How To Read Banks' Credit Ratings in Light of Systemic Risk

Let's take the case of JPMorgan Chase; what Is the bank's current credit rating?

• Fitch Ratings currently affirms JPMorgan Chase & Co.'s long-term Issuer Default Rating (IDR) at AA-, with a stable outlook. Short-term is F1+. (Fitch Ratings)
• Morningstar DBRS assigns a long-term issuer rating of AA (low)—roughly consistent with Fitch’s AA- designation. (Morningstar DBRS)
• Moody’s, meanwhile, downgraded its long-term deposit and counterparty risk ratings to Aa2 (from Aa1) in May 2025, following a U.S. sovereign downgrade. (Reuters, Barron's)
• S&P Global had upgraded the long-term issuer credit rating to A (stable outlook) in November 2024—below AA, but still strong. (GuruFocus)

So yes—“AA-” is Fitch’s current rating for JPMorgan Chase & Co., indicating a higher-medium grade with very strong capacity to meet financial commitments.

Key Strengths Supporting AA-:

1. Massive Scale & Systemic Importance JPMorgan Chase is the largest U.S. bank and one of the world’s most systemically important financial institutions. That status implies significant regulatory scrutiny, strong capital buffers, and implicit support during crises, all credit-positive.
2. Strong Capital Ratios & Diversified Earnings The bank consistently exhibits robust Tier 1 capital ratios and a diverse revenue base—from investment banking and asset management to commercial and retail banking. These traits support stability and resilience. (jpmorganchaseco.gcs-web.com, JPMorgan Chase)
3. Credit Quality & Risk Management JPMorgan is widely regarded as having strong credit underwriting, especially post-2008, with significant improvements in risk management practices. (JPMorgan Chase, jpmorganchaseco.gcs-web.com)
4. Stable Outlook Across Agencies Fitch and DBRS maintain stable outlooks. Even though Moody’s cut its rating, that move was driven by the U.S. sovereign downgrade—not JPMorgan’s fundamentals. (Fitch Ratings, Morningstar DBRS, Barron's, Reuters)

Challenges and Moderating Factors:

• Regulatory & Sovereign Dependency JPMorgan’s rating remains partially contingent on the financial strength of the U.S. government. Sovereign downgrades, like the one Moody's made, can indirectly pressure the bank’s rating. (Barron's, Reuters)
• Legal & Litigation Risks As a global banking giant, JPMorgan faces ongoing litigation and regulatory compliance risk—though overall risk appears well-managed.

Bottom Line => Yes—AA- is a justified rating for JPMorgan Chase: (i) it reflects the bank’s strong capital, diverse earnings, and historic risk management; (ii) it's consistent with Fitch and DBRS evaluations; and (iii) the stable outlook reinforces expectations of continued financial strength. That said, it stops short of AAA due to systemic and regulatory considerations—plus reliance on the U.S. government’s credit standing.

HOWEVER .... traditional credit ratings for a bank like JPMorgan Chase rarely put enough weight on the systemic risk it poses to the entire financial system if it fails.

Here’s why that happens — and why it’s controversial:

1. The Rating Agencies’ Perspective:

• Focus is on probability of default, not systemic impact. Ratings measure the likelihood that the bank will meet its obligations, not the damage if it doesn’t. A bank can be systemically risky and still have a high rating if agencies believe default is unlikely in the near term.
• “Too Big to Fail” logic inflates ratings. Agencies assume that because JPMorgan is systemically important, the U.S. government would step in to prevent collapse. That implicit support actually raises the rating instead of lowering it.
• Shorter horizon. Ratings typically focus on a 1–3 year outlook. The slow build-up of vulnerabilities (like cyber risk or social media bank runs) doesn’t always feed directly into near-term credit risk models.

2. The Risks You Mention Are Underweighted

• Social Media Amplification The 2023 Silicon Valley Bank collapse showed how quickly deposit runs can be triggered online—tens of billions withdrawn in hours. JPMorgan’s vast retail base and digital presence mean rumors or misinformation could escalate into liquidity stress far faster than in historical scenarios.
• Cyberattack Cascades JPMorgan is a prime target for state-sponsored and criminal cyber actors. A coordinated cyber breach could cripple payments, trading, and settlement systems—not just at JPM, but across counterparties globally.
• Interconnectedness Risk With a balance sheet exceeding $3.9 trillion and extensive derivatives exposure, JPMorgan is entangled with every corner of global finance. Contagion effects from a shock could trigger a 2008-style liquidity freeze.

