Bank of America 2012 Annual Report Download - page 72

70 Bank of America 2012
Bank of America, N.A. and FIA Card Services, N.A. Regulatory Capital
Table 16 presents regulatory capital information for BANA and FIA at December 31, 2012 and 2011.
Table 16 Bank of America, N.A. and FIA Card Services, N.A. Regulatory Capital
December 31
2012 2011
(Dollars in millions) Ratio Amount Ratio Amount
Tier 1
Bank of America, N.A. 12.44% $ 118,431 11.74% $ 119,881
FIA Card Services, N.A. 17.34 22,061 17.63 24,660
Total
Bank of America, N.A. 14.76 140,434 15.17 154,885
FIA Card Services, N.A. 18.64 23,707 19.01 26,594
Tier 1 leverage
Bank of America, N.A. 8.59 118,431 8.65 119,881
FIA Card Services, N.A. 13.67 22,061 14.22 24,660
BANA’s Tier 1 capital ratio increased 70 bps to 12.44 percent
and the Total capital ratio decreased 41 bps to 14.76 percent at
December 31, 2012 compared to December 31, 2011. The Tier
1 leverage ratio decreased six bps to 8.59 percent at
December 31, 2012 compared to December 31, 2011. The
increase in the Tier 1 capital ratio was driven by earnings eligible
to be included in capital of $12.3 billion and a decrease in risk-
weighted assets of $69.1 billion compared to the prior year, largely
offset by dividends paid to the Corporation of $14.1 billion during
2012. The decrease in the Total capital ratio was driven by a $12.0
billion decrease in qualifying subordinated debt, partially offset by
the net impact of earnings eligible to be included in capital and a
decrease in risk-weighted assets. The decrease in the Tier 1
leverage ratio was driven by a decrease in Tier 1 capital, partially
offset by a decrease in adjusted quarterly average total assets.
FIA’s Tier 1 capital ratio decreased 29 bps to 17.34 percent
and the Total capital ratio decreased 37 bps to 18.64 percent at
December 31, 2012 compared to December 31, 2011. The Tier
1 leverage ratio decreased 55 bps to 13.67 percent at
December 31, 2012 compared to December 31, 2011. The
decrease in the Tier 1 capital and Total capital ratios was driven
by returns of capital of $6.6 billion to the Corporation during 2012,
partially offset by earnings eligible to be included in capital of $4.2
billion and a decrease in risk-weighted assets primarily due to a
decrease in loans. The decrease in the Tier 1 leverage ratio was
driven by the decrease in Tier 1 capital, partially offset by a
decrease in adjusted quarterly average total assets of $12.0
billion.
Broker/Dealer Regulatory Capital
The Corporation’s principal U.S. broker/dealer subsidiaries are
Merrill Lynch, Pierce, Fenner & Smith (MLPF&S) and Merrill Lynch
Professional Clearing Corp (MLPCC). MLPCC is a fully-guaranteed
subsidiary of MLPF&S and provides clearing and settlement
services. Both entities are subject to the net capital requirements
of SEC Rule 15c3-1. Both entities are also registered as futures
commission merchants and are subject to the CFTC Regulation
1.17.
MLPF&S has elected to compute the minimum capital
requirement in accordance with the Alternative Net Capital
Requirement as permitted by SEC Rule 15c3-1. At December 31,
2012, MLPF&S’s regulatory net capital as defined by Rule 15c3-1
was $10.3 billion and exceeded the minimum requirement of $683
million by $9.7 billion. MLPCC’s net capital of $2.1 billion exceeded
the minimum requirement of $236 million by $1.8 billion.
In accordance with the Alternative Net Capital Requirements,
MLPF&S is required to maintain tentative net capital in excess of
$1.0 billion, net capital in excess of $500 million and notify the
SEC in the event its tentative net capital is less than $5.0 billion.
At December 31, 2012, MLPF&S had tentative net capital and net
capital in excess of the minimum and notification requirements.
Economic Capital
Our economic capital measurement process provides a risk-based
measurement of the capital required for unexpected credit, market
and operational losses over a one-year time horizon at a
99.97 percent confidence level. Economic capital is allocated to
each business unit and is used for capital adequacy, performance
measurement and risk management purposes. The strategic
planning process utilizes economic capital with the goal of
allocating risk appropriately and measuring returns consistently
across all businesses and activities. Economic capital allocation
plans are incorporated into the Corporation’s financial plan which
is approved by the Board on an annual basis.
Credit Risk Capital
Economic capital for credit risk captures two types of risks: default
risk, which represents the loss of principal due to outright default
or the borrower’s inability to repay an obligation in full, and
migration risk, which represents potential loss in market value due
to credit deterioration over a one-year capital time horizon. Credit
risk is assessed and modeled for all on- and off-balance sheet
credit exposures within sub-categories for commercial, retail,
counterparty and investment securities. The economic capital
methodology captures dimensions such as concentration and
country risk and originated securitizations. The economic capital
methodology is based on the probability of default, loss given
default (LGD), exposure at default (EAD) and maturity for each
credit exposure, and the portfolio correlations across exposures.
See page 75 for more information on Credit Risk Management.