Certain Regulatory Requirements and Capital Ratios

12 Months Ended

Dec. 31, 2015

Certain Regulatory Requirements and Capital Ratios

Certain Regulatory Requirements and Capital Ratios

28. Certain regulatory requirements and capital ratios

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 the appropriate state and federal supervisory authorities. 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.

The Bancorp's banking subsidiary 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 balances on deposit with the FRB. In 2015 and 2014, theBancorp's banking subsidiary was required to maintain average cash reserve balances of $1.8 billion and $1.7billion, respectively.

The Board of Governors of the Federal Reserve System issued capital adequacy guidelines pursuant to which it assesses the adequacy of capital in examining and supervising a BHC and in analyzing applications to it under the BHCA 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. The Basel III Final Rule was effective for the Bancorp on January 1, 2015, subject to phase-in periods for certain of its components and other provisions. It revised the quantitative measures used to define risk weightings to assets and off-balance sheet items and also defined the regulatory capital components and set minimum regulatory capital requirements. The minimum capital ratios established under the Basel III Final Rule are Common equity Tier 1 capital of at least 4.5% (CET1 ratio), Tier I capital (core capital) of at least 6% of risk-weighted assets (Tier I risk-based capital ratio), Total regulatory capital (Tier I plus Tier II capital) of at least 8% of risk-weighted assets (Total risk-based capital ratio) and Tier I capital of at least 4% 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.

The Basel III Final Rule provided for certain banks, including the Bancorp, to opt out of including AOCI in regulatory capital and also retained the treatment of residential mortgage exposures consistent with the current Basel I capital rules. The Bancorp made a one-time permanent election to not include AOCI in regulatory capital in the March 31, 2015 FFIEC 031 and FR Y-9C filings. The Basel III Final Rule phases out the inclusion of certain TruPS as a component of Tier I capital. Under these provisions, these TruPS would qualify as a component of Tier II capital. At December 31, 2015, the Bancorp's Tier I capital included $13 million of TruPS representing approximately 1bp of risk-weighted assets.Tier II capital consists principally of term subordinated debt and, subject to limitations, allowances for credit losses.

The Bancorp's assets and credit equivalent amounts of off-balance sheet items are assigned to one of several broad risk categories according to the Standardized Approach for risk-weighting assets as defined in the Basel III Final Rule. The aggregate dollar value of the amount of each category is multiplied by the associated risk weighting. The resulting weighted values from each of the risk categories in sum is the total risk-weighted assets. Quarterly average assets for this purpose do not include goodwill and any other intangible assets and other investments that the FRB determines should be deducted from Tier I capital.

The Board of Governors of the Federal Reserve System issued capital adequacy guidelines for banking subsidiaries substantially similar to those adopted forBHCs, as described previously. In addition, the U.S. banking agencies have issued substantially similar regulations to implement the system of prompt corrective action established by Section 38 of the FDIA. Under the regulations, a bank generally shall be deemed to be well-capitalized if it has a CET1 ratio of 6.5% or more, a Tier I risk-based capital ratio of 8% or more, a Total risk-based capital ratio of 10% 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 FDIA.

The Bancorp and its banking subsidiary, Fifth Third Bank, had a CET1 capital ratio above the well-capitalized level at December 31, 2015 and Tier Irisk-based capital, Total risk-based capital and Tier I leverage ratios above the well-capitalized levels at December 31, 2015 and 2014. To continue to qualify for financial holding company status pursuant to the Gramm-Leach-Bliley Act of 1999, the Bancorp's banking subsidiary must, among other things, maintain “well-capitalized” capital ratios.

The following table presents capital and risk-based capital and leverage ratios for the Bancorp and its banking subsidiary at December 31:
		2015				2014
		Basel III Transitional(a)				Basel I(b)
($ in millions)		Amount	Ratio			Amount	Ratio
CET1 capital (to risk-weighted assets):
Fifth Third Bancorp	$	11,917	9.82	%		N/A	N/A
Fifth Third Bank		14,216	11.92			N/A	N/A
Tier I risk-based capital (to risk-weighted assets):
Fifth Third Bancorp		13,260	10.93		$	12,764	10.83	%
Fifth Third Bank		14,216	11.92			13,760	11.85
Total risk-based capital (to risk-weighted assets):
Fifth Third Bancorp		17,134	14.13			16,895	14.33
Fifth Third Bank		15,642	13.12			15,213	13.10
Tier I leverage (to average assets):
Fifth Third Bancorp		13,260	9.54			12,764	9.66
Fifth Third Bank		14,216	10.43			13,760	10.58

• Under the U.S. banking agencies' Basel III Final Rule, assets and credit equivalent amounts of off-balance sheet exposures are calculated according to the standardized approach for risk-weighted assets. The resulting weighted values are added together resulting in the total risk-weighted assets.
• These capital amounts and ratios were calculated under the Supervisory Agencies general risk-based capital rules (Basel I) which were in effect prior to January 1, 2015.