Ally Bank 2014 Annual Report Download - page 142

Table of Contents
Notes to Consolidated Financial Statements
Ally Financial Inc. • Form 10-K
130
Common Equity Tier 1 capital conservation buffer of more than 2.5%, subject to a phase-in from January 1, 2016 through December 31,
2018. Failure to maintain the full amount of the buffer will result in restrictions on Ally’s ability to make capital distributions, including
dividend payment and stock repurchases and redemptions, and to pay discretionary bonuses to executive officers. In addition to these new
risk-based capital standards, U.S. Basel III subjects all U.S. banking organizations, including Ally, to a minimum Tier 1 leverage ratio of 4%,
the denominator of which takes into account only on-balance sheet assets.
In addition to introducing new capital ratios, U.S. Basel III revises the eligibility criteria for regulatory capital instruments and provides
for the phase-out of existing capital instruments that do not satisfy the new criteria. Subject to certain exceptions (e.g., for certain debt or
equity issued to the U.S. government under the Emergency Economic Stabilization Act), trust preferred and other “hybrid” securities will be
phased out from a banking organization’s Tier 1 capital by January 1, 2016. Also, subject to a phase-in schedule, certain new items will be
deducted from Common Equity Tier 1 capital, and certain other deductions from regulatory capital will be modified. Among other things,
U.S. Basel III requires significant investments in the common shares of unconsolidated financial institutions, MSRs, and certain deferred tax
assets that exceed specified individual and aggregate thresholds to be deducted from Common Equity Tier 1 capital. U.S. Basel III also
revises the U.S. Basel I-based standardized approach for calculating risk-weighted assets by, among other things, modifying certain risk
weights and introducing new methods for calculating risk-weighted assets for certain types of assets and exposures. Ally is subject to the U.S.
Basel III standardized approach for counterparty credit risk. It is not subject to the U.S. Basel III advanced approaches for counterparty credit
risk.
Ally is currently not subject to the U.S. market risk capital rule, which applies only to banking organizations with significant trading
assets and liabilities.
Compliance with evolving capital requirements is a strategic priority for Ally. We expect to be in compliance with all applicable
requirements within the established timeframes.
Capital Planning and Stress Tests
As a BHC with $50 billion or more of consolidated assets, Ally is required to conduct periodic internal stress tests, is subject to an annual
supervisory stress test conducted by the FRB, and must submit an annual capital plan to the Board of Governors of the Federal Reserve
System (FRB). In October 2014, the FRB issued instructions and scenarios for the 2015 capital planning and stress test processes.
Ally’s capital plan must include a description of all planned capital actions over a nine-quarter planning horizon. The capital plan must
also include a discussion of how Ally will maintain capital above the minimum regulatory capital ratios and above a Tier 1 common equity-to-
total risk-weighted assets ratio of 5%, and serve as a source of strength to Ally Bank. The FRB must approve Ally's capital plan before Ally
may take any capital action. Even with an approved capital plan, Ally must seek the approval of the FRB before making a capital distribution
if, among other factors, Ally would not meet its regulatory capital requirements after making the proposed capital distribution. Ally expects
that, on March 11, 2015, the FRB will either provide a notice of non-objection or object to Ally’s 2015 capital plan, which was submitted to
the FRB on January 5, 2015 with planned capital actions.
On January 5, 2015, Ally submitted the results of its semi-annual stress test to the FRB and must publicly disclose summary results of
the stress test under the most severe scenario in March 2015 in accordance with regulatory requirements. In addition, Ally Bank submitted the
results of its annual company-run stress test to the FDIC on January 5, 2015. Ally Bank must also conduct a stress test under the severely
adverse economic scenario, and summary results of this test must be publicly disclosed.
On October 17, 2014, the FRB issued a final rule that modifies the capital plan rule and stress testing requirements. Among other things,
beginning in 2016, bank holding companies must submit their capital plans and stress testing results to the FRB on or before April 5 of each
year.
Depository Institutions
Ally Bank is a state nonmember bank, chartered by the State of Utah, and subject to the supervision of the FDIC and the Utah
Department of Financial Institutions (Utah DFI). Ally Bank's deposits are insured by the FDIC, and Ally Bank is required to file periodic
reports with the Federal Deposit Insurance Corporation (FDIC) concerning its financial condition. Total assets of Ally Bank were $104.5
billion and $98.7 billion at December 31, 2014 and 2013, respectively. Ally Bank is subject to Utah law (and, in certain instances, federal law)
that places restrictions and limitations on the amount of dividends or other distributions. Dividends or other distributions made by Ally Bank
to Ally were $1.8 billion in 2014. Ally Bank did not make any dividend or other distributions to Ally in 2013 or 2012.
The FRB requires banks to maintain minimum average reserve balances. The amount of the required reserve balance for Ally Bank was
$313 million and $416 million at December 31, 2014 and 2013, respectively.
Mortgage Operations
Our mortgage business is subject to extensive federal, state, and local laws, rules, and regulations, in addition to judicial and
administrative decisions that impose requirements and restrictions on this business. The mortgage business is also subject to examination by
the Federal Housing Commissioner to assure compliance with Federal Housing Administration regulations, policies, and procedures. The
federal, state, and local laws, rules, and regulations to which our mortgage business is subject, among other things, impose licensing
obligations and financial requirements; limit the interest rates, finance charges, and other fees that can be charged; regulate the use of credit