BB&T 2011 Annual Report Download - page 13

securities available for sale, unrealized gains on equity securities available for sale and unrealized gains or losses on cash
flow hedges, net of deferred income taxes; plus certain mandatorily redeemable capital securities; less nonqualifying
intangible assets net of applicable deferred income taxes and certain nonfinancial equity investments. This is called “Tier
1 capital.” The remainder may consist of qualifying subordinated debt, certain hybrid capital instruments, qualifying
preferred stock and a limited amount of the allowance for credit losses. This is called “Tier 2 capital.” Tier 1 capital and
Tier 2 capital combined are referred to as total regulatory capital.
The Federal Reserve requires bank holding companies that engage in trading activities to adjust their risk-based capital
ratios to take into consideration market risks that may result from movements in market prices of covered trading
positions in trading accounts, or from foreign exchange or commodity positions, whether or not in trading accounts,
including changes in interest rates, equity prices, foreign exchange rates or commodity prices. Any capital required to be
maintained under these provisions may consist of “Tier 3 capital” consisting of forms of short-term subordinated debt.
Each of the federal bank regulatory agencies, including the Federal Reserve, the FDIC and the OCC, also has established
minimum leverage capital requirements for banking organizations. These requirements provide that banking organizations
that meet certain criteria, including excellent asset quality, high liquidity, low interest rate exposure and good earnings,
and that have received the highest regulatory rating must maintain a ratio of Tier 1 capital to total adjusted average assets
of at least 3%. Institutions not meeting these criteria, as well as institutions with supervisory, financial or operational
weaknesses, are expected to maintain a minimum Tier 1 capital to total adjusted average assets ratio at least 100 basis
points above that stated minimum. Holding companies experiencing internal growth or making acquisitions are expected
to maintain strong capital positions substantially above the minimum supervisory levels without significant reliance on
intangible assets. The Federal Reserve also continues to consider a “tangible Tier 1 capital leverage ratio” (deducting all
intangibles) and other indicators of capital strength in evaluating proposals for expansion or new activity.
In addition, the Federal Reserve, the FDIC and the OCC all have adopted risk-based capital standards that explicitly
identify concentrations of credit risk and the risk arising from non-traditional activities, as well as an institution’s ability
to manage these risks, as important factors to be taken into account by each agency in assessing an institution’s overall
capital adequacy. The capital guidelines also provide that an institution’s exposure to a decline in the economic value of
its capital due to changes in interest rates be considered by the agency as a factor in evaluating a banking organization’s
capital adequacy. The agencies also require banks and bank holding companies to adjust their regulatory capital to take
into consideration the risk associated with certain recourse obligations, direct credit subsidies, residual interest and other
positions in securitized transactions that expose banking organizations to credit risk.
As part of the Dodd-Frank Act, provisions were added that require federal banking agencies to develop capital
requirements that address systemically risky activities. The effect of these capital rules will disallow trust preferred
securities from counting as Tier 1 capital at the holding company level for entities with greater than $15 billion in assets
with a three-year phase-in period beginning on January 1, 2013.
In addition, in 2010, the Group of Governors and Heads of Supervisors of the Basel Committee on Banking Supervision,
the oversight body of the Basel Committee, published its “calibrated” capital standards for major banking institutions
(“Basel III”). Under these standards, when fully phased in on January 1, 2019, banking institutions will be required to
maintain heightened Tier 1 common equity, Tier 1 capital and total capital ratios, as well as maintaining a “capital
conservation buffer.” The Tier 1 common equity and Tier 1 capital ratio requirements will be phased in incrementally
between January 1, 2013 and January 1, 2015; the deductions from common equity made in calculating Tier 1 common
equity (for example, for mortgage servicing assets, deferred tax assets and investments in unconsolidated financial
institutions) will be phased in incrementally over a four-year period commencing on January 1, 2014; and the capital
conservation buffer will be phased in incrementally between January 1, 2016 and January 1, 2019. The Basel Committee
also announced that a “countercyclical buffer” of 0% to 2.5% of common equity or other fully loss-absorbing capital “will
be implemented according to national circumstances” as an “extension” of the conservation buffer. The final package of
Basel III reforms were approved by the G20 leaders in November 2010 and are subject to individual adoption by member
nations, including the United States. If the foregoing revised capital standards are adopted in their current form, BB&T
estimates these standards would have a negligible impact on BB&T’s ability to comply with the revised regulatory capital
ratios based on BB&T’s current understanding of the revisions to capital qualification.
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