3. Why This Matters for the AA- Rating

The AA- assumes capital buffers and liquidity coverage will protect against sudden shocks and that U.S. regulators will act pre-emptively in a crisis. Additionally, the bank's operational resilience program (redundant systems, cyber defense) is strong enough to withstand major disruption. But that assumption may be too optimistic: (i) no model can fully price in speed of a modern tech-driven bank run; (ii) government backstops may work for liquidity but not for confidence restoration after a cyber/operational shock; and (iii) “systemic importance” can be a double-edged sword: it makes a bailout more likely, but it also makes the initial crisis far more damaging. In other words, if you weighed systemic fragility + cyber/social media amplification as heavily as capital strength and implicit state support, JPMorgan’s rating could arguably sit one or two notches lower. But the agencies’ methodology puts more trust in prevention and bailout capacity than in the possibility of a rapid-onset, confidence-driven collapse.

Details on Interconnectedness

Derivatives Exposure — Notional and Net Credit Risk:

• The top four banks in the U.S. hold a dominant share—roughly 86–88% of aggregate derivatives notional exposure ($206.1 trillion).
• A 2022 report noted that JPMorgan alone had around $60.26 trillion in derivatives notional exposure, with Goldman Sachs at $49.75 trillion, Citibank at $45.74 trillion, and Bank of America at $22.48 trillion Wall Street On Parade.
• Interest rate derivatives (~$40T) dominate JPMorgan’s notional exposure. Market shocks here could drive massive collateral calls and ripple through debt and swap markets.
• Credit derivatives (~$5T), while smaller, are uniquely vulnerable during default events or debt downgrades—and spikes in margin calls could get messy fast.
• FX, commodity, equity, and “other” exposures—though individually smaller—add layers of risk during geo-political or cross-market volatility.

Short-Term Wholesale Funding (STWF) (Q1 2025 figures (excluding deposits)):

• STWF trends at U.S. G-SIBs: JPMorgan is one of eight U.S. global systemically important banks. Collectively, these banks saw a record $94.1 billion increase in STWF in Q4 2024, bringing the group’s total to $3.02 trillion, up 11.6% year-over-year Risk.net.
• Short-Term Funding Ratio (STF-RWA): While we don’t have JPMorgan-specific STF-RWA publicly here, the Office of Financial Research measures STWF as a percentage of average risk-weighted assets (RWA). For JPMorgan, whose RWA stood around $1.74 trillion (Basel III advanced approach) at end-2024 (JPMorgan Chase), short-term funding of several hundred billion represents a significant fraction.

IMPORTANTLY — the AA- rating is essentially a stand-alone default probability assessment, not a systemic domino scenario.

Credit rating agencies like Fitch, Moody’s, and S&P structure their models around the Issuer’s Individual Probability of Default under “base case” and “stress” assumptions — but always in a world where the rest of the system stays broadly functional.

How Ratings Treat a Giant Like JPMorgan:

1. Base Assumption: The System Holds
2. Implicit Government Backstop
3. Short-to-Medium Time Horizon

Why This Is Problematic:

• Systemic risk is asymmetric. The bigger and more interconnected the bank, the less agencies downgrade it, because they assume rescue — yet in reality, the bigger the bank, the more catastrophic its failure would be.
• Social media + cyber amplify domino risk. A well-timed cyberattack or rumor could both trigger JPMorgan’s liquidity crisis and spread panic to other large banks within hours.
• Reverse stress testing (starting from a system-wide breakdown and working backwards) would likely yield a lower implied rating — but agencies don’t integrate that into their headline grade.

If you were to apply a domino-effect-aware framework, JPMorgan’s credit profile might look more like A or A- — still strong, but acknowledging that its size and interconnectedness make it a single point of failure in the global banking network.

Is there a credit rating that capture systemic risk?

Not really in the way you’re probably hoping — the big three agencies (S&P, Moody’s, Fitch) do not issue a headline rating that fully bakes in the domino effect of a system-wide collapse triggered by a single institution. Here’s how it works in practice:

1. Standard Credit Ratings

• Focus: Probability that the issuer itself defaults, assuming the rest of the financial system continues to function more or less normally.
• Systemic risk treatment: (a) If the institution is systemically important, they may upgrade the rating for “government support uplift” (e.g., +1 or +2 notches) because they assume a bailout in a crisis; (b) They do not penalize it for being a potential system-wide trigger — in fact, that “too big to fail” status is treated as credit-positive.

2. Systemic Risk Indicators — but Not Ratings

• IMF & BIS: Publish systemic risk indices (SRISK, CoVaR, network contagion models) — but these are research tools, not tradable credit ratings.
• FSB (Financial Stability Board): Maintains a GSIB list with required capital surcharges for systemic banks, but that’s regulatory, not investor-facing like a credit rating.
• NYU Stern’s V-Lab: Calculates SRISK — an estimate of the capital shortfall a firm would face in a market-wide crisis. It captures systemic exposure but isn’t part of S&P/Moody’s/Fitch ratings.

