level playing field — plain and simple. Not only have American rules made the G-SIB designation worse for American banks (if JPMorgan Chase could operate on the same basis as large European banks, our Tier 1 capital requirements would be reduced by $30 billion), but the rules have not been adjusted as the framework allows. G-SIB capital requirements were supposed to be modified to account for the increasing size of the global economy and the smaller size of banks in relation to that global economy — this simply has not happened. So JPMorgan Chase will be required to hold 2% more common equity Tier 1 capital as a consequence.

We have always said that the G-SIB calculation is nonsensical as it is not risk-based at all. It drives absurd behavior, such as favoring various acquisitions that may be imprudent but don’t require G-SIB capital or encouraging very risky loans that require no more G-SIB capital than risk-free loans. Being a large, diversified company, with strong revenue and profit streams, is normally a source of strength in troubled times, but this is a negative in regard to G-SIB capital. Even though American banks are performing well today, these extra capital requirements we are required to meet will have long-term negative consequences.

This extra capital is a drag on our return on equity (ROE), effectively reducing whatever our ROE would be by approximately 15% (hypothetically, our 17% target should be 20%). As a result, the dilemma is this: Do we restrict our growth and our ability to serve our clients in order to reduce our capital requirements over time and seek a higher ROE or do we invest our capital to grow with our clients (and in many cases remain competitive) and accept a permanently lower ROE?

Banks need to acknowledge the dramatically changing competitive landscape.

If banks want to compete in this new and increasingly competitive world, they need to acknowledge the truth of this new landscape and respond appropriately — sometimes it truly is change or die.

As they adopt new technologies like cloud, artificial intelligence (AI) and digital platforms, banks may have an advantage in being able to leverage their large customer base to offer increasingly comprehensive products and services, often at no additional cost. While many fintech companies specialize in one area, you already see many fintechs moving in this direction — trying to deepen and broaden their client relationships.

The chart below shows the extensive number of services we already offer to our customers — many of which, depending on the product and customer relationship, are at no additional cost.

We have always invested for the future, and that is even more true today than it has been in the past. But the principle is the same — constantly invest and innovate to ensure our future prosperity.

We are vigilant against cyber attacks.

As we have highlighted in previous letters, we cannot overemphasize how cyber threats pose extreme hazards to our company and our country. This has become even more evident as the cost of ransomware has increased dramatically (cyber attacks may have caused the death of some people as hospitals could not provide the necessary procedures). And it is evident to everyone, with the war in Ukraine, that grave damage could be inflicted if cyber is widely used as a tool of war. We believe that our company has some of the best cyber protections in place, as well as the best talent to monitor and guard our information. We also work extensively, and increasingly, with the appropriate agencies of the U.S. government to help protect the financial system and the country.

Our commitment to sustainability is informed by energy realities.

Despite the growth in well-intended climate pledges from governments and companies, the world is well short of meeting its net zero emissions goals by 2050. But the war in Ukraine and sanctions on Russia are driving gasoline prices up and threatening Europe’s access to natural gas. Resource scarcity leads to higher energy costs and reduces reliability, hindering national security and hurting the most vulnerable. Disruptions to the global energy system are again highlighting our urgent global need to provide energy resources securely, reliably and affordably and, at the same time, address long-term clean energy solutions and strategies to reduce our carbon footprint.

These objectives are not mutually exclusive. We can — and must — do both.

To begin, we need to find a better way forward that can bring diverse stakeholders together in pursuit of the North Star: another “Marshall Plan” (as described earlier). Here are four ways to jump-start that process:

