Regulatory Requirements and Restrictions
|12 Months Ended|
Dec. 31, 2016
|Banking and Thrift [Abstract]|
|Regulatory Requirements and Restrictions||
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. The Corporation’s banking entity affiliates are subject to capital adequacy rules issued by the OCC.
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 Prompt Corrective Action (PCA) framework. Finally, Basel 3 established two methods of calculating risk-weighted assets, the Standardized approach and the Advanced approaches.
The Corporation and its primary banking entity affiliate, BANA, are Advanced approaches institutions under Basel 3. As Advanced approaches institutions, the Corporation and its banking entity affiliates are 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.
The table below presents capital ratios and related information in accordance with Basel 3 Standardized and Advanced approaches – Transition as measured at December 31, 2016 and 2015 for the Corporation and BANA.
The capital adequacy rules issued by the U.S. banking regulators require institutions to meet the established minimums outlined in the Regulatory Capital under Basel 3 – Transition table. Failure to meet the minimum requirements can lead to certain mandatory and discretionary actions by regulators that could have a material adverse impact on the Corporation’s financial position. At December 31, 2016 and 2015, the Corporation and its banking entity affiliates were “well capitalized.”
Other Regulatory Matters
The Federal Reserve requires the Corporation’s banking subsidiaries to maintain reserve requirements based on a percentage of certain deposit liabilities. The average daily reserve balance requirements, in excess of vault cash, maintained by the Corporation with the Federal Reserve were $7.7 billion and $9.8 billion for 2016 and 2015. At December 31, 2016 and 2015, the Corporation had cash and cash equivalents in the amount of $4.8 billion and $5.1 billion, and securities with a fair value of $14.6 billion and $16.4 billion that were segregated in compliance with securities regulations. In addition, at December 31, 2016 and 2015, the Corporation had cash deposited with clearing organizations of $10.2 billion and $9.7 billion primarily in other assets.
The primary sources of funds for cash distributions by the Corporation to its shareholders are capital distributions received from its banking subsidiaries, BANA and Bank of America California, N.A. In 2016, the Corporation received dividends of $13.4 billion from BANA and $150 million from Bank of America California, N.A. The amount of dividends that a subsidiary bank may declare in a calendar year is the subsidiary bank’s net profits for that year combined with its retained net profits for the preceding two years. Retained net profits, as defined by the OCC, consist of net income less dividends declared during the period. In 2017, BANA can declare and pay dividends of approximately $6.2 billion to the Corporation plus an additional amount equal to its retained net profits for 2017 up to the date of any such dividend declaration. Bank of America California, N.A. can pay dividends of $546 million in 2017 plus an additional amount equal to its retained net profits for 2017 up to the date of any such dividend declaration.
The entire disclosure for banks, savings institutions, and credit unions, for regulatory capital requirements imposed by the Federal Reserve System (FRB), the Federal Deposit Insurance Corporation (FDIC), the Office of Thrift Supervision (OTS) or for any state imposed capital requirements, as applicable. The disclosure may include (1) a description of regulatory capital requirements (a) for capital adequacy purposes and (b) established by the prompt corrective action provisions of Section 38 of the Federal Depository Insurance Act; (2) the actual or possible material effects of noncompliance with such requirements; (3) whether the entity is in compliance with the regulatory capital requirements including (a) required and actual ratios and amounts of Tier 1 leverage, Tier 1 risk-based, and total risk-based capital, tangible capital (for savings institutions), and Tier 3 capital for market risk (for certain banks and bank holding companies), (b) factors that may significantly affect capital adequacy; (4) the prompt corrective action category in which the entity was classified as of its most recent notification; (5) whether management believes any conditions or events since notification have changed the entity's category. Also may include additional information that might be disclosed in situations where substantial doubt about the entity's ability to continue as a going concern for a reasonable period of time.
Reference 1: http://www.xbrl.org/2003/role/presentationRef