JPMorgan Chase (NYSE:JPM) held its second-quarter earnings conference call on Tuesday. Below is the complete transcript from the call.
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Summary
J P Morgan & Co Inc reported a net income of $16.9 billion, with EPS at $6.14, driven by a 15% increase in revenue year over year, mainly from markets revenue and higher fees.
Expenses rose 15% to $27.3 billion due to increased labor, volume-related expenses, and inflation, while a standardized CET1 ratio of 14.1% was noted.
The company plans to increase its quarterly dividend to $1.65 per share, effective in the third quarter.
Consumer and Community Banking (CCB) saw net income of $5.3 billion, with revenue up 8%, driven by higher card income and deposit growth.
Corporate and Investment Bank (CIB) reported net income of $9.7 billion, with revenue up 27%, supported by strong performance in equity underwriting and a robust deal pipeline.
Asset and Wealth Management (AWM) reported net income of $2 billion, with revenue up 19%, due to higher management fees and strong net inflows.
The company revised its full-year 2026 outlook, expecting NI X markets to be around $96.5 billion and total NII to be approximately $105.5 billion.
Management changes were discussed, emphasizing the preparation of new leadership without altering CEO Jamie Dimon's tenure timeline.
The company is investing in AI and technology for efficiency and future returns, while managing a balanced risk approach to market dynamics.
The regulatory environment and potential adjustments to the Basel III framework were addressed, with J P Morgan advocating for clearer and fairer regulation.
Full Transcript
OPERATOR
Good morning, ladies and gentlemen. Welcome to J P Morgan & Co Inc's second quarter 2026 earnings call. This call is being recorded. Your line will be muted for the duration of the call. We will now go live to the presentation. Information concerning forward-looking statements and non-GAAP financial measures included in this presentation can be found in J P Morgan & Co Inc's earnings press release and investor presentation posted on the Investor Relations website.
Please stand by. At this time, I would like to turn the call over to J P Morgan & Co Inc's Chairman and CEO Jamie Dimon and Chief Financial Officer Jeremy Barnum. Mr. Barnum, please go ahead.
Jeremy Barnum, Chief Financial Officer
Thanks, Amanda, and good morning, everyone. Including the significant items noted on the page, the firm delivered net income of $16.9 billion, EPS of $6.14, and an ROTC of 23%. Excluding the significant items, revenue was up 15% year on year, predominantly driven by markets revenue, higher asset management fees in AWM and CCB, higher investment banking revenue, and higher deposit and loan balances, partially offset by the impact of lower rates. Expenses of $27.3 billion were up 15% year on year, largely driven by volume and revenue-related expense as well as growth in front office hiring and labor.
Inflation and credit costs were $2.5 billion with net charge-offs of $2.4 billion and a net reserve build of $149 million. In terms of the balance sheet, we ended the quarter with a standardized CET1 ratio of 14.1%, down 20 basis points versus the prior quarter as net income was more than offset by higher RWA and capital distributions this quarter. Standardized RWA increase of approximately $103 billion is largely driven by increases in financing across our markets business as well as growth in traditional lending.
As you saw in our CCAR press release in June, the Board intends to increase the quarterly dividend to $1.65 per share effective in the third quarter. Now moving to our businesses, CCB reported net income of $5.3 billion. Revenue of $20.3 billion was up 8% year on year, predominantly driven by higher card NI largely on higher revolving balances as well as higher operating lease income and auto and asset management fees. A few points to highlight: Consumers and small businesses continue to show resilience despite elevated gas prices and inflation, with higher tax refunds and a solid labor market contributing to strong spend growth in banking and wealth management. Average deposits were up 3% year on year and 2% quarter on quarter, driven by strong net new checking account growth of over 500,000 accounts this quarter. Client investment assets were up 21% year on year, driven by market performance along with strong flows in card services. We refreshed the Sapphire Preferred Card in June following the successful refresh of several other products over the last 12 months. Next, the CIB reported net income of $9.7 billion.
Revenue of $24.9 billion was up 27% year on year, driven by strong performance across the businesses. IV fees were up 30% year on year, reflecting double-digit growth across all products with particularly strong performance in equity underwriting. While this quarter's performance was supported by both some large ECM deals and the acceleration of the closure of some M&A transactions, the pipeline remains quite robust and the current activity levels seem to be encouraging more activity as a result.
While conversion will obviously be dependent on market conditions, we expect activity levels to remain healthy. In markets, fixed income was up 6% year on year with solid performance in credit, currencies in emerging markets, and rates partially offset by lower revenue in commodities. The equities business delivered an exceptionally strong quarter with revenue up 86% year on year, reflecting the highly dynamic market conditions. We saw strength across products and regions.
Flows were strong and trading was favorable in both derivatives and cash, and prime benefited from higher client activity and balances. Turning to asset and wealth management, AWM reported net income of $2 billion with a pre-tax margin of 38%. Revenue of $6.9 billion was up 19% year on year, driven by growth in management fees on higher average market levels and strong net inflows as well as investment valuation gains, higher loan balances, and higher brokerage activity.
Long-term net inflows were $50 billion with continued strength across fixed income and equity. AUM of $5.1 trillion was up 18% year on year and client assets of $7.7 trillion were up 19% year on year driven by higher market levels and continued net inflows. Before turning to the outlook, Corporate reported net income of $4.2 billion on revenue of $6 billion, which includes the significant items noted in the presentation. In terms of the full-year 2026 outlook, we now expect NI X markets to be about $96.5 billion and total NII to be approximately $105.5 billion as a function of markets on AI increasing to about $9 billion and the new adjusted expense outlook is about $107.5 billion with the increase primarily due to higher volume and revenue-related expenses driven by the activity levels and associated revenue outperformance. Finally, we now expect the card net charge-off rate to be approximately 3.2% reflecting better than expected consumer credit performance. With that, we're now happy to take your questions. So let's open the line for Q&A.
OPERATOR
Thank you for participants dialed in on the analyst side of today's conference call. If you would like to ask a question, please press star one to be entered into the queue. We kindly request that you ask one question and only one related follow-up. If you would like to ask an additional question, please press star one to be re-entered into the queue. For our first question, we will go to the line of Ken Houston with Autonomous Research. Your line is open.
Ken Houston, Analyst at Autonomous Research
Thanks. Hi, good morning, Jamie. I was just wondering if you could start by just evaluating the recent management changes and the elevation of Doug and Troy to co-presidents and just anything we should be thinking about in terms of the ongoing development of the leadership team and anything it may mean in terms of your tenure as a CEO from the board's perspective. Thanks.