• First, we must promote energy security. Constraining the flow of capital needed to produce and move fuels, especially as the war in Ukraine rages on, is a bad idea. The world still needs oil and natural gas today, but not all hydrocarbons are equal when it comes to their carbon footprint. We should be directing more capital toward less carbon-intensive fuel sources and investing in innovations, such as carbon capture and sequestration, as we look to transition to green technologies delivered at scale for society. Our company is firmly committed to helping finance these kinds of investments and expediting the use of lower-carbon fuels. This is why we established the Center for Carbon Transition, centralizing client access to financing, advisory and research solutions to help them make the low-carbon transition and thrive.
• Second, we need to scale investment massively in clean technologies. As the International Energy Agency has emphasized, “huge leaps in clean energy innovation” are core to achieving net zero. This is because the world will rely on traditional fuels until alternatives, like clean hydrogen, are fully available. To accelerate progress, JPMorgan Chase has a goal of financing and facilitating $1 trillion by 2030 to advance climate action — supporting initiatives such as renewable energy, green buildings and vehicle electrification.
• Third, governments should play a leadership role by enacting thoughtful policies that spur long-term and large-scale capital deployment for low-carbon solutions that create jobs and benefit the global economy. Here are some examples: a carbon tax that directs some proceeds to help offset energy costs for underserved communities; measures to promote investment in technology R&D; and reductions in permitting timelines for energy infrastructure, such as wind and solar farms and liquefied natural gas.
• Finally, let’s set meaningful goals and identify a few tangible, cost-effective solutions to reduce emissions today. This should include minimizing fugitive methane emissions and virtually eliminating wasteful flaring of natural gas. Immediately actionable opportunities like these might require more financing, not less, to reduce the short-term rate of climate change and prepare companies to thrive in a lower-carbon future. In 2021, JPMorgan Chase set 2030 targets to reduce the carbon intensity of our financing portfolio, starting with oil and gas, electric power and automotive manufacturing — with more to come.

There is no silver bullet to meet the world’s energy and climate goals. But we can start by prioritizing emissions reductions, developing meaningful short- and long-term goals and crafting innovative policy solutions. The curve toward net zero can still be bent before it’s too late.

Progress continues in our diversity, equity and inclusion efforts.

We’ve made tremendous progress over the past few years to create a more inclusive company and promote equity in all our communities. The work is not easy, but we are as committed as ever to doing what is right and just. I’ll spotlight a few areas of focus and describe the progress we’ve made.

A More Diverse Workforce
We continue to believe that if our team is more diverse, we will generate better ideas and better outcomes, enjoy a stronger corporate culture and outperform our competitors. This appears to be proving true.

Despite the pandemic and talent retention challenges, we continue to boost our representation among women and people of color. Here are some examples:

• More women were promoted to the position of managing director in 2021 than ever before; similarly, a record number of women were promoted to executive director. By year’s end, based on employees who self-identified, women represented 49% of the firm’s total workforce. Overall Hispanic representation was 20%, Asian representation grew to 17% and Black representation increased to 14%.
• We expanded our global Diversity, Equity and Inclusion department to include three new Centers of Excellence: Advancing Hispanics and Latinos, The Office of Asian and Pacific Islander Affairs, and The Office of LGBT+ Affairs.
• To promote greater participation in our workforce by Black professionals, we expanded our Historically Black Colleges and Universities partnerships to 17 schools across the United States to boost recruitment connections, expand student career pathways, and support long-term student development and financial health.
• We continue to find ways to lift our LGBT+ employees, professionals with disabilities and military veteran colleagues. We just celebrated the 10th anniversary of the Veteran Jobs Mission, which is a coalition JPMorgan Chase co-founded in 2011 as the 100,000 Jobs Mission. It began as 11 companies committed to hiring military talent across the private sector, and now membership exceeds 300 companies with more than 830,000 veterans hired.

Finally, I want to be clear: We oppose any and all forms of discrimination against anyone. Being the bank of choice for all is our goal ― and we want everyone to feel welcome here and be able to contribute to our core mission to the best of their ability.

An Update on Our $30 Billion Racial Equity Commitment
The murder of George Floyd in 2020 highlighted what we already knew: More was required by all of us to address systemic racism. In October 2020, less than five months after his tragic murder, our company made a five-year, $30 billion commitment to help close the racial wealth gap. We committed to trying new things and putting the full force of our firm behind solutions that could really make an impact.

