Regulatory and Capital Adequacy

12 Months Ended

Dec. 31, 2021

Mortgage Banking [Abstract]

Regulatory and Capital Adequacy

NOTE 11—REGULATORY AND CAPITAL ADEQUACY

Regulation and Capital Adequacy

The Company and the Banks are subject to the regulatory capital requirements established by the Federal Reserve and the Office of the Comptroller of the Currency (“OCC”) respectively (the “Basel III Capital Rules”). The Basel III Capital Rules implement certain capital requirements published by the Basel Committee on Banking Supervision (“Basel Committee”), along with certain provisions of the Dodd-Frank Act and other capital provisions. Moreover, the Banks, as insured depository institutions, are subject to prompt corrective action (“PCA”) capital regulations, which require the Federal Reserve, OCC and the Federal Deposit Insurance Corporation (collectively, the “Federal Banking Agencies”) to take prompt corrective action for banks that do not meet PCA capital requirements.

Under the Basel III Capital Rules, we must maintain a minimum common equity Tier 1 (“CET1”) capital ratio of 4.5%, a Tier 1 capital ratio of 6.0%, and a total capital ratio of 8.0%, in each case in relation to risk-weighted assets. In addition, we must maintain a minimum leverage ratio of 4.0% and a minimum supplementary leverage ratio of 3.0%. We are also subject to the capital conservation buffer and countercyclical capital buffer requirements, as described below.

Following amendments to the Basel III Capital Rules in October 2019 by the Federal Banking Agencies to provide for tailored application of certain capital requirements across different categories of banking institutions (the “Tailoring Rules”), the Company, as a bank holding company (“BHC”) with total consolidated assets of at least $250 billion but less than $700 billion and not exceeding any of the applicable risk-based thresholds, is a Category III institution.

As a Category III institution, effective January 1, 2020, we are no longer subject to the Basel III Advanced Approaches framework and certain associated capital requirements, and we have elected to exclude certain elements of AOCI from our regulatory capital as permitted for a Category III institution. We remain subject to the countercyclical capital buffer requirement (which is currently set at 0%) and supplementary leverage ratio requirement of 3.0%.

Global systemically important banks (“G-SIBs”) that are based in the U.S. are subject to an additional CET1 capital requirement known as the “G-SIB Surcharge.” We are not a G-SIB based on the most recent available data and thus we are not subject to a G-SIB Surcharge.

The Federal Banking Agencies adopted a final rule (the “CECL Transition Rule”) that provides banking institutions an optional five-year transition period to phase in the impact of the current expected credit loss (“CECL”) standard on their regulatory capital (the “CECL Transition Election”). We adopted the CECL standard (for accounting purposes) as of January 1, 2020, and made the CECL Transition Election (for regulatory capital purposes) in the first quarter of 2020. Therefore, the applicable amounts presented in this Report reflect such election.

Pursuant to the CECL Transition Rule, a banking institution could elect to delay the estimated impact of adopting CECL on its regulatory capital through December 31, 2021 and then phase in the estimated cumulative impact from January 1, 2022 through December 31, 2024. For the “day 2” ongoing impact of CECL during the initial two years, the Federal Banking Agencies used a uniform “scaling factor” of 25% as an approximation of the increase in the allowance under the CECL standard compared to the prior incurred loss methodology. Accordingly, from January 1, 2020 through December 31, 2021, electing banking institutions were permitted to add back to their regulatory capital an amount equal to the sum of the after-tax “day 1” CECL adoption impact and 25% of the increase in the allowance since the adoption of the CECL standard. From January 1, 2022 through December 31, 2024, the after-tax “day 1” CECL adoption impact and the cumulative “day 2” ongoing impact are being phased in to regulatory capital at 25% per year. The following table summarizes the capital impact delay and phase in period on our regulatory capital from years 2020 to 2025.

	Capital Impact Delayed		Phase In Period
	2020	2021	2022	2023	2024	2025
“Day 1” CECL adoption impact	Capital impact delayed to 2022		25% Phased In	50% Phased In	75% Phased In	Fully Phased In
Cumulative “day 2” ongoing impact	25% scaling factor as an approximation of the increase in allowance under CECL

As of December 31, 2021, we added back an aggregate amount of $2.4 billion, after taxes, to our regulatory capital pursuant to the CECL Transition Rule. The Company’s CET1 capital ratio, reflecting the CECL Transition Rule, was 13.1% as of December 31, 2021, and would have been 12.4% excluding the impact of the CECL Transition Rule (or "on a fully phased-in basis").

