Wells Fargo 2013 Annual Report Download - page 124

Risk Factors (continued)
(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% CET1 requirement
proposed in December 2010. The Financial Stability Board
(FSB), in an updated list published in November 2013 based on
year-end 2012 data, identified the Company as one of 29 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 July 2013, U.S.
banking regulators approved final and interim final rules to
implement the Basel III capital guidelines for U.S. banks. These
final capital rules, among other things:
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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 CET1 ratio of 4.5% and a capital conservation
buffer of 2.5% (for a total minimum CET 1 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;
require a Tier 1 capital to average total consolidated assets
ratio of 4% and introduce, for large and internationally
active bank holding companies (BHCs), a Tier 1
supplementary leverage ratio of 3% that incorporates off-
balance sheet exposures;
revise “Basel I” rules for calculating risk-weighted assets to
enhance risk sensitivity under a standardized approach;
modify the existing Basel II advanced approaches rules for
calculating risk-weighted assets to implement Basel III;
deduct certain assets from CET1, such as deferred tax assets
that could not be realized through net operating loss carry-
backs, significant investments in non-consolidated financial
entities, and mortgage servicing rights, to the extent any one
category exceeds 10% of CET1 or all such items, in the
aggregate, exceed 15% of CET1;
eliminate the accumulated other comprehensive income or
loss filter that applies under risk-based capital rules over a
five-year phase in period beginning in 2014; and
comply with the Dodd-Frank Act provision prohibiting the
reliance on external credit ratings.
The final capital rules became effective for Wells Fargo in
January 2014, with certain provisions subject to phase-in
periods. The final rules did not implement the capital surcharge
proposals for G-SIBs or the proposed Basel III liquidity
standards. Federal banking regulators did issue a proposal that
has not yet been finalized that would enhance the supplementary
leverage ratio requirements provided in the final capital rules for
large BHCs like Wells Fargo and their insured depository
institutions. The proposal would be effective January 1, 2018 and
would require covered BHCs to maintain a supplementary
leverage ratio of at least 5% to avoid restrictions on capital
distributions and discretionary bonus payments and require that
its insured depository institutions maintain a supplementary
leverage ratio of 6% to be considered well capitalized. Federal
banking regulators have indicated additional changes to the
proposal could be made in light of changes to the Basel III
leverage framework recently finalized by the BCBS. Federal
banking regulators have also recently proposed rules
implementing the Basel III LCR. The U.S. proposal to implement
the LCR was substantially similar to the LCR agreed to by the
BCBS, but differed in some respects that may be viewed as a
stricter version of the LCR, such as proposing a more aggressive
phase-in period.
The FRB has indicated it is in the process of considering new
rules to implement the G-SIB capital surcharge, to address the
amount of equity and unsecured debt certain large BHCs must
hold in order to facilitate their orderly resolution, and to address
risks related to banking organizations that are substantially
reliant on short-term wholesale funding. The ultimate impact of
all of these finalized and proposed or contemplated rules on our
capital and liquidity requirements 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
became effective December 30, 2011. The final capital plan rule
requires top-tier BHCs, including the Company, to submit
annual capital plans for review and to obtain regulatory approval
before making capital distributions. There can be no assurance
that the FRB would respond favorably to the Company’s future
capital plans. The FRB has also finalized a number of regulations
implementing enhanced prudential requirements for large BHCs
like Wells Fargo regarding risk-based capital and leverage, risk
and liquidity management, and stress testing. The FRB has also
proposed, but not yet finalized, remediation requirements for
large BHCs experiencing financial distress that would restrict
capital distributions upon the occurrence of capital, stress test,
or risk and liquidity management triggers.
The Basel standards and FRB regulatory capital and liquidity
requirements may limit or otherwise restrict how we utilize our
capital, including common stock dividends and stock
repurchases, and may require us to increase our capital and/or
liquidity. Any requirement that we increase our regulatory
capital, regulatory capital ratios or liquidity could require us to
liquidate assets or otherwise change our business and/or
investment plans, which may negatively affect our financial
results. Although not currently anticipated, the proposed Basel
capital requirements and/or our regulators may require us to
raise additional capital in the future. Issuing additional common
stock may dilute the ownership of existing stockholders.
For more information, refer to the “Capital Management” and
“Regulatory Reform” sections in this Report and the “Regulation
and Supervision” section of our 2013 Form 10-K.
FRB policies, including policies on interest rates, can
significantly affect business and economic conditions
and our financial results and condition. The FRB
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