By the end of 2021, we had deployed or committed more than $18 billion toward our goal. That commitment focuses on increasing homeownership, expanding affordable rental housing and growing small businesses, spending more with Black, Hispanic and Latino suppliers, improving financial health and access to banking, investing in minority depository institutions (MDI) and community development financial institutions (CDFI), and investing in communities through philanthropic capital. Here are some details on our progress to date:

• Supplier Diversity: In 2021, we spent an additional $155 million with 140 Black, Hispanic and Latino suppliers ― more than doubling the first-year spend goal and increasing the number of new Black, Hispanic and Latino suppliers by more than 40% over 2020.
• Affordable Rental Housing: We approved funding of approximately $13 billion in loans to create and preserve more than 100,000 affordable housing and rental units across the United States.
• Homeownership: We established a Community and Affordable Home Lending business, hiring over 150 Community Home Lending Advisors and expanding the Chase Homebuyer Grant to $5,000 to help cover customers' closing costs and down payments for homes purchased in 6,700 minority neighborhoods nationwide.
• Small Business: We hired 25 diverse senior business consultants to provide free one-on-one coaching for minority business owners in 14 U.S. cities and to mentor more than 1,000 small businesses.
• MDIs: We invested more than $100 million in equity in 16 diverse financial institutions that serve nearly 90 communities in 19 states and the District of Columbia.
• CDFIs: We provided more than $350 million in financing to CDFIs to support communities that lack access to traditional financing.
• Access to Banking: We helped more than 200,000 customers open low-cost checking accounts with no overdraft fees; opened 10 Community Center branches (the sidebar that follows includes more details about this initiative), often in areas with larger Black, Hispanic and Latino populations; and hired over 100 Community Managers in underserved communities to build relationships with community leaders, nonprofits and small businesses.

Our dedication to racial equity is not simply a five-year effort. We might not always get it right, but we are committed to advancing racial equity and sharing our progress on the journey.

Morgan Health is helping us lead in healthcare transformation.

JPMorgan Chase spends $39 billion on compensation and benefits for our 270,000+ employees. Of that amount, about $1.5 billion is directed to medical costs for our employees and their families — approximately 460,000 people. Our employees also spend approximately $500 million on their own medical care. Medical care costs may be our most important benefit costs because they have a critical impact on the health and well-being of our employees and their families. As our employees remain our most valuable asset, improving the quality and delivery of healthcare services is a high priority.

Managing the complexities of healthcare is staggering, whether you are an individual or a corporation — from coping with actual health issues (covering the spectrum of a bad back to diabetes to cancer) and locating suitable primary or specialist care to deciphering incomprehensible insurance plans and pricing, resolving excessive surprise bills and other issues. While the U.S. healthcare system is exceptional in many ways, it also has many flaws that must be addressed. Healthcare costs, which are already the highest in the world, continue to rise (average premiums for family coverage have increased 22% since 2016) for both employers and employees — with no evidence that outcomes are improving (e.g., only 46.5% of adults with private insurance have their blood pressure controlled, and that number has declined in the last 10 years).

This is why, in 2021, we launched Morgan Health, a new business unit. With Morgan Health, we have an opportunity to deliver and scale new healthcare models that improve the quality, equity and affordability of employer-sponsored healthcare. We're focused on connecting healthcare to improved health outcomes for our employees. JPMorgan Chase has approximately 20 talented people on our Human Resources Benefits team helping employees and their families access the best possible medical care. In hindsight, it is shocking how few people we had dedicated to this vitally important issue. With Morgan Health, we are adding approximately 30 more individuals who will help our Benefits team attack this problem from many different angles.

Looking forward, Morgan Health is investing $250 million to accelerate the development and delivery of accountable care (managing a patient’s total care from prevention to outcomes), completing its first $50 million investment in Vera Whole Health — and its subsequent investment in Castlight — with plans to deploy these services to our employees in Columbus, Ohio, this year. Morgan Health just completed another investment in healthcare analytics company Embold Health, which will help facilitate how consumers access the highest-quality care available. We are also working toward providing equal access to equal healthcare, regardless of race, income or other personal characteristics for our employees and in the communities we serve. Addressing inequities in healthcare is fundamental to Morgan Health’s strategy, and our partnership with Kaiser Permanente in California is moving forward quickly on its collaborative effort focused on the collection and reporting of health equity performance metrics.

We continue to support data-driven policymaking through the JPMorgan Chase PolicyCenter and Institute.

