Basel III Regulatory Capital Disclosures
September 30, 2021
Table of Contents
Introduction | 1 |
Overview | 1 |
Current Regulatory Environment and Other Developments | 1 |
Disclosure Matrix | 3 |
Components of Capital | 10 |
Capital Adequacy - Standardized Risk-Weighted Assets | 10 |
Capital Adequacy - Capital Ratios | 11 |
Credit Risk | 11 |
Securitizations | 13 |
Equities not Subject to the Market Risk Capital Rule | 15 |
Supplementary Leverage Ratio | 15 |
INTRODUCTION
The Charles Schwab Corporation (CSC) is a savings and loan holding company (SLHC) engaged, through its subsidiaries (collectively referred to as Schwab or the Company), in wealth management, securities brokerage, banking, asset management, custody, and financial advisory services.
Principal business subsidiaries of CSC include the following:
- Charles Schwab & Co., Inc. (CS&Co), incorporated in 1971, a securities broker-dealer;
- TD Ameritrade, Inc., an introducing securities broker-dealer;
- TD Ameritrade Clearing, Inc. (TDAC), a securities broker-dealer that provides trade execution and clearing services to TD Ameritrade, Inc.;
- Charles Schwab Bank, SSB (Schwab Bank), Schwab's principal banking entity; and
- Charles Schwab Investment Management, Inc. (CSIM), the investment advisor for Schwab's proprietary mutual funds (Schwab Funds®), and Schwab's exchange-traded funds (Schwab ETFsTM).
Schwab provides financial services to individuals and institutional clients through two segments - Investor Services and Advisor Services.
Effective October 6, 2020, the Company completed its acquisition of TD Ameritrade Holding Corporation (TDA Holding) and its consolidated subsidiaries (collectively referred to as "TD Ameritrade" or "TDA"). TD Ameritrade provides securities brokerage services, including trade execution, clearing services, and margin lending, through its broker-dealer subsidiaries; and futures and foreign exchange trade execution services through its futures commission merchant (FCM) and forex dealer member (FDM) subsidiary.
The basis of consolidation that CSC uses for regulatory reporting is consistent with the basis used for reporting under generally accepted accounting principles in the U.S. (U.S. GAAP) as established by the Financial Accounting Standards Board.
OVERVIEW
This document, and certain of Schwab's public filings, present the regulatory capital disclosures in compliance with Basel III as set forth in 12 C.F.R. §217.63 - Disclosures by institutions regulated by the Federal Reserve Board ("Federal Reserve") and 12 C.F.R. § 217.173 (c) (collectively referred to as the Rules). Schwab's Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (Form 10-K) filed with the Securities and Exchange Commission (SEC) and it's Quarterly Report on Form
10-Q for the quarterly period ended September 30, 2021 (Form 10-Q) filed with the SEC contain management's discussion of the overall corporate risk profile of Schwab and related management strategies. These Basel III Regulatory Capital Disclosures should be read in conjunction with the Form 10-K, Form 10-Q, the Consolidated Financial Statements for Bank Holding Companies dated September 30, 2021 (FR Y-9C), the Regulatory Capital Reporting for Institutions Subject to the Advanced Capital Adequacy Framework dated September 30, 2021 (FFIEC 101) and the Consolidated Reports of Condition and Income for a Bank with Domestic and Foreign Offices for the period ended September 30, 2021 (FFIEC 031). Schwab's Disclosure Matrix (see pages 3-9) specifies where the disclosures required by the Rules are located.
CURRENT REGULATORY ENVIRONMENT AND OTHER DEVELOPMENTS
In October 2019, the Federal Reserve, Office of the Comptroller of the Currency, and Federal Deposit Insurance Corporation jointly adopted a final rule which became effective on December 31, 2019 (interagency regulatory capital and liquidity rules) that revised the regulatory capital and liquidity requirements for large U.S. banking organizations with $100 billion or more in total consolidated assets. The rules established four risk-based categories for determining the regulatory capital and liquidity requirements applicable to these institutions based on their total assets, cross-jurisdictional activity, weighted short-term wholesale funding, nonbank assets, and off-balance sheet exposure. CSC is subject to the requirements under Category III based on its total consolidated assets of between $250 billion and less than $700 billion and having less than $75 billion in cross-jurisdictional activity.