Jamie Dimon, Chairman and CEO
No, it's exactly. I think we try to be totally clear in the press release which is now look, Marianne is an exceptional individual as a human being, as a leader and as obviously an executive. But the board made a decision to go ahead with making two co-presidents which will be preparing them to do far more at the company to be prepared. Hasn't changed the timetable or anything and obviously wish Marianne the best. As a result, she decided when she knew about the plans that she'd rather retire than stay here.
So that's it. No mystery.
Ken Houston, Analyst at Autonomous Research
Okay, very good. And then just on the Jeremy, on your follow-up to the strength that you're seeing across investment banking and markets, just you know, I know it depends on conversion opportunities and just the environment, but this is clearly, you know, far higher level of activity than anyone would have expected. How do you judge the sustainability and how do you judge just how risk on are we across the various businesses? Thanks.
Jeremy Barnum, Chief Financial Officer
Yeah, good question, Ken. So I would actually bifurcate that a little bit between investment banking and markets in the sense that by historical standards investment banking fees were fine, but they weren't at super peak level. So they had some room to come up a little bit. And so one of the things we looked at is like okay, how much cannibalization of the future pipeline might have happened through the acceleration this quarter and or to what extent were this quarter's results like particularly elevated as a result of some of the large high profile IPOs and other capital raisings in particular.
And I think clearly there was some pull forward and clearly the large deals contributed meaningfully to this quarter's results. But at the same time the pipeline is actually quite robust and to some degree it feels a little bit, I mean guessing here obviously, but it feels a little bit as if, you know, the high profile nature of the activity this quarter and just the generally robust environment is itself begetting more activity. So you know, I obviously don't want to get into like guiding you and in any case we're just guessing but you know, that's maybe just a little bit of context about how we're thinking about the trade off between the robustness of the pipeline and the fact that there was some pull forward and some kind of exceptional events this quarter. On the market side I would probably separate between fixed income and equities. I mean all the normal caveats like we don't know anything can happen. And clearly markets revenues in general have been quite elevated and strong for some time. Although as we pointed out that also is associated with much more financial resource deployment and support of our clients.
But you know, I think the particular set of things that happened in equities this quarter, it's a little bit hard to imagine that being repeated. But you know, the background environment is quite supportive. So we'll see, we'll see what happens. But in the end, you know, we're just trying to serve the clients and manage the risk and get our fair share of the business and, and overall obviously the environment feels pretty good, I guess. You did say something about risk on and you said how risk on are we?
And not to be pedantic, but I think the question the we matters, right? So the market is clearly extremely risk on and we're kind of takers of that. And we're trying to strike the right balance between supporting all our clients and being appropriately cautious in an environment that, you know, has some complicated dynamics in it. So.
OPERATOR
Does that conclude your question?
Ken Houston, Analyst at Autonomous Research
All set. Thank you.
OPERATOR
Thank you. Our next question comes from Chris McGrady with KBW. Your line is open.
Chris McGrady, Analyst at KBW
Good morning. Thanks for the question on deposits. What stuck out was slide four to me, the growth in CCB in the quarter. Interested in the progression towards that 15% retail market share that you've talked about in the past and really how higher for longer may impact the pace of market share gains over time. Thanks.
Jeremy Barnum, Chief Financial Officer
Sure. Let me just do near term deposits for the company quickly. Let me actually start with wholesale. Wholesale deposit growth was quite strong this quarter actually and has been for the first half of the year. You know, if you recall, last year was particularly strong. I think this year we were expecting it to be sort of fine, but slightly less strong. And so far the first half of the year has outperformed our expectations. You know, obviously a lot of that is the strength of the franchise and winning deals and taking share.
But some of it is also the kind of lending environment, particularly the sort of MDFI space and a lot of the data center stuff like however you look at it, you have a little bit of the dynamic of loans creating deposits and that's going to disproportionately show up in wholesale. So that's probably a little bit of a tail end for wholesale. On consumer, we talked about expecting low single digit growth this year and that expectation is still in effect, it's unchanged, which is good because I think there were some different moving pieces there and they could have played out differently in some sense.
But if you look at what those pieces were, it was fundamentally the balance between ongoing very robust net new checking account growth and the question of yield seeking flows and the impact that that was having or not having on average balances per account. And you saw obviously very strong net new checking account this quarter. And in light of the fact that the rate environment is a little bit more hawkish, the yield seeking flows are still a factor and probably a little bit of a risk.
But on balance the picture is in line with our expectations for this year, which is good. And so then the question is, how does that all feed into the 15%? And what I would say about that is we feel great about the franchise and we feel great about how everything is going and there's no change to that hope or aspiration. But I would think about that as a kind of natural long term consequence of executing the strategy that we believe in across all the various components of it.
You know, focus on primary bank relationships, branch expansion, deepening product value proposition, et cetera. And so, you know, the view is that the 15% will be an outcome of that and we still feel good about it.
Ken Houston, Analyst at Autonomous Research
That's great. And for my follow up, bigger picture question on the expenses, really the returns that you're getting from the branch build out the AI investments, the higher the bankers. Ultimately, I guess the question is where are we in the investment cycle and really how does it play into the operating leverage outlook over the medium term?
Jeremy Barnum, Chief Financial Officer
I would just say it's a complete continuation of what we've been doing for years. You shouldn't really expect any change. Yes, I mean, that's what I was going to say too. I mean obviously there are other expense dynamics this quarter which maybe I'll save for another question. But in the end we're investing, we're always going to invest. It's been working. And obviously the returns so far speak for themselves. And I think the thing that we've been saying for a long time is that the power of this franchise is such that we are able to aggressively invest for the future for the sake of generating future returns and to solidify the competitive position of the franchise while still delivering exceptional current returns. And I think that would be true if we were delivering, you know, 15, 16, 17% returns. Obviously when we're delivering these types of returns, you know, it really is firing on all cylinders.
Ken Houston, Analyst at Autonomous Research
Thanks so much.
OPERATOR
Thank you. Our next question comes from John McDonald with Truist Securities. Your line is open.
John McDonald, Analyst at Truist Securities
Thank you. Good morning, Jeremy. Wondering if you could talk a little bit about the drivers of the upward revision to the ex markets. Nii, perhaps the cadence too in third quarter, fourth quarter as we think about the exit rate heading into next year.
Jeremy Barnum, Chief Financial Officer
Yeah, sure, John. So yeah, revising up from 95 to 96.5% for the full year and you see our first half actual so you can infer the second half. And as Jamie always likes to say, what matters is, you know, the run rates and the exit. And if you sort of do that math, it does suggest a higher exit run rate which you know, in the central case, assuming the yield curve plays out as the forwards currently forecast and the deposit and other drivers are in line with our current expectations, that's what we would expect.
