Discover 2015 Annual Report Download - page 95

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Another main component of the Basel III rules is a prescribed standardized approach for calculating risk-
weighted assets that expands the risk-weight range from 0% to 100% (under Basel I) to 0% to 1,250% (under Basel III).
The new range is intended to be more risk-sensitive and the risk-weight assigned depends on the nature of the asset in
question.
The Basel III rules provide for a number of the deductions from and adjustments to CET1, to the extent that any
one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15%.
Basel III also requires additional disclosures relating to market discipline. This series of disclosures is commonly
referred to as “Pillar 3”. The objective is to increase transparency of capital requirements for banking organizations.
We are required to make prescribed regulatory disclosures on a quarterly basis regarding our capital structure, capital
adequacy, risk exposures and risk-weighted assets. The effective date of the disclosure requirements began with our
financial results for the first quarter of 2015. The Pillar 3 disclosures are made publicly available, on our website, as a
stand-alone report called "Basel III Regulatory Capital Disclosures".
At December 31, 2015, Discover Financial Services and Discover Bank met the requirements for "well-
capitalized" status, exceeding the regulatory minimums to which they were subject under the Basel III rules.
As discussed in Note 18: Capital Adequacy to our consolidated financial statements, we are subject to a CET1
capital ratio requirement under the Basel III rules as of January 1, 2015. We believe that providing an estimate of
capital position based on the Basel III fully phased-in rules is important to complement the existing capital ratios and for
comparability to other financial institutions. In addition, we disclose tangible common equity, which represents common
equity less goodwill and intangibles. Management believes that common stockholders' equity excluding goodwill and
intangibles is a more meaningful measure to investors of our true net asset value. As of December 31, 2015, the CET1
capital ratio calculated under Basel III fully phased-in rules and tangible common equity are not formally defined by
U.S. GAAP or codified in the federal banking regulations, as such, they are considered to be non-GAAP financial
measures. Other financial services companies may also disclose this ratio and metric and definitions may vary, so we
advise users of this information to exercise caution in comparing this ratio and metric for different companies.
The following table provides a reconciliation of total common stockholders’ equity (a U.S. GAAP financial
measure) to our CET1 capital calculated under Basel III fully phased-in rules as of December 31, 2014 and to tangible
common equity as of December 31, 2015 (dollars in millions):
December 31,
2015 December 31, 2014
Total common stockholders’ equity .................................................................................................................. $10,715 $10,574
Less: Goodwill .......................................................................................................................................... (255)(257)
Less: Intangible assets, net .......................................................................................................................... (168)(176)
Tangible common equity ................................................................................................................................ $10,292 10,141
Effect of certain items in accumulated other comprehensive income excluded from Tier 1 common capital .......... N/A 138
Adjustments related to capital components(1) ................................................................................................ N/A 26
Common equity Tier 1 capital (Basel III fully phased-in)(2) .................................................................................. N/A $ 10,305
(1) Adjustments related to capital components include: deferred tax liabilities related to intangible assets and deduction for deferred tax assets.
(2) Reconciliation to CET1 capital calculated under Basel III fully phased-in rules shown as not applicable ("N/A") as we are now reconciling from CET1 capital
calculated under the Basel III transition rules, the closest U.S. GAAP financial measure in the table below.