Regulatory Matters

12 Months Ended

Dec. 31, 2019

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

Regulatory Matters

REGULATORY MATTERSWe are subject to various regulatory capital requirements administered by federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory – and possibly additional discretionary – actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital

adequacy guidelines and the regulatory framework for prompt corrective action, we must meet specific capital guidelines that involve quantitative measures of our assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. Required capital levels are also subject to judgmental review by regulators.

In 2013, the FRB, FDIC, and the Office of the Comptroller of the Currency (“OCC”) published final rules (the “Basel III Capital Rules”) establishing a new comprehensive capital framework for U.S. banking organizations that implemented the Basel Committee’s December 2010 framework, commonly referred to as Basel III, for strengthening international capital standards as well as certain provisions of the Dodd-Frank Act. The Basel III capital rules became effective for the Bank on January 1, 2015 and were subject to phase-in periods for certain of their components. In November 2017, the FRB, FDIC and OCC published a final rule for nonadvanced approaches banks that extends the regulatory capital treatment applicable during 2017 under the regulatory capital rules for certain items. We met all capital adequacy requirements under the Basel III Capital Rules as of December 31, 2019.

Under prior Basel I capital standards, the effects of AOCI items included in capital were excluded for purposes of determining regulatory capital and capital ratios. As a “nonadvanced approaches banking organization,” we made a one-time permanent election as of January 1, 2015 to continue to exclude these items, as allowed under the Basel III Capital Rules.

Quantitative measures established by regulation to ensure capital adequacy require us to maintain minimum amounts and ratios of Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of Tier 1 capital (as defined) to average assets (as defined). “Well-capitalized” levels are also published as a guideline to evaluate capital positions. As of December 31, 2019, all capital ratios of the Bank exceeded the “well-capitalized” levels under the regulatory framework for prompt corrective action.

Dividends declared by the Bank in any calendar year may not, without the approval of the appropriate federal regulators, exceed specified criteria. When determining dividends, the Bank considers current and historical earning levels, retained earnings, and risk-based and other regulatory capital requirements and limitations.

Bank-run stress tests seek to comprehensively measure all risks to which the institution is exposed, including credit, liquidity, market, operating and other risks, the losses that could result from those risk exposures under adverse scenarios, and the institution’s resulting capital levels. These stress tests have both a qualitative and a quantitative component. The qualitative component evaluates the robustness of the Bank’s risk identification, stress risk modeling, policies, capital planning, governance processes, and other components of a Capital Adequacy Process. The quantitative process subjects the Bank’s balance sheet and other risk characteristics to stress testing by using its own models.

The actual capital amounts and ratios at December 31, 2019 and 2018 for the Bank under Basel III are as follows:

(Dollar amounts in millions)	December 31, 2019				To be well-capitalized
	Amount		Ratio		Amount		Ratio
Basel III Regulatory Capital Amounts and Ratios
Total capital (to risk-weighted assets)	$	7,411	13.2	%	$	5,604	10.0	%
Tier 1 capital (to risk-weighted assets)	6,285		11.2		4,483		8.0
Common equity tier 1 capital (to risk-weighted assets)	5,719		10.2		3,643		6.5
Tier 1 capital (to average assets)	6,285		9.2		3,426		5.0

	December 31, 2018				To be well-capitalized
(Dollar amounts in millions)	Amount		Ratio		Amount		Ratio
Basel III Regulatory Capital Amounts and Ratios
Total capital (to risk-weighted assets)	$	7,450	13.9	%	$	5,359	10.0	%
Tier 1 capital (to risk-weighted assets)	6,811		12.7		4,287		8.0
Common equity tier 1 capital (to risk-weighted assets)	6,245		11.7		3,483		6.5
Tier 1 capital (to average assets)	6,811		10.3		3,317		5.0

The Bank is also subject to “capital conservation buffer” regulatory requirements. At December 31, 2019, the Basel III capital rules also require the Bank to maintain a 2.5% “capital conservation buffer” designed to absorb losses during periods of economic stress, composed entirely of Common Equity Tier 1 (“CET1”), on top of the minimum risk-weighted asset ratios, effectively resulting in minimum ratios of (i) CET1 to risk-weighted assets of at least 7.0%, (ii) Tier 1 capital to risk-weighted assets of at least 8.5%, and (iii) Total capital to risk-weighted assets of at least 10.5%. 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 implementation of the capital conservation buffer began on January 1, 2016 at the 0.625% level and progressively increased over time. The Bank’s triggers and limits under actual conditions and baseline projections are more restrictive than the capital conservation buffer requirements.

The schedule below presents the Bank’s actual capital ratios in comparison to minimum capital ratios and capital ratios in excess of minimum capital requirements plus minimum capital conservation buffer requirements.

	December 31, 2019
	Actual Capital Ratio		Minimum Capital Ratio		Capital Conservation Buffer Ratio		Capital Ratio in Excess of Minimum Capital Ratio plus Capital Conservation Buffer Requirement
Total capital (to risk-weighted assets)	13.2	%	8.0	%	2.5	%	2.7	%
Tier 1 capital (to risk-weighted assets)	11.2		6.0		2.5		2.7
Common equity tier 1 capital (to risk-weighted assets)	10.2		4.5		2.5		3.2