Just mechanically in terms of the drivers of the upward revision, the biggest single factor is deposit balances, I would say across both wholesale and consumer both the overall quantum of it, but also makes shift inside of that in favor of slightly higher margin overall then rates are a little bit higher than when we previously guided both in the short end and in the back end. And as you know, we've got sensitivity to both and probably our actual sensitivity is a little bit more than the ear suggests right now because of the outperformance of the consumer betas relative to the model and that difference is probably disproportionately in the front end. So when you assemble that together, you have a little bit of the increase as a function of higher rates, but most of it is balances overall.
John McDonald, Analyst at Truist Securities
Okay. And then just to finish up on the nii, the market's NII is guided a bit higher even though the outlook for rate is also a little bit higher. So I guess what are some of the drivers there? Is it balance sheet mix and some other factors?
Jeremy Barnum, Chief Financial Officer
Yeah, it's a great question, John. So yeah, you correctly allude to the fact that we've said previously that the markets on AI number is actually liability sensitive, all else equal. Also, obviously in the context of what we always say, which is that in general changes in the markets nii, especially when they are driven by rates are almost always fully offset in the bottom line through nirvana. And so yeah, you're right. This quarter, although it's equal based on higher rates, you would have expected markets on AI to be down and instead the forecast is up.
And the difference is changes in balance sheet composition. Essentially expecting lower amounts of finance non interest bearing assets on the balance sheet in the second half of the year. And at this level of rates, one balance sheet unit of that stuff drives the number quite a bit if you think about it, and can overwhelm sort of the rate effect. So that's what's going on there. If you just indulge myself for 30 seconds. There's also another interesting nuance which is you will have noted that we actually increased the equity allocation to the CIB this quarter for reasons that I think are pretty obvious in light of the amount of growth of supporting clients that we've done and the way that's playing through rwa and the consequence of that is to move some equity essentially out of corporate into the CIB and a lot of those markets that obviously comes with a little bit of nii. And so that NII is moving out of NII X into markets nii. And so it's sort of a rare exception to the rule that changes in markets NII are offset in the bottom line. This piece, which to be fair is quite small, it's probably like 150 million is a part of the increase that we would not expect to be offset on the bottom line.
All else equals. And so obviously it's left pocket, right pocket at the level of the company.
John McDonald, Analyst at Truist Securities
Okay, that's helpful, thank you.
OPERATOR
Thank you. Our next question comes from Erica Najarian with UBS. Your line is open.
Erica Najarian, Analyst at UBS
Hi, good morning. I just had one question. I do want to revisit the succession line of questioning because it is so critical for a lot of your current investor base. Jamie, I guess maybe re-asking the question a different way. What characteristics are you and the board looking for in terms of the new leader of JP Morgan? What do you think makes an exceptional CEO in the future as you pass the baton on? Additionally, I think that some of your investors may have read the announcement, particularly Marion's departure, as sort of an extension of your tenure.
And I'm wondering if we should think about your remaining tenure as more fixed or if investors are still thinking about a more rolling type of retirement date and a longer stay as executive chair.
Jamie Dimon, Chairman and CEO
So the question to that is, though, timing is essentially the same, obviously completely up to the board, but it hasn't changed. There's just a natural change that we have to go to about how we go about this. But look, that question is obviously critical, but I've always said you want to be good at management, you want to be good at people, you want to be analytical, you want to be detailed, you want to be a culture carer, you want to be curious, you want to have art, you want to have grit, you want to have soul, you want to have work ethic, you want to be able to travel, you want to be able to walk in operating centers and deal with CEOs and Prime Ministers. It's all of that. I mean, I could give you a long list of stuff, but it's all that at the end of the day we're blessed with a lot of people who are great culture carriers across a broad spectrum. No one has all those things in the perfect way. And some of those things you learn and some of those things you get better at. But you know, when you see it, we have two exceptional co-presidents and we have other people at the company who are great culture carriers.
But that's what you want and you want it across the whole company. Not wedded to investment banking or trading or just big CEOs, but also wedded to the fact that we've got 300,000 employees around the world. In our branches we have 50,000 top notch people. And our operating centers and our call centers we have 150,000 people. And you have to be flexible of mind to deal with this new, growing, complex world. And, and we have teams of people. And as you know, I think it's important, you know, we pointed out that, you know, we're blessed to have Jim Pepczak as the chief operating officer and Mary Erdos continuing to run Aspen Wealth Management.
So it's a great team of people which I am fully confident. If I was hit by a truck, which is not my preference, we would be fine.
Erica Najarian, Analyst at UBS
And just wanted to unpack. Sorry. I am going to ask a follow up question. What do you mean by no change in timing?
Jamie Dimon, Chairman and CEO
Exactly what you said last time. Whatever I said last time is the timetable is essentially the same. Several years you can use, a few years you can use plus or minus or obviously it's totally up to the board, not up to me.
Erica Najarian, Analyst at UBS
Okay, thank you.
OPERATOR
Thank you. Our next question comes from Jim Mitchell with Seaport Global Securities. Your line is open.
Jim Mitchell, Analyst at Seaport Global Securities
Good morning. Just Jeremy, maybe a follow up on the expense question and operating leverage question earlier. Understand completely longer term, no bank can generate perpetual operating leverage. But if we look at year to date results, it's been a strong revenue environment. But I think operating leverage on an adjusted basis was negative. You alluded to some expense one offs potentially. No question you're investing heavily and should be so. I get all that. But just when I think about the benefits of AI and technology generally. Is there a time over the intermediate term where you think expense growth could slow a little and operating leverage becomes more likely in a period of time over the next few years?
Jamie Dimon, Chairman and CEO
I'm just going to answer that by saying when you have great returns and very good margins, which actually went up this quarter, not down. The notion that somehow you can forever increase your operating leverage is a crazy notion. We don't have that. I think it's part of the reason why banks failed. If you go back 20 years ago, we're never going to have that point of view and AI will have its gives and takes. So we can't project. I do think you might actually see a slowdown in growth, maybe a slowdown in 27 or 28.
But the teams are looking at all of our opportunities. And we pointed out over and over again when we have an opportunity to spend more money in marketing with deposit ROI, we're going to do it. We're not going to have false gods. We have to pray that we can't do something really smart. I've also pointed out over and continuously that some expenses, if you accounted for them as investments, that they have very good returns but they're expensed in the short run.
And AI still remains to be seen. Because the other thing I think about AI, which is a little bit different than everybody else is you don't uniquely benefit from AI. The ultimate beneficiary of AI will be our customers. And in a competitive capitalist world, we all will use AI to do a better job for the customers. And we can't just say, oh, it's going to increase our margins and we're going to keep that. If that were true, our margins would be 80% today because of computerization over the last 20 years.
John McDonald, Analyst at Truist Securities
Yeah, well, all fair. Appreciate it. And then just maybe a quick one on regulation. Is there any update on the thoughts on potential for adjustments to the regulatory proposals? Since I know you and your peers have been particularly vocal around the G-SIB surcharge and some elements of Basel III, just curious if there's been any developments there.
