Regulatory Matters and Capital Adequacy

12 Months Ended

Dec. 31, 2018

Disclosure Text Block Abstract

Regulatory Matters and Capital Adequacy

NOTE 23

Regulatory Matters and Capital Adequacy

We are supervised and regulated by the Board of Governors of the Federal Reserve System (the Federal Reserve) and are subject to the Federal Reserve’s requirements for risk-based capital and leverage ratios. Our U.S. bank subsidiary, AENB, is the surviving entity that resulted from the conversion of American Express Centurion Bank, a Utah state-chartered industrial bank, into a national banking association, and the subsequent merger of American Express Bank, FSB, a federal savings bank, into the successor entity as of April 1, 2018. AENB is subject to supervision and regulation, including regulatory capital and leverage requirements, by the Office of the Comptroller of the Currency (OCC).

Under the risk-based capital guidelines of the Federal Reserve, we are required to maintain minimum ratios of CET1, Tier 1 and Total (Tier 1 plus Tier 2) capital to risk-weighted assets, as well as a minimum Tier 1 leverage ratio (Tier 1 capital to average adjusted on-balance sheet assets) and a supplementary leverage ratio (Tier 1 capital to both on-balance sheet and certain off-balance sheet exposures).

Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional, discretionary actions by regulators, that, if undertaken, could have a direct material effect on our operating activities.

As of December 31, 2018 and 2017, we met all capital requirements to which we were subject and maintained regulatory capital ratios in excess of those required to qualify as well capitalized.

The following table presents the regulatory capital ratios:

(Millions, except percentages)			CET 1 capital		Tier 1capital		Total capital	CET 1 Capital ratio		Tier 1capital ratio		Total capital ratio		Tier 1 leverage ratio		Supplementary Leverage Ratio
December 31, 2018:(a)
	American Express Company	$	17,498	$	19,070	$	21,653	11.0	%	12.0	%	13.6	%	10.4	%	8.9	%
	American Express National Bank	$	11,564	$	11,564	$	13,574	12.1	%	12.1	%	14.2	%	9.9	%	8.2	%
December 31, 2017:(a)
	American Express Company	$	13,189	$	14,721	$	17,142	9.0	%	10.1	%	11.8	%	8.6	%	(b)	%
	American Express Centurion Bank	$	5,954	$	5,954	$	6,547	12.7	%	12.7	%	14.0	%	10.2	%	(b)	%
	American Express Bank, FSB	$	6,065	$	6,065	$	6,653	12.9	%	12.9	%	14.2	%	11.7	%	(b)	%
Well-capitalized ratios(c)								6.5	%	8.0	%	10.0	%	5.0	%	N/A
Basel III Standards 2018(d)								6.4	%	7.9	%	9.9	%	4.0	%	3.0	%
Minimum capital ratios(e)								4.5	%	6.0	%	8.0	%	4.0	%	3.0	%

• As a Basel III advanced approaches institution in parallel run, capital ratios are reported using Basel III capital definitions, inclusive of transition provisions for the capital ratiosand risk-weighted assets using the Basel III standardized approach.
• The minimum supplementary leverage ratio (SLR) requirement of 3 percent became effective January 1, 2018.
• Represents requirements for banking subsidiaries to be considered “well capitalized” pursuant to regulations issued under the Federal Deposit Insurance Corporation Improvement Act. There is no CET1 capital ratio, Tier 1 leverage ratio or SLR requirement for a bank holding company to be considered “well capitalized.”
• Basel III minimum capital requirement and additional transitional capital conservation buffer as defined by the Federal Reserve and OCC for calendar year 2018 for advanced approaches institutions. The additional capital conservation buffer does not apply to Tier 1 leverage ratio or SLR.
• As defined by the regulations issued by the Federal Reserve and OCC.

Restricted Net Assets of Subsidiaries

Certain of our subsidiaries are subject to restrictions on the transfer of net assets under debt agreements and regulatory requirements. These restrictions have not had any effect on ourshareholder dividend policy and management does not anticipate any impact in the future. Procedures exist to transfer net assets between the Company and its subsidiaries, while ensuring compliance with the various contractual and regulatory constraints. As of December 31, 2018, the aggregate amount of net assets of subsidiaries that are restricted to be transferred was approximately $8.8 billion.

Bank Holding Company Dividend Restrictions

We are limited in our ability to pay dividends by the Federal Reserve, which could prohibit a dividend that would be considered an unsafe or unsound banking practice. It is the policy of the Federal Reserve that bank holding companies generally should pay dividends on preferred and common stock only out of net income available to common shareholders generated over the past year, and only if prospective earnings retention is consistent with the organization’s current and expected future capital needs, asset quality and overall financial condition. Moreover, bank holding companies are required by statute to be a source of strength to their insured depository institution subsidiaries and should not maintain dividend levels that undermine their ability to do so. On an annual basis, we are required to develop and maintain a capital plan, which includes planned dividends over a two-year horizon. We may be limited in our ability to pay dividends if the Federal Reserve objects to our capital plan.

In addition, the Capital Rules include a capital conservation buffer of 1.875 percent as of December 31, 2018. The Capital Rules also include a countercyclical capital buffer, which is currently set at zero but which could be increased by the Federal Reserve in the future. These buffers can be satisfied only with CET1 capital. If our risk-based capital ratios were to fall below the applicable buffer levels, we would be subject to certain restrictions on dividends, stock repurchases and other capital distributions, as well as discretionary bonus payments to executive officers.

Bank Dividend Restrictions

In the year ended December 31, 2018,American Express National Bank paid dividends from retained earnings to its parent of $5.9 billion.

AENB is limited in its ability to pay dividends by banking statutes, regulations and supervisory policy. In general, applicable federal and state banking laws prohibit, without first obtaining regulatory approval, insured depository institutions, such as AENB, from making dividend distributions if such distributions are not paid out of available retained earnings or would cause the institution to fail to meet capital adequacy standards. AENB must maintain a capital conservation buffer (and countercyclical buffer if in effect). If AENB’s risk-based capital ratios do not satisfy minimum requirements plus the combined capital conservation buffer (and the countercyclical capital buffer, if applicable), it will face graduated constraints on dividends and other capital distributions based on the amount of the shortfall. As of December 31, 2018, AENB’s retained earnings available for the payment of dividends was $3.9 billion. In determining the dividends to pay its parent, AENB must also consider the effects on applicable risk-based capital and leverage ratio requirements, as well as policy statements of the federal regulatory agencies. In addition, AENB’s banking regulators have authority to limit or prohibit the payment of a dividend by AENB under a number of circumstances, including if, in the banking regulator’s opinion, payment of a dividend would constitute an unsafe or unsound banking practice in light of the financial condition of the banking organization.