Regulatory Capital Requirements and Capital Ratios

12 Months Ended

Dec. 31, 2016

Regulatory Capital Requirements and Capital Ratios

Regulatory Capital Requirements and Capital Ratios

28. REGULATORYCAPITAL REQUIREMENTS AND CAPITAL RATIOS

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 regulatory capital requirements were revised by the Basel III Final Rule which was effective for the Bancorp on January 1, 2015, subject to phase-in periods for certain of its components and other provisions. It established quantitative measures that assign risk weightings to assets and off-balance sheet items and also defined 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. Additionally, when fully phased-in in 2019, the Basel III Final Rule will include a capital conservation buffer requirement of 2.5% in addition to the minimum capital requirements of the CET1, Tier I capital and Total risk-based capital ratios in order to avoid limitations on capital distributions and discretionary bonus payments to executive officers.

The Basel III Final Rule provided for certain BHCs, including the Bancorp, to opt out of including AOCI in regulatory capital and also retained the treatment of residential mortgage exposures consistent with the prior Basel I capital rules. Fifth Third made a one-time permanent election to not include AOCI in regulatory capital in the March 31, 2015 FFIEC 031 for its banking subsidiary and FR Y-9C filing for the Bancorp. 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, 2016, the Bancorp’s TruPS no longer qualified for Tier I capital, compared to $13 million of TruPS, or1 bp of risk-weighted assets, which qualified as Tier I capital at December 31, 2015.The Bancorp’s 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 are a component of the Tier I leverage ratio and 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 for BHCs, 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 CET1 capital, Tier I risk-based capital, Total risk-based capital and Tier I leverage ratios above the well-capitalized levels at December 31, 2016 and 2015. 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. In addition, the Bancorp exceeded the “capital conservation buffer” ratio for all periods presented.

The following table presents capital and risk-based capital and leverage ratios for the Bancorp and its banking subsidiary at December 31:
	2016				2015
($ in millions)		Amount	Ratio			Amount	Ratio(a)
CET1 capital (to risk-weighted assets):
Fifth Third Bancorp	$	12,426	10.39	%	$	11,917	9.82	%
Fifth Third Bank		14,015	11.92			14,216	11.92
Tier I risk-based capital (to risk-weighted assets):
Fifth Third Bancorp		13,756	11.50			13,260	10.93
Fifth Third Bank		14,015	11.92			14,216	11.92
Total risk-based capital (to risk-weighted assets):
Fifth Third Bancorp		17,972	15.02			17,134	14.13
Fifth Third Bank		16,175	13.76			15,642	13.12
Tier I leverage (to quarterly average assets):
Fifth Third Bancorp		13,756	9.90			13,260	9.54
Fifth Third Bank		14,015	10.30			14,216	10.43

(a) Ratios not restated for the adoption of the amended guidance of ASU 2015-03 “Simplifying the Presentation of Debt Issuance Costs.” For further information, refer to Note 1.