SunTrust 2011 Annual Report Download - page 20
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The capital conservation buffer is a buffer above the minimum levels designed to ensure that banks remain well-capitalized even
in adverse economic scenarios. Banking institutions with a ratio of Tier 1 common equity to RWA above the minimum but below
the conservation buffer (or below the combined capital conservation buffer and countercyclical capital buffer, when the latter is
applied) may face constraints on dividends, equity repurchases and compensation.
The implementation of the Basel III final framework requires regulations to be adopted by U.S. regulators. The U.S. banking
agencies have indicated informally that they expect to propose regulations implementing Basel III in the first half of 2012 with
final adoption of implementing regulations in mid to late 2012. We expect Basel III to become effective on January 1, 2013, and
will require banking institutions to meet the following minimum capital ratios before the application of any buffer:
• 3.5% Tier 1 Common Equity to RWA;
• 4.5% Tier 1 capital to RWA; and
• 8.0% Total capital to RWA.
The Basel III final framework provides for a number of new deductions from and adjustments to Tier 1 common equity. These
include, for example, the requirement that MSRs, DTAs dependent upon future taxable income and significant investments in
non-consolidated financial entities be deducted from Tier 1 Common Equity to the extent that any one such category exceeds 10%
of Tier 1 common equity or all such categories in the aggregate exceed 15% of Tier 1 Common Equity.
Implementation of the deductions and other adjustments to Tier 1 common equity will begin on January 1, 2014 and will be phased
in over a five-year period (20% per year). The implementation of the capital conservation buffer will begin on January 1, 2016 at
0.625% and be phased in over a four-year period (increasing by that amount on each subsequent January 1, until it reaches 2.5%
on January 1, 2019).
Notwithstanding its release of the Basel III framework as a final framework, the BCBS is considering further amendments to Basel
III, including the imposition of additional capital surcharges on “globally systemically important financial institutions”. While we
do not expect to be considered a systemically important financial institutions for purposes of Basel III, the Dodd-Frank Act requires
or permits the Federal banking agencies to adopt regulations affecting banking institutions' capital requirements in a number of
respects, including potentially more stringent capital requirements for systemically important financial institutions, and some or
all of these may apply to us.
We believe our current capital levels already exceed the fully phased-in Basel III capital requirement, including the capital
conservation buffer. We intend to comply with those requirements when announced as they may apply to us. See additional
discussion of Basel III in the "Capital Resources" section in MD&A in this Form 10-K.
Liquidity Ratios under Basel III
Historically, regulation and monitoring of bank and bank holding company liquidity has been addressed as a supervisory matter,
both in the U.S. and internationally, without required formulaic measures. The Basel III final framework requires banks and bank
holding companies to measure their liquidity against specific liquidity tests that, although similar in some respects to liquidity
measures historically applied by banks and regulators for management and supervisory purposes, going forward will be required
by regulation. One test, referred to as the LCR, is designed to ensure that the banking entity maintains a level of unencumbered
high-quality liquid assets greater than or equal to the greater of (i) entity's expected net cash outflow for a 30-day time horizon
or, (ii) 25% of its expected total cash outflow under an acute liquidity stress scenario. The other, referred to as the NSFR, is designed
to promote more medium and long-term funding based on the liquidity characteristics of the assets and activities of banking entities
over a one-year time horizon. To comply with these requirements, banks will take a number of actions which may include increasing
their asset holdings of U.S. Treasury securities and other sovereign debt, increasing the use of long-term debt as a funding source,
and adopting new business practices that may limit the provision of liquidity to clients. The LCR is subject to an observation
period that began in 2011, but would not be introduced as a requirement until January 1, 2015, and the NSFR would not be
introduced as a requirement until January 1, 2018. These new standards are subject to further rulemaking and their terms may well
change before implementation.
Other Regulation
There are various legal and regulatory limits on the extent to which the Company's subsidiary bank may pay dividends or otherwise
supply funds to the Company. In addition, federal and state bank regulatory agencies also have the authority to prevent a bank or
bank holding company from paying a dividend or engaging in any other activity that, in the opinion of the agency, would constitute
an unsafe or unsound practice. In the event of the “liquidation or other resolution” of an insured depository institution, the FDIA
provides that the claims of depositors of the institution (including the claims of the FDIC as subrogee of insured depositors) and
certain claims for administrative expenses of the FDIC as a receiver will have priority over other general unsecured claims against