Regulatory Capital and Other Regulatory Matters

12 Months Ended

Dec. 31, 2019

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

Regulatory Capital Requirements under Banking Regulations

Regulatory Capital and Other Regulatory Matters

Basel Capital Framework

The FRB and other U.S. banking agencies have adopted risk-based and leverage capital standards that establish minimum capital-to-asset ratios for BHCs, like Ally, and depository institutions, like Ally Bank. The risk-based capital ratios are based on a banking organization’s risk-weighted assets (RWAs), which are generally determined under the standardized approach applicable to Ally and Ally Bank by (1) assigning on-balance-sheet exposures to broad risk-weight categories according to the counterparty or, if relevant, the guarantor or collateral (with higher risk weights assigned to categories of exposures perceived as representing greater risk), and (2) multiplying off-balance-sheet exposures by specified credit conversion factors to calculate credit equivalent amounts and assigning those credit equivalent amounts to the relevant risk-weight categories. The leverage ratio, in contrast, is based on an institution’s average unweighted on-balance-sheet exposures.

Ally and Ally Bank are subject to capital requirements issued by U.S. banking regulators that require us to maintain risk-based and leverage capital ratios above minimum levels. As of January 1, 2015, Ally and Ally Bank became subject to the rules implementing the 2010 Basel III capital framework in the United States (U.S. Basel III), which generally reflects higher capital requirements, capital buffers, and changes to regulatory capital definitions, deductions, and adjustments, relative to the predecessor requirements implementing the Basel I

capital framework in the United States. Certain aspects of U.S. Basel III, including the capital buffers, were subject to a phase-in period through December 31, 2018.

Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary action by regulators that, if undertaken, could have a direct material effect on the Consolidated Financial Statements or the results of operations and financial condition of Ally and Ally Bank. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Ally and Ally Bank must meet specific capital guidelines that involve quantitative measures of capital, assets, and certain off-balance-sheet items. These measures and related classifications, which are used in the calculation of our risk-based and leverage capital ratios and those of Ally Bank, are also subject to qualitative judgments by the regulators about the components of capital, the risk weightings of assets and other exposures, and other factors. The FRB also uses these ratios and guidelines as part of the capital planning and stress testing processes. In addition, in order for Ally to maintain its status as an FHC, Ally and its bank subsidiary, Ally Bank, must remain well capitalized and well managed, as defined under applicable laws. The well capitalized standard for insured depository institutions, such as Ally Bank, reflects the capital requirements under U.S. Basel III.

Under U.S. Basel III, Ally and Ally Bank must maintain a minimum Common Equity Tier 1 risk-based capital ratio of 4.5%, a minimum Tier 1 risk-based capital ratio of 6%, and a minimum total risk-based capital ratio of 8%. In addition to these minimum risk-based capital ratios, Ally and Ally Bank are subject to a capital conservation buffer of more than 2.5%. Failure to maintain the full amount of the buffer would result in restrictions on the ability of Ally and Ally Bank to make capital distributions, including dividend payments and stock repurchases and redemptions, and to pay discretionary bonuses to executive officers. U.S. Basel III also subjects Ally and Ally Bank to a minimum Tier 1 leverage ratio of 4%.

U.S. Basel III also revised the eligibility criteria for regulatory capital instruments and provides for the phase-out of instruments that had previously been recognized as capital but that do not satisfy these criteria. For example, subject to certain exceptions (for example, certain debt or equity issued to the U.S. government under the Emergency Economic Stabilization Act), trust preferred and other hybrid securities were excluded from a BHC’s Tier 1 capital as of January 1, 2016. Also, subject to a phase-in schedule, certain items are deducted from Common Equity Tier 1 capital under U.S. Basel III that had not previously been deducted from regulatory capital, and certain other deductions from regulatory capital have been modified. Among other things, U.S. Basel III requires significant investments in the common stock of unconsolidated financial institutions, mortgage servicing assets (MSAs), and certain deferred tax assets (DTAs) that exceed specified individual and aggregate thresholds to be deducted from Common Equity Tier 1 capital. U.S. Basel III also revised the standardized approach for calculating RWAs by, among other things, modifying certain risk weights and the methods for calculating RWAs for certain types of assets and exposures.

