Charles Schwab 2015 Annual Report Download - page 115

THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
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The regulatory capital and ratios for CSC and Schwab Bank are as follows:
Minimum to be Minimum Capital
Actual Well Capitalized Requirement
Amount Ratio Amount Ratio Amount Ratio
December 31, 2015 

CSC (1) 

Common Equity Tier 1 Risk-Based Capital $ 10,851 18.2 % N/A $ 2,681 4.5 %
Tier 1 Risk-Based Capital 12,310 20.7 % N/A 3,575 6.0 %
Total Risk-Based Capital 12,342 20.7 % N/A 4,766 8.0 %
Tier 1 Leverage 12,310 7.1 % N/A 6,912 4.0 %
Schwab Bank (2)  
Common Equity Tier 1 Risk-Based Capital $ 9,314 18.1 % $ 3,349 6.5 % $ 2,318 4.5 %
Tier 1 Risk-Based Capital 9,314 18.1 % 4,121 8.0 % 3,091 6.0 %
Total Risk-Based Capital 9,345 18.1 % 5,152 10.0 % 4,121 8.0 %
Tier 1 Leverage 9,314 7.1 % 6,594 5.0 % 5,275 4.0 %
December 31, 2014 

Schwab Bank (2)  
Tier 1 Risk-Based Capital $ 7,700 22.1 % $ 2,095 6.0 % $ 1,397 4.0 %
Total Risk-Based Capital 7,744 22.2 % 3,492 10.0 % 2,793 8.0 %
Tier 1 Leverage 7,700 6.9 % 5,548 5.0 % 4,438 4.0 %
(1) The ratios above reflect the impact of a change in approach related to the ris
k
-weighting of the majority of the
Company’s margin loan portfolio in accordance with the new capital requirements based on Basel III rules which
b
ecame effective at the beginning of 2015.
(2) Due to the change in regulatory requirements, the Decembe
r
31, 2015 ratios were calculated under the new capital
requirements based on Basel III requirements and the December 31, 2014 ratios were calculated under the prior capital
requirements based on Basel I requirements.
N/A Not applicable.
Based on their regulatory capital ratios at December 31, 2015, CSC and Schwab Bank are considered well capitalized (the
highest category) under their respective regulatory capital rules. Schwab Bank was also considered well capitalized at
December 31, 2014 under the previous regulatory capital rules then in effect. There are no conditions or events since
December 31, 2015, that management believes have changed Schwab Bank’s capital category.
The Federal Reserve requires Schwab Bank to maintain reserve balances at the Federal Reserve Bank based on its deposits
that are considered to be transaction accounts. Schwab Bank’s average reserve requirements were $1.4 billion and
$1.3 billion in 2015 and 2014, respectively.
CSC’s principal broker-dealers are Schwab and optionsXpress, Inc. Schwab and optionsXpress, Inc. are both subject to Rule
15c3-1 under the Securities Exchange Act of 1934 (the Uniform Net Capital Rule). Schwab and optionsXpress, Inc. compute
net capital under the alternative method permitted by the Uniform Net Capital Rule. This method requires the maintenance of
minimum net capital, as defined, of the greater of 2% of aggregate debit balances arising from client transactions or a
minimum dollar requirement ($250,000), which is based on the type of business conducted by the broker-dealer. Under the
alternative method, a broker-dealer may not repay subordinated borrowings, pay cash dividends, or make any unsecured
advances or loans to its parent company or employees if such payment would result in a net capital amount of less than 5% of
aggregate debit balances or less than 120% of its minimum dollar requirement.
optionsXpress, Inc. is also subject to Commodity Futures Trading Commission Regulation 1.17 (Reg. 1.17) under the
Commodity Exchange Act, which also requires the maintenance of minimum net capital. optionsXpress, Inc., as a futures
commission merchant, is required to maintain minimum net capital equal to the greater of its net capital requirement under
Reg. 1.17 ($1 million), or the sum of 8% of the total risk margin requirements for all positions carried in client accounts and
8% of the total risk margin requirements for all positions carried in non-client accounts (as defined in Reg. 1.17).