Bank of America 2014 Annual Report Download - page 228

226 Bank of America 2014
NOTE 16 Regulatory Requirements and
Restrictions
The Corporation manages its regulatory capital to comply with
internal capital guidelines and regulatory standards of capital
adequacy based on its current understanding of the rules and how
they should be applied to its business as currently conducted.
The Federal Reserve, OCC and Federal Deposit Insurance
Corporation (collectively, joint agencies) establish regulatory
capital guidelines for U.S. banking organizations. Regulatory
capital guidelines require that capital be measured in relation to
the credit and market risks of both on- and off-balance sheet items
using various risk weights. On January 1, 2014, the Basel 3 rules
became effective and include transition provisions through January
1, 2019. Under Basel 3, Total capital consists of two tiers of capital,
Tier 1 and Tier 2. Tier 1 capital is further composed of Common
equity tier 1 capital and additional tier 1 capital.
Common equity tier 1 capital primarily includes qualifying
common shareholders’ equity, retained earnings, accumulated
other comprehensive income and certain minority interests.
Goodwill, disallowed intangible assets and certain disallowed
deferred tax assets are excluded from Common equity tier 1
capital.
Additional tier 1 capital primarily includes qualifying non-
cumulative preferred stock, trust preferred securities (Trust
Securities) subject to phase-out and certain minority interests.
Certain deferred tax assets are also excluded.
Tier 2 capital primarily consists of qualifying subordinated debt,
a limited portion of the allowance for loan and lease losses, Trust
Securities subject to phase-out and reserves for unfunded lending
commitments. The Corporation’s Total capital is the sum of Tier 1
capital plus Tier 2 capital.
To meet adequately capitalized regulatory requirements, an
institution must maintain a Tier 1 capital ratio of 4.0 percent and
a Total capital ratio of 8.0 percent. A “well-capitalized” institution
must generally maintain capital ratios 200 bps higher than the
minimum guidelines. The risk-based capital rules have been
further supplemented by a Tier 1 leverage ratio, defined as Tier 1
capital divided by quarterly average total assets, after certain
adjustments. BHCs must have a minimum Tier 1 leverage ratio of
at least 4.0 percent. National banks must maintain a Tier 1
leverage ratio of at least 5.0 percent to be classified as “well
capitalized.” Failure to meet the capital requirements established
by the joint agencies can lead to certain mandatory and
discretionary actions by regulators that could have a material
adverse effect on the Corporation’s financial position. At
December 31, 2014, the Corporation’s Tier 1 capital, Total capital
and Tier 1 leverage ratios were 13.4 percent, 16.5 percent and
8.2 percent, respectively. Effective January 1, 2015, to meet
adequately capitalized regulatory requirements, the Tier 1 capital
ratio increases from 4.0 percent to 6.0 percent. This increase
reflects a transfer of 2.0 percent from Tier 2 capital to Tier 1
capital, as less Tier 2 capital is permitted and more Tier 1 capital
is required. The minimum Total capital ratio of 8.0 percent remains
unchanged.
The table below presents capital ratios and related information
in accordance with Basel 3 – Standardized Transition as measured
at December 31, 2014 and the Basel 1 – 2013 Rules at
December 31, 2013. Prior to October 1, 2014, the Corporation
operated its banking activities primarily under two charters: BANA
and, to a lesser extent, FIA. On October 1, 2014, FIA was merged
into BANA.
Regulatory Capital
December 31
2014 2013
Basel 3 Transition Basel 1
(Dollars in millions) Ratio Amount
Minimum
Required (1) Ratio Amount
Minimum
Required (1)
Common equity tier 1 capital
Bank of America Corporation 12.3% $ 155,361 4.0% n/a n/a n/a
Bank of America, N.A. 13.1 145,150 4.0 n/a n/a n/a
Tier 1 common capital
Bank of America Corporation n/a n/a n/a 10.9% $ 141,522 n/a
Tier 1 capital
Bank of America Corporation 13.4 168,973 6.0 12.2 157,742 6.0%
Bank of America, N.A. 13.1 145,150 6.0 12.3 125,886 6.0
Total capital
Bank of America Corporation 16.5 208,670 10.0 15.1 196,567 10.0
Bank of America, N.A. 14.6 161,623 10.0 13.8 141,232 10.0
Tier 1 leverage
Bank of America Corporation 8.2 168,973 5.0 7.7 157,742 5.0
Bank of America, N.A. 9.6 145,150 5.0 9.2 125,886 5.0
Risk-weighted assets (in billions)
Bank of America Corporation n/a 1,262 n/a n/a 1,298 n/a
Bank of America, N.A. n/a 1,105 n/a n/a 1,020 n/a
Adjusted quarterly average total assets (in billions) (2)
Bank of America Corporation n/a 2,060 n/a n/a 2,052 n/a
Bank of America, N.A. n/a 1,509 n/a n/a 1,368 n/a
(1) Percent required to meet guidelines to be considered "well capitalized" under the Prompt Corrective Action framework, except for Common equity tier 1 capital which reflects capital adequacy minimum
requirements as an advanced approaches bank under Basel 3 during a transition period in 2014.
(2) Reflects adjusted average total assets for the three months ended December 31, 2014 and 2013.
n/a = not applicable