Restriction on Cash, Dividends and Other Capital Actions

12 Months Ended

Dec. 31, 2020

Cash and Cash Equivalents [Abstract]

Restriction on Cash, Dividends and Other Capital Actions

Restrictions on Cash, Dividends and Other Capital Actions

Reserve Requirement

The FRB, under Regulation D, requires that banks hold cash in reserve against deposit liabilities when total reservable deposit liabilities are greater than the regulatory exemption, known as the reserve requirement. The reserve requirement is calculated based on a two-week average of daily net transaction account deposits as defined by the FRB and may be satisfied with average vault cash during the following two-week maintenance period. When vault cash is not sufficient to meet the reserve requirement, the remaining amount must be satisfied with average funds held at the FRB. As part of the government response to the COVID-19 pandemic, the FRB has taken a range of actions to support the flow of credit to households and businesses, including reducing the reserve requirement to zero effective March 26, 2020. The reserve requirement continued to be zero at December 31, 2020. At December 31, 2019, the Bancorp’s banking subsidiary reserve requirement was $1.7 billion. Additionally, the Bancorp’s banking subsidiary average reserve requirement was $1.7 billion in 2019.

Restrictions on Cash Dividends

The principal source of income and funds for the Bancorp (parent company) are dividends from its subsidiaries. The dividends paid by the Bancorp’s banking subsidiary are subject to regulations and limitations prescribed by state and federal supervisory agencies. The Bancorp’s banking subsidiary paid the Bancorp’s nonbank subsidiary holding company, which in turn paid the Bancorp $1.3 billion and $2.0 billion in dividends during the years ended December 31, 2020 and 2019, respectively. Additionally, a $200 million dividend was paid by MB Financial, Inc. to the Bancorp during the year ended December 31, 2019. The Bancorp’s nonbank subsidiaries are also limited by certain federal and state statutory provisions and regulations covering the amount of dividends that may be paid in any given year. Additionally, as discussed below, during 2020 the FRB took actions in response to the COVID-19 pandemic that limit the amount of cash dividends that the Bancorp may pay to its shareholders.

Capital Actions

The Bancorp is subject to restrictions on its capital actions, primarily as a result of supervisory policies set by the FRB. The Bancorp is required to develop and maintain a capital plan that governs its capacity to pay dividends and execute share repurchases and this plan is required to be submitted to the FRB periodically.

In June 2020, the FRB took several actions in connection with its announcement of stress test results in light of the uncertainty caused by the COVID-19 pandemic. Specifically, for the third quarter of 2020, the FRB required large banking organizations, including the Bancorp, to suspend share repurchases, cap dividend payments to the amount paid during the second quarter of 2020, and further limit dividends according to a formula based on recent income. Additionally, on September 30, 2020 the FRB extended the third quarter of 2020 restrictions on share repurchases and dividends to the fourth quarter of 2020, and dividends remain limited according to a formula based on recent income. The Bancorp did not execute any accelerated share repurchase or open market share repurchase transactions during the year ended December 31, 2020 but increased its quarterly common stock dividend to $0.27 per share in the first quarter of 2020.

The FRB also required large banking organizations, including the Bancorp, to reevaluate their longer-term capital plans, and such organizations were required to update and resubmit their capital plans to reflect stresses caused by the COVID-19 pandemic. The Bancorp resubmitted its capital plan as required. The FRB may conduct additional analysis each quarter to determine if adjustments to this response are appropriate.

In December 2020, the FRB announced an extension of its restrictions on distributions through the first quarter of 2021, but with certain modifications. For the first quarter of 2021, both dividends and share repurchases are limited to an amount based on recent income provided the Bancorp does not increase the amount of its common stock dividend. Refer to Note 33 for further information about a subsequent event related to capital actions.

The Bancorp executed accelerated share repurchase and open market share repurchase transactions during the year ended December 31, 2019. For more information related to these transactions, refer to Note 25.