3. Special Stress-Scenario Ratings

• Moody’s “Loss Given Failure” (LGF) This is the closest mainstream tool — it looks at the losses creditors might face if a bank fails, including structural subordination and bail-in rules. But it still assumes a failure is idiosyncratic, not system-wide.
• Fitch’s “Support Rating” and “Viability Rating”

4. Why a “True” Systemic-Risk Rating Doesn’t Exist

A rating that fully priced in systemic domino effects would have to: (i) model how an institution’s failure propagates through interbank exposures, derivatives, and payment systems; (ii) estimate macroeconomic impact of that failure; and (iii) translate that into expected loss for creditors. That’s far outside the current rating agencies’ mandate — and frankly, investors might panic if such a rating existed for GSIBs. THUS: There is no mainstream credit rating today that truly captures the systemic collapse risk a GSIB like JPMorgan poses. The closest you’ll find are academic metrics like SRISK, CoVaR, or regulatory GSIB surcharges, but these are not embedded into the “AA-” style ratings investors use. Now, let's map JPMorgan’s SRISK and CoVaR figures against its AA- rating to show the gap between market-perceived systemic fragility and official credit strength. That would make the disconnect very visible. Important to keep in mind is that traditional credit ratings don’t explicitly price in systemic domino risk. But there are specialized systemic risk metrics developed by academics and institutions to capture just that. These aren’t published as credit ratings, but they offer deep insight into how a bank like JPMorgan compounds vulnerabilities across the financial system.

Key Measures of Systemic Risk:

1. ∆CoVaR (Conditional Value at Risk)

• Definition: Introduced by Adrian & Brunnermeier, ∆CoVaR measures how the financial system’s value-at-risk (VaR) changes when a specific institution (e.g., JPMorgan) is in distress vs. when it's in a normal state (Princeton University, Markus K. Brunnermeier).
• Why It’s Useful: It quantifies the spillover impact an institution has—as in, “How much more volatile is the system if JPMorgan falters?”
• How JPMorgan Fares: Studies show JPMorgan (like Goldman Sachs and MetLife) is ranked as a higher contributor to systemic risk under CoVaR compared to others like Citigroup or Bank of America (Federal Reserve, Bank for International Settlements).

2. MES (Marginal Expected Shortfall) & SRISK

• MES: Measures expected equity loss of an institution during a systemic market drop. Essentially, “How badly would JPMorgan’s equity suffer if the market tanks?” (univ-orleans.fr).
• SRISK: Builds on MES and balance-sheet data, estimating how much capital a firm would need to inject to remain solvent during a crisis. It's a direct measure of capital shortfall under stress (univ-orleans.fr).

3. Comparison with Regulatory and Market-Based Metrics

• The Federal Reserve's SCAP stress tests focus on expected losses, while CoVaR and MES lean on market-based statistical tail risk (Federal Reserve, Bank for International Settlements).
• JPMorgan is considered more systemically risky under CoVaR and MES (i.e., market-perceived tail risk) compared to regulators’ SCAP results (Federal Reserve, Bank for International Settlements).

These tools do capture the domino effect—they assess how a failure reverberates, not just the likelihood JPM fails in isolation. Yet, they aren’t used in public credit ratings, which instead focus on default probability and often assume government support for institutions deemed “too big to fail.” Again, as already alluded to, there’s no single “credit rating” that bakes in domino-effect risk. But we can look at the best systemic-risk proxies for JPMorgan right now.

What the systemic proxies say (Aug 2025):

• SRISK (NYU V-Lab) — market-based estimate of capital shortfall in a crisis • Current U.S. Top-10 SRISK contributors: Citigroup $112.9B, BofA $84.2B, then large insurers/investment banks. • JPMorgan is not in the current U.S. Top-10 list, implying a lower SRISK than those names at this snapshot. (VLab)
• G-SIB surcharge (Fed rule) — regulatory measure of systemic importance (higher = more systemic) • JPMorgan’s current surcharge: 4.5%, the top bucket among U.S. banks, driving a CET1 requirement of 12.3% (4.5% min + 3.3% SCB + 4.5% G-SIB). This explicitly reflects policymakers’ view that JPM poses very high systemic risk if it were to falter. (Federal Reserve)
• CoVaR / MES family (academia) — measures spillovers if a firm is in distress • These quantify how much system VaR rises because JPM is stressed (∆CoVaR) or how much JPM loses in a market crash (MES). They are well-accepted research tools but not investor ratings. (American Economic Association, Oxford Academic)

How to read this for JPM:

• Market snapshot (SRISK): at this moment, markets aren’t flagging JPM as the worst U.S. domino by capital shortfall—Citi and BofA screen larger. (VLab)
• Regulatory view (G-SIB): regulators still treat JPM as most systemically important domestically (max surcharge). That’s why agencies often uplift JPM’s rating for expected support rather than penalize it for being a potential trigger. (Federal Reserve)

SO, there’s no AA-style rating that “captures systemic risk.” The closest practical read is a pairing:

• use SRISK (market-implied systemic fragility)
• the G-SIB surcharge (regulatory systemic importance).