Jamie Dimon, Chairman and CEO
There are four obvious changes they should make. And I think it's unfair when I hear them say, you know, they should do the numbers the right way and you guys should demand it do the numbers the right way. If they think they want to be more conservative, they should add conservatism. They should not do the numbers in a false way to make the number higher. I just think that's intellectual clarity and honesty and stuff like that. They should get rid of the double count in operating risk capital.
They should get rid of the double count in market risk capital. We have $80 billion or more now market risk capital, and the biggest quarterly loss we ever had was $1.4 billion. Even the CCAR market loss I think is like 14 or 15 billion. And so they should adjust the G-SIB the way they're supposed to going back to 2015, and they should change the way they're doing short-term wholesale funding. To be fair to everybody, those are the things they should do.
The number should be the number. If they think we should hold more capital, they should ask us to hold 10% more. And I'd be happy to do that, but I'm not happy to have these numbers falsely done.
Jeremy Barnum, Chief Financial Officer
Yeah, and I just to briefly add on short-term wholesale funding, I think there's an important point there in terms of competitive dynamics that we were really quite explicit about in our comment letter, which I would encourage everyone to read because it's a nuanced thing, but I think if you go through it, it makes the point very clearly. And what they've wound up doing with this change to short-term wholesale funding is essentially increase the burden on banks like us and Bank of America that have both markets and banking businesses as well as traditional consumer businesses disproportionately relative to our former investment bank competitors who have different business mix. And I guess conceivably someone could want that as a policy outcome. I don't understand why you would want that as a policy outcome. Because it is disproportionately damaging the ability of banks to serve Main Street. But if that's what someone wants, they should say it. And if that's not what they want, then they shouldn't let it happen by accident as a result of a seemingly very technical thing like removing RWA from the denominator of the short-term wholesale funding contribution to the G-SIB score.
I mean, this is a little bit of what Jamie talks about when he's saying like, do the numbers right. And just be clear about your policy objectives.
John McDonald, Analyst at Truist Securities
Absolutely. I appreciate the thoughts. Thanks.
OPERATOR
Thank you. Our next question comes from Matt O'Connor with Deutsche Bank. Your line is open.
Matt O'Connor, Analyst at Deutsche Bank
Good morning. It seems like everything is firing on most or all cylinders. Trading, got some banking, lending, credit. Is this as good as it gets or. And I know you've kind of flagged some of the risks out there, but is there also an argument to be made that we're earlier cycle given AI and what seems likely to be a big increase in global defense spending, global supply chains management, as we put all that together, what are your thoughts?
Jamie Dimon, Chairman and CEO
It's getting close to as good as it gets. We just don't know how long it's going to last.
Matt O'Connor, Analyst at Deutsche Bank
Okay. And then, you know, the rate expectations continue to move all over the place out there and you show that you're kind of well positioned for higher rates, meaning make more money. But is there a tipping point where the deposit behavior changes both from a volume perspective and then betas, which you alluded to earlier, have been better than expected so far. But if we go up a certain amount, do you think there could be a meaningful change in that?
Jeremy Barnum, Chief Financial Officer
Yeah, that's a good question. Actually, Matt, I think the short answer is we don't really know. And if you'd asked me that question a couple of years ago, I would have said that you're essentially asking a question about the convexity of the rate paid dynamic, especially for consumer deposit. The negative complexity, to be specific. And you know, if you'd asked me that at the beginning of this rate cycle, I would have said that we would be experiencing that effect.
Right now. And we're not. But you know, just from a common sense perspective, like you have to believe that at some point that kicks in. So when we do our stress testing and when we think about not just like, you know, slightly more elevated inflation environment and the slightly more aggressive response from the Fed, but something that's like meaningfully different. That's a true stress test with an actual change in regime. One of the things that we look at and stress is like, okay, at what point do you have that kind of like acceleration and rate paid as a result of that type of environment?
And that's one of the reasons why it's important not to be naive about higher rates. Because if you simply take our current ear, even recognizing that locally the empirical ear is probably higher than our reported ear, and you ignore the convexity dynamics, you could convince yourself that, you know, in 7% rate environment is great. And obviously that wouldn't be true if you had to do a massive reverse deposit franchise in order to protect it, essentially.
So we do assume some of that. It's something that we think about. It's in the models. It's very much like part of the discipline. But the question is when? And obviously there's the larger question of the competitive dynamics and the whole value proposition of the deposit franchise, especially in consumer.
Matt O'Connor, Analyst at Deutsche Bank
Okay, that's helpful. Thank you.
OPERATOR
Thank you. Our next question comes from Mike Mayo with Wells Fargo. Your line is open.
Mike Mayo, Analyst at Wells Fargo
Hi. In response to the earlier question you were asked about operating negative is negative and you gave the reasons for that. But is operating negative the way you look at things, I mean, when you grow revenues 15% core year over year, percentage wise it's negative, but dollar wise, I think it's positive. When I look at slide two, I don't know why I'm not going to create the narrative for you, but even if you take out those numbers, if you definitely was positive, let me.
But can I just point out another thing? It was positive, but when revenues go up 10%, if your margin overall is 25%, when revenues go up 10%, the marginal return on that, so you're not in all the overhead is going to be a lot more than 25%. People kind of forget that. Obviously a rapid increase in revenue drives a big increase in operating leverage. Yeah.
Jeremy Barnum, Chief Financial Officer
So I agree with what Jamie just said. And maybe just since we've had a couple of questions about this and obviously we did revise up this year's expense guidance by 2.5 billion, which is not a trivial number. So maybe I can piece all this together to add a little bit of clarity here. So first of all, if you remember the guidance that we gave in fourth quarter last year for the full year for the company, and if you made some kind of like reasonable assumptions about what type of markets, environment and NIR X markets for the rest of the company at the time and you built out your models or whatever.
I don't remember exactly what you had, Mike, but I'm sure that the consensus was for meaningful negative operating leverage in this year's numbers, however defined. And that's why at Company Update, I gave the long speech about what Jamie always says about why operating leverage in the long term for the cycle is not a thing now for a company like us anyway, producing the types of returns that we're producing now. And the root cause of that was essentially that the, as Jamie just said, there's a fixed expense base and there's a variable expense base.
The variable expense base is disproportionately associated with capital market complex, broadly defined. And we were in a moment where coming out of the back of the rate hiking cycle and relatively modest deposit growth, et cetera, the NII was still working its way out of the headwinds. In the meantime we had inflation and investments and the usual stuff driving the expense base. So that sort of was the operating leverage picture for the year, to Jamie's point.
