Bank of America 2015 Annual Report Download - page 213

Bank of America 2015 211
NOTE 16 Regulatory Requirements and
Restrictions
The Federal Reserve, Office of the Comptroller of the Currency
(OCC) and FDIC (collectively, U.S. banking regulators) jointly
establish regulatory capital adequacy guidelines for U.S. banking
organizations. As a financial holding company, the Corporation is
subject to capital adequacy rules issued by the Federal Reserve,
and its banking entity affiliates, including BANA and Bank of
America California, N.A., are subject to capital adequacy rules
issued by their respective primary regulators.
On January 1, 2014, the Corporation and its affiliates became
subject to Basel 3, which includes certain transition provisions
through January 1, 2019. The Corporation and its primary banking
entity affiliate, BANA, are Advanced approaches institutions under
Basel 3.
Basel 3 updated the composition of capital and established a
Common equity tier 1 capital ratio. Common equity tier 1 capital
primarily includes common stock, retained earnings and
accumulated OCI. Basel 3 revised minimum capital ratios and
buffer requirements, added a supplementary leverage ratio, and
addressed the adequately capitalized minimum requirements
under the PCA framework. Finally, Basel 3 established two methods
of calculating risk-weighted assets, the Standardized approach and
the Advanced approaches.
As an Advanced approaches institution, under Basel 3, the
Corporation was required to complete a qualification period
(parallel run) to demonstrate compliance with the Basel 3
Advanced approaches to the satisfaction of U.S. banking
regulators. The Corporation received approval to begin using the
Advanced approaches capital framework to determine risk-based
capital requirements in the fourth quarter of 2015. Having exited
parallel run on October 1, 2015, the Corporation is required to
report regulatory risk-based capital ratios and risk-weighted assets
under both the Standardized and Advanced approaches. The
approach that yields the lower ratio is used to assess capital
adequacy including under the PCA framework, and was the
Advanced approaches in the fourth quarter of 2015. Prior to the
fourth quarter of 2015, the Corporation was required to report its
capital adequacy under the Standardized approach only.
The table below presents capital ratios and related information
in accordance with Basel 3 Standardized and Advanced
approaches – Transition as measured at December 31, 2015 and
2014 for the Corporation and BANA.
Regulatory Capital under Basel 3 – Transition (1)
December 31, 2015
Bank of America Corporation Bank of America, N.A.
(Dollars in millions)
Standardized
Approach
Advanced
Approaches
Regulatory
Minimum
Well-
capitalized (2)
Standardized
Approach
Advanced
Approaches
Regulatory
Minimum
Well-
capitalized (2)
Risk-based capital metrics:
Common equity tier 1 capital $ 163,026 $ 163,026 $ 144,869 $ 144,869
Tier 1 capital 180,778 180,778 144,869 144,869
Total capital (3) 220,676 210,912 159,871 150,624
Risk-weighted assets (in billions) 1,403 1,602 1,183 1,104
Common equity tier 1 capital ratio 11.6% 10.2% 4.5% n/a 12.2%13.1% 4.5% 6.5%
Tier 1 capital ratio 12.9 11.3 6.0 6.0% 12.2 13.1 6.0 8.0
Total capital ratio 15.7 13.2 8.0 10.0 13.5 13.6 8.0 10.0
Leverage-based metrics:
Adjusted quarterly average assets (in billions) (4) $ 2,103 $ 2,103 $ 1,575 $ 1,575
Tier 1 leverage ratio 8.6% 8.6% 4.0 n/a 9.2% 9.2% 4.0 5.0
December 31, 2014
Risk-based capital metrics:
Common equity tier 1 capital $ 155,361 n/a $ 145,150 n/a
Tier 1 capital 168,973 n/a 145,150 n/a
Total capital (3) 208,670 n/a 161,623 n/a
Risk-weighted assets (in billions) 1,262 n/a 1,105 n/a
Common equity tier 1 capital ratio 12.3% n/a 4.0% n/a 13.1% n/a 4.0% n/a
Tier 1 capital ratio 13.4 n/a 5.5 6.0% 13.1 n/a 5.5 6.0%
Total capital ratio 16.5 n/a 8.0 10.0 14.6 n/a 8.0 10.0
Leverage-based metrics:
Adjusted quarterly average assets (in billions) (4) $ 2,060 $ 2,060 $ 1,509 $ 1,509
Tier 1 leverage ratio 8.2% 8.2% 4.0 n/a 9.6% 9.6% 4.0 5.0
(1) The Corporation received approval to begin using the Advanced approaches capital framework to determine risk-based capital requirements in the fourth quarter of 2015. With the approval to exit
parallel run, the Corporation is required to report regulatory capital risk-weighted assets and ratios under both the Standardized and Advanced approaches. The approach that yields the lower ratio
is to be used to assess capital adequacy and was the Advanced approaches at December 31, 2015. Prior to exiting parallel run, the Corporation was required to report regulatory capital risk-weighted
assets and ratios under the Standardized approach only. As previously disclosed, with the approval to exit parallel run, U.S. banking regulators requested modifications to certain internal analytical
models including the wholesale (e.g., commercial) credit models which increased the Corporation’s risk-weighted assets in the fourth quarter of 2015.
(2) To be “well capitalized” under the current U.S. banking regulatory agency definitions, a bank holding company or national bank must maintain these or higher ratios and not be subject to a Federal
Reserve order or directive to maintain higher capital levels.
(3) Total capital under the Advanced approaches differs from the Standardized approach due to differences in the amount permitted in Tier 2 capital related to the qualifying allowance for credit losses.
(4) Reflects adjusted average assets for the three months ended December 31, 2015 and 2014.
n/a = not applicable