NOTE 18—REGULATORY REQUIREMENTS

Broker-Dealer and FCM Capital Requirements

The Company's US broker-dealer, E*TRADE Securities, is subject to the Uniform Net Capital 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 6 2/3% of its aggregate indebtedness, as defined, or a minimum dollar amount. E*TRADE Securities has elected the Alternative method, under which it is required to maintain net capital equal to the greater of $250,000 or 2% of aggregate debit balances arising from customer transactions. The Company’s international broker-dealer subsidiary is subject to capital requirements determined by its respective regulator.

The Company's FCM, E*TRADE Futures, is subject to CFTC net capital requirements, including the maintenance of adjusted net capital equal to or in excess of the greater of (1) $1,000,000, (2) the FCM's risk-based capital requirement, computed as 8% of the total risk margin requirements for all positions carried in customer and non-customer accounts, or (3) the amount of adjusted net capital required by the NFA.

At December 31, 2017 and 2016, all of the Company’s broker-dealer and FCM subsidiaries met minimum net capital requirements. The table below summarizes the minimum capital requirements and excess capital for the Company’s broker-dealer and FCM subsidiaries at December 31, 2017 and 2016 (dollars in millions):



	Required Net Capital		Net Capital		Excess Net Capital
December 31, 2017:
E*TRADE Securities⁽¹⁾	$	211	$	1,213	$	1,002
E*TRADE Futures⁽¹⁾	4		19		15
International broker-dealer	—		19		19
Total	$	215	$	1,251	$	1,036
December 31, 2016:
E*TRADE Securities	$	158	$	969	$	811
OptionsHouse⁽²⁾	1		22		21
International broker-dealer	—		21		21
Total	$	159	$	1,012	$	853

(1)

E*TRADE Securities paid dividends of $345 million to the parent company during the year ended December 31, 2017 and $125 million in February 2018. In August 2017, all brokerage accounts and brokerage customer-related assets and obligations of OptionsHouse were transferred in connection with the integration. Upon completion of this transaction, OptionsHouse was renamed E*TRADE Futures and E*TRADE Securities' futures accounts and futures customer-related assets and obligations were transferred to E*TRADE Futures.


(2)	Elected to use the Aggregate Indebtedness method to compute net capital; however, as OptionsHouse was an FCM, the prescribed fixed-dollar minimum capital requirement was $1 million.

Bank Capital Requirements

E*TRADE Financial and its bank subsidiaries, E*TRADE Bank and E*TRADE Savings Bank, are subject to various regulatory capital requirements administered by federal banking agencies. 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 the financial condition and results of operations of these entities. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, these entities 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, the Company's bank subsidiaries may not pay dividends to the parent company without the non-objection, or in certain cases the approval, of their regulators, and any loans by the bank subsidiaries to the parent company and its other non-bank subsidiaries are subject to various quantitative, arm’s length, collateralization and other requirements. The capital amounts and classifications of these entities 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 these entities to meet minimum Tier 1 leverage, common equity Tier 1 capital, Tier 1 risk-based capital and total risk-based capital ratios. Events beyond management's control, such as deterioration in credit markets, could adversely affect future earnings and their ability to meet future capital requirements. E*TRADE Financial, E*TRADE Bank and E*TRADE Savings 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, 2017										December 31, 2016
	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 Financial⁽¹⁾
Tier 1 leverage	$	4,386	7.4	%	$	2,976	5.0	%	$	1,410	$	3,610	7.8	%	$	2,316	5.0	%	$	1,294
Common equity Tier 1 capital	$	3,773	33.9	%	$	722	6.5	%	$	3,051	$	3,483	37.0	%	$	612	6.5	%	$	2,871
Tier 1 risk-based capital	$	4,386	39.5	%	$	889	8.0	%	$	3,497	$	3,610	38.3	%	$	754	8.0	%	$	2,856
Total risk-based capital	$	4,874	43.8	%	$	1,111	10.0	%	$	3,763	$	4,148	44.0	%	$	942	10.0	%	$	3,206
E*TRADE Bank⁽¹⁾
Tier 1 leverage	$	3,620	7.6	%	$	2,394	5.0	%	$	1,226	$	3,132	8.8	%	$	1,786	5.0	%	$	1,346
Common equity Tier 1 capital	$	3,620	35.7	%	$	660	6.5	%	$	2,960	$	3,132	38.3	%	$	532	6.5	%	$	2,600
Tier 1 risk-based capital	$	3,620	35.7	%	$	812	8.0	%	$	2,808	$	3,132	38.3	%	$	655	8.0	%	$	2,477
Total risk-based capital	$	3,694	36.4	%	$	1,015	10.0	%	$	2,679	$	3,237	39.5	%	$	819	10.0	%	$	2,418
E*TRADE Savings Bank⁽¹⁾
Tier 1 leverage	$	904	26.6	%	$	170	5.0	%	$	734	$	226	12.0	%	$	94	5.0	%	$	132
Common equity Tier 1 capital	$	904	111.1	%	$	53	6.5	%	$	851	$	226	69.6	%	$	21	6.5	%	$	205
Tier 1 risk-based capital	$	904	111.1	%	$	65	8.0	%	$	839	$	226	69.6	%	$	26	8.0	%	$	200
Total risk-based capital	$	905	111.2	%	$	81	10.0	%	$	824	$	227	69.8	%	$	32	10.0	%	$	195

(1)

Basel III includes a capital conservation buffer that limits a banking organization’s ability to make capital distributions and discretionary bonus payments to executive officers if a banking organization fails to maintain a Common Equity Tier 1 capital conservation buffer of more than 2.5%, on a fully phased-in basis, of total risk-weighted assets above each of the following minimum risk-based capital ratio requirements: Common Equity Tier 1 capital (4.5%), Tier 1 (6.0%), and total risk-based capital (8.0%). This requirement was effective beginning on January 1, 2016, and will be fully phased-in by 2019. See Business—Regulation for additional information.