Regulatory Capital Requirements

12 Months Ended

Dec. 31, 2014

Regulatory Capital Requirements

Note 32 – Regulatory Capital Requirements

Northern Trust and the Bank are subject to various regulatory capital requirements administered by the federal bank regulatory authorities. Under these requirements, banks must maintain specific ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to adjusted average quarterly assets in order to be classified as “well-capitalized.” The regulatory capital requirements impose certain restrictions upon banks that meet minimum capital requirements but are not “well-capitalized” and obligate the federal bank regulatory authorities to take “prompt corrective action” with respect to banks that do not maintain such minimum ratios. Such prompt corrective action could have a direct material effect on a bank’s financial statements.

As of December 31, 2014, and 2013, the Bank had capital ratios above the levels required for classification as a “well-capitalized” institution and had not received any regulatory notification of a lower classification. Additionally, Northern Trust’s subsidiary banks located outside the U.S. are subject to regulatory capital requirements in the jurisdictions in which they operate. As of December 31, 2014, and 2013, Northern Trust’s non-U.S. banking subsidiaries had capital ratios above their specified minimum requirements. There were no conditions or events since December 31, 2014, that management believes have adversely affected the capital categorization of any Northern Trust subsidiary bank.

The table below summarizes the risk-based capital amounts and ratios for Northern Trust on a consolidated basis and for the Bank.

TABLE 124: RISK-BASED CAPITAL AMOUNTS AND RATIOS

	DECEMBER 31, 2014
($ In Millions)	ADVANCED APPROACH(1)					STANDARDIZED APPROACH(2)					DECEMBER 31, 2013(3)
	BALANCE		RATIO			BALANCE		RATIO			BALANCE		RATIO
Common Equity Tier 1 Capital
Northern Trust Corporation	$	7,813.3		12.4	%	$	7,813.3		12.5	%	$	7,853.2		12.9	%
The Northern Trust Company		7,327.3		12.0			7,327.3		11.8			6,765.6		11.5
Minimum to qualify as well-capitalized		N/A		N/A			N/A		N/A			N/A		N/A
Tier 1 Capital
Northern Trust Corporation		8,318.0		13.2			8,317.6		13.3			7,853.2		13.4
The Northern Trust Company		7,327.3		12.0			7,327.3		11.8			6,765.6		11.5
Minimum to qualify as well-capitalized:
Northern Trust Corporation		3,773.8		6.0			3,759.1		6.0			3,526.4		6.0
The Northern Trust Company		3,665.8		6.0			3,738.0		6.0			3,515.2		6.0
Total Capital
Northern Trust Corporation		9,449.2		15.0			9,723.0		15.5			9,294.9		15.8
The Northern Trust Company		8,420.4		13.8			8,695.1		14.0			8,366.2		14.3
Minimum to qualify as well-capitalized:
Northern Trust Corporation		6,289.7		10.0			6,265.1		10.0			5,877.4		10.0
The Northern Trust Company		6,109.7		10.0			6,229.9		10.0			5,858.8		10.0
Leverage (Tier 1 Capital to Adjusted Average Fourth Quarter Assets)
Northern Trust Corporation		N/A		N/A			8,317.6		7.8			7,853.2		7.9
The Northern Trust Company		N/A		N/A			7,327.3		6.9			6,765.6		6.8
Minimum to qualify as well-capitalized:
Northern Trust Corporation		N/A		N/A			5,340.7		5.0			4,953.7		5.0
The Northern Trust Company		N/A		N/A			5,324.9		5.0			4,939.9		5.0

(1) Effective with the second quarter of 2014, Northern Trust exited its parallel run. Accordingly, the December 31, 2014, capital balances and ratios are calculated in compliance with the Basel III Advanced Approach final rules released by the Federal Reserve Board on July 2, 2013.

(2) Standardized Approach capital components in 2014 are determined by Basel III phased-in requirements and risk-weighted assets are determined by Basel I requirements. The December 31, 2014, ratios calculated under the Standardized Approach comply with the final rules released by the Federal Reserve Board on July 2, 2013.

(3) The December 31, 2013, capital balances and ratios were calculated in accordance with Basel I requirements.

As of January 1, 2015, the risk-based capital guidelines that apply to the Corporation and the Bank, commonly referred to as Basel III, are based upon the 2011 capital accord of the (Basel Committee). The Basel III rules are currently being phased in, and will come into full effect by January 1, 2022.

Under the final Basel III rules, the Corporation is one of a small number of “core” banking organizations. The rules require core banking organizations to have rigorous processes for assessing overall capital adequacy in relation to their total risk profiles, and to publicly disclose certain information about their risk profiles and capital adequacy. In order to implement the capital rules, a core banking organization, such as the Corporation, is required to satisfactorily complete a parallel run, in which it calculates capital requirements under both the Basel III rules and previously effective regulations. On February 21, 2014, the Corporation was notified by the Federal Reserve Board that both the Corporation and the Bank would be permitted to exit parallel run. Accordingly, the Corporation and the Bank were required to use the advanced approaches methodologies to calculate and publicly disclose their risk-based capital ratios beginning with the second quarter of 2014. The parallel run of the risk-based capital framework demonstrated that the use of the advanced approaches methodologies, inclusive of commitments the Corporation provided to the Federal Reserve Board regarding the Corporation’s approach to the calculation of risk-weighted assets, did not result in the Tier 1 or total risk-based capital ratios falling below the levels required for categorization as “well-capitalized.”

The U.S.’s implementation of Basel III has increased the minimum capital thresholds for banking organizations and tightened the standards for what qualifies as capital. The Corporation and the Bank believe their capital strength, balance sheets and business models leave them well positioned for the continued U.S. implementation of Basel III.