Capital One 2008 Annual Report Download - page 89

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As of December 31, 2008, the Banks each exceeded the minimum regulatory requirements to which it was subject. Each of the Banks
was considered well-capitalized under applicable capital adequacy guidelines. Also as of December 31, 2008, the Company was
considered well-capitalized under Federal Reserve capital standards for bank holding companies and, therefore, exceeded all
minimum capital requirements. There have been no conditions or events since that we believe would have changed the capital
category of the Company or either of the Banks.
Failure to meet applicable capital guidelines could subject the Company or the Banks to a variety of enforcement remedies available to
the regulators, including a limitation on the ability to pay dividends and the issuance of a capital directive to increase capital, and in
the case of the Banks, the termination of deposit insurance by the FDIC (in severe cases) and the appointment of a conservator or
receiver. Failure to meet these capital guidelines could also prevent the Company or the Banks from engaging in the expanded
activities permitted for bank holding companies and banks under the Gramm-Leach-Bliley Act.
Prompt Corrective Action
In general, the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) subjects banks to significantly increased
regulation and supervision. Among other things, FDICIA requires federal banking agencies to take prompt corrective action in
respect of banks that do not meet minimum capital requirements. FDICIA establishes five capital ratio levels: well-capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized. Under applicable regulations, a
bank is considered to be well-capitalized if it maintains a total risk-based capital ratio of at least 10%, a Tier 1 risk-based capital ratio
of at least 6%, a Tier 1 leverage capital ratio of at least 5% and is not subject to any supervisory agreement, order, or directive to meet
and maintain a specific capital level for any capital reserve. A bank is considered to be adequately capitalized if it maintains a total
risk-based capital ratio of at least 8%, a Tier 1 risk-based capital ratio of at least 4%, a Tier 1 leverage capital ratio of at least 4% (3%
for certain highly rated institutions), and does not otherwise meet the well-capitalized definition. The three undercapitalized categories
are based upon the amount by which a bank falls below the ratios applicable to adequately capitalized institutions. The capital
categories are determined solely for purposes of applying FDICIAs prompt corrective action provisions, as discussed below, and such
capital categories may not constitute an accurate representation of each of the Banks overall financial condition or prospects. As of
December 31, 2008, COBNA and CONA each met the requirements for a well capitalized institution.
Under FDICIAs prompt corrective action system, a bank in the undercapitalized category must submit a capital restoration plan
guaranteed by its parent company. The liability of the parent company under any such guarantee is limited to the lesser of 5% of the
banks assets at the time it became undercapitalized, or the amount which is necessary (or would have been necessary) to bring the
institution into compliance with all capital standards applicable with respect to such institution as of the time the institution fails to
comply with the plan. A bank in the undercapitalized category also is subject to limitations in numerous areas including, but not
limited to, asset growth, acquisitions, branching, new business lines, acceptance of brokered deposits and borrowings from the Federal
Reserve. Progressively more burdensome restrictions are applied to banks in the undercapitalized category that fail to submit or
implement a capital plan and to banks that are in the significantly undercapitalized or critically undercapitalized categories. In
addition, a banks primary federal banking agency is authorized to downgrade the banks capital category to the next lower category
upon a determination that the bank is in an unsafe or unsound condition or is engaged in an unsafe or unsound practice. An unsafe or
unsound practice can include receipt by the institution of a less than satisfactory rating on its most recent examination with respect to
its asset quality, management, earnings or liquidity. Critically undercapitalized institutions are subject to the appointment of a
receiver or conservator. Under FDICIA, absent an FDIC exemption, from the date 60 days after an institution becomes or is deemed to
become critically undercapitalized it may not make any payments of principal or interest on its subordinated debt.
As an additional means to identify problems in the financial management of depository institutions, FDICIA requires regulators to
establish certain non-capital safety and soundness standards. The standards relate generally to operations and management, asset
quality, interest rate exposure and executive compensation. The agencies are authorized to take action against institutions that fail to
meet such standards.
Subprime Lending Guidelines
As discussed in the Supervision and Regulation section on page 11, COBNA treats a portion of its loans as subprime under the
Guidelines issued by the four federal banking agencies that comprise the Federal Financial Institutions Examination Council
(FFIEC), and have assessed its capital and allowance for loan and lease losses accordingly.
Under the Guidelines, COBNA exceeded the minimum capital adequacy guidelines as of December 31, 2008. Also, as of
December 31, 2008, none of CONAs on-balance sheet assets were treated as subprime for purposes of the Subprime Guidelines.