Last year, I wrote that one lesson of leadership is putting in place good decision-making processes. An essential part of that is good data because the challenges we face are complex and interconnected. Too often, decision makers use "facts" to justify a pre-existing point of view or do not accurately represent reality. Good data that is granular and timely and, when possible, leverages big data sources must be at the heart of all policy processes to ensure measurable and equitable outcomes.

Six years ago, we created the JPMorgan Chase Institute to deliver unique data and insights to help solve some of our most pressing economic challenges. This information offers a unique lens into the financial habits of millions of small businesses and households, leveraging anonymized and aggregated customer data that represents half of U.S. households. The Institute’s data and analyses have helped policymakers better understand the impact of decisions — ranging from student loan relief and targeted investments in underserved Chicago and Detroit neighborhoods to small business support and insights about how families manage income volatility and use their tax refunds. Importantly, the Institute has also helped shape some of our own products and employee benefits, including how we incentivize customers to save more money and reduce health insurance deductibles for our lower-paid employees.

The Institute’s work has also helped inform our policy advocacy efforts that support inclusive growth. Two years ago, we launched the JPMorgan Chase PolicyCenter to drive this work. Grounded in data, we are developing and advocating for policy aimed at reducing structural barriers to economic mobility and broadening opportunity for millions of families who live on the financial margins and have been most impacted by COVID-19. For example, as Congress was debating expanded unemployment benefits, our research showed how these benefits had boosted spending and stimulated economic activity during COVID-19. Additional research has provided insight into household balances, cutting across income levels and providing an important barometer on how households are faring as government support expires.

This work is not easy, but we believe it’s imperative that policymaking include private and public sector partnership. We continue to need better data to understand what is happening in the real economy so we can help shape policies that make a significant and positive impact on those who need help the most.

We join other companies in evolving our vision of the workplace.

Today, in many places COVID-19 has moved from pandemic to endemic status, although there is still suffering in some parts of the world. And we are cognizant that the risk of new variants is real and that if they occur, we will need to take appropriate action.

As a company, while we continually prepare for multiple business resiliency scenarios (e.g., data center failures, closures of cities, major storms, even widespread disease), we never fully prepared for a pandemic that entailed a large-scale shutdown of the global economy. Although some of our employees, particularly in the branches, continued to work on our premises every day, we quickly set up the technology — ranging from call centers and operations to trading and investment banking — that enabled many of our employees to work from home. We learned that we could function virtually with Zoom and Cisco and maintain productivity, at least in the short run.

Although the pandemic changed the way we work in many ways, for the most part it only accelerated ongoing trends. While it’s clear that working from home will become more permanent in American business, such arrangements also need to work for both the company and its clients. I believe our firm’s on-site versus remote work will sort out something like this:

• Generally speaking, many employees (approximately 50%) will necessarily work at a location full time. That would include nearly all employees in our retail bank branches, as well as jobs in check processing, vaults, sales and trading, critical operations functions and facilities, amenities, security, medical and many others.
• Some employees (approximately 40%) will work under a hybrid model (e.g., some days on-site and other days at home). Increased flexibility and hybrid working arrangements will vary by job type. We do hope to provide these types of arrangements where they are appropriate and for those who want them.
• A small percentage of employees, possibly 10%, may work full time from home in very specific roles.

In all situations, these decisions depend upon what is optimal for our company and our clients, and we will extensively monitor and analyze outcomes to ensure this is the case. As we reopen, and we mostly are, we will, of course, follow government guidelines.

Remote work will change how we manage our real estate. We will quickly move to a more “open seating” arrangement in which digital tools will help manage seating arrangements (people will have regular neighborhoods where they can congregate), as well as needed amenities, such as conference room space. As a result, for every 100 employees, we may need seats for approximately 60 to 75 on average – with an appropriate increase in conference room, private office and amenity space to make it a great work environment.

