Capital One 2014 Annual Report Download - page 232

NOTE 12—REGULATORY AND CAPITAL ADEQUACY
Regulation and Capital Adequacy
Bank holding companies and national banks are subject to capital adequacy standards adopted by the Federal Reserve
and the OCC, respectively. The capital adequacy standards set forth minimum risk-based and leverage capital
requirements that are based on quantitative and qualitative measures of assets and off-balance sheet items. National
banks, as insured depository institutions, are also subject to Prompt Corrective Action (“PCA”) capital regulations,
which require the Federal Reserve, OCC and FDIC (collectively, the “Federal Banking Agencies”) to take PCA for
banks that do not meet established minimum capital requirements.
In July 2013, the Federal Banking Agencies finalized a new capital rule that implements the Basel III capital accord
(the “Final Basel III Capital Rules”) developed by the Basel Committee on Banking Supervision (“Basel
Committee”) and certain Dodd-Frank Act capital provisions and updates the PCA capital requirements. Prior to
being revised in the Final Basel III Capital Rules, the minimum risk-based capital requirements adopted by the
Federal Banking Agencies followed the Basel I framework, originally promulgated pursuant to the Basel Committee’s
Basel I accord, and the advanced approaches capital rules (“Advanced Approaches”), based upon the framework
originally promulgated as a result of the Basel II accord. The Final Basel III Capital Rules amended both the Basel
I and Advanced Approaches frameworks, establishing a new common equity Tier 1 capital requirement and setting
higher minimum capital ratio requirements. The Company refers to the amended Basel I framework as the “Basel
III Standardized Approach,” and the amended Advanced Approaches framework as the “Basel III Advanced
Approaches.”
At the end of 2012, the Company met one of the two independent eligibility criteria set by banking regulators for
becoming subject to the Advanced Approaches capital rules. As a result, the Company has undertaken a multi-year
process of implementing the Advanced Approaches regime for calculating risk-weighted assets and regulatory capital
levels. Certain provisions of the Final Basel III Capital Rules began to take effect on January 1, 2014 for Advanced
Approaches banking organizations, including the Company.
As of January 1, 2014, the minimum risk-based and leverage capital requirements for Advanced Approaches
banking organizations include a common equity Tier 1 capital ratio of at least 4.0%, a Tier 1 risk-based capital
ratio of at least 5.5%, a total risk-based capital ratio of at least 8.0%, and a Tier 1 leverage capital ratio of
at least 4.0%.
Prior to 2014, we also disclosed a Tier 1 common capital ratio for our bank holding company, which is a regulatory
capital measure widely used by investors, analysts, rating agencies and bank regulatory agencies to assess the capital
position of financial services companies. There was no mandated minimum or well-capitalized standard for the Tier
1 common capital ratio.
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CAPITAL ONE FINANCIAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Capital One Financial Corporation (COF)