Regulatory Capital

9 Months Ended

Sep. 30, 2012

Regulatory Capital

17.    Regulatory Capital

Capital amounts and ratios of HSBC USA Inc. and HSBC Bank USA, calculated in accordance with current banking regulations, are summarized in the following table.

	September 30, 2012								December 31, 2011
	Capital Amount		Well-Capitalized Minimum Ratio(1)			Actual Ratio			Capital Amount		Well-Capitalized Minimum Ratio(1)			Actual Ratio
	(dollars are in millions)
Total capital ratio:
HSBC USA Inc.	$	20,262		10.00	%		19.20	%	$	21,908		10.00	%		18.39	%
HSBC Bank USA		20,876		10.00			20.28			22,390		10.00			18.86
Tier 1 capital ratio:
HSBC USA Inc.		13,981		6.00			13.25			15,179		6.00			12.74
HSBC Bank USA		14,897		6.00			14.47			15,996		6.00			13.48
Tier 1 common ratio:
HSBC USA Inc.		11,574		5.00	(2)		10.97			12,773		5.00	(2)		10.72
HSBC Bank USA		14,897		5.00			14.47			15,996		5.00			13.48
Tier 1 leverage ratio:
HSBC USA Inc.		13,981		3.00	(3)		7.35			15,179		3.00	(3)		7.43
HSBC Bank USA		14,897		5.00			8.01			15,996		5.00			7.98
Risk weighted assets:
HSBC USA Inc.		105,534								119,099
HSBC Bank USA		102,938								118,688

⁽¹⁾  HSBC USA Inc 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 minimum 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 is no Tier 1 common ratio component in the definition of a well-capitalized bank holding company. The ratio shown is the required minimum Tier 1 common ratio as included in the Federal Reserve Board’s final rule regarding capital plans for U.S. bank holding companies with total consolidated assets of $50 billion or more.

⁽³⁾  There is no Tier 1 leverage ratio component in the definition of a well-capitalized bank holding company. The ratio shown is the minimum required ratio.

We did not receive any cash capital contributions from our immediate parent, HNAI, during the first nine months of 2012. During the nine months ended September 30, 2012 we contributed $2 million to our subsidiary, HSBC Bank USA, in part to provide capital support for receivables purchased from our affiliate, HSBC Finance Corporation. See Note 16, “Related Party Transactions,” for additional information.

As part of the regulatory approvals with respect to the aforementioned receivable purchases completed in January 2009, HSBC Bank USA and HSBC made certain additional capital commitments to ensure that HSBC Bank USA holds sufficient capital with respect to the purchased receivables that are or may become “low-quality assets”, as defined by the Federal Reserve Act. These capital requirements, which require a risk-based capital charge of 100 percent for each “low-quality asset” transferred or arising in the purchased portfolios rather than the eight percent capital charge applied to similar assets that are not part of the transferred portfolios, are applied both for purposes of satisfying the terms of the commitments and for purposes of measuring and reporting HSBC Bank USA’s risk-based capital and related ratios. This treatment applies as long as the low-quality assets are owned by an insured bank. During 2011, HSBC Bank USA sold low-quality credit card receivables with a net carrying value of approximately $266 million to a non-bank subsidiary of HSBC USA Inc. to reduce the capital requirement associated with these assets. Capital ratios and amounts at December 31, 2011 in the table above reflect this reporting. The remaining purchased receivables subject to this requirement were sold to Capital One as part of the previously discussed sale which was completed on May 1, 2012.

Regulatory guidelines impose certain restrictions that may limit the inclusion of deferred tax assets in the computation of regulatory capital. We closely monitor the deferred tax assets for potential limitations or exclusions. At September 30, 2012 and December 31, 2011, deferred tax assets of $999 million and $363 million, respectively, were excluded in the computation of regulatory capital.