Citibank 2014 Annual Report Download - page 53

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CAPITAL RESOURCES
Overview
Capital is used principally to support assets in Citi’s businesses and to
absorb credit, market and operational losses. Citi primarily generates
capital through earnings from its operating businesses. Citi may augment
its capital through issuances of common stock, noncumulative perpetual
preferred stock and equity issued through awards under employee benefit
plans, among other issuances. During 2014, Citi continued to raise capital
through noncumulative perpetual preferred stock issuances amounting to
approximately $3.7 billion, resulting in a total of approximately $10.5 billion
outstanding as of December 31, 2014.
Further, Citi’s capital levels may also be affected by changes in regulatory
and accounting standards as well as the impact of future events on Citi’s
business results, such as corporate and asset dispositions.
Capital Management
Citigroup’s capital management framework is designed to ensure that
Citigroup and its principal subsidiaries maintain sufficient capital consistent
with each entity’s respective risk profile and all applicable regulatory
standards and guidelines. Citi assesses its capital adequacy against a series
of internal quantitative capital goals, designed to evaluate the Company’s
capital levels in expected and stressed economic environments. Underlying
these internal quantitative capital goals are strategic capital considerations,
centered on preserving and building financial strength. Senior management,
with oversight from Citigroup’s Board of Directors, is responsible for the
capital assessment and planning process, which is integrated into Citi’s
capital plan. Implementation of the capital plan is carried out mainly
through Citigroup’s Asset and Liability Committee, with oversight from the
Risk Management Committee of Citigroup’s Board of Directors. Asset and
liability committees are also established globally and for each significant
legal entity, region, country and/or major line of business.
Current Regulatory Capital Standards
Overview
Citi is subject to regulatory capital standards issued by the Federal Reserve
Board which, commencing with 2014, constitute the substantial adoption of
the final U.S. Basel III rules (Final Basel III Rules), such as those governing
the composition of regulatory capital (including the application of regulatory
capital adjustments and deductions) and, initially for the second quarter of
2014 in conjunction with the granting of permission by the Federal Reserve
Board to exit parallel reporting, approval to apply the Basel III Advanced
Approaches framework in deriving risk-based capital ratios. Further, the
Final Basel III Rules implement the “capital floor provision” of the so-called
“Collins Amendment” of the Dodd-Frank Act, which requires Advanced
Approaches banking organizations, such as Citi and Citibank, N.A., upon
exiting parallel reporting, to calculate each of the three risk-based capital
ratios (Common Equity Tier 1 Capital, Tier 1 Capital and Total Capital)
under both the Standardized Approach starting on January 1, 2015 (or, for
2014, prior to the effective date of the Standardized Approach, the Basel I
credit risk and Basel II.5 market risk capital rules, subsequently referred to in
this section as the Basel III 2014 Standardized Approach) and the Advanced
Approaches and publicly report (as well as measure compliance against) the
lower of each of the resulting capital ratios.
Under the Final Basel III Rules, Citi, as with principally all U.S. banking
organizations, is also required to maintain a minimum Tier 1 Leverage ratio
of 4% commencing in 2014. The Tier 1 Leverage ratio, a non-risk-based
measure of capital adequacy, is defined as Tier 1 Capital as a percentage
of quarterly adjusted average total assets less amounts deducted from
Tier 1 Capital.