AmazonScience/document-haystack

1Based on the Company’s 2023 supervisory stress test results, the Company’s stress capital buffer requirement for the period 2beginning on October 1, 2023 through September 30, 2024 is 4.8%. Therefore, the Company’s minimum capital requirements 3plus the standardized approach capital conservation buffer for CET1 capital, Tier 1 capital and total capital ratios under the 4stress capital buffer framework are 9.3%, 10.8% and 12.8%, respectively, for the period from October 1, 2023 through 5September 30, 2024.6The Stress Capital Buffer Rule does not apply to the Bank. Pursuant to the OCC’s capital regulations, which are only applicable 7to the Bank, the capital conservation buffer for the Bank continues to be fixed at 2.5%. Accordingly, the Bank’s minimum 8capital requirements plus its capital conservation buffer for CET1 capital, Tier 1 capital and total capital ratios are 7.0%, 8.5% 9and 10.5%, respectively.10If the Company or the Bank fails to maintain its capital ratios above the minimum capital requirements plus the applicable 11capital conservation buffer requirements, it will face increasingly strict automatic limitations on capital distributions and 12discretionary bonus payments to certain executive officers.13As of December 31, 2023 and 2022, respectively, the Company and the Bank eac h exceeded the minimum capital requirements 14and the capital conservation buffer requirements applicable to them, and the Company and the Bank were each “ well-15capitalized.” The “well-capitalized” standards applicable to the Company are established in the Federal Reserve’s regulations, 16and the “well-capitalized” standards applicable to the Bank are established in the OCC’s PCA capital requirements.17CECL Transition Rule18The Federal Banking Agencies adopted the CECL Transition Rule that provides banking institutions an optional five-year 19transition period to phase in the impact of the CECL standard on their regulatory capital, the CECL Transition Election. We 20adopted the CECL standard (for accounting purposes) as of January 1, 2020, and made the CECL Transition Election (for 21regulatory capital purposes) in the first quarter of 2020. Therefore, the applicable amounts presented in this Report reflect such 22election.23Pursuant to the CECL Transition Rule, a banking institution could elect to delay the estimated impact of adopting CECL on its 24regulatory capital through December 31, 2021 and then phase in the estimated cumulative impact from January 1, 2022 through 25December 31, 2024. For the “day 2” ongoing impact of CECL during the initial two years, the Federal Banking Agencies used a 26uniform “scaling factor” of 25% as an approximation of the increase in the allowance under the CECL standard compared to the 27prior incurred loss methodology. Accordingly, from January 1, 2020 through December 31, 2021, electing banking institutions 28were permitted to add back to their regulatory capital an amount equal to the sum of the after-tax “day 1” CECL adoption 29impact and 25% of the increase in the allowance since the adoption of the CECL standard. From January 1, 2022 through 30December 31, 2024, the after-tax “day 1” CECL adoption impact and the cumulative “day 2” ongoing impact are being phased 31in to regulatory capital at 25% per year. The following table summarizes the capital impact delay and phase in period on our 32regulatory capital from years 2020 to 2025.33Capital Impact Delayed Phase In Period342020 2021 2022 2023 2024 202535“Day 1” CECL adoption impact Capital impact delayed to 362022 25% Phased 37In3850% Phased 39In4075% Phased 41In42Fully Phased 43In44Cumulative “day 2” ongoing impact45 25% scaling factor as an 46approximation of the increase 47in allowance under CECL48As of December 31, 2021, we added back an aggregate amount of $2.4 billion to our regulatory capital pursuant to the CECL 49Transition Rule. Consistent with the rule, we have phased in 50% of this amount as of December 31, 2023. The remaining $1.2 50billion will be phased in on January 1, 2024 and 2025 at $600 million per year. As of December 31, 2023, the Company’s 51CET1 capital ratio, reflecting the CECL Transition Rule, was 12.9% and would have been 12.6% excluding the impact of the 52CECL Transition Rule (or “on a fully phased-in basis”).53Market Risk Rule54The “Market Risk Rule” supplements the Basel III Capital Rules by requiring institutions subject to the rule to adjust their risk-55based capital ratios to reflect the market risk in their trading book. The Market Risk Rule generally applies to institutions with 5679 Capital One Financial Corporation (COF)