Fifth Third Bank 2012 Annual Report Download - page 171

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169 Fifth Third Bancorp
to, and (as necessary) limiting the size and activities of
systemically significant financial companies.
The Dodd-Frank Act instructs the FRB to impose enhanced
capital and risk-management standards on large financial firms
and mandates the FRB to conduct annual stress tests on all bank
holding companies with $50 billion or more in assets to determine
whether they have the capital needed to absorb losses in baseline,
adverse, and severely adverse economic conditions. In November
2011, the FRB adopted final rules requiring bank holding
companies with $50 billion or more in consolidated assets to
submit capital plans to the FRB on an annual basis. Under the
final rules, the FRB annually will evaluate an institutions capital
adequacy, internal capital adequacy, assessment processes and
plans to make capital distributions such as dividend payments and
stock repurchases.
In November 2012, the FRB provided instructions on the
2013 Comprehensive Capital Analysis and Review (“CCAR”).
The 2013 CCAR required bank holding companies with
consolidated assets of $50 billion or more to submit a capital plan
to the FRB by January 7, 2013. The mandatory elements of the
capital plan are an assessment of the expected use and sources of
capital over the planning horizon, a description of all planned
capital actions over the planning horizon, a discussion of any
expected changes to the Bancorp’ s business plan that are likely to
have a material impact on its capital adequacy or liquidity, a
detailed description of the Bancorp’ s process for assessing capital
adequacy and the Bancorp’ s capital policy.
In December 2011, the FRB issued proposed rules to
strengthen regulation and supervision of large bank holding
companies and systemically important nonbank financial firms.
The proposed rules would generally apply to all U.S. bank
holding companies with consolidated assets of $50 billion or
more, such as the Bancorp, and any nonbank financial firms that
may be designated by the FSOC as systemically important
companies. The proposal, which is mandated by the Dodd-Frank
Act, includes a wide range of measures addressing such issues as
capital, liquidity, credit exposure, stress testing, risk management
and early remediation requirements. In particular, the proposal
includes proposed risk-based capital and leverage requirements
that would be implemented in two phases, the first phase would
be subject to the FRB’ s capital plan rule issued in November
2011. The second phase would involve the FRB issuing a
proposal to implement a risk-based capital surcharge based on the
framework and methodology developed by the Basel Committee
on Banking Supervision (the “Basel Committee”), the current
version referred to as “Basel III.”
Basel III is designed to materially improve the quality of
regulatory capital and introduces a new minimum common equity
requirement. Basel III also raises the numerical minimum capital
requirements and introduces capital conservation and
countercyclical buffers to induce banking organizations to hold
capital in excess of regulatory minimums. In addition, Basel III
establishes an international leverage standard for internationally
active banks. The FRB is working with other U.S. banking
regulators to implement the Basel III capital reforms in the United
States. On June 12, 2012, the federal banking agencies, including
the FRB, issued a joint release announcing three separate notices
of proposed rulemaking (“NPRs”) seeking comment on proposed
rules that would revise and replace their current capital rules in a
manner consistent both with relevant provisions of the Dodd-
Frank Act as well as the implementation of Basel III. Also on
June 12, 2012, these agencies announced the finalization of their
market risk capital rule proposed in 2011. The NPRs indicated
that the final rule would become effective on January 1, 2013, and
the changes set forth in the final rules would be phased in from
January 1, 2013 through January 1, 2019. However, in November
2012, the agencies announced that the effective date would be
delayed.