The virtual world also presents some serious weaknesses. For example:

• Performing jobs remotely is more successful when people know one another and already have a large body of existing work to do. It does not work as well when people don’t know each other.
• Most professionals learn their job through an apprenticeship model, which is almost impossible to replicate in the Zoom world. Since the onset of COVID-19, JPMorgan Chase has hired over 80,000 new people into the company — and we are making sure they are properly trained on all aspects of our business, from their special role to the significance of conduct and culture. But this is harder to do over Zoom. Over time, this drawback could dramatically undermine the character and culture you want to promote in your company.
• A heavy reliance on Zoom meetings actually slows down decision making because there is less immediate follow-up.
• Remote work eliminates much spontaneous learning and creativity because you don’t run into people at the coffee machine, talk with clients in unplanned scenarios or travel to meet with customers and employees for feedback on your products and services.
• Finally, the negative effects of the weaknesses outlined above are cumulative — they weren’t as obvious earlier in the pandemic — and they get worse over time.

We are moving full steam ahead with building our new headquarters in New York City. We will, of course, consolidate even more employees into this building, which will house between 12,000 and 14,000 people. We are extremely excited about the building’s public spaces, state-of-the-art technology, and health and wellness amenities, among many other features. It’s in the best location in one of the world’s greatest cities.

Two final points. Of our total overhead of $71 billion, $39 billion represents our people costs. Over time, using lots of data, surveys and other metrics, we believe we can gain efficiencies while still keeping our people happy, healthy and motivated, at an increasingly lower cost.

And finally, our leaders must lead. They have to walk the floors, they must see clients, they need to be visible, they need to teach and educate, and they need to be able to conduct impromptu meetings. They cannot lead from behind a desk or in front of a screen.

Great management and leadership are critical to any large organization’s long-term success, whether it is a company or a country. Strong management is disciplined and rigorous. Facts, analysis, detail … facts, analysis, detail … repeat. You can never do enough, and it does not end. But creating an exceptional management team is an art, not a science.

In the section on Investments, I described what we consider our most important investment: our people, who in accounting terms are not even considered an asset. But we all understand the value of building a great team.

In the rest of this section, I talk about some management lessons — I always enjoy sharing what I have learned over time by watching others and through my own successes and failures.

Perfect your Picasso — have something to strive for and motivate you.

It seems to me that people are happier and more motivated when they have a passion, a moral purpose, something they are devoted to — when they are painting their own Picasso, striving for something. Some people find it in religion, the military, teaching, science, athletics, parenthood, entrepreneurship or simply being their best at their craft. Whatever it is, all these things combined — when done well — create a wonderful society. And most people I know get an enormous sense of satisfaction from the exploration and learning that take place on the journey.

Personally and professionally, I am motivated by the desire to leave the world a better place — if I do my job well, this company can do so much for individuals, shareholders, communities, countries and humanity. I am motivated when I see our customers and employees in action, knowing there is increased opportunity for each of them when we do better as a company. I am motivated when I go to our annual National Achievers Conference, which recognizes some of our most successful bankers and managers in the branches. Sometimes they have tears in their eyes as they accept this recognition — many have never been recognized before — and it is hard to describe how this deepens my own sense of responsibility.

Recognize the tremendous value of work.

Work, all work, has value. It was a beautiful thing during the onset of COVID-19 when we celebrated our essential workers (in New York City, it was unbelievable to hear the sound of 1 million New Yorkers shouting thanks out their windows every evening at 7:00), including nurses, firefighters, emergency medical service staff, sanitation workers and police officers (although recently that spirit seems to have waned). They were always essential workers, and they appreciated our recognition.

Along the same lines, some in society diminish “starter” jobs, such as cashiers, office workers, bank tellers, fast food cooks and others. These “starter” jobs bring dignity, provide security for many families and create a solid work ethic. Often, they result in better social outcomes in terms of reductions in drug use and crime, similar to outcomes we have seen from summer youth employment. For many, these jobs are the first rung on the career ladder, leading to bigger and bigger jobs. For example, more than 95% of Domino’s franchise owners started as delivery drivers or pizza makers. At JPMorgan Chase, about one-third of our branch managers started as tellers or personal bankers.

I have expressed regret for many years in this letter that we, as a society, have not found a way to better prepare our young people for jobs, whether through conventional schooling or apprenticeships and skills-based training, which is more important today than ever before. Offering better training and getting more income to lower-paid workers would hugely benefit the economy, the individuals involved and social outcomes — and would help rectify income inequality. We must do a better job improving the outcomes of an education; i.e., that it leads to well-paying jobs. I also believe that we should immediately increase the minimum wage and the EITC to both entice more people into the workforce and to get more income into the hands of the lower paid.

