Regulatory Matters and Capital Adequacy

12 Months Ended

Dec. 31, 2015

Disclosure Text Block Abstract

Regulatory Matters and Capital Adequacy

NOTE 23

Regulatory Matters and Capital Adequacy

The Company is supervised and regulated by the Federal Reserve and is subject to the Federal Reserve’s requirements for risk-based capital and leverage ratios. The Company’s two U.S. bank operating subsidiaries, American Express Centurion Bank (Centurion Bank) and American Express Bank, FSB (FSB) (together, the Banks), are subject to supervision and regulation, including similar regulatory capital requirements by the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), respectively.

Under the risk-based capital guidelines of the Federal Reserve, the Company is required to maintain minimum ratios of Common Equity Tier 1 (CET1), Tier 1 and Total (Tier 1 plus Tier 2) capital to risk-weighted assets, as well as a minimum leverage ratio (Tier 1 capital to average adjusted on-balance sheet assets).

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 the Company’s and the Banks’ operating activities.

As of December 31, 2015 and 2014, the Company and the Banks met all capital requirements to which each was subject and maintained regulatory capital ratios in excess of those required to qualify as well capitalized.

The following table presents the regulatory capital ratios for the Company and the Banks:

			CET1		Tier 1		Total	CET1			Tier 1		Total		Tier 1
								capital			capital		capital		leverage
(Millions, except percentages)			capital		capital		capital	ratio			ratio		ratio		ratio
December 31, 2015:(a)
	American Express Company	$	16,747	$	18,265	$	20,551	12.4	%		13.5	%	15.2	%	11.7	%
	American Express Centurion Bank		6,013		6,013		6,460	16.9			16.9		18.2		17.7
	American Express Bank, FSB		6,927		6,927		7,601	13.7			13.7		15.1		13.2
December 31, 2014:(a)
	American Express Company	$	17,525	$	18,176	$	20,801	13.1	%		13.6	%	15.6	%	11.8	%
	American Express Centurion Bank		6,174		6,174		6,584	18.8			18.8		20.1		18.7
	American Express Bank, FSB		6,722		6,722		7,604	14.2			14.2		16.0		15.1
Well-capitalized ratios(b)								6.5	%	(c)	8.0	%	10.0	%	5.0	% (d)
Minimum capital ratios(b)								4.5	%		6.0	%	8.0	%	4.0	%

• Beginning in 2015, as a Basel III Advanced Approaches institution, capital ratios are reported using Basel III capital definitions, inclusive of transition provisions, and risk-weighted assets using the Basel III Standardized Approaches. As of December 31, 2014, capital ratios were reported using Basel III capital definitions, inclusive of transition provisions and Basel I risk-weighted assets.
• As defined by the regulations issued by the Federal Reserve, OCC and FDIC for the year ended December 31, 2015.
• Beginning January 1, 2015, Basel III CET1 well-capitalized ratios became relevant capital measures under the prompt and corrective action requirements defined by the regulations for Advanced Approaches institutions.
• 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 “well-capitalized” definition for the Tier 1 leverage ratio for a bank holding company.

Restricted Net Assets of Subsidiaries

Certain of the Company’s 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 the Company’s shareholder 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, 2015, the aggregate amount of net assets of subsidiaries that are restricted to be transferred to the Company was approximately $11.3 billion.

Bank Holding Company Dividend Restrictions

The Company is limited in its 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, the Company is required to develop and maintain a capital plan, which includes planned dividends over a two-year horizon, and to submit the capital plan to the Federal Reserve.

Banks’ Dividend Restrictions

In the years ended December 31, 2015 and 2014, Centurion Bank paid dividends from retained earnings to its parent of $2.0 billion and $1.9 billion, respectively, and FSB paid dividends from retained earnings to its parent of $2.2 billion and $2.1 billion, respectively.

The Banks are subject to statutory and regulatory limitations on their ability to pay dividends. The total amount of dividends that may be paid at any date, subject to supervisory considerations of the Banks’ regulators, is generally limited to the retained earnings of the respective bank. As of December 31, 2015 and 2014, the Banks’ retained earnings, in the aggregate, available for the payment of dividends were $3.2 billion and $3.6 billion, respectively. In determining the dividends to pay their parent, the Banks 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, the Banks’ banking regulators have authority to limit or prohibit the payment of a dividend by the Banks 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.