Capital requirements for Category III banking organizations include the generally applicable risk-based capital and Tier 1 leverage ratio requirements (the "standardized approach" framework), the minimum 3.0% supplementary leverage ratio, the countercyclical capital buffer which is currently 0%, and for large bank holding companies, the stress capital buffer. Under the
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revised capital requirements, Category III organizations are not subject to the "advanced approaches" regulatory capital framework and are permitted to opt out of including accumulated other comprehensive income (AOCI) in their regulatory capital calculations. CSC made this opt out election, and commencing with the first quarter of 2020, now excludes AOCI from its regulatory capital.
On March 16, 2021, CSC's declaration electing to be treated as a Financial Holding Company (FHC) was deemed effective by the Federal Reserve. In addition to the activities that savings and loan holding companies that have not elected to be treated as an FHC are permitted to conduct, the Company may now also engage in activities that are financial in nature or incidental to a financial activity (FHC Activities), including securities underwriting, dealing and making markets in securities, various insurance underwriting activities, and making merchant banking investments in non-financial companies.
Beginning in 2022, CSC, as a large SLHC will be subject to an annual Comprehensive Capital Analysis and Review (CCAR) process, which requires submission of an annual capital plan to the Federal Reserve. The process also imposes a stress capital buffer requirement, floored at 2.5 percent of risk-weighted assets, that will replace CSC's current 2.5 percent capital conservation buffer. The capital plan requirement will become effective for CSC with the 2022 CCAR cycle, and CSC's initial stress capital buffer requirement will be based on its 2022 CCAR stress testing results.
Following are links to the referenced public filings:
Filing | Link to Filing |
2020 Form 10-K | https://www.sec.gov/Archives/edgar/data/316709/000031670921000012/schw- |
20201231.htm | |
September 30, 2021 Form 10-Q | https://www.sec.gov/Archives/edgar/data/316709/000031670921000081/schw- |
20210930.htm | |
Consolidated Financial Statements for | https://www.ffiec.gov/npw/Institution/Profile/1026632?dt=20210316 |
Bank Holding Companies - FR Y-9C | Note search terms below: |
dated September 30, 2021 | Report = Consolidated Financial Statements for BHCs (FR Y-9C) |
Report Date = 9/30/2021 | |
Regulatory Capital Reporting for | https://www.ffiec.gov/npw/Institution/Profile/1026632?dt=20210316 |
Institutions Subject to the Advanced | Note search terms below: |
Capital Adequacy Framework - FFIEC | Report = Regulatory Capital Reporting for Institutions Subject to the Advanced |
101 dated September 30, 2021 | Capital Adequacy Framework (FFIEC 101) |
Report Date = 9/30/2021 | |
Consolidated Reports of Condition and | https://cdr.ffiec.gov/public/ManageFacsimiles.aspx |
Income for a Bank with Domestic and | Note search terms below: |
Foreign Offices - FFIEC 031 for the | Report = Call |
quarter ended September 30, 2021 | Report Date = 9/30/2021 |
Institution Name = Charles Schwab Bank, SSB | |
Consolidated Reports of Condition and | https://cdr.ffiec.gov/public/ManageFacsimiles.aspx |
Income for a Bank with Domestic and | Note search terms below: |
Foreign Offices - FFIEC 031 for the | Report = Call |
quarter ended September 30, 2021 | Report Date = 9/30/2021 |
Institution Name = Charles Schwab Premier Bank, SSB | |
Consolidated Reports of Condition and | https://cdr.ffiec.gov/public/ManageFacsimiles.aspx |
Income for a Bank with Domestic and | Note search terms below: |
Foreign Offices - FFIEC 031 for the | Report = Call |
quarter ended September 30, 2021 | Report Date = 9/30/2021 |
Institution Name = Charles Schwab Trust Bank |
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DISCLOSURE MATRIX
