Regulatory and Capital Adequacy

12 Months Ended

Dec. 31, 2022

Mortgage Banking [Abstract]

Regulatory and Capital Adequacy

NOTE 11—REGULATORY AND CAPITAL ADEQUACY

Regulation and Capital Adequacy

The Company and the Bank are subject to regulatory capital requirements established by the Board of Governors of the Federal Reserve System (“Federal Reserve”) and the Office of the Comptroller of the Currency (“OCC”), respectively (“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 Wall Street Reform and Consumer Production Act of 2010 (“Dodd-Frank Act”) and other capital provisions.

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, the Company is a Category III institution under the Basel III Capital Rules.

The Bank, as a subsidiary of a Category III institution, is a Category III bank. Moreover, the Bank, as an insured depository institution, is subject to prompt corrective action (“PCA”) capital regulations.

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 standardized approach capital conservation buffer requirement, which includes the stress capital buffer requirement, any global systematically important banks (“G-SIB”) surcharge (which is not applicable to us) and the countercyclical capital buffer requirement (which is currently set at 0%). Our stress capital buffer requirement for the period beginning on October 1, 2022 through September 30, 2023 is 3.1%. Our capital and leverage ratios are calculated based on the Basel III standardized approach framework.

We have elected to exclude certain elements of AOCI from our regulatory capital as permitted for a Category III institution.

The Federal Reserve, OCC, and the Federal Deposit Insurance Corporation (collectively, “Federal Banking Agencies”) adopted a final rule (“CECL Transition Rule”) that provides banking institutions an optional five-year transition period to phase in the impact of the 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 to our regulatory capital pursuant to the CECL Transition Rule. Consistent with the rule, we phased in 25% of this amount, or $599 million, on January 1, 2022, leaving

$1.8 billion to be phased in over 2023-2025. As of December 31, 2022, the Company’s CET1 capital ratio, reflecting the CECL Transition Rule, was 12.5% and would have been 12.0% 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, 2022 and 2021.

Table 11.1: Capital Ratios Under Basel III(1)

	December 31, 2022					December 31, 2021
(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)	$	44,731	12.5%	4.5%	N/A	$	43,501	13.1%	4.5%	N/A
Tier 1 capital(3)	49,576		13.9	6.0	6.0%	48,346		14.5	6.0	6.0%
Total capital(4)	56,714		15.8	8.0	10.0	56,089		16.9	8.0	10.0
Tier 1 leverage(5)	49,576		11.1	4.0	N/A	48,346		11.6	4.0	N/A
Supplementary leverage(6)	49,576		9.5	3.0	N/A	48,346		9.9	3.0	N/A
CONA:
Common equity Tier 1 capital(2)	46,630		13.1	4.5	6.5	26,699		11.1	4.5	6.5
Tier 1 capital(3)	46,630		13.1	6.0	8.0	26,699		11.1	6.0	8.0
Total capital(4)	51,165		14.4	8.0	10.0	29,449		12.2	8.0	10.0
Tier 1 leverage(5)	46,630		10.5	4.0	5.0	26,699		7.4	4.0	5.0
Supplementary leverage(6)	46,630		9.0	3.0	N/A	26,699		6.6	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.

On October 1, 2022, COBNA merged with and into CONA, with CONA as the surviving entity. The capital ratios of COBNA immediately prior to the Bank Merger were higher than those of CONA, therefore increasing the capital ratios of CONA immediately after the Bank Merger and as of December 31, 2022. We exceeded the minimum capital requirements and the Bank exceeded the minimum regulatory requirements and was well-capitalized under PCA requirements as of both December 31, 2022 and 2021.

Regulatory restrictions exist that limit the ability of CONA to transfer funds to our BHC. As of December 31, 2022, funds available for dividend payments from the Bank were $3.2 billion. 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. There can be no assurance that we will declare and pay any dividends to stockholders.