Citibank 2012 Annual Report Download - page 65

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Basel II.5 and III
In June 2012, the U.S. banking agencies released final (revised) market risk
capital rules (Basel II.5), which became effective on January 1, 2013. At
the same time, the U.S. banking agencies also released proposed Basel III
rules, although the timing of the finalization and effective date(s) of these
rules is subject to uncertainty. Collectively these rules would establish an
integrated framework of standards applicable to virtually all U.S. banking
organizations, including Citi and Citibank, N.A., and upon implementation
would comprehensively revise and replace existing regulatory capital
requirements. For additional information on the proposed U.S. Basel III
and final Basel II.5 rules see “Regulatory Capital Standards” and “Risk
Factors—Regulatory Risks” below.
Citi’s estimated Tier 1 Common ratio as of December 31, 2012, assuming
application of the Basel II.5 rules, was 11.08%, compared to 12.67% under
Basel I.11 This decline reflects the significant increase in risk-weighted assets
under the Basel II.5 rules relative to those under the current Basel I market
risk capital rules. Furthermore, Citi continues to incorporate mandated
enhancements and refinements to its Basel II.5 market risk models for
which conditional approval has been received from the Federal Reserve
Board and OCC. Citi’s Basel II.5 risk-weighted assets would be substantially
higher absent the successful incorporation of these required enhancements
and refinements.
At December 31, 2012, Citi’s estimated Basel III Tier 1 Common ratio was
8.7%, compared to an estimated 8.6% at September 30, 2012 (each based
on total risk-weighted assets calculated under the proposed U.S. Basel III
“advanced approaches” and including Basel II.5).12 This slight increase
quarter-over-quarter was primarily due to lower risk-weighted assets, partially
offset by a decline in Tier 1 Common Capital attributable largely to changes
in OCI as well as certain other components.
Citi’s estimated Basel III Tier 1 Common ratio is based on its
understanding, expectations and interpretation of the proposed U.S. Basel III
requirements, anticipated compliance with all necessary enhancements to
model calibration and other refinements, as well as further regulatory clarity
and implementation guidance in the U.S.
11 Citi’s estimate of risk-weighted assets under Basel II.5 is a non-GAAP financial measure as of
December 31, 2012. Citi believes this metric provides useful information to investors and others by
measuring Citi’s progress against future regulatory capital standards.
12 Citi’s estimated Basel III Tier 1 Common ratio and its related components are non-GAAP financial
measures. Citi believes this ratio and its components (the latter of which are presented in the table
below) provide useful information to investors and others by measuring Citi’s progress against
expected future regulatory capital standards.