Regulatory Requirements and Restrictions
|12 Months Ended
Dec. 31, 2017
|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, and was the Advanced approaches method at December 31, 2017 and 2016.
The following table presents capital ratios and related information in accordance with Basel 3 Standardized and Advanced approaches – Transition as measured at December 31, 2017 and 2016 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 table above. 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, 2017 and 2016, the Corporation and its banking entity affiliates were “well capitalized.”
Other Regulatory Matters
The Federal Reserve requires the Corporation’s bank 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 $8.9 billion and $7.7 billion for 2017 and 2016. At December 31, 2017 and 2016, the Corporation had cash and cash equivalents in the amount of $4.1 billion and $4.8 billion, and securities with a fair value of $17.3 billion and $14.6 billion that were segregated in compliance with securities regulations. In addition, at December 31, 2017 and 2016, the Corporation had cash deposited with clearing organizations of $11.9 billion and $10.2 billion primarily recorded in other assets on the Consolidated Balance Sheet.
The primary sources of funds for cash distributions by the Corporation to its shareholders are capital distributions received from its bank subsidiaries, BANA and Bank of America California, N.A. In 2017, the Corporation received dividends of $22.2 billion from BANA and $275 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 2018, BANA can declare and pay dividends of approximately $6.0 billion to the Corporation plus an additional amount equal to its retained net profits for 2018 up to the date of any such dividend declaration. Bank of America California, N.A. can pay dividends of $195 million in 2018 plus an additional amount equal to its retained net profits for 2018 up to the date of any such dividend declaration.