Disclosure | Source Reference - | ||||
Table | Disclosure Requirement | Disclosure Location | Page | if applicable | |
Scope of Application (Table 1) | |||||
Qualitative: | The name of the top corporate entity in the group to which | Basel III Regulatory Capital Disclosures: | |||
(a) | subpart D of this part applies. | Introduction | Pg. 1 | ||
(b) | A brief description of the differences in the basis for | Basel III Regulatory Capital Disclosures: | |||
consolidating entities for accounting and regulatory purposes, | Introduction | Pg. 1 | |||
with a description of those entities: | |||||
(1) | That are fully consolidated; | ||||
(2) | That are deconsolidated and deducted from total capital; | ||||
(3) | For which the total capital requirement is deducted; and | ||||
(4) | That are neither consolidated nor deducted (for example, | ||||
where the investment in the entity is assigned a risk | |||||
weight in accordance with this subpart). | |||||
(c) | Any restrictions, or other major impediments, on transfer of | Form 10-Q | Form 10-Q | ||
funds or total capital within the group. | MD&A - Capital Management | Pg. 19-21 | |||
Note 17 - Regulatory Requirements | Pg. 60-61 | ||||
(d) | The aggregate amount of surplus capital of insurance | Not applicable. The Company does not have | |||
subsidiaries included in the total capital of the consolidated | any insurance subsidiaries. | ||||
group. | |||||
(e) | The aggregate amount by which actual total capital is less | Not applicable. The Company does not have | |||
than the minimum total capital requirement in all subsidiaries, | any subsidiaries with total capital requirements | ||||
with total capital requirements and the name(s) of the | where total capital is less than the minimum | ||||
subsidiaries with such deficiencies. | requirement. | ||||
Capital Structure (Table 2) | |||||
Qualitative: | Summary information on the terms and conditions of the main | Form 10-Q | Form 10-Q | ||
(a) | features of all regulatory capital instruments. | MD&A - Capital Management | Pg. 19-21 | ||
Consolidated Balance Sheets | Pg. 27 | ||||
Note 14 - Stockholders' Equity | Pg. 55-56 | ||||
Quantitative: | The amount of common equity tier 1 capital, with separate | FR Y-9C | FR Y-9C | ||
(b) | disclosure of: | Schedule HC-R - Regulatory Capital | Pg. 51-53 | ||
(1) | Common stock and related surplus; | FFIEC 031 | FFIEC 031 | ||
(2) | Retained earnings; | Schedule RC-R - Regulatory Capital | Pg. 58-60 | ||
(3) | Common equity minority interest; | ||||
(4) | Accumulated other comprehensive income (AOCI); and | ||||
(5) | Regulatory adjustments and deductions made to | ||||
common equity tier 1 capital. | |||||
(c) | The amount of tier 1 capital, with separate disclosure of: | Basel III Regulatory Capital Disclosures: | Pg. 10 | ||
(1) | Additional tier 1 capital elements, including additional | Components of Capital | |||
tier 1 capital instruments and tier 1 minority interest not | FR Y-9C | FR Y-9C | |||
included in common equity tier 1 capital; and | Schedule HC-R - Regulatory Capital | Pg. 51-53 | |||
(2) | Regulatory adjustments and deductions made to tier 1 | FFIEC 031 | FFIEC 031 | ||
capital. | Schedule RC-R - Regulatory Capital | Pg. 57-59 | |||
(d) | The amount of total capital, with separate disclosure of: | Basel III Regulatory Capital Disclosures: | Pg. 10 | ||
(1) | Tier 2 capital elements, including tier 2 capital | Components of Capital | |||
instruments and total capital minority interest not | FR Y-9C | FR Y-9C | |||
included in tier 1 capital; and | Schedule HC-R - Regulatory Capital | Pg. 54 | |||
(2) | Regulatory adjustments and deductions made to total | FFIEC 031 | FFIEC 031 | ||
capital. | Schedule RC-R - Regulatory Capital | Pg. 60-61 | |||
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Disclaimer
The Charles Schwab Corporation published this content on 16 November 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 16 November 2021 09:05:04 UTC.