Retained Earnings and Regulatory Capital Requirements

3 Months Ended

Mar. 31, 2020

Banking and Thrift [Abstract]

Retained Earnings and Regulatory Capital Requirements

Retained Earnings and Regulatory Capital Requirements

Bank dividends are one of the sources of funds used for payment of shareholder dividends and other HSBC USA cash needs. Approval from the Office of the Comptroller of the Currency ("OCC") is required if the total of all dividends HSBC Bank USA declares in any year exceeds the cumulative net income for that year, combined with the net income for the two preceding years reduced by dividends attributable to those years. OCC approval also is required for a reduction of permanent capital of HSBC Bank USA. Under a separate restriction, payment of dividends is prohibited in amounts greater than undivided profits then on hand, after deducting actual losses and bad debts. Bad debts are debts due and unpaid for a period of six months unless well secured, as defined, and in the process of collection.

In March 2020, the FRB announced it had reduced its reserve requirement to zero percent. Prior to the announcement, HSBC Bank USA was required to maintain reserve balances either in the form of vault cash or on deposit with the Federal Reserve Bank, based on a percentage of deposits. At December 31, 2019, HSBC Bank USA was required to maintain $2,475 million of reserve balances with the Federal Reserve Bank which were reported within interest bearing deposits with banks on the consolidated balance sheet.

We are subject to regulatory capital rules issued by U.S. banking regulators including Basel III (the "Basel III rule"). A bank or bank holding company's failure to meet minimum capital requirements can result in certain mandatory actions and possibly additional discretionary actions by its regulators. The following table summarizes the capital amounts and ratios of HSBC USA and HSBC Bank USA, calculated in accordance with the Basel III rule at March 31, 2020 and December 31, 2019:

	March 31, 2020							December 31, 2019
	Capital Amount		Well-Capitalized  Ratio(1)			Actual Ratio		Capital Amount		Well-Capitalized Ratio(1)			Actual Ratio
	(dollars are in millions)
Common equity Tier 1 ratio:
HSBC USA	$	15,622	4.5	%	(2)	11.9	%	$	15,876	4.5	%	(2)	13.1	%
HSBC Bank USA	17,814		6.5			14.0		18,043		6.5			15.2
Tier 1 capital ratio:
HSBC USA	16,887		6.0			12.9		17,141		6.0			14.1
HSBC Bank USA	20,314		8.0			15.9		20,543		8.0			17.3
Total capital ratio:
HSBC USA	20,932		10.0			16.0		19,743		10.0			16.3
HSBC Bank USA	23,063		10.0			18.1		22,724		10.0			19.2
Tier 1 leverage ratio:
HSBC USA	16,887		4.0		(2)	9.0		17,141		4.0		(2)	9.9
HSBC Bank USA	20,314		5.0			11.0		20,543		5.0			12.0
Supplementary leverage ratio ("SLR"):
HSBC USA	16,887		3.0		(3)	6.5		17,141		3.0		(3)	6.9
HSBC Bank USA	20,314		3.0		(3)	8.0		20,543		3.0		(3)	8.4
Risk-weighted assets:(4)
HSBC USA	130,901							121,407
HSBC Bank USA	127,499							118,618
Adjusted quarterly average assets:(5)
HSBC USA	187,962							173,270
HSBC Bank USA	184,851							170,722
Total leverage exposure:(6)
HSBC USA	258,783							247,590
HSBC Bank USA	254,907							244,008

⁽¹⁾  HSBC USA and HSBC Bank USA are categorized as "well-capitalized," as defined by their principal regulators. To be categorized as well-capitalized under regulatory guidelines, a banking institution must have the ratios reflected in the above table, and must not be subject to a directive, order, or written agreement to meet and maintain specific capital levels.

⁽²⁾  There are no common equity Tier 1 or Tier 1 leverage ratio components in the definition of a well-capitalized bank holding company. The ratios shown are the regulatory minimums.

⁽³⁾  There is no SLR component in the definition of a well-capitalized banking institution. The ratios shown are the regulatory minimum ratios.

⁽⁴⁾  Calculated using the generally-applicable Standardized Approach.

⁽⁵⁾  Represents the Tier 1 leverage ratio denominator which reflects quarterly average assets adjusted for amounts permitted to be deducted from Tier 1 capital.

⁽⁶⁾  Represents the SLR denominator which includes adjusted quarterly average assets plus certain off-balance sheet exposures.

In response to the COVID-19 pandemic, on March 31, 2020, the federal banking agencies issued an interim final rule that provides the option to transition in the regulatory capital impacts of the new current expected credit loss accounting standard over a five-year period. This option comes in addition to the separate three-year transition option already available. HSBC North America and HSBC Bank USA elected the five-year transition option and, as a result, beginning in 2020, capital ratios are reported in accordance with the transition rules in the interim final rule.