Nurture the extraordinary value of trust.

Trust is earned, given and received. To maximize human creativity and freedoms — which are the greatest gifts of capitalism — trust is essential. We must make it safe to argue, disagree and challenge each other while continuing to dig deeper in areas where we’re not doing as well as we’d like. It must be okay to fail or make mistakes. Trust is the force multiplier that gets the best out of everyone. You do not earn trust if you finger-point, don’t admit to your own mistakes or don’t share the credit.

Combat the enemy within.

While trust is the force multiplier, a workplace cannot devolve into excessive, feel-good collaboration and bureaucracy. I have seen work environments in which everyone is so nice to each other and so collaborative that it slowly creates crippling bureaucracy as everyone’s opinion is sought out — and everyone has a veto.

The other disease that arises from within is a workplace completely run by corporate headquarters: It is very easy to be critical of people in the field for their failures when you don’t walk in the trenches with them.

Very often, the enemy within fights change, resists making bold decisions and balks at investments that are hard, such as growing the salesforce. When the enemy within takes over, energy and creativity wither quickly … although it may take decades for the company to die.

Drive high performance, the right way.

So how do you drive high performance while creating a safe workplace that values relationships built on trust and respect? The best leaders treat all people properly and respectfully, from clerks to CEOs. Everyone needs to help one another at a company because everyone’s collective purpose is to serve clients. When strong leaders consider promoting people, they pick those who are respected by their colleagues and ask themselves, “Would I want to work for him? Would I want my kid to report to her?”

We must strive for continuous improvement, set high standards and emphasize the negatives when we observe them but always remember to make life fun. When I travel around the world and see our people and our company in action, I love it. And you must make it fun — not only because it has a positive effect on retention, attitude and the overall culture of the company but also because it leads to sharing and truth-telling.

I’ve enjoyed the show “Ted Lasso.” He tries to get the best out of everybody, and he displays great gratitude. While I could get a little better at showing more gratitude on a day-to-day basis with my management team (I did give them biscuits in little pink boxes this year), they do know how much I trust, respect, appreciate and admire them.

Three additional things: You don’t create a winning team by pandering to individuals. You must deal with conflict immediately, directly and forthrightly — problems do not age well. When people cannot do their job, they should not have that job. We should either work with them to find another role where they can thrive or ask them to leave. Just do it respectfully to everyone involved — do not embarrass people who have been working for the company.

Bring energy and drive — not just every day — but to every meeting and interaction.

Finally, sharing credit, recognizing the contributions of others, and not casting blame or finger-pointing all are critical to earning trust.

Retaining talent is important and so is life outside of work.

Retaining your best talent is essential. In addition to being treated with enormous respect, what people want most is a challenging job with meaningful work.

All companies have turnover in staff, and all turnover is not necessarily bad. People seek out new challenges, may find outside advancement opportunities or may just want a change in lifestyle. Sometimes good people leave because they are getting a better opportunity or increased compensation at another company. You should not be angry when someone receives a higher compensation offer from another company. No one likes to feel they are being taken advantage of — everyone wants to go home each day thinking they are treated fairly and equitably. And everyone has their own needs in terms of family, income, work-life balance and other factors.

But turnover can be bad, too. It is bad when inefficiency or bureaucracy or ineffective managers drive out good talent. It is still true that most people leave their job because they don’t like their boss.

We also recognize and ask our employees to take care of their mind, body, spirit, soul, friends and family. While we do what we can to help them, we recognize that these are the most important things in their life, and we try to constantly remind them to give the needed time and attention to what they cherish most.

I would like to express my deep gratitude and appreciation for the 270,000+ employees, and their families, of JPMorgan Chase. From this letter, I hope shareholders and all readers gain an appreciation for the tremendous character and capabilities of our people and how they have helped communities around the world. They have faced these times of adversity with grace and fortitude. I hope you are as proud of them as I am.

Finally, we sincerely hope that all the citizens and countries of the world see an end to this terrible pandemic, see an end to the war in Ukraine, and see a renaissance of a world on the path to peace and democracy.

Jamie Dimon
Chairman and Chief Executive Officer
April 4, 2022