Capital One 2015 Annual Report Download - page 28

9 Capital One Financial Corporation (COF)
Investment in the Company and the Banks
Certain acquisitions of our capital stock may be subject to regulatory approval or notice under federal or state law. Investors are
responsible for ensuring that they do not, directly or indirectly, acquire shares of our capital stock in excess of the amount that can
be acquired without regulatory approval, including under the BHC Act and the Change in Bank Control Act.
Federal law and regulations prohibit any person or company from acquiring control of the Company or the Banks without, in most
cases, prior written approval of the Federal Reserve or the OCC, as applicable. Control exists if, among other things, a person or
company acquires more than 25% of any class of our voting stock or otherwise has a controlling influence over us. For a publicly
traded BHC like us, a rebuttable presumption of control arises if a person or company acquires more than 10% of any class of our
voting stock.
Additionally, COBNA and CONA are “banks” within the meaning of Chapter 13 of Title 6.1 of the Code of Virginia governing
the acquisition of interests in Virginia financial institutions (“Financial Institution Holding Company Act”). The Financial Institution
Holding Company Act prohibits any person or entity from acquiring, or making any public offer to acquire, control of a Virginia
financial institution or its holding company without making application to, and receiving prior approval from, the Virginia Bureau
of Financial Institutions.
Dividends, Stock Repurchases and Transfers of Funds
In November 2011, the Federal Reserve finalized capital planning rules applicable to large BHCs including us (commonly referred
to as Comprehensive Capital Analysis and Review or “CCAR”). Under the rules, a BHC with total consolidated assets of $50
billion or more must submit a capital plan to the Federal Reserve on an annual basis that contains a description of all planned
capital actions, including dividends or stock repurchases, over a nine-quarter planning horizon beginning with the fourth quarter
of the calendar year prior to the submission of the capital plan (“CCAR cycle”). The BHC may take the capital actions in its capital
plan if the Federal Reserve provides a non-objection to the plan. The Federal Reserve’s objection or non-objection generally applies
to capital actions during the four quarters beginning with the second quarter of the second calendar year in the planning horizon.
On September 24, 2013, the Federal Reserve released an interim final rule that incorporated the Final Basel III Capital Rule into
CCAR. On October 17, 2014, the Federal Reserve issued a final rule to modify the regulations for capital planning and stress
testing (“2014 Final Capital Plan and Stress Test Rule”). In addition, the OCC issued a final rule in December 2014 modifying its
Dodd-Frank Act stress testing regulation, to be consistent with the 2014 Final Capital Plan and Stress Test Rule changes to the
Federal Reserve’s Dodd-Frank Act stress testing regulation. The Dodd-Frank Act stress testing regulations are described above in
“Enhanced Prudential Standards and Other Requirements under the Dodd-Frank Act.”
The 2014 Final Capital Plan and Stress Test Rule changes the annual capital plan and stress test cycle start date from October 1
to January 1, effective for the cycle beginning January 1, 2016. Under the 2014 Final Capital Plan and Stress Test Rule, for the
CCAR cycle under which capital plan submissions were due by January 5, 2015 (“2015 CCAR cycle”), the Federal Reserve’s
objection or non-objection applies to planned capital actions from the second quarter of 2015 through the second quarter of 2016.
Subsequent submissions each would cover a four-quarter period. The change in the start date of the annual cycle impacts the as-
of dates for data used to project results as well as the dates that stress test results must be submitted to the regulators and disclosed
to the public. For the annual company-run stress test, a BHC is required to disclose the results within 15 calendar days after the
Federal Reserve discloses the results of that BHC’s supervisory stress test, unless that time period is extended by the Federal
Reserve. The 2014 Final Capital Plan and Stress Test Rule requires a BHC to disclose results of its mid-cycle stress test within 30
calendar days after the BHC submits the results of its mid-cycle stress test to the Federal Reserve, unless that time period is extended
by the Federal Reserve.
The 2014 Final Capital Plan and Stress Test Rule also provides a one-year deferral on the use of Basel III Advanced Approaches
for banking institutions to estimate their capital ratios for the 2015 capital plan and stress test cycles. In addition, it shifts the focus
of the Federal Reserve from annual capital issuances and distributions to quarterly capital issuances and distributions by establishing
a new cumulative net distribution requirement. With certain limited exceptions, this requirement provides that--as measured on
an aggregate basis beginning in the third quarter of the planning horizon--to the extent a BHC does not issue the amount of a given
class of regulatory capital instrument that it projected in its capital plan, the BHC must reduce its capital distributions such that
the cumulative net amounts of a BHC’s actual capital issuances and capital distributions for each category of regulatory capital
instrument cannot be less than the cumulative net amounts of capital issuances and capital distributions for that category of
regulatory capital instrument projected in the BHC’s capital plan.