Ally and Ally Bank are subject to the U.S. Basel III standardized approach for counterparty credit risk, but not to the U.S. Basel III advanced approaches for credit risk or operational risk. Ally is also not subject to the U.S. market-risk capital rule, which applies only to banking organizations with significant trading assets and liabilities.

The following table summarizes our capital ratios under the U.S. Basel III capital framework.

	December 31, 2019				December 31, 2018				Required minimum (a)		Well-capitalized minimum
($ in millions)	Amount		Ratio		Amount		Ratio
Capital ratios
Common Equity Tier 1 (to risk-weighted assets)
Ally Financial Inc.	$	13,837	9.54	%	$	13,397	9.14	%	4.50	%	(b)
Ally Bank	16,627		12.30		16,552		12.61		4.50		6.50	%
Tier 1 (to risk-weighted assets)
Ally Financial Inc.	$	16,271	11.22	%	$	15,831	10.80	%	6.00	%	6.00	%
Ally Bank	16,627		12.30		16,552		12.61		6.00		8.00
Total (to risk-weighted assets)
Ally Financial Inc.	$	18,506	12.76	%	$	18,046	12.31	%	8.00	%	10.00	%
Ally Bank	17,854		13.21		17,620		13.42		8.00		10.00
Tier 1 leverage (to adjusted quarterly average assets) (c)
Ally Financial Inc.	$	16,271	9.08	%	$	15,831	9.00	%	4.00	%	(b)
Ally Bank	16,627		10.01		16,552		10.69		4.00		5.00	%

(a) In addition to the minimum risk-based capital requirements for the Common Equity Tier 1 capital, Tier 1 capital, and total capital ratios, Ally and Ally Bank were required to maintain a minimum capital conservation buffer of 2.5% and 1.875% at December 31, 2019, and December 31, 2018, respectively.

(b) Currently, there is no ratio component for determining whether a BHC is “well-capitalized.”

(c) Federal regulatory reporting guidelines require the calculation of adjusted quarterly average assets using a daily average methodology.

At December 31, 2019, and 2018, Ally and Ally Bank were “well-capitalized” and met all applicable capital requirements to which each was subject.

Recent Regulatory Developments

In October 2019, the FRB and other U.S. banking agencies issued final rules implementing targeted amendments to the Dodd-Frank Act and other financial-services laws that had been enacted in May 2018 through the EGRRCP Act. The final rules establish four risk-based categories of prudential standards and capital and liquidity requirements for banking organizations with $100 billion or more in total consolidated assets. The most stringent standards and requirements apply to U.S. global systemically important BHCs, which are assigned to Category I. The assignment of other banking organizations to the remaining three categories is based on measures of size and four other risk-based indicators: cross-jurisdictional activity, weighted short-term wholesale funding (wSTWF), nonbank assets, and off-balance-sheet exposure. Under the final rules, Ally is designated as a Category IV firm and, as such, is (1) made subject to supervisory stress testing on a two-year cycle rather than the previously required one-year cycle, (2) required to continue submitting an annual capital plan to the FRB, (3) allowed to continue excluding accumulated other comprehensive income from regulatory capital, (4) required to continue maintaining a buffer of unencumbered highly liquid assets to meet projected net stressed cash outflows over a 30-day planning horizon, (5) required to conduct liquidity stress tests on a quarterly basis rather than the previously required monthly basis, (6) allowed to engage in more tailored liquidity risk management, including monthly rather than weekly calculations of collateral positions, the elimination of limits for activities that are not relevant to the firm, and fewer required elements of monitoring of intraday liquidity exposures, (7) exempted from company-run capital stress testing, (8) exempted from the modified liquidity coverage ratio (LCR) and the proposed modified net stable funding ratio provided that wSTWF remains under $50 billion, and (9) allowed to remain exempted from the supplementary leverage ratio, the countercyclical capital buffer, and single-counterparty credit limits. The final rules went in effect on December 31, 2019. Relatedly, in April 2019, the Federal Deposit Insurance Corporation (FDIC) extended the date by which all covered insured depository institutions (CIDIs), including Ally Bank, must submit their next resolution plans to the date or dates specified by the FDIC in the future in connection with its final determination on amendments to the rule governing CIDI resolution planning, which have not yet been issued. At this time, the impacts that such a potential future proposal may have on us are not clear.