Today that combo says: JPM = extremely systemic (regulators), but not the highest market-implied capital shortfall right now (SRISK). (VLab, Federal Reserve). Now, when mapping how JPMorgan stacks up on systemic risk (SRISK) and regulatory systemic importance (G-SIB surcharge) compare to its peers, here are the following findings:

Peer Comparison: SRISK & G-SIB Surcharge:

1. SRISK (Market-Implied Systemic Capital Shortfall)

Based on NYU Stern’s V-Lab “Top 10 U.S. SRISK contributors” (as of early August 2025):

• Citigroup — ~$112.9 billion
• Bank of America — ~$84.2 billion
• Goldman Sachs, Wells Fargo, MetLife, Prudential, Lincoln National, Corebridge, Equitable, Brighthouse also rank among the top ten (VLab)

Notably:

• JPMorgan is not among the top 10 SRISK contributors currently. That suggests, at least from a market-based lens, it's not perceived as having the largest systemic capital shortfall right now. (VLab)

2. G-SIB Surcharge (Regulatory Capital Buffer)

From the U.S. Federal Reserve’s capital requirements framework:

• JPMorgan holds a 4.5% G-SIB surcharge, putting it in the highest bucket under the current framework. Together with the stress capital buffer (SCB) and base CET1 requirement, JPMorgan must maintain roughly 12.3% CET1 capital. (Moody's)
• According to a March 2025 report, JPMorgan (and BofA) may face an additional 50 basis points (0.5%) increase in their G-SIB surcharge starting around 2027, due to rising systemic footprint metrics. (Risk.net)

Key Insights:

Here are the closest, practical proxies people use (and how they look for JPM):

• G-SIB surcharge (regulatory, explicit): Extra CET1 capital big, interconnected banks must hold because of their systemic footprint. JPMorgan sits in the top bucket in the U.S., which regulators and market watchers commonly cite as ~4.5% on top of minimum CET1; this is precisely the formal mechanism meant to price systemic externalities into capital, not ratings. (Federal Reserve, Moody's)
• Stress Capital Buffer (SCB): Updated annually from the Fed’s stress test; it raises CET1 requirements when modeled losses are high. 2025 stress-test results are out, and banks (including JPM) disclosed preliminary plans; the Fed will publish final 2025–26 SCBs by August 31, 2025 (effective Oct 1). That number adjusts for macro shocks but is still a bank-level buffer rather than a marketwide-contagion score. (Federal Reserve, JPMorgan Chase)
• Market-based systemic-risk measures (SRISK/ΔCoVaR/etc.): NYU V-Lab’s SRISK estimates a firm’s expected capital shortfall in a market crash; it’s a de-facto ranking of who would need capital in a system event. It’s not a rating, but it directly targets the “who hurts the system most if markets tank?” question. (Methodology: Brownlees & Acharya, RFS 2017; live dashboards on V-Lab.) (Oxford Academic, VLab)
• Resolution & loss-absorbing debt (TLAC/long-term debt) and resolvability reviews: These aim to make a failure containable (single-point-of-entry, etc.). Again, not a rating, but key to limiting knock-on effects if a G-SIB were to fail. (FSB lists which banks are G-SIBs each year.) (Financial Stability Board)

What this means::

• A plain “AA” doesn’t capture the socialized costs of failure or the domino dynamics you mentioned.
• Regulators tackle that risk via capital surcharges (G-SIB) + SCB + TLAC—i.e., capital structure, not letter grades.
• Markets tackle it via SRISK-style metrics, which you can monitor alongside ratings.

If it helps, here’s a minimal “systemic footprint scorecard” for JPMorgan Chase you can track:

• G-SIB surcharge: ~4.5% (top U.S. bucket; drives total CET1 requirement higher). (Moody's)
• SCB (2025 cycle): Final value due by Aug 31, 2025; effective Oct 1, 2025–Sep 30, 2026. (JPMorgan Chase)
• Fed stress test (2025): All 22 banks passed; aggregate losses >$550B under the scenario; JPM’s bank-specific stressed ratios are published in the Fed’s report. This informs (but isn’t equal to) the SCB. (Federal Reserve)
• SRISK: Use NYU V-Lab to see JPM’s current systemic capital shortfall estimate and its rank among U.S. financials. (VLab)