Since then, in the first half of this year, the capital markets complex has outperformed our then expectations by $6.5 billion. And we have booked in the first half of the year $1.5 billion of additional expenses associated with that. So that says a lot about that marginal operating leverage point. Therefore, of the two and a half that we increased guidance, 1.5 is essentially already booked and a direct happy consequence of the exceptionally strong performance then.
Yeah, we've implicitly added a billion for the second half of the year. And there are some nuances. I wouldn't draw too many conclusions from that in terms of our expectations about the revenue environment because there are some other factors and there's some timing or whatever, but at a high level that gives you the picture. The second half of the year will be what it'll be. And I think when you look at returns, overhead ratio, any metric that your updated models are going to show for this year, it's obviously exceptional performance, principally through the lens of returns, which is what actually matters.
A little bit of that national wealth management, a little bit of that in credit card spend, a little bit of that other parts of the business too.
Jamie Dimon, Chairman and CEO
Yeah, and that's why I say a capital markets complex is really the whole combination. Yeah, exactly. So your marginal margin based on the number you just gave is 77% on that. And so why is that as good as it gets? Are you referring to the revenue environment? Maybe as good as it gets, Jamie, or are you just being conservative? Or what? No, I just think we're in a very healthy, active, exuberant market with very high prices and very high volumes, and we benefit from that. We just don't know how long it will continue. Could it get a lot better than this? It can get better, but how much better? I don't know.
Mike Mayo, Analyst at Wells Fargo
Then the second question does relate to the management changes and Troy taking over the consumer bank. And we don't know Troy as well as we did Marianne. And you have a lot more information internally, but to oversimplify and exaggerate, and we have FX trader now, you know, selling mortgage credit cards and deposits. And I'm being simplistic for a reason. But what gives you confidence that Troy is the right person to run the consumer business when he doesn't have that experience in the past?
Jamie Dimon, Chairman and CEO
Yeah, you know, Mike, it's a great question. You know, first of all, like I mentioned, how you evaluate people, if they're analytics, it's their brain power, is their EQ, it's their heart, their soul, their culture carrier. Can they walk into operating centers? He's exhibited that in markets and investment banking. Remember, even the IB has extensive operations function and back office function, technology function, where he's exhibited great expertise.
We're completely comfortable with that. I do think it's very important that people have experience across the company. And when I've seen investment banks, big banks, taken over by someone only from the investment bank, who only cares about the investment bank, believe me, the rest of the franchise can suffer. You need respect for the rest of the franchise. So I think it's great for him, it's great for the company. He's already excited. He's always been to branches and out and about, and he'll take it, hopefully onward and upward.
Jeremy Barnum, Chief Financial Officer
And Mike, just a minor correction, Troy, with no offense intended to my old good friends who are foreign exchange spot traders, but Troy was actually an options trader, which is also where I started. So I think you would want me to correct the record on that.
Mike Mayo, Analyst at Wells Fargo
All right, thank you.
OPERATOR
Thank you. Our next question comes from Sal Martinez with HSBC. Your line is open.
Sal Martinez, Analyst at HSBC
Hi, good morning. Thanks for taking my question. I have a broader question on, and it is, is there an argument that we're vastly underestimating the potential benefits to efficiency and its impact and the impacts on how companies can run their businesses? I know Block is a really different animal than you are on a lot of levels, but they argued when they cut 40% of their workforce that given the advancement in AI tools, if they look at their organizational structure, with a blank sheet of paper they can be much leaner and not sacrifice on product velocity and commercial outcomes.
And I guess I'm asking if you think there could be a parallel with banks where you can operate with a different structure, be much more agile, be more efficient over time. I know it's a sensitive topic but curious how you think about these questions and how you're positioning yourself for this world.
Jamie Dimon, Chairman and CEO
So it's not a sensitive topic at all. We are going to use AI to do a better job for our clients. That's our job. We fully expect it'll have huge efficiency in certain parts of the company and we analyze it all the time. I think we've mentioned in the past we spend quite a bit of money on it. We have a lot of MPVs that we know we have. The whole company's working this at this point. There are, I think there's almost 1,000 use cases today though we said the really important ones are 50 productivity across risk fraud, marketing, hedging, prospecting, note taking, idea generation, document reading and it's kind of just starting.
So we do expect that. I think you have to put in the back of your mind that there are areas where we may just accelerate what we do that we want to get done anyway. Think of certain applications and customer facing things and stuff like that. We are preparing to make sure we can retrain our people and we have had discrete areas where we did reduce jobs by 30% or 40% and most of those people offer jobs elsewhere. So we do expect that. I also think that over time, remember this will be offered to smaller competitors too through Fiserv and FIS and other fintech companies.
And over time we've been doing this nonstop for 25 years with just large computers and mainframes and, and APIs and various tools and tricks we use. Have always been trying to create more efficient stuff like this. This will be faster, this will be dramatic. The whole company's involved in it. We have our off site in July. You can imagine this is a big topic everywhere from front office to mid office to back office to marketing to risk to you name the subject and more to come.
But we're kind of in the midst of this mini revolution and we'll report to you. But I do also want to point out maybe you could be ahead of other people kind of. But what always happens is the benefit accrues to the customer, not to the J P Morgan in this case because other people are doing the same thing and presumably leads to lower costs and lower error rates and a bunch of things. You can't just say, well, your ROE is going to go to 50%. Stay there.
If we had a 50% ROE going to 10% a year, you'd probably have, in 50 or 60 years, you'd probably be 100% of the GDP of the United States of America.
Sal Martinez, Analyst at HSBC
Yeah, yeah, okay, thank you for that follow up on equities. And I think, Jeremy, you said, and if I recall correctly, that the particular set of things that happened this quarter are difficult to see repeated. Can you just maybe elaborate on what was most exceptional this quarter? I think some of your peers have talked about Asia prime brokerage there, and I think you mentioned derivatives and cash being strong. But is there any areas or products or geographies that were particularly noteworthy in terms of the strength this quarter that may be difficult to sustain going forward?
Jeremy Barnum, Chief Financial Officer
Yeah, I mean, there's really not a lot behind my comment. It's essentially what you would get from asking any of the commercial AI models this question and two stages, old version of the model. In other words, it's all the obvious stuff that's been heavily reported. Like we had some major IPOs, we had some major index rebalancing, we had some very complicated dynamics in Korean equity market. There's been a lot of activity in Asia. The overall environment has been dynamic and interesting across a whole variety of dimensions. The clients have been extremely active. So it's like all, it's all the headlines basically that have driven the market and of course that could obviously repeat. But I just think statistically it seems improbable that that particular combination of effects repeat itself.
And you guys, those who pay attention, you can see most of this on a daily basis through volumes of the New York Stock Exchange. The CME buying through hedge funds is not a secret. Marginal loans. You can see a lot of this taking place during the course of a quarter.
Sal Martinez, Analyst at HSBC
Got it. Thank you.