In July 2019, the FRB and other U.S. banking agencies issued a final rule to simplify the capital treatment for MSAs, certain DTAs, and investments in the capital instruments of unconsolidated financial institutions (collectively, threshold items). Under the current capital rule, a banking organization must deduct from capital amounts of threshold items that individually exceed 10% of Common Equity Tier 1 capital. The aggregate amount of threshold items not deducted under the 10% threshold deduction but that nonetheless exceeds 15% of Common Equity Tier 1 capital minus certain deductions from and adjustments to Common Equity Tier 1 capital must also be deducted. Any amount of these MSAs and certain DTAs not deducted from Common Equity Tier 1 capital are currently risk weighted at 100%. The final rule removes the individual and aggregate deduction thresholds for threshold items and adopts a single 25% Common Equity Tier 1 capital deduction threshold for each item individually, and requires that any of the threshold items not deducted be risk weighted at 250%. The final rule also simplifies the calculation methodology for minority interests. These provisions will take effect for us on April 1, 2020. We do not expect these provisions to have a material impact on our capital position.

In December 2018, the FRB and other U.S. banking agencies approved a final rule to address the impact of CECL on regulatory capital by allowing BHCs and banks, including Ally, the option to phase in the day-one impact of CECL. For regulatory capital purposes, this permitted us to phase in 25% of the capital impact of CECL on January 1, 2020, with an additional 25% to be phased in at the beginning of each subsequent year until fully phased in by the first quarter of 2023. In addition, the FRB announced that, in order to reduce uncertainty, the FRB will maintain its current modeling framework for the allowance for loan losses in supervisory stress tests through the 2021 cycle.

In April 2018, the FRB issued a proposal to more closely align forward-looking stress testing results with the FRB’s non-stress regulatory capital requirements for banking organizations with $50 billion or more in total consolidated assets. The proposal would introduce a stress capital buffer based on firm-specific stress test performance, which would effectively replace the non-stress capital conservation buffer. The proposal would also make several changes to the CCAR process, such as eliminating the CCAR quantitative objection, narrowing the set of planned capital actions assumed to occur in the stress scenario, and eliminating the 30% dividend payout ratio as a criterion for heightened scrutiny of a firm’s capital plan. In December 2017, the Basel Committee approved revisions to the global Basel III capital framework (commonly known as Basel IV), many of which—if adopted in the United States—could heighten regulatory capital standards. At this time, how the FRB proposal and the Basel Committee revisions will be harmonized and finalized in the United States is not clear or predictable, and we continue to evaluate the impacts these proposals and revisions may have on us.

Compliance with capital requirements is a strategic priority for Ally. We expect to be in compliance with all applicable requirements within the established timeframes.

Capital Planning and Stress Tests

Under the final rules implementing the EGRRCP Act, we are (1) made subject to supervisory stress testing on a two-year cycle rather than the previously required one-year cycle, (2) required to continue submitting an annual capital plan to the FRB, (3) allowed to continue excluding accumulated other comprehensive income from regulatory capital, (4) exempted from company-run capital stress testing, and (5) allowed to remain exempted from the supplementary leverage ratio and the countercyclical capital buffer.

Our annual capital plan must include an assessment of our expected uses and sources of capital and a description of all planned capital actions over a nine-quarter planning horizon, including any issuance of a debt or equity capital instrument, any dividend or other capital

distribution, and any similar action that the FRB determines could have an impact on our capital. The plan must also include a discussion of how we, under expected and stressful conditions, will maintain capital commensurate with its risks and above the minimum regulatory capital ratios, and will serve as a source of strength to Ally Bank. The FRB will either object to the plan, in whole or in part, or provide a notice of non-objection. If the FRB objects to the plan, or if certain material events occur after submission of the plan, we must submit a revised plan to the FRB within 30 days. Even if the FRB does not object to the plan, we may be precluded from or limited in paying dividends or other capital distributions without the FRB’s approval under certain circumstances—for example, when we would not meet minimum regulatory capital ratios and capital buffers after giving effect to the distributions.

