Charles Schwab 2010 Annual Report Download - page 100

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THE CHARLES SCHWAB CORPORATION
Notes to Consolidated Financial Statements
(Tabular Amounts in Millions, Except Per Share Data, Option Price Amounts, Ratios, or as Noted)
23. Regulatory Requirements
CSC is a savings and loan holding company and Schwab Bank, CSC’s depository institution subsidiary, is a federal savings bank.
CSC and Schwab Bank are both subject to supervision and regulation by the Office of Thrift Supervision. As a savings and loan
holding company, CSC is not subject to specific statutory capital requirements. However, CSC is required to maintain capital that is
sufficient to support the holding company and its subsidiaries’ business activities, and the risks inherent in those activities.
Schwab Bank is subject to regulation and supervision and to various requirements and restrictions under federal and state laws,
including regulatory capital guidelines. Among other things, these requirements govern transactions with CSC and its non-depository
institution subsidiaries, including loans and other extensions of credit, investments or asset purchases, dividends and investments. The
federal banking agencies have broad powers to enforce these regulations, including the power to terminate deposit insurance, impose
substantial fines and other civil and criminal penalties, and appoint a conservator or receiver. Under the Federal Deposit Insurance
Act, Schwab Bank could be subject to restrictive actions if it were to fall within one of the lowest three of five capital categories.
Schwab Bank is required to maintain minimum capital levels as specified in federal banking laws and regulations. Failure to meet the
minimum levels will result in certain mandatory, and possibly additional discretionary, actions by the regulators that, if undertaken,
could have a direct material effect on Schwab Bank. At December 31, 2010, CSC and Schwab Bank met the capital level
requirements.
The regulatory capital and ratios for Schwab Bank are as follows:
N/A Not applicable.
Based on its regulatory capital ratios at December 31, 2010 and 2009, Schwab Bank is considered well capitalized (the highest
category) pursuant to banking regulatory guidelines. There are no conditions or events since December 31, 2010, that management
believes have changed Schwab Ban
k
’s capital category.
The Board of Governors of the Federal Reserve System requires Schwab Bank to maintain reserve balances at the Federal Reserve
Bank based on certain deposit levels. Schwab Bank’s average reserve requirement was $918 million in 2010 and $628 million in
2009.
Schwab is subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (the Uniform Net Capital Rule). Schwab computes 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, 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 net capital of less than 5% of aggregate debit balances or less than 120% of its minimum
dollar requirement. At December 31, 2010, 2% of aggregate debit balances was $251 million, which exceeded the minimum dollar
requirement for Schwab of $250,000. At December 31, 2010,
-81 -
Actual
Minimum Capital
Requirement
Minimum to be
Well Capitalized
December 31, 2010 Amoun
t
Ratio Amoun
t
Ratio Amoun
t
Ratio
Tier 1 Ris
k
-Based Ca
p
ital
$ 4,157
23.7%
$702
4.
0
%
$ 1,053
6.
0
%
Total Ris
k
-Based Ca
p
ital
$ 4,209
24.0%
$ 1,404
8.
0
%
$ 1,755
10.0%
Tier 1 Core Ca
p
ital
$4,157
7.6%
$2,195
4.
0
%
$2,744
5.
0
%
Tan
g
ible E
q
uit
y
$ 4,157
7.6%
$ 1,098
2.
0
%
N/A
December 31, 2009
Tier 1 Ris
k
-Based Ca
p
ital
$2,724
18.3%
$595
4.
0
%
$893
6.
0
%
Total Ris
k
-Based Ca
p
ital
$2,77
0
18.6% $ 1,191
8.
0
%
$ 1,488
10.0%
Tier 1 Core Ca
p
ital
$2,724
6.3%
$1,737
4.
0
%
$2,171
5.
0
%
Tan
g
ible E
q
uit
y
$ 2,724
6.3%
$ 868
2.
0
%
N/A