OPERATOR
Thank you. Our next question comes from Ibrahim Punuwala with Bank of America. Your line is open.
Ibrahim Punuwala, Analyst at Bank of America
Hey, good morning. I guess maybe a lot of discussion on the strong Wall Street backdrop. Maybe Jeremy, just talk about the Main Street part of the US economy. There is a sense that there's a fragility when you look at housing, real estate rates potentially could go higher. Give us a sense around what you're seeing from on the consumer side, the ability to sort of pull forward and resiliency if rates go up. And are you seeing any broadening in Capex beyond AI or is it very AI centric in terms of what you're seeing on even commercial lending activity.
Jeremy Barnum, Chief Financial Officer
Okay, let me do these in reverse order actually, because I'll just address your AI Capex question quickly. We do see some decent kind of Capex and associated loan growth across the franchise and at least on the surface some of that does not appear to be AI related. However, I was a little reluctant to draw that conclusion too strongly just because the AI theme has started to proliferate in so many different parts of the economy. Right. It's like the comments about data centers wind up creating a lot of demand for plumbers and electricians.
Right. So you wind up seeing it in slightly non obvious places. And so any given bit of loan growth or Capex that you see that doesn't superficially look like it's AI related, might still be, but on the other hand it might not give you the big numbers. I think capex is about 4 trillion a year and AI went from 400 billion last year to 700 billion this year people project which so do our people. It'll be like a little over a trillion next year and maybe a little reduction in the non AI capex.
But that's hard to figure out because the same people, some of the same people doing the same. Yeah, I was talking to our economist the other day about the CAPEX impact of Chips act and some of that's kind of rolled off and it's getting replaced by more direct AI stuff. So it's a little bit hard to untangle the whole thing going to the consumer for a second. So a few things I guess I've kind of already covered. But so number one spend is kind of fine, robust and across income segments seems like a bit of a tailwind there from tax refunds. Delinquencies are a little lower than we expected and again that's better performance you see pretty much across the board by kind of FICO score.
Some of that economic heterogeneity data came out from the Fed recently which also I think doesn't give a lot of support to the K shaped narrative. Essentially again we think about this, we worry about this, we look at it, but from our perspective through all the various dimensions, there's not like that much there in terms to support the K shaped narrative. Now to your point about fragility and rates and housing and stuff like that, it is of course we are in a slightly higher than normal inflationary environment.
I think Marianne had made some comments at some point about a cohort of consumers who are experiencing negative real wage growth and that potentially creating some distress for those folks now, some of that statistically is kind of always going to be true in any moment in time, in any cohort, but that's probably a watch area. And I think generally, obviously it's been a long expansion that's gone on for a long time. I think the economy is surprised on the upside, consumer strength has surprised on the upside, and that inevitably makes everyone worry about fragility and about the thing that could change it.
But as I always say, when it comes to consumer credit performance, it's just about the labor market. And so you're not going to hear anything from me that's new or differentiated about the labor market. We all see the same numbers and it's been surprisingly resilient. So for now, that's the narrative.
Ibrahim Punuwala, Analyst at Bank of America
Got it. And I guess just a follow up on the capital front. You have excess capital, strong ROEs. But I guess the question would be why buy back stock here at three times tangible book when things are so good, bad things could happen. Why not just have even more excess capital for a rainy day if things go south? Just talk to us in terms of how you're thinking about buybacks at these levels. And I know Jamie's talked about potential M&A at South Point, maybe asset management, fintechs, but yeah, would love to revisit that.
Jeremy Barnum, Chief Financial Officer
So before I answer that, I want to tell I always enjoy reading your weekend notes. They're insightful and sometimes quite funny. So thank you for that.
Ibrahim Punuwala, Analyst at Bank of America
Thank you.
Jamie Dimon, Chairman and CEO
Look, you're absolutely correct. I mean, we've always said we want to buy back less stock as the price goes up and more stock as the price goes down. We had a lot of excess capital and so we were struggling with that. If you talk about two years ago, we still think the number used just approximately 40 billion. And I think we now think we actually deployed it. Over time, the world's gotten bigger, it's gotten more complex. I just got back from a tour of Europe.
Our security resiliency initiative. The hyperscalers, the needs are just big. And it's not just AI. You're talking about global infrastructure, the remilitarization of the world, the restructuring of trade, of trade is taking place, the enormous need of governments. You have global deficits are almost 4.5% or 5%, which is a very big number competing for the same capital. So we do think we'll deploy it and that has consequences. And we're not going to tell the market what we're going to do.
But we agree with you generally, if we think we can deploy, it's very different than buying back stock. I've also never thought that buying. I actually want to get rid of that number money returned to shareholders. I just don't even like seeing it because buying back stock is not returning money to shareholders. You're making an investment decision, you're not making a return money to shareholders decisions. I actually do want to borrow all the reports and so you can see changes taking place.
We're just not going to tell you what they are. I made a mistake last time mentioning $20 billion. We could obviously do far more than that or nothing at all. What I was trying to point out is we have huge opportunities for organic growth in every single business we're in. Organic growth is hard. It's technology, it's people, it's systems, it's branches, it's bankers, it's hiring, it's training, it's recruiting. But I was surprised to find out in parts of Europe that while we doubled our share in certain areas, they think that we could do a lot more there and country by country, including countries that aren't doing particularly well.
And I think that's true. Here we have our branch of the United States, we've got our credit card business, we've got the app arsenal, the Apple business at one point, which we have pretty high hopes for if we come up with better products and better services. So the goal is to deploy our capital at a 17% return. That is the goal, which we think we can do over time. We should always be looking at inorganic. What we don't want to do is look at inorganic as a sign of weakness of organic, which I think companies do sometimes they bullshit about M&A when they should be focusing on why they're not doing particularly well in the area or something like that. And we have a lot of competition, by the way, and we had pointed out before, very good competition. Not just Goldman Sachs, who's doing a great job if you didn't read their numbers this morning, because I did. But you know, you got Stripe and Paypal and Cash and Block and Chime and Sofi and Revolut and they're good. And we have to make certain investments to keep up with them or to hopefully do a better job than some of them. And so, so we're doing all of that.
But you should always be looking at things that could be good for your company inorganically. And we've done a bunch of deals this year. Most were good, a couple weren't particularly good. And we're going to be looking and we're open minded. It wasn't any particular thing or any particular place. It might be adjacencies, it might be data related, it might be a whole bunch of errors. We have a bunch of skunk wars going on. We hope Chase UK continue to build that in a way that becomes a great European digital bank over time.
It's going to take a lot of time and effort to do that. But you raise a good point.
Glenn Shore, Analyst at Evercore
Thank you. I'm glad to hear your reading. My parents will be proud. Thanks, Jamie.
Jamie Dimon, Chairman and CEO
Say hi to him. Of course.
