Regulatory Requirements

12 Months Ended

Dec. 31, 2019

Broker-Dealer, Net Capital Requirement, SEC Regulation [Abstract]

REGULATORY REQUIREMENTS

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 net capital equal to or in excess 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 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, 2019 and 2018, all of the Company’s broker-dealer and FCM subsidiaries met applicable minimum net capital requirements. The following table presents a summary of the minimum net capital requirements and excess capital for the Company’s broker-dealer and FCM subsidiaries (dollars in millions):

	Required Net Capital		Net Capital		Excess Net Capital
December 31, 2019:
E*TRADE Securities(1)	$	223	$	1,251	$	1,028
E*TRADE Futures	3		28		25
Total(2)	$	226	$	1,279	$	1,053
December 31, 2018:
E*TRADE Securities	$	209	$	1,294	$	1,085
E*TRADE Futures	1		26		25
International broker-dealer	—		18		18
Total	$	210	$	1,338	$	1,128

 

(1) E*TRADE Securities paid dividends of $910 million to the parent company during the year ended December 31, 2019.

(2) The Company's international broker-dealer de-registered and entered into voluntary liquidation in May 2019. The international broker-dealer was not subject to minimum net capital requirements at December 31, 2019.

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 or 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 following table (dollars in millions):

	December 31, 2019										December 31, 2018
	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	$	4,035	6.9	%	$	2,922	5.0	%	$	1,113	$	4,097	6.6	%	$	3,101	5.0	%	$	996
Common Equity Tier 1	$	3,346	31.5	%	$	692	6.5	%	$	2,654	$	3,408	31.1	%	$	713	6.5	%	$	2,695
Tier 1 risk-based	$	4,035	37.9	%	$	852	8.0	%	$	3,183	$	4,097	37.3	%	$	877	8.0	%	$	3,220
Total risk-based	$	4,060	38.2	%	$	1,064	10.0	%	$	2,996	$	4,143	37.8	%	$	1,097	10.0	%	$	3,046
E*TRADE Bank(1)(2)
Tier 1 leverage	$	3,240	7.2	%	$	2,253	5.0	%	$	987	$	3,484	7.1	%	$	2,461	5.0	%	$	1,023
Common Equity Tier 1	$	3,240	36.5	%	$	577	6.5	%	$	2,663	$	3,484	34.9	%	$	650	6.5	%	$	2,834
Tier 1 risk-based	$	3,240	36.5	%	$	710	8.0	%	$	2,530	$	3,484	34.9	%	$	800	8.0	%	$	2,684
Total risk-based	$	3,257	36.7	%	$	888	10.0	%	$	2,369	$	3,521	35.2	%	$	999	10.0	%	$	2,522
E*TRADE Savings Bank(1)
Tier 1 leverage	$	1,480	40.7	%	$	182	5.0	%	$	1,298	$	1,456	26.6	%	$	273	5.0	%	$	1,183
Common Equity Tier 1	$	1,480	224.7	%	$	43	6.5	%	$	1,437	$	1,456	169.4	%	$	56	6.5	%	$	1,400
Tier 1 risk-based	$	1,480	224.7	%	$	53	8.0	%	$	1,427	$	1,456	169.4	%	$	69	8.0	%	$	1,387
Total risk-based	$	1,480	224.7	%	$	66	10.0	%	$	1,414	$	1,456	169.4	%	$	86	10.0	%	$	1,370

(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 risk-based capital (6.0%), and Total risk-based capital (8.0%). This requirement was effective beginning on January 1, 2016, and became fully phased-in on January 1, 2019.

(2)

E*TRADE Bank paid dividends of $835 million to the parent company during the year ended December 31, 2019.