Bank of America 2015 Annual Report Download - page 59

Bank of America 2015 57
Bank of America, N.A. Regulatory Capital
Table 17 presents transition regulatory information for BANA in accordance with Basel 3 Standardized and Advanced Approaches as
measured at December 31, 2015 and 2014.
Table 17 Bank of America, N.A. Regulatory Capital under Basel 3
December 31, 2015
Standardized Approach Advanced Approaches
(Dollars in millions) Ratio Amount
Minimum
Required (1) Ratio Amount
Minimum
Required (1)
Common equity tier 1 capital 12.2% $ 144,869 6.5% 13.1% $ 144,869 6.5%
Tier 1 capital 12.2 144,869 8.0 13.1 144,869 8.0
Total capital 13.5 159,871 10.0 13.6 150,624 10.0
Tier 1 leverage 9.2 144,869 5.0 9.2 144,869 5.0
December 31, 2014
Common equity tier 1 capital 13.1% $ 145,150 4.0% n/a n/a 4.0%
Tier 1 capital 13.1 145,150 6.0 n/a n/a 6.0
Total capital 14.6 161,623 10.0 n/a n/a 10.0
Tier 1 leverage 9.6 145,150 5.0 n/a n/a 5.0
(1) Percent required to meet guidelines to be considered “well capitalized” under the Prompt Corrective Action framework, except for the December 31, 2014 Common equity tier 1 capital which reflects
capital adequacy minimum requirements as an Advanced approaches bank under Basel 3 during a transition period that ended in 2014.
n/a = not applicable
Regulatory Developments
Global Systemically Important Bank Surcharge
We have been designated as a G-SIB and as such, are subject to
a risk-based capital surcharge (G-SIB surcharge) that must be
satisfied with Common equity tier 1 capital. The surcharge
assessment methodology published by the Basel Committee on
Banking Supervision (Basel Committee) relies on an indicator-
based measurement approach (e.g., size, complexity, cross-
jurisdictional activity, inter-connectedness and substitutability/
financial institution infrastructure) to determine a score relative
to the global banking industry. Institutions with the highest scores
are designated as G-SIBs and are assigned to one of four loss
absorbency buckets from 1.0 percent to 2.5 percent, in 0.5 percent
increments based on each institution’s relative score and
supervisory judgment. A fifth loss absorbency bucket of 3.5
percent serves to discourage banks from becoming more
systemically important.
In July 2015, the Federal Reserve finalized a regulation that
will implement G-SIB surcharge requirements for the largest U.S.
BHCs. Under the final rule, assignment to loss absorbency buckets
will be determined by the higher score as calculated according to
two methods. Method 1 is consistent with the Basel Committee’s
methodology, whereas method 2 replaces the substitutability/
financial institution infrastructure indicator with a measure of
short-term wholesale funding and then determines the overall
score by applying a fixed multiplier for each of the other systemic
indicators. Under the final U.S. rules, the G-SIB surcharge is being
phased in beginning on January 1, 2016, becoming fully effective
on January 1, 2019. Once fully phased in, we estimate that our G-
SIB surcharge will increase our risk-based capital ratio
requirements by 3.0 percent under method 2 and 1.5 percent
under method 1.
For more information on regulatory capital, see Note 16 –
Regulatory Requirements and Restrictions to the Consolidated
Financial Statements.
Minimum Total Loss-Absorbing Capacity
On October 30, 2015, the Federal Reserve issued a notice of
proposed rulemaking to establish external total loss-absorbing
capacity (TLAC) requirements to improve the resolvability and
resiliency of large, interconnected BHCs. Under the proposal, U.S.
G-SIBs would be required to maintain a minimum external TLAC of
the greater of (1) 16 percent of risk-weighted assets in 2019,
increasing to 18 percent of risk-weighted assets in 2022 (plus
additional TLAC equal to enough Common equity tier 1 capital as
a percentage of risk-weighted assets to cover the capital
conservation buffer, any applicable countercyclical capital buffer
plus the applicable method 1 G-SIB surcharge), or (2) 9.5 percent
of the denominator of the SLR. In addition, U.S. G-SIBs must meet
a minimum long-term debt requirement equal to the greater of (1)
6.0 percent of risk-weighted assets plus the applicable method 2
G-SIB surcharge, or (2) 4.5 percent of the denominator of the SLR.
Revisions to Approaches for Measuring Risk-Weighted
Assets
The Basel Committee has several open proposals to revise key
methodologies for measuring risk-weighted assets. The proposals
include a standardized approach for credit risk, standardized
approaches for operational risk, revisions to the securitization
framework and revisions to the CVA risk framework. In January
2016, the Basel Committee finalized its fundamental review of the
trading book, which updates both modeled and standardized
approaches for market risk measurement. A revised standardized
model for counterparty credit risk has also previously been
finalized. These revisions would be coupled with a proposed
capital floor framework to limit the extent to which banks can
reduce risk-weighted asset levels through the use of internal
models. The Basel Committee expects to finalize the outstanding
proposals by the end of 2016. Once the proposals are finalized,
U.S. banking regulators may update the U.S. Basel 3 rules to
incorporate the Basel Committee revisions.