For additional information about the capital adequacy guidelines to which we are subject, see “Part I—Item 1. Business—Supervision and Regulation.”

The following table provides a comparison of our regulatory capital amounts and ratios under the Basel III Standardized Approach subject to the applicable transition provisions, the regulatory minimum capital adequacy ratios and the applicable well-capitalized standard for each ratio as of December 31, 2021 and 2020.

Table 11.1: Capital Ratios Under Basel III(1)

	December 31, 2021								December 31, 2020
(Dollars in millions)	Capital Amount		Capital Ratio		Minimum Capital Adequacy		Well- Capitalized		Capital Amount		Capital Ratio		Minimum Capital Adequacy		Well- Capitalized
Capital One Financial Corp:
Common equity Tier 1 capital(2)	$	43,501	13.1	%	4.5	%	N/A		$	40,736	13.7	%	4.5	%	N/A
Tier 1 capital(3)	48,346		14.5		6.0		6.0	%	45,583		15.3		6.0		6.0	%
Total capital(4)	56,089		16.9		8.0		10.0		52,788		17.7		8.0		10.0
Tier 1 leverage(5)	48,346		11.6		4.0		N/A		45,583		11.2		4.0		N/A
Supplementary leverage(6)(7)	48,346		9.9		3.0		N/A		45,583		10.7		3.0		N/A
COBNA:
Common equity Tier 1 capital(2)	17,392		16.5		4.5		6.5		19,924		21.5		4.5		6.5
Tier 1 capital(3)	17,392		16.5		6.0		8.0		19,924		21.5		6.0		8.0
Total capital(4)	19,047		18.0		8.0		10.0		21,708		23.4		8.0		10.0
Tier 1 leverage(5)	17,392		14.9		4.0		5.0		19,924		18.3		4.0		5.0
Supplementary leverage(6)	17,392		12.0		3.0		N/A		19,924		14.7		3.0		N/A
CONA:
Common equity Tier 1 capital(2)	26,699		11.1		4.5		6.5		26,671		12.4		4.5		6.5
Tier 1 capital(3)	26,699		11.1		6.0		8.0		26,671		12.4		6.0		8.0
Total capital(4)	29,449		12.2		8.0		10.0		29,369		13.7		8.0		10.0
Tier 1 leverage(5)	26,699		7.4		4.0		5.0		26,671		7.6		4.0		5.0
Supplementary leverage(6)	26,699		6.6		3.0		N/A		26,671		6.9		3.0		N/A

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(1)Capital requirements that are not applicable are denoted by “N/A”.

(2)Common equity Tier 1 capital ratio is a regulatory capital measure calculated based on common equity Tier 1 capital divided by risk-weighted assets.

(3)Tier 1 capital ratio is a regulatory capital measure calculated based on Tier 1 capital divided by risk-weighted assets.

(4)Total capital ratio is a regulatory capital measure calculated based on total capital divided by risk-weighted assets.

(5)Tier 1 leverage ratio is a regulatory capital measure calculated based on Tier 1 capital divided by adjusted average assets.

(6)Supplementary leverage ratio is a regulatory capital measure calculated based on Tier 1 capital divided by total leverage exposure.

(7)The Company’s supplementary leverage ratio as of December 31, 2020 reflected the temporary exclusions of U.S Treasury securities and deposits with the Federal Reserve Banks from the denominator of the supplementary leverage ratio, pursuant to an interim final rule issued by the Federal Reserve. For more information, see “Part II—Item 7. Capital Management—Capital Standards and Prompt Corrective Action”.

We exceeded the minimum capital requirements and each of the Banks exceeded the minimum regulatory requirements and were well-capitalized under PCA requirements as of both December 31, 2021 and 2020.

Regulatory restrictions exist that limit the ability of the Banks to transfer funds to our BHC. As of December 31, 2021, funds available for dividend payments from COBNA and CONA were $531 million and $447 million, respectively. Applicable

provisions that may be contained in our borrowing agreements or the borrowing agreements of our subsidiaries may limit our subsidiaries’ ability to pay dividends to us or our ability to pay dividends to our stockholders.