Charles Schwab 2015 Annual Report Download - page 27

THE CHARLES SCHWAB CORPORATION
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Capital Stress Testing
In October 2012, the OCC issued final rules implementing provisions of Dodd-Frank that require national banks and federal
savings banks with total consolidated assets of more than $10 billion to conduct annual company-run stress tests. Under the
Dodd-Frank Act Stress Test (D-FAST) rules, Schwab Bank must conduct annual stress tests using certain scenarios and
prescribed stress-testing methodologies, report the results to the OCC and the Federal Reserve and publish a summary of the
results of its stress tests. In March 2015, Schwab Bank submitted its company-run stress test results to the OCC. In June 2015
Schwab Bank publicly disclosed a summary of its stress test results under the severely adverse scenario prescribed by the
OCC based upon a nine-quarter timeframe beginning on October 1, 2014 and ending on December 31, 2016. In its summary,
Schwab Bank reported that its 7.2% Tier 1 leverage ratio at the beginning of the forecast period declined to a low of 6.5%
during the nine-quarter forecast horizon and was 7.0% at the end.
Under the final Federal Reserve D-FAST regulations, CSC will be required to conduct its first stress test using financial
statement data as of December 31, 2016, report the results of that stress test to the Federal Reserve by April 5, 2017, and
publicly disclose a summary of its stress test results between June 15 and June 30, 2017. CSC is not subject to the annual
Comprehensive Capital Analysis and Review (CCAR) process, which requires certain financial institutions to submit annual
capital plans to the Federal Reserve. However, CSC is taking steps to implement policies, procedures, systems and
governance structures that are designed to be consistent with regulatory expectations for a firm of its size and complexity.
Insured Depository Institution Resolution Plans
In September 2011 and January 2012, the FDIC issued interim final and final rules requiring insured depository institutions
with total consolidated assets of $50 billion or more to submit to the FDIC periodic plans providing for their resolution by the
FDIC in the event of failure (resolution plans or so-called “living wills”) under the receivership and liquidation provisions of
the Federal Deposit Insurance Act. Under these rules, Schwab Bank is required to file with the FDIC an annual resolution
plan demonstrating how the bank could be resolved in an orderly and timely manner in the event of receivership such that the
FDIC would be able: to ensure that the bank’s depositors receive access to their deposits within one business day; to
maximize the net present value of the bank’s assets when disposed of; and to minimize losses incurred by the bank’s
creditors. Schwab Bank submitted its most recent resolution plan to the FDIC on December 31, 2015.
Consumer Financial Protection
In July 2011, pursuant to Dodd-Frank, the CFPB began operations and was given rulemaking authority for a wide range of
federal consumer protection laws as well as broad powers to supervise compliance with and enforce those laws. As a federal
savings bank with $10 billion or more in consolidated total assets, Schwab Bank is subject to examination, supervision and
regulation by the CFPB. The CFPB has proposed and finalized many consumer protection rules since its creation and has
authority to promulgate regulations, issue orders, draft policy statements, conduct examinations and bring enforcement
actions. The creation of the CFPB has led to enhanced enforcement of consumer protection laws. Although the ultimate
impact of this heightened scrutiny is uncertain, it could result in changes to pricing, practices, products and procedures.
Deposit Insurance Assessments
The FDIC’s Deposit Insurance Fund (DIF) provides insurance coverage for certain deposits, generally up to $250,000 per
depositor per account ownership type, and is funded by quarterly assessments on insured depository institutions. In February
2011, the FDIC established a risk-based deposit premium assessment system that, for large insured depository institutions
with at least $10 billion in total consolidated assets, such as Schwab Bank, uses a scorecard method based on a number of
factors, including the institution’s regulatory ratings, asset quality and brokered deposits. The deposit insurance assessment
base is calculated as average consolidated total assets minus average tangible equity.
The Dodd-Frank Act (i) raised the minimum reserve ratio for the DIF to 1.35% (from the former minimum of 1.15%) and (ii)
required that the DIF’s reserve ratio reach 1.35% by September 30, 2020.
In October 2015, the FDIC issued a proposed rule that would impose a flat-rate surcharge on the quarterly assessments of
insured depository institutions with total assets of $10 billion or more to pay for the increase. See “Item 7 – Management’s
Discussion and Analysis of Financial Condition and Results of Operations – Current Regulatory Environment and Other
Developments.”