Regulatory Requirements and Matters

12 Months Ended

Dec. 31, 2018

Banking and Thrift [Abstract]

Regulatory Requirements and Matters

Regulatory Requirements and Matters

Capital Adequacy — The Company and the Bank are subject to regulatory capital adequacy requirements administered by the federal banking agencies. The Bank is a member bank of the Federal Reserve System and is primarily regulated by the Federal Reserve Bank. Effective January 1, 2015, the Company and the Bank are required to comply with the Basel III Capital Rules adopted by the Federal Reserve Bank. The capital requirements under the Basel III framework, among other things, prescribed a new standardized approach for determining risk-weighted assets (“RWAs”) used in calculating capital ratios, increased minimum required capital ratios, and introduced a minimum Common Equity Tier 1 (“CET1”) capital ratio to ensure that banking organizations hold sufficient high quality regulatory capital that is available to absorb losses on a going-concern basis. Both the Company and the Bank are standardized approaches institutions under Basel III Capital Rules. The Basel III Capital Rule requires that banking organizations maintain a minimum CET1 capital ratio of 4.5%, a Tier 1 capital ratio of 6.0%, and a total capital ratio of 8.0% to be considered adequately capitalized. Failure to meet minimum capital requirements can result in certain mandatory actions and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s Consolidated Financial Statements. The Basel III Capital Rules also introduced a capital conservation buffer designed to absorb losses during periods of economic stress. The implementation of the capital conservation buffer began on January 1, 2016 at 0.625% and is being phased-in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5% on January 1, 2019). Banking institutions with a ratio of CET1 to risk-weighted assets above the minimum but below the capital conservation buffer will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.

The Federal Deposit Insurance Corporation Improvement Act of 1991 requires that the federal regulatory agencies adopt regulations defining capital categories for banks: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. Consistent with the Basel III Capital Rules, the capital categories were augmented by including the CET1 capital measure, and revised risk-based capital measures to reflect the rule changes to the minimum risk-based capital ratios.

As of December 31, 2018 and 2017, the Company and the Bank were both categorized as well capitalized based on applicable U.S. regulatory capital ratio requirements in accordance with Basel III standardized approaches, as set forth in the table below. The Company believes that no changes in conditions or events have occurred since December 31, 2018, which would result in changes that would cause the Company or the Bank to fall below the well capitalized level. The following table presents the regulatory capital information of the Company and the Bank as of December 31, 2018 and 2017:

	Basel III
	December 31, 2018								December 31, 2017
($ in thousands)	Actual				Minimum Capital    Ratios(3)		Well Capitalized Requirement		Actual				Minimum Capital    Ratios(3)		Well Capitalized Requirement
	Amount		Ratio		Ratio		Ratio		Amount		Ratio		Ratio		Ratio
Total capital (to risk-weighted assets)
Company	$	4,438,730	13.7	%	9.88	%	10.0	%	$	3,838,516	12.9	%	9.25	%	10.0	%
East West Bank	$	4,268,616	13.1	%	9.88	%	10.0	%	$	3,679,261	12.4	%	9.25	%	10.0	%
Tier 1 capital (to risk-weighted assets)
Company	$	3,966,842	12.2	%	7.88	%	8.0	%	$	3,390,070	11.4	%	7.25	%	8.0	%
East West Bank	$	3,944,728	12.1	%	7.88	%	8.0	%	$	3,378,815	11.4	%	7.25	%	8.0	%
CET1 capital(to risk-weighted assets)
Company	$	3,966,842	12.2	%	6.38	%	6.5	%	$	3,390,070	11.4	%	5.75	%	6.5	%
East West Bank	$	3,944,728	12.1	%	6.38	%	6.5	%	$	3,378,815	11.4	%	5.75	%	6.5	%
Tier 1 leverage capital (to adjusted average assets)
Company (1)	$	3,966,842	9.9	%	4.0	%	N/A		$	3,390,070	9.2	%	4.0	%	N/A
East West Bank	$	3,944,728	9.8	%	4.0	%	5.0	%	$	3,378,815	9.2	%	4.0	%	5.0	%
Risk-weighted assets
Company	$	32,497,296	N/A		N/A		N/A		$	29,669,251	N/A		N/A		N/A
East West Bank	$	32,477,002	N/A		N/A		N/A		$	29,643,711	N/A		N/A		N/A
Adjusted quarterly average total assets (2)
Company	$	40,636,402	N/A		N/A		N/A		$	37,307,975	N/A		N/A		N/A
East West Bank	$	40,611,215	N/A		N/A		N/A		$	37,283,273	N/A		N/A		N/A

(1) The Tier 1 leverage capital well-capitalized requirement applies to the Bank only since there is no Tier 1 leverage ratio component in the definition of a well-capitalized bank-holding company.

(2) Reflects adjusted average total assets for the years ended December 31, 2018 and 2017.

(3) The CET1, Tier 1, and total capital minimum ratios include a transition capital conservation buffer of 1.875% and 1.25% for the years ended December 31, 2018 and 2017.

N/A — Not applicable.

Reserve Requirement — The Bank is required to maintain a percentage of its deposits as reserves at the FRB. The daily average reserve requirement was approximately $707.3 million and $699.4 million as of December 31, 2018 and 2017, respectively.

Regulatory Matters — The Bank entered into a Written Agreement (the “Written Agreement”), dated November 9, 2015, with the FRB, to correct less than satisfactory Bank Secrecy Act (“BSA”) and Anti-Money Laundering (“AML”) programs detailed in a joint examination by the FRB and the California Department of Business Oversight (“DBO”). The Bank also entered into a related MOU with the DBO in 2015. The Written Agreement, among other things, required the Bank to enhance compliance programs related to the BSA and AML and Office of Foreign Assets Control (“OFAC”) laws, rules and regulations and retain an independent firm to conduct a review of the account and transaction activities covering a six-month period to determine whether any suspicious activity was properly identified and reported in accordance with applicable regulatory requirements. On July 9, 2018, the DBO terminated the MOU. On July 18, 2018, the FRB terminated the Written Agreement.

Notwithstanding the termination of the Written Agreement and the MOU, the operating and other conditions in the BSA/AML and OFAC programs and the auditing and oversight of the programs that led to the Written Agreement and MOU could lead to an increased risk of future examinations that may downgrade the regulatory ratings of the Bank or could lead to regulatory authorities taking other actions. This could have a material adverse effect on the Bank if the current programs are not sustained in a satisfactory way, which could lead to an increased risk of investigations by other government agencies that may result in fines, penalties, increased expenses or restrictions on operations.