Wells Fargo 2012 Annual Report Download - page 111

Exchange Commission (SEC) to the market in January 2010.
Once the FSOC adopts final recommendations, the SEC must
either implement the recommendations or explain in writing the
reasons the recommendations were not adopted. The SEC has
publicly stated that it is working on its own reform proposals
independent of the FSOC’s rulemaking process. Until final
regulations are adopted, the ultimate effect on our business and
financial results remains uncertain.
Other future regulatory initiatives that could significantly
affect our business include proposals to reform the housing
finance market in the United States. These proposals, among
other things, consider winding down the GSEs and reducing or
eliminating over time the role of the GSEs in guaranteeing
mortgages and providing funding for mortgage loans, as well as
the implementation of reforms relating to borrowers, lenders,
and investors in the mortgage market, including reducing the
maximum size of a loan that the GSEs can guarantee, phasing in
a minimum down payment requirement for borrowers,
improving underwriting standards, and increasing accountability
and transparency in the securitization process. Congress also
may consider the adoption of legislation to reform the mortgage
financing market in an effort to assist borrowers experiencing
difficulty in making mortgage payments or refinancing their
mortgages. The extent and timing of any regulatory reform or the
adoption of any legislation regarding the GSEs and/or the home
mortgage market, as well as any effect on the Company’s
business and financial results, are uncertain.
Any other future legislation and/or regulation, if adopted, also
could significantly change our regulatory environment and
increase our cost of doing business, limit the activities we may
pursue or affect the competitive balance among banks, savings
associations, credit unions, and other financial services
companies, and have a material adverse effect on our financial
results and condition.
For more information, refer to the “Regulatory Reform”
section in this Report and the “Regulation and Supervision”
section in our 2012 Form 10-K.
Bank regulations, including Basel capital and liquidity
standards and FRB guidelines and rules, may require
higher capital and liquidity levels, limiting our ability to
pay common stock dividends, repurchase our common
stock, invest in our business or provide loans to our
customers. Federal banking regulators continually monitor the
capital position of banks and bank holding companies. In
December 2010, the Basel Committee on Banking Supervision
(BCBS) finalized a set of international guidelines for determining
regulatory capital known as Basel III. These guidelines are
designed to address many of the weaknesses identified in the
banking sector as contributing to the financial crisis of 2008 and
2009 by, among other things, increasing minimum capital
requirements, increasing the quality of capital, increasing the
risk coverage of the capital framework, and increasing standards
for the supervisory review process and public disclosure. When
fully phased in, the Basel III guidelines require bank holding
companies to maintain a minimum ratio of Tier 1 common equity
to risk-weighted assets of at least 7.0%. The BCBS has also
proposed certain liquidity coverage and funding ratios. The
BCBS liquidity framework was initially proposed in 2010 and
included a liquidity coverage ratio (LCR) to measure the stock of
high-quality liquid assets to total net cash outflows over the next
30 calendar day period. The BCBS recently published revisions
to the LCR, including revisions to the definitions of high quality
liquid assets and net cash outflows. As originally proposed, the
LCR would be introduced on January 1, 2015, but the revisions
provided for phased-in implementation over a four year period
beginning January 1, 2015, with full phase-in on January 1, 2019.
In June 2011, the BCBS proposed additional Tier 1 common
equity surcharge requirements for global systemically important
banks (G-SIBs) ranging from 1.0% to 3.5% depending on the
bank’s systemic importance to be determined based on certain
factors. This new capital surcharge, which would be phased in
beginning in January 2016 and become fully effective on January
1, 2019, would be in addition to the Basel III 7.0% Tier 1 common
equity requirement proposed in December 2010. The Financial
Stability Board (FSB), in an updated list published in November
2012 based on year-end 2011 data, identified the Company as
one of 28 G-SIBs and provisionally determined that the
Company’s surcharge would be 1%. The FSB may revise the list of
G-SIBs and their required surcharges prior to implementation
based on additional or future data.
U.S. regulatory authorities have been considering the BCBS
capital guidelines and related proposals, and in June 2012, the
U.S. banking regulators jointly issued three notices of proposed
rulemaking that are essentially intended to implement the BCBS
capital guidelines for U.S. banks. Together these notices of
proposed rulemaking would, among other things:
x implement in the United States the Basel III regulatory
capital reforms including those that revise the definition of
capital, increase minimum capital ratios, and introduce a
minimum Tier 1 common equity ratio of 4.5% and a capital
conservation buffer of 2.5% (for a total minimum Tier 1
common equity ratio of 7.0%) and a potential
countercyclical buffer of up to 2.5%, which would be
imposed by regulators at their discretion if it is determined
that a period of excessive credit growth is contributing to an
increase in systemic risk;
x revise “Basel I” rules for calculating risk-weighted assets to
enhance risk sensitivity;
x modify the existing Basel II advanced approaches rules for
calculating risk-weighted assets to implement Basel III; and
x comply with the Dodd-Frank Act provision prohibiting the
reliance on external credit ratings.
The notices of proposed rulemaking did not implement the
capital surcharge proposals for G-SIBs or the proposed Basel III
liquidity standards. U.S. regulatory authorities have indicated
that these proposals will be addressed at a later date. The
ultimate impact of all of these proposals on our capital and
liquidity will depend on final rulemaking and regulatory
interpretation of the rules as we, along with our regulatory
authorities, apply the final rules during the implementation
process.
As part of its obligation to impose enhanced capital and risk-
management standards on large financial firms pursuant to the
Dodd-Frank Act, the FRB issued a final capital plan rule that
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