OPERATOR
Thank you. Our next question comes from Glenn Shore with Evercore. Your line is open.
Glenn Shore, Analyst at Evercore
Hello. Thank you. Just two quick follow ups. One in the last couple times you talked publicly, you had a couple comments on the smart cash tool that you're working on. I know you said it's nascent and early, but sometimes technology moves fast. So curious status of the tool when you might roll it out into who? And maybe a little more on your comments on you're going to have to pay more for money over time. Just curious.
Jeremy Barnum, Chief Financial Officer
Yeah. So this kind of relates to Jeremy was talking about before about the velocity of money and how it's going to move in a new world. So we are kind of prepared for that. So this is still a test case. Banks, people are a different position. And if you actually look at accounts, these don't relate to every account. They relate to a narrow segment of accounts where you're competing for their investment business and their deposit business. So what you're going to see is certain tests coming out and then you'll find out about what we can do or we can't do. And we're going to learn a lot by doing some of that. And we think it could be good for customers and good for us. We're not just finding ways to waste money.
Glenn Shore, Analyst at Evercore
Okay, so still a this year thing, I take it?
Jeremy Barnum, Chief Financial Officer
Yes. You'll see something this year very cool.
Glenn Shore, Analyst at Evercore
One other follow up on you just touched briefly on it. I'm just curious of how you'd state your European consumer banking aspirations. You mentioned opportunities. You do plenty of business there, but you mentioned opportunities each country by country. But maybe you could just sum it up in aggregate of what are you trying to be as a consumer bank across the major markets in Europe.
Jamie Dimon, Chairman and CEO
We didn't when we were talking about just bricks and mortar, we weren't going to try to compete because we couldn't have with local banks, their brands, their capabilities. And unlike the United States over there, we'd have to add all the overhead in different languages and different regulatory regimes, et cetera. And we have no real reason to when digital may have changed that. So we started Chase UK. I forgot like four or five years ago it was a complete startup, you know and we made a little bit of fits and starts.
But we have I think almost three million or two and a half million customers in the UK. We've opened up in Berlin. We've actually done much better in Germany than we thought we were going to do though it's not quite properly yet. So we got to look at there is you have a platform, the platform costs money. As you can distribute across more and more clients in more and more countries, you can get to the point where you're break even and then hopefully profitable.
We've added the investment products in the UK. You can assume we're going to try to add them elsewhere and probably credit card hopefully the dream would be that it would be a pan European successful digital bank building off of JPMorgan Chase's strengths. We are a private bank. We do have upscale, a huge business here. We've got a lot of clients that go across border. We've got a lot of training capability and underwriting capability and research capability.
But it's still adjusting over time. We always call this like it's not incoherent, it's not a brand new thing. But it's developing over time. I have high hopes for it and the management team is doing great. We tell them constantly, come in and tell us what you want to do, what you want to do differently, what we learned. And we're kind of patient. Kind of
Glenn Shore, Analyst at Evercore
Us too. All right, thanks Jamie.
OPERATOR
Thank you. Our next question comes from Gerard Cassidy with RBC. Your line is open.
Gerard Cassidy, Analyst at RBC
Thank you. Jamie and Jeremy, you guys have talked about you seeing some excesses in underwriting and credit late last year. I think it was Jamie. Jeremy, you talked about risk on in the capital markets. What are you guys seeing in credit underwriting from your competitors? Is it getting crazier or. No, it's still pretty good. And what's the outlook there, please?
Jeremy Barnum, Chief Financial Officer
I mean crazy is a strong word but I spent some time looking into this issue like a week ago and we did hear some example. I mean, I don't know for whatever reason, I think the data center underwriting space is one that resonates with me as a kind of bellwether for what people are doing. And we passed on some deals that obviously when you look at the data center stuff, the key question is what happens with power supply? What happens with tenants? What happens with. It's a well discussed thing. And we have a pretty precise framework to govern what we're willing to do and what we're not willing to do in that space across those types of risks. And we saw some deals come through where we were just like, yeah, we're not doing that. So it's normal, I guess it's competitive and people are eager to be involved.
And in some cases there's ironically some element of relationship lending that's happening through the data center space when it's kind of a startup entity that's building the data center. So that's part of the story a little bit too. But I don't think we're screaming from the rooftops that underwriting center decide to collapse. But I think you see normal pressures and we're navigating those in the way that we do, which is, you know, we do flex in some moments for particularly important clients and situations where we feel like it's the right thing to do. But in general, you know, we're, we try to be the one that holds the line and make sure that we're guided by our own risk appetite and a kind of appropriately skeptical view of the environment.
Jamie Dimon, Chairman and CEO
We didn't talk about a huge deterioration in credit underwriting standards. I think we talked about it as a very mild one. But it's across several spectrum which is people assumptions on revenue growth or add back of expenses. More pick weaker, some weaker. And this is not across the board but more some players than others, some weaker covenants, some people taking more rollover risk. And by that I mean if rates go up, how much interest rate exposure taken as opposed to underwriting exposure. And it's just things like that. But it is across that spectrum you've seen a little bit of weakness. The only point we're always trying to make is when there's a credit cycle and there will be a credit cycle, how will everybody perform? And I don't think it's going to be like a bell curve of performance.
I think there should be some pretty there'll be some outliers out there just like there were by the way, in the great financial crisis.
Gerard Cassidy, Analyst at RBC
I totally agree with you Jamie, on that. I don't want to sound Pollyannish, but on a question regarding the regulatory outlook, obviously we've got Basel III endgame. Hopefully it will be codified maybe by the end of the year. I know you guys have put out your remarks on it and next year hopefully we get tailoring. Could you envision a period where, and again, I don't want to sound Pollyannish. But a period where the regulators are just set where you go. Because the last 20 years there's been constant change with the regulators affecting the banking industry. Could we enter a period where we have a stability in the regulatory environment which could enhance valuations possibly for bank stocks?
Jamie Dimon, Chairman and CEO
Well, go ahead.
Jeremy Barnum, Chief Financial Officer
I would break the question down into two parts. Like, could we envision stability and impact on valuations on the question of stability? I mean, I don't think it's Pollyannaish to say that regulatory stability is a desirable thing. And I actually think it's a relatively nonpartisan idea. Like, you know, I think it's understandable and correct that, you know, there would have been a big reaction to the crisis and then maybe a reaction to the reaction and that the sort of amplitude of those oscillations might be decreasing.
And we get to a place where we've got it about right. And frankly, we get to a point where banks are primarily focused not on complying with regulatory constraints of various types, which should probably in general operate as backstops, but rather thinking about what their own standards are and what their own risk appetite is, and have that be kind of the true north of any given set of decisions. And I think we're getting closer to that state, which will be good.
