Regulatory Matters and Capital Adequacy

12 Months Ended

Dec. 31, 2017

Disclosure Text Block Abstract

Regulatory Matters and Capital Adequacy

NOTE 23

Regulatory Matters and Capital Adequacy

The Company is supervised and regulated by the Federal Reserve and is subject to the Federal Reserve’s requirements for risk-based capital and leverage ratios. The Company’s two U.S. bank operating subsidiaries, American Express Centurion Bank (Centurion Bank) and American Express Bank, FSB (American Express Bank and together with Centurion Bank, the Banks), are subject to supervision and regulation, including similar regulatory capital requirements by the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), respectively.

Under the risk-based capital guidelines of the Federal Reserve, the Company is required to maintain minimum ratios of Common Equity Tier 1 (CET1), Tier 1 and Total (Tier 1 plus Tier 2) capital to risk-weighted assets, as well as a minimum leverage ratio (Tier 1 capital to average adjusted on-balance sheet assets).

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 the Company’s and the Banks’ operating activities.

As of December 31, 2017 and 2016, the Company and the Banks met all capital requirements to which each was subject and maintained regulatory capital ratios in excess of those required to qualify as well capitalized.

The following table presents the regulatory capital ratios for the Company and the Banks:

(Millions, except percentages)			CET 1 capital		Tier 1capital		Total capital	CET 1 Capital ratio		Tier 1capital ratio		Total capital ratio		Tier 1 leverage ratio
December 31, 2017:(a)
	American Express Company	$	13,189	$	14,721	$	17,142	9.0	%	10.1	%	11.8	%	8.6	%
	American Express Centurion Bank		5,954		5,954		6,547	12.7		12.7		14.0		10.2
	American Express Bank, FSB		6,065		6,065		6,653	12.9		12.9		14.2		11.7
December 31, 2016:(a)
	American Express Company	$	16,134	$	17,665	$	19,893	12.3	%	13.5	%	15.2	%	11.6	%
	American Express Centurion Bank		6,134		6,134		6,600	16.5		16.5		17.8		16.2
	American Express Bank, FSB		6,681		6,681		7,194	16.3		16.3		17.5		13.9
Well-capitalized ratios(b)								6.5	%	8.0	%	10.0	%	5.0	% (c)
Basel III Standards 2017(d)								5.8	%	7.3	%	9.3	%	4.0	%

• As a Basel III advanced approaches institution in parallel run, capital ratios are reported using Basel III capital definitions, inclusive of transition provisions, and risk-weighted assets using the Basel III standardized approach.
• As defined by the regulations issued by the Federal Reserve, OCC and FDIC for the year ended December 31, 2017.
• Represents requirements for banking subsidiaries to be considered “well-capitalized” pursuant to regulations issued under the Federal Deposit Insurance Corporation Improvement Act. There is no CET1 capital ratio or Tier 1 leverage ratio requirement for a bank holding company to be considered “well-capitalized.”
• Transitional Basel III minimum capital requirement and additional capital conservation buffer as defined by the Federal Reserve for calendar year 2017 for advanced approaches institutions. The additional capital conservation buffer does not apply to Tier 1 leverage ratio.

Restricted Net Assets of Subsidiaries

Certain of the Company’s subsidiaries are subject to restrictions on the transfer of net assets under debt agreements and regulatory requirements. These restrictions have not had any effect on the Company’s shareholder dividend policy and management does not anticipate any impact in the future. Procedures exist to transfer net assets between the Company and its subsidiaries, while ensuring compliance with the various contractual and regulatory constraints. As of December 31, 2017, the aggregate amount of net assets of subsidiaries that are restricted to be transferred to the Company was approximately $9.3 billion.

Bank Holding Company Dividend Restrictions

The Company is limited in its ability to pay dividends by the Federal Reserve, which could prohibit a dividend that would be considered an unsafe or unsound banking practice. It is the policy of the Federal Reserve that bank holding companies generally should pay dividends on preferred and common stock only out of net income available to common shareholders generated over the past year, and only if prospective earnings retention is consistent with the organization’s current and expected future capital needs, asset quality and overall financial condition. Moreover, bank holding companies are required by statute to be a source of strength to their insured depository institution subsidiaries and should not maintain dividend levels that undermine their ability to do so. On an annual basis, the Company is required to develop and maintain a capital plan, which includes planned dividends over a two-year horizon. The Company may be limited in its ability to pay dividends if the Federal Reserve objects to its capital plan.

In addition, the Capital Rules include a capital conservation buffer which is being phased in from January 1, 2016 through January 1, 2019. The Capital Rules also include a countercyclical capital buffer, which is currently set at zero but which could be increased by the Federal Reserve in the future. These buffers can be satisfied only with CET1 capital. If the Company’s risk-based capital ratios were to fall below the applicable buffer levels, the Company would be subject to certain restrictions on dividends, stock repurchases and other capital distributions, as well as discretionary bonus payments to executive officers.

Banks’ Dividend Restrictions

In the year ended December 31, 2017, Centurion Bank and American Express Bank paid dividends from retained earnings to their parent of $1.9 billion and $2.6 billion, respectively.

The Banks are limited in their ability to pay dividends by banking statutes, regulations and supervisory policy. In general, applicable federal and state banking laws prohibit, without first obtaining regulatory approval, insured depository institutions, such as Centurion Bank and American Express Bank from making dividend distributions if such distributions are not paid out of available retained earnings or would cause the institution to fail to meet capital adequacy standards. The Banks must maintain a capital conservation buffer (and countercyclical buffer if in effect). If the Banks’ risk-based capital ratios do not satisfy minimum requirements plus the combined capital conservation buffer (and the countercyclical capital buffer, if applicable), they will face graduated constraints on dividends and other capital distributions based on the amount of the shortfall. As of December 31, 2017, the Banks’ aggregate retained earnings available for the payment of dividends was $3.8 billion. In determining the dividends to pay their parent, the Banks must also consider the effects on applicable risk-based capital and leverage ratio requirements, as well as policy statements of the federal regulatory agencies. In addition, the Banks’ banking regulators have authority to limit or prohibit the payment of a dividend by the Banks under a number of circumstances, including if, in the banking regulator’s opinion, payment of a dividend would constitute an unsafe or unsound banking practice in light of the financial condition of the banking organization.