Fifth Third Bank 2008 Annual Report Download - page 99

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Fifth Third Bancorp 97
26. CERTAIN REGULATORY REQUIREMENTS AND CAPITAL RATIOS
The principal source of income and funds for the Bancorp (parent
company) are dividends from its subsidiaries. During 2008, the
amount of dividends the bank subsidiaries could pay to the
Bancorp without prior approval of regulatory agencies was limited
to their 2008 eligible net profits, as defined, and the adjusted
retained 2007 and 2006 net income of those subsidiaries.
The Bancorp’s subsidiary banks must maintain cash reserve
balances when total reservable deposit liabilities are greater than
the regulatory exemption. These reserve requirements may be
satisfied with vault cash and noninterest-bearing cash balances on
reserve with a Federal Reserve Bank. In 2008 and 2007, the
subsidiary banks were required to maintain average cash reserve
balances of $403 million and $330 million, respectively.
The FRB adopted guidelines pursuant to which it assesses the
adequacy of capital in examining and supervising a bank holding
company and in analyzing applications to it under the Bank
Holding Company Act of 1956, as amended. These guidelines
include quantitative measures that assign risk weightings to assets
and off-balance sheet items, as well as define and set minimum
regulatory capital requirements. All bank holding companies are
required to maintain core capital (Tier I) of at least 4% of risk-
weighted assets and off-balance sheet items (Tier I capital ratio),
total capital of at least 8% of risk-weighted assets and off-balance
sheet items (Total risk-based capital ratio) and Tier I capital of at
least 3% of adjusted quarterly average assets (Tier I leverage ratio).
Failure to meet the minimum capital requirements can initiate
certain actions by regulators that could have a direct material effect
on the Consolidated Financial Statements of the Bancorp.
Tier I capital consists principally of shareholders’ equity
including Tier I qualifying trust preferred securities or notes
payable pertaining to unconsolidated special purpose entities that
issue trust preferred securities. It excludes unrealized gains and
losses on available-for-sale securities and unrecognized pension
actuarial gains and losses and prior service cost, less goodwill and
certain other intangibles.
Tier II capital consists principally of perpetual and trust
preferred stock that is not eligible to be included as Tier I capital,
term subordinated debt, intermediate-term preferred stock and,
subject to limitations, general allowances for loan and lease losses.
Assets are adjusted under the risk-based guidelines to take into
account different risk characteristics. Average assets for this
purpose does not include goodwill and any other intangible assets
and investments that the FRB determines should be deducted
from Tier I capital.
Both the FRB and the OCC have issued regulations regarding
the capital adequacy of subsidiary banks. These requirements are
substantially similar to those adopted by the FRB regarding bank
holding companies, as described above. In addition, the federal
banking agencies have issued substantially similar regulations to
implement the system of prompt corrective action established by
Section 38 of the Federal Deposit Insurance Act. Under the
regulations, a bank generally shall be deemed to be well-capitalized
if it has a Total risk-based capital ratio of 10% or more, a Tier I
capital ratio of 6% or more, a Tier I leverage ratio of 5% or more
and is not subject to any written capital order or directive. If an
institution becomes undercapitalized, it would become subject to
significant additional oversight, regulations and requirements as
mandated by the Federal Deposit Insurance Act. The Bancorp
and each of its subsidiary banks had Tier I, Total risk-based capital
and Tier I leverage ratios above the well-capitalized levels at
December 31, 2008 and 2007. As of December 31, 2008, the most
recent notification from the FRB categorized the Bancorp and
each of its subsidiary banks as well-capitalized under the regulatory
framework for prompt corrective action. To continue to qualify
for financial holding company status pursuant to the Gramm-
Leach-Bliley Act of 1999, the Bancorp’s subsidiary banks must,
among other things, maintain “well-capitalized” capital ratios.
U.S. bank regulatory authorities and international bank
supervisory organizations, principally the Basel Committee on
Banking Supervision, are currently considering changes to the risk-
based capital adequacy framework for banks, including emphasis
on credit, market and operational risk components, which
ultimately could affect the appropriate capital guidelines for bank
holding companies such as the Bancorp. Capital and risk-based
capital and leverage ratios for the Bancorp and its significant
subsidiary banks at December 31:
2008 2007
($ in millions) Amount Ratio Amount Ratio
Total risk-based capital (to risk-weighted assets):
Fifth Third Bancorp (Consolidated) $16,646 14.78 % $11,733 10.16 %
Fifth Third Bank (Ohio) 6,444 10.92 6,058 10.39
Fifth Third Bank (Michigan) 6,664 12.95 5,787 10.13
Fifth Third Bank, N.A. 948 17.59 519 21.76
Tier I capital (to risk-weighted assets):
Fifth Third Bancorp (Consolidated) 11,924 10.59 8,924 7.72
Fifth Third Bank (Ohio) 4,799 8.13 4,744 8.13
Fifth Third Bank (Michigan) 5,692 11.06 5,191 9.09
Fifth Third Bank, N.A. 880 16.33 503 21.07
Tier I leverage (to average assets):
Fifth Third Bancorp (Consolidated) 11,924 10.27 8,924 8.50
Fifth Third Bank (Ohio) 4,799 7.03 4,744 8.11
Fifth Third Bank (Michigan) 5,692 10.45 5,191 10.55
Fifth Third Bank, N.A. 880 14.11 503 25.59