Wells Fargo 2013 Annual Report Download - page 106

Capital Management (continued)
Table 59 presents changes in RWAs for the year ended December 31, 2013.
Table 59: Analysis of Changes in Risk-Weighted Assets Under Basel I
(in millions)
RWAs at December 31, 2012 $ 1,077,150
Net change in on-balance sheet RWAs:
Investment securities 8,240
Securities financing transactions (9,655)
Loans 20,229
Market risk 25,392
Other 7,807
Total change in on-balance sheet RWAs 52,013
Net change in off-balance sheet RWAs:
Commitments and guarantees 19,046
Derivatives (3,054)
Other (3,641)
Total change in off-balance sheet RWAs 12,351
RWAs at December 31, 2013 $ 1,141,514
The increase in on-balance sheet RWAs was primarily due to increased market risk, loan exposure and investment securities. Off-
balance sheet RWAs primarily increased due to newly issued commitments and guarantees.
Table 60 provides information regarding our CET1 calculation as estimated under Basel III using the advanced approach method.
Table 60: Common Equity Tier 1 Under Basel III (1)(2)
(in billions) December 31, 2013
Tier 1 common equity under Basel I $ 123.5
Adjustments from Basel I to Basel III (3) (4):
Cumulative other comprehensive income related to AFS securities and defined benefit pension plans 1.3
Other 1.4
Total adjustments from Basel I to Basel III 2.7
Threshold deductions, as defined under Basel III (4) (5) -
Common Equity Tier 1 anticipated under Basel III (C) $ 126.2
Total RWAs anticipated under Basel III (6) (D) $ 1,293.4
Common Equity Tier 1 to total RWAs anticipated under Basel III (C)/(D) 9.76 %
(1) Common Equity Tier 1 is a non-GAAP financial measure that is used by investors, analysts and bank regulatory agencies to assess the capital position of financial services
companies. Management reviews Common Equity Tier 1 along with other measures of capital as part of its financial analyses and has included this non-GAAP financial
information, and the corresponding reconciliation to total equity, because of current interest in such information on the part of market participants.
(2) The Basel III Common Equity Tier 1 and RWAs are estimated based on management’s interpretation of the Basel III capital rules adopted July 2, 2013, by the FRB. The rules
establish a new comprehensive capital framework for U.S. banking organizations that implement the Basel III capital framework and certain provisions of the Dodd-Frank
Act.
(3) Adjustments from Basel I to Basel III represent reconciling adjustments, primarily certain components of cumulative other comprehensive income deducted for Basel I
purposes, to derive Common Equity Tier 1 under Basel III.
(4) Volatility in interest rates can have a significant impact on the valuation of cumulative other comprehensive income and MSRs and therefore, may impact adjustments from
Basel I to Basel III, and MSRs subject to threshold deductions, as defined under Basel III, in future reporting periods.
(5) Threshold deductions, as defined under Basel III, include individual and aggregate limitations, as a percentage of Common Equity Tier 1, with respect to MSRs (net of related
deferred tax liability, which approximates the MSR book value times the applicable statutory tax rates), deferred tax assets and investments in unconsolidated financial
companies.
(6) The final Basel III capital rules provide for two capital frameworks: the "standardized" approach intended to replace Basel I, and the "advanced" approach applicable to
certain institutions as originally defined under Basel II. Under the final rules, we will be subject to the lower of our Common Equity Tier 1 ratio calculated under the
standardized approach and under the advanced approach in the assessment of our capital adequacy. Accordingly, the estimate of RWA reflects management's interpretation
of RWA determined under the advanced approach because management expects RWA to be higher using the advanced approach compared with the standardized approach.
Basel III capital rules adopted by the Federal Reserve Board incorporate different classification of assets, with certain risk weights based on a borrower's credit rating or
Wells Fargo's own models, along with adjustments to address a combination of credit/counterparty, operational and market risks, and other Basel III elements.
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