Whether achieving that state would be particularly supportive of bank stock valuations, I'll leave that question to you. But at least I think for banks like us, I'm not convinced that's a major drag right now, to be honest, or that it has been in the recent past.
Jamie Dimon, Chairman and CEO
I would just add this one legislative litigation, Supreme Court decision that makes it less likely that we wouldn't have flip flopping, which is a president can remove a lot of people more easily. But I'm hoping, I mean, what really should happen now is when they write legislation, they could be more clear about their intent and what they want because they could have written it and said, we want this independent, or you can only replace so many, or we don't want flip flopping regulations.
But I really like the fact that Mickey Bowman and Kevin Warsh, or taking a step back and looking at the broad range of changes which have been extensive over 20 years and never ending and often with no ultimate intent or intended consequence. What they want in the system and outside of the system makes it safer. But I actually believe we can make the system much safer, much safer. And that should be the real goal, not just adding layer upon layer of bureaucratic reporting. Some of the regulators said that from now on they're going to focus on safety and soundness. Well, if they do that, we would have no MRAs because none of them related to our safety and soundness. They related to other issues and I think have you related to safety and soundness.
Silicon Valley bank and First Republic wouldn't have happened simply upon they were taking too much interest rate risk which was disclosed that one thing. And so I just think the goal should be to take a step back, look at these things in the open light, be very honest about what worked and what didn't work. Like resolution did not work, resolution recovery does not work. People should look at the discount window differently. And anyway, if those things are done, I think we have a safer banking system where we don't have to be breathless every time a bank fails.
Jim Mitchell, Analyst at Seaport Global Securities
Thank you.
Jeremy Barnum, Chief Financial Officer
My thoughts exactly.
Jamie Dimon, Chairman and CEO
Thank you, Jim.
Gerard Cassidy, Analyst at RBC
You guys are the guys who know so much about this. There should be making some of these recommendations to the regulators. It's in all of our interest. It's just to be better. Not any one of us. All of us. Agreed.
Jeremy Barnum, Chief Financial Officer
Thank you Jamie and thank you Jeremy.
Jamie Dimon, Chairman and CEO
Thanks Gerard.
OPERATOR
Thank you. For our final question we will go to the line of Manon Ghasalia from Morgan Stanley. Your line is open.
Manon Ghasalia, Analyst at Morgan Stanley
Hey, good morning Jeremy. As we think about the various expense buckets you called out at the start of the year, you know, the volume related expenses, bankers, tech marketing and I know majority of the increase in the expense guide is coming in the revenue related line. But are you also bringing up some of the other categories, you know, maybe pulling forward any tech or marketing spend given the environment?
Jeremy Barnum, Chief Financial Officer
Yeah, there's some of that stuff going on. So I'm trying to sort of keep it simple and disproportionately focus on the big driver which is obviously volume and revenue related expense. But as is always the case, there are some ups and downs, some of which relates to things like our marketing strategy, which I probably don't particularly want to disclose. But I think one topic which is not financially meaningful this year but which I think is interesting and may become in the future is the question of token expense.
Because that is something that we're spending a bunch of time on I think, as probably pretty much everyone in corporate America is. So just for the avoidance of doubt, it is a trivial number for the first half of the year. We are forecasting some meaningful acceleration in that number for the second half of the year. But still nonetheless the full year contribution of that is still trivial and obviously we had budgeted some of that. So it's not in any way a meaningful driver of the current outlook or revision in the outlook.
But obviously when you listen to the Frontier Labs talk, they talk about the extra exponential and the acceleration of usage which is obviously driving their revenues and someone's paying those bills. And we're in a sense like a representation of the economy as a whole, that we're probably lagging a little bit some of the cutting edge adoption and usage as we should, given who we are as a company. But it is an important question for us as we go into next year and the subsequent years.
And I think the good news is that, that we've done a lot of really high quality thinking on this and a lot of the infrastructure that we've built over the last couple years is going to position us to be quite sophisticated about using the right models for the right purpose. I mean, just to use one sort of topical example, no offense intended to those of you who tend to write slightly long reports, but as you can imagine, sometimes people like to summarize those reports using AI tools.
And as you know, the tools are quite good at doing that. And you know, you really don't need the latest cutting edge, you know, incredibly expensive model to summarize analysis reports. So the idea is use the right model for the right purpose, be smart about open source where appropriate, and ensure that you're getting value out of it. Ultimately in the end, you know, either we're going to have a lot more capacity or we're going to have a lot more efficiency or both, or we're going to have better revenue outcomes or we're going to compete more effectively and we just need to be disciplined about how we handle that.
So that's a body of work that's happening right now.
Manon Ghasalia, Analyst at Morgan Stanley
Got it. Very helpful. And then maybe just on CIB and the increased capital allocation there, I guess, how nimble do you expect to be there? Do you think we're at peak allocation here? Are there any internal limits that you might be rubbing up against or is there room to keep allocating more balance sheet to the business if the environment remains where it is?
Jeremy Barnum, Chief Financial Officer
I mean, I'm definitely not going to get into discussions with you about internal limit management. I guess it was on the press call, so maybe you didn't hear this, but I did get a question about this and I think the right, and I think you said this correctly, but I just want to err on the side of being precise here. Sometimes people think about capital allocation almost as if it's a hedge fund where you're giving a pot of people some capital and telling them to go use it.
That's not the way it works. It's the opposite of that. In other words, we have demand from clients to support them in various ways. And to be clear, we also have some, what you might describe as passive effects, like obviously when volatility is higher, market risk capital goes up passively and simply the appreciation of global equity markets increases the RWI associated with things like the prime business. So you've got active and passive effects, but the active effects are us responding to client needs.
And obviously we've got a ton of access as a company. And as Jamie said, our primary goal is to deploy that organically. So when our CIB clients want us to serve them and we can do that in ways that make sense for us from a risk appetite and from returns perspective, we've got plenty of capital to do that. And so we do that. Sometimes there are other financial resource constraints and that's part of what we do for a living, is try to manage that stuff.
I talked a little bit at Company Update, if you recall, about the system and the fact that the system is currently quite flush with capital, but at the margin less flush with liquidity. And that's obviously an area of advocacy, especially in light of the stated goal to reduce the size of the Fed balance sheet. You really need to reduce bank demand for reserves to get that done. And so that in turn probably requires some adjustment to liquidity regulation.
So that's, you know, the next thing on the agenda.
Manon Ghasalia, Analyst at Morgan Stanley
Right. And our risk standards haven't changed, so it's, you know, it's possible some of these things change because people self select and pick somebody else. And that would be fine with us. Thank you.
OPERATOR
Thank you very much.
Jeremy Barnum, Chief Financial Officer
Thank you.
OPERATOR
We have no further thank you all for participating in today's conference. You may disconnect at this time and have a great rest of your day.
Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.
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