In October 2019, the FRB noted its intent to propose changes to the capital-plan rule, including for the purpose of providing Category IV firms like us with additional flexibility in developing their annual capital plans. At this time, the impacts that such a potential future proposal may have on us are not clear.

The following table presents information related to our common stock and distributions to our common stockholders over the last eight quarters.

	Common stock repurchased during period (a)			Number of common shares outstanding		Cash dividends declared per common share (b)
($ in millions, except per share data; shares in thousands)	Approximate dollar value		Number of shares	Beginning of period	End of period
2018
First quarter	$	185	6,473	437,054	432,691	$	0.13
Second quarter	195		7,280	432,691	425,752	0.13
Third quarter	250		9,194	425,752	416,591	0.15
Fourth quarter	309		12,121	416,591	404,900	0.15
2019
First quarter	$	211	8,113	404,900	399,761	$	0.17
Second quarter	229		7,775	399,761	392,775	0.17
Third quarter	300		9,287	392,775	383,523	0.17
Fourth quarter	299		9,554	383,523	374,332	0.17

(a) Includes shares of common stock withheld to cover income taxes owed by participants in our share-based incentive plans.

(b) On January 13, 2020, the Ally Board of Directors (our Board) declared a quarterly cash dividend of $0.19 per share on all common stock, payable on February 14, 2020. Refer to Note 31 for further information regarding this common stock dividend.

We received a non-objection to our 2018 capital plan in June 2018. We were not required to submit an annual capital plan to the FRB, participate in the supervisory stress test or CCAR, or conduct company-run capital stress tests during the 2019 cycle. Instead, our capital actions during this cycle are largely based on the results from our 2018 supervisory stress test. On April 1, 2019, our Board authorized an increase in our stock-repurchase program, permitting us to repurchase up to $1.25 billion of our common stock from time to time from the third quarter of 2019 through the second quarter of 2020, representing a 25% increase over our previously announced program. Additionally, on January 13, 2020, our Board declared a quarterly cash dividend of $0.19 per share of our common stock. Refer to Note 31 for further information on the most recent dividend.

Our ability to make capital distributions, including our ability to pay dividends or repurchase shares of our common stock, will continue to be subject to the FRB’s review and internal governance requirements, including approval by our Board. The amount and size of any future dividends and share repurchases also will be subject to various factors, including Ally’s capital and liquidity positions, regulatory considerations, any accounting standards that affect capital or liquidity (including CECL), financial and operational performance, alternative uses of capital, common-stock price, and general market conditions, and may be suspended at any time.

Depository Institutions

Ally Bank is a member of the Federal Reserve System and is subject to regulation, supervision, and examination by the FRB and the UDFI. Ally Bank’s deposits are insured by the FDIC, and Ally Bank is required to file periodic reports with the FDIC concerning its financial condition. Total assets of Ally Bank were $167.5 billion and $159.0 billion at December 31, 2019, and 2018, respectively. Federal and Utah law place a number of conditions, restrictions, and limitations on dividends and other capital distributions that may be paid by Ally Bank to Ally. Dividends or other distributions made by Ally Bank to Ally were $2.0 billion and $2.6 billion in 2019 and 2018, respectively.

The FRB requires banks to maintain minimum average reserve balances. The amount of the required reserve balance for Ally Bank was $416 million and $279 million at December 31, 2019, and 2018, respectively.

Ally Bank is required to satisfy regulatory net worth requirements. Failure to meet minimum capital requirements can initiate certain mandatory actions by federal, state, and foreign agencies that could have a material effect on our results of operations and financial condition. Ally Bank was in compliance with these requirements at December 31, 2019.

Insurance Companies

Certain of our Insurance operations are subject to certain minimum aggregate capital requirements, net asset and dividend restrictions under applicable state and foreign insurance laws, and the rules and regulations promulgated by various U.S. and foreign regulatory agencies. Under various state and foreign insurance regulations, dividend distributions may be made only from statutory unassigned surplus, with approvals required from the regulatory authorities for dividends in excess of certain statutory limitations. At December 31, 2019, the maximum dividend that could be paid by the U.S. insurance subsidiaries over the next 12 months without prior statutory approval was $129 million.