22.Regulatory Requirements

CSC is a savings and loan holding company and Schwab Bank, CSC’s depository institution subsidiary, is a federal savings bank. CSC is subject to examination, supervision, and regulation by the Federal Reserve. Schwab Bank is subject to examination, supervision, and regulation by the OCC, as its primary regulator, the FDIC as its deposit insurer, and the CFPB. CSC is required to serve as a source of strength for Schwab Bank.

Schwab Bank is subject to various requirements and restrictions under federal and state laws, including regulatory capital requirements and requirements that restrict and govern the terms of affiliate transactions, such as extensions of credit to, or asset purchases from CSC or its other subsidiaries by Schwab Bank. In addition, Schwab Bank is required to provide notice to and may be required to obtain approval of the OCC and the Federal Reserve to declare dividends to CSC. 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. CSC and Schwab Bank are required to maintain minimum capital levels as specified in federal banking regulations. Failure to meet the minimum levels could result in certain mandatory, and possibly additional discretionary actions by the regulators that, if undertaken, could have a direct material effect on CSC and Schwab Bank. At December 31, 2016, both CSC and Schwab Bank met all of their respective capital requirements. Certain events, such as growth in bank deposits and regulatory discretion, could adversely affect CSC’s or Schwab Bank’s ability to meet future capital requirements.

The regulatory capital and ratios for CSC and Schwab Bank are as follows:


					Minimum to be				Minimum Capital
	Actual				Well Capitalized				Requirement
December 31, 2016	Amount		Ratio		Amount		Ratio		Amount		Ratio
CSC
Common Equity Tier 1 Risk-Based Capital	$	12,574	18.4	%		N/A			$	3,068	4.5	%
Tier 1 Risk-Based Capital		15,357	22.5	%		N/A				4,091	6.0	%
Total Risk-Based Capital		15,384	22.6	%		N/A				5,454	8.0	%
Tier 1 Leverage		15,357	7.2	%		N/A				8,516	4.0	%
Schwab Bank
Common Equity Tier 1 Risk-Based Capital	$	11,878	19.8	%	$	3,894	6.5	%	$	2,696	4.5	%
Tier 1 Risk-Based Capital		11,878	19.8	%		4,793	8.0	%		3,595	6.0	%
Total Risk-Based Capital		11,904	19.9	%		5,992	10.0	%		4,793	8.0	%
Tier 1 Leverage		11,878	7.0	%		8,456	5.0	%		6,765	4.0	%
December 31, 2015
CSC
Common Equity Tier 1 Risk-Based Capital	$	10,851	18.2	%		N/A			$	2,681	4.5	%
Tier 1 Risk-Based Capital		12,310	20.7	%		N/A				3,575	6.0	%
Total Risk-Based Capital		12,342	20.7	%		N/A				4,766	8.0	%
Tier 1 Leverage		12,310	7.1	%		N/A				6,912	4.0	%
Schwab Bank
Common Equity Tier 1 Risk-Based Capital	$	9,314	18.1	%	$	3,349	6.5	%	$	2,318	4.5	%
Tier 1 Risk-Based Capital		9,314	18.1	%		4,121	8.0	%		3,091	6.0	%
Total Risk-Based Capital		9,345	18.1	%		5,152	10.0	%		4,121	8.0	%
Tier 1 Leverage		9,314	7.1	%		6,594	5.0	%		5,275	4.0	%

N/A Not Applicable.

Based on its regulatory capital ratios at December 31, 2016, Schwab Bank is considered well capitalized (the highest category) under its respective regulatory capital rules. There are no conditions or events since December 31, 2016 that management believes have changed Schwab Bank’s capital category.

The Federal Reserve requires Schwab Bank to maintain reserve balances at the Federal Reserve based on its deposits that are considered to be transaction accounts. Schwab Bank’s average reserve requirements were $1.5 billion and $1.4 billion in 2016 and 2015, respectively.

Beginning on January 1, 2016, CSC and Schwab Bank became subject to a new capital conservation buffer requirement of .625% of risk-weighted assets, increasing each year by .625% until fully implemented at 2.5% of risk-weighted assets in January 2019. The capital conservation buffer is in addition to the minimum risk-based capital requirements described above. Failure to maintain the capital conservation buffer would limit an entity’s ability to make capital distributions and discretionary bonus payments to executive officers. At December 31, 2016, both CSC’s and Schwab Bank’s capital levels exceeded the fully implemented capital conservation buffer requirement.

CSC’s principal broker-dealers are Schwab and optionsXpress. Schwab and optionsXpress are both subject to Rule 15c3-1 under the Securities Exchange Act of 1934 (the Uniform Net Capital Rule). Schwab and optionsXpress compute 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 ($250,000), 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 if such payment would result in a net capital amount of less than 5% of aggregate debit balances or less than 120% of its minimum dollar requirement.

optionsXpress is also subject to Commodity Futures Trading Commission Regulation 1.17 (Reg. 1.17) under the Commodity Exchange Act, which also requires the maintenance of minimum net capital. optionsXpress, as a futures commission merchant, is required to maintain minimum net capital equal to the greater of its net capital requirement under Reg. 1.17 ($1 million), or the sum of 8% of the total risk margin requirements for all positions carried in client accounts and 8% of the total risk margin requirements for all positions carried in non-client accounts (as defined in Reg. 1.17).

Net capital and net capital requirements for Schwab and optionsXpress are as follows:


								Net Capital
			Minimum				2% of	in Excess of
			Net Capital				Aggregate	Required
December 31, 2016	Net Capital		Required		Debit Balances			Net Capital
Schwab	$	1,846	$	0.250		$	355	$	1,491
optionsXpress		269		1			8		261
December 31, 2015
Schwab	$	1,746	$	0.250		$	358	$	1,388
optionsXpress		244		1			7		237

Schwab and optionsXpress are also subject to Rule 15c3-3 under the Securities Exchange Act of 1934 and other applicable regulations, which require them to maintain cash or qualified securities in a segregated reserve account for the exclusive benefit of clients. In accordance with Rule 15c3-3, Schwab and optionsXpress had portions of their cash and investments segregated for the exclusive benefit of clients at December 31, 2016. Amounts included in cash and investments segregated and on deposit for regulatory purposes represent actual balances on deposit, whereas cash and investments required to be segregated and on deposit for regulatory purposes at December 31, 2016 for Schwab and optionsXpress totaled $23.3 billion. On January 4, 2017, Schwab and optionsXpress deposited a net amount of $1.6 billion of cash into their segregated reserve bank accounts. Cash and investments required to be segregated and on deposit for regulatory purposes at December 31, 2015 for Schwab and optionsXpress totaled $20.5 billion. On January 5, 2016, Schwab and optionsXpress deposited a net amount of $1.4 billion of cash into their segregated reserve bank accounts.