Bank of America 2008 Annual Report Download - page 168

Internationally active bank holding companies are those with consolidated
assets greater than $250 billion or on-balance sheet exposure greater
than $10 billion. At December 31, 2008, the Corporation’s restricted
core capital elements comprised 14.7 percent of total core capital ele-
ments. The Corporation expects to remain fully compliant with the revised
limits prior to the implementation date of March 31, 2009.
To meet minimum, adequately capitalized regulatory requirements, an
institution must maintain a Tier 1 Capital ratio of four percent and a Total
Capital ratio of eight percent. A “well-capitalized” institution must gen-
erally maintain capital ratios 200 bps higher than the minimum guide-
lines. The risk-based capital rules have been further supplemented by a
Tier 1 Leverage ratio, defined as Tier 1 Capital divided by adjusted quar-
terly average total assets, after certain adjustments. “Well-capitalized”
bank holding companies must have a minimum Tier 1 Leverage ratio of
three percent. National banks must maintain a Tier 1 Leverage ratio of at
least five percent to be classified as “well-capitalized.”
Net unrealized gains (losses) on AFS debt securities, net unrealized
gains on AFS marketable equity securities, net unrealized gains (losses)
on derivatives, and employee benefit plan adjustments in shareholders’
equity at December 31, 2008 and 2007, are excluded from the calcu-
lations of Tier 1 Capital and Leverage ratios. The Total Capital ratio
excludes all of the above with the exception of up to 45 percent of net
unrealized pre-tax gains on AFS marketable equity securities.
On January 1, 2009, the Corporation completed its acquisition of
Merrill Lynch and subsequently issued an additional $10.0 billion of pre-
ferred stock in connection with the TARP Capital Purchase Program. On
January 16, 2009, the U.S. government agreed to assist in the Merrill
Lynch acquisition by making a further investment in the Corporation of
$20.0 billion in preferred stock. For additional information regarding the
acquisition of Merrill Lynch see Note 2 – Merger and Restructuring Activity
to the Consolidated Financial Statements and for additional information
regarding these equity issuances see Note 25 – Subsequent Events to
the Consolidated Financial Statements.
Regulatory Capital Developments
In June 2004, Basel II was published with the intent of more closely align-
ing regulatory capital requirements with underlying risks. Similar to eco-
nomic capital measures, Basel II seeks to address credit risk, market
risk, and operational risk. On December 7, 2007, the U.S. regulatory
Agencies published the Basel II Final Rules (Basel II Rules) providing
detailed capital requirements for credit and operational risk under Pillar 1,
supervisory requirements under Pillar 2 and disclosure requirements
under Pillar 3. The Corporation is still awaiting final rules for market risk
requirements under Basel II.
The Basel II Rules’ effective date was April 1, 2008, which allows U.S.
financial institutions to begin parallel reporting as early as 2008. The
Corporation continues execution efforts to ensure preparedness with all
Basel II requirements. The goal is to achieve full compliance by the end of
the three-year implementation period in 2011. Further, internationally
Basel II was implemented in several countries during 2008, while others
will begin implementation in 2009 and beyond.
Regulatory Capital
December 31
2008 2007
Actual Minimum Actual Minimum
(Dollars in millions) Ratio Amount Required
(1)
Ratio Amount Required
(1)
Risk-based capital
Tier 1
Bank of America Corporation 9.15% $120,814 $ 52,833 6.87% $ 83,372 $48,516
Bank of America, N.A. 8.51 88,979 41,818 8.23 75,395 36,661
FIA Card Services, N.A. 13.90 19,573 5,632 14.29 21,625 6,053
Countrywide Bank, FSB
(2)
9.03 7,602 3,369 n/a n/a n/a
Total
Bank of America Corporation 13.00 171,661 105,666 11.02 133,720 97,032
Bank of America, N.A. 11.71 122,392 83,635 11.01 100,891 73,322
FIA Card Services, N.A. 16.25 22,875 11,264 16.82 25,453 12,105
Countrywide Bank, FSB
(2)
10.28 8,662 6,738 n/a n/a n/a
Tier 1 Leverage
Bank of America Corporation 6.44 120,814 56,155 5.04 83,372 49,595
Bank of America, N.A. 5.94 88,979 44,944 5.94 75,395 38,092
FIA Card Services, N.A. 14.28 19,573 4,113 16.37 21,625 3,963
Countrywide Bank, FSB
(2)
6.64 7,602 3,437 n/a n/a n/a
(1) Dollar amount required to meet guidelines for adequately capitalized institutions.
(2) Countrywide Bank, FSB is presented for periods subsequent to June 30, 2008.
n/a = not applicable
166 Bank of America 2008