REGULATORY REQUIREMENTS

Broker-Dealer Capital Requirements

The Company’s U.S. broker-dealer subsidiaries are subject to the Uniform Net Capital Rule (the "Rule") under the Securities Exchange Act of 1934 administered by the SEC and FINRA, which requires the maintenance of minimum net capital. The minimum net capital requirements can be met under either the Aggregate Indebtedness method or the Alternative method. Under the Aggregate Indebtedness method, a broker-dealer is required to maintain minimum net capital of the greater of 6²/3% of its aggregate indebtedness, as defined, or a minimum dollar amount. Under the Alternative method, a broker-dealer is required to maintain net capital equal to the greater of $250,000 or 2% of aggregate debit balances arising from customer transactions. The method used depends on the individual U.S. broker-dealer subsidiary. The Company’s other broker-dealers, including its international broker-dealer subsidiaries located in Europe and Asia, are subject to capital requirements determined by their respective regulators.

At December 31, 2015 and 2014, all of the Company’s broker-dealer subsidiaries met minimum net capital requirements. The tables below summarize the minimum capital requirements and excess capital for the Company’s broker-dealer subsidiaries at December 31, 2015 and 2014 (dollars in millions):



	Required Net Capital		Net Capital		Excess Net Capital
December 31, 2015:
E*TRADE Clearing⁽¹⁾	$	161	$	1,007	$	846
E*TRADE Securities⁽¹⁾⁽²⁾	—		49		49
Other broker-dealers	1		15		14
Total⁽³⁾	$	162	$	1,071	$	909
December 31, 2014:
E*TRADE Clearing⁽¹⁾	$	170	$	795	$	625
E*TRADE Securities⁽¹⁾	—		459		459
Other broker-dealers	1		19		18
Total	$	171	$	1,273	$	1,102


(1)	Elected to use the Alternative method to compute net capital. The net capital requirement was $250,000 for E*TRADE Securities for both periods presented.


(2)	ETRADE Securities was moved out from under ETRADE Bank in February 2015 and subsequently paid dividends of $565 million to the parent company during the year ended December 31, 2015.


(3)	ETRADE Clearing and ETRADE Securities paid cash dividends to the parent company of $124 million and $24 million, respectively, subsequent to December 31, 2015.

Bank Capital Requirements

E*TRADE Financial and E*TRADE Bank are subject to various regulatory capital requirements administered by federal banking agencies. Beginning January 1, 2015, both E*TRADE Financial and E*TRADE Bank calculate regulatory capital under the Basel III framework using the Standardized Approach, subject to transition provisions. Prior to Basel III becoming effective, the risk-based capital guidelines that applied to E*TRADE Bank were based upon the 1988 capital accords of the BCBS, a committee of central banks and bank supervisors, as implemented by the U.S. Federal banking agencies, including the OCC, commonly known as Basel I. As a savings and loan holding company, E*TRADE Financial was not previously subject to specific statutory capital requirements. Under the Basel III framework, the vast majority of the Company's margin receivables qualified for 0% risk-weighting and a larger portion of the Company's deferred tax assets were included in regulatory capital, both having a favorable impact on the Company's current capital ratios. A portion of this benefit was offset by the phase-out of TRUPs from the parent company's capital. In addition, in the first quarter of 2015, the Company made the one-time permanent election to exclude accumulated other comprehensive income from the calculation of Common Equity Tier 1 capital.

Failure to meet minimum capital requirements can trigger certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on E*TRADE Financial’s and E*TRADE Bank’s financial condition and results of operations. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, E*TRADE Financial and E*TRADE Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. In addition, E*TRADE Bank may not pay dividends to the parent company without, in some cases, approval from, or otherwise notice to, its regulators and any loans by E*TRADE Bank to the parent company and its other non-bank subsidiaries are subject to various quantitative, arm’s length, collateralization and other requirements. E*TRADE Financial’s and E*TRADE Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

Quantitative measures established by regulation to ensure capital adequacy require E*TRADE Financial and E*TRADE Bank to meet minimum Common equity Tier 1 capital, Tier 1 risk-based capital, Total risk-based capital, and Tier 1 leverage ratios. Events beyond management's control, such as deterioration in credit markets, could adversely affect future earnings and E*TRADE Financial’s and E*TRADE Bank’s ability to meet future capital requirements and, in the case of E*TRADE Bank, its ability to pay dividends to the parent company. E*TRADE Financial and E*TRADE Bank were categorized as "well capitalized" under the regulatory framework for prompt corrective action for the periods presented in the table below (dollars in millions):



	December 31, 2015⁽¹⁾										December 31, 2014⁽¹⁾
	Actual				Well Capitalized Minimum Capital				Excess Capital		Actual				Well Capitalized Minimum Capital				Excess Capital
	Amount		Ratio		Amount		Ratio		Amount		Amount		Ratio		Amount		Ratio		Amount
E*TRADE Bank:⁽²⁾
Tier 1 leverage	$	3,075	9.7	%	$	1,579	5.0	%	$	1,496	$	4,548	10.6	%	$	2,143	5.0	%	$	2,405
Tier 1 risk-based capital	$	3,075	36.5	%	$	674	8.0	%	$	2,401	$	4,548	25.7	%	$	1,063	6.0	%	$	3,485
Total risk-based capital	$	3,185	37.8	%	$	842	10.0	%	$	2,343	$	4,772	26.9	%	$	1,772	10.0	%	$	3,000
Common equity Tier 1 capital⁽³⁾	$	3,075	36.5	%	$	548	6.5	%	$	2,527	N/A		N/A		N/A		N/A		N/A


(1)	Due to the change in regulatory requirements described above, the December 31, 2015 ratios were calculated under Basel III requirements and the December 31, 2014 ratios were calculated under Basel I requirements.


(2)	ETRADE Securities was moved out from under ETRADE Bank in February 2015. ETRADE Clearing was moved out from under ETRADE Bank in July 2015.


(3)	The Basel III rule established Common Equity Tier 1 capital as a new tier of capital.



	December 31, 2015
	Actual				Well Capitalized Minimum Capital				Excess Capital
	Amount		Ratio		Amount		Ratio		Amount
E*TRADE Financial:
Tier 1 leverage	$	3,747	9.0	%	$	2,093	5.0	%	$	1,654
Tier 1 risk-based capital	$	3,747	39.3	%	$	763	8.0	%	$	2,984
Total risk-based capital	$	4,186	43.9	%	$	954	10.0	%	$	3,232
Common equity Tier 1 capital	$	3,747	39.3	%	$	620	6.5	%	$	3,127