As a Category III banking organization, Truist is required to submit to the FRB and Truist Bank are required by statuteFDIC a resolution plan every three years with submissions alternating between a full resolution plan and regulation to file, maintain and update plans for a rapid and orderlytargeted resolution in the event of material financial distress or failure.plan. The FRB and the FDIC must review and evaluate Truist'sTruist’s resolution plan. The FRB and FDIC are authorized to impose restrictions on growth and activities or operations if the agencies determine that a resolution plan is not credible or would not facilitate a rapid and orderly resolution of the company under the U.S. Bankruptcy Code, and could require the banking organization to divest assets or take other actions if it did not submit an acceptable resolution plan within two years after any such restrictions were imposed. Truist submitted its inaugural resolution plan to the FRB and FDIC in September 2021. On September 30, 2022, the FRB and FDIC announced that they did not identify any shortcomings or deficiencies in Truist’s resolution plan. On the same date, the FRB and FDIC also announced that they intend to issue guidance to assist Category II and Category III banking organizations in further developing their resolution plans, in advance of the next round of resolution plans due on July 1, 2024.

In addition, Truist Bank, as an IDI, is required by an FDIC regulation to file a separate bank level resolution plan. In April 2019, theplan every three years. The FDIC issued an advanced notice of proposed rulemakinga policy statement in June 2021 announcing that would modify the content and frequency of resolution planning requirements for systemically important insured depository institutions. While this proposal did not include specific details regarding the content or frequency of futureit will resume requiring bank level resolution planningplans for large banks, including Truist Bank, and that such bank-level resolution plans will have more streamlined content requirements than previous requirements. During 2021, Truist Bank was informed by the FDIC indicated that the revised approach would establish tieredits next resolution planning requirements basedplan was due on the size, complexity and other factors of applicable insured depository institutions. The FDIC Chairman has delayed the next round of submissions of resolution plans for IDIs until this rulemaking process has been completed; as a result,or before December 1, 2022. Truist Bank does notsubmitted its inaugural IDI resolution plan to the FDIC in November 2022, which is currently have an anticipated submission date for a resolution plan.under review.

Truist must submit an annual capital plan toUnder the FRB that reflects its projected financial performance under baseline and stressful macroeconomic conditions, andTailoring Rules, Truist must obtain non-objection from the FRB for capital distributions proposed in its capital plan in connection with the FRB’s annual CCAR process. Truist generally may pay dividends and interest on capital securities and repurchase or retire capital securities only in accordance with a capital plan that has been reviewed by the FRB and that has received a non-objection from the FRB.

Truist and Truist Bank are subject to certain risk-based capital and leverage capital ratio requirements under the Basel III Rules adoptedestablished by the FRB, for Truist, and by the FDIC, for Truist Bank. These requirements are based on the capital framework developed by the BCBS for strengthening the regulation, supervision, and risk management of banks under Basel III rules, as well as certain provisions of the Dodd-Frank Act. These quantitative calculations are minimums, and the FRB and FDIC may determine that a banking organization, based on its size, complexity, or risk profile, must maintain a higher level of capital in order to operate in a safe and sound manner. Failure to be well capitalized or to meet minimum capital requirements could result in certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have an adverse material effect on Truist’s operations or financial condition. These actions could include requiring Truist to commit capital to Truist Bank in abnormal operating conditions which would otherwise be available to Truist’s creditors and shareholders. Failure to be well capitalized or to meet minimum capital requirements could also result in restrictions on Truist’s or Truist Bank’s ability to pay dividends or otherwise distribute capital or to receive regulatory approval of applications.for acquisitions.

Under the FDIC,FRB’s capital framework for BHCs, Truist is subject to capital requirements, including the FRBSCB, that are determined from the supervisory stress test results. The SCB is equal to the greater of (i) the difference between Truist’s starting and minimum projected CET1 capital ratios under the OCC issued final rules that simplify the capital treatment of mortgage servicing assets, deferred tax assets arising from temporary differences that an institution could not realize through net operating loss carrybacks, and investmentsseverely adverse scenario in the supervisory stress test, plus the sum of the dollar amount of its planned common stock dividends for each of the fourth through seventh quarters of the planning horizon as a percentage of risk-weighted assets, or (ii) 2.5%. The FRB assigned Truist an SCB of 2.5%, which is effective from October 1, 2022 to September 30, 2023, at which point a revised SCB will be calculated and provided to Truist. Truist is required to describe its planned capital actions in its CCAR capital plan, but is no longer required to seek prior approval if it makes capital distributions in excess of unconsolidated financial institutions, as well as simplifythose included in its CCAR capital plan. Instead, Truist is subject to automatic distribution limitations if its capital ratios fall below its buffer requirements, which include the recognition and calculation of minority interests that are includable in regulatory capital, for non-advanced approaches banking organizations, including Truist and Truist Bank. Banking organizations may adopt these changes beginning on January 1, 2020, and must adopt these changes as of April 1, 2020. Truist has elected to implement these changes as of January 1, 2020 and anticipates an approximate 10 basis point reduction in CET1 and other risk-based capital ratios.SCB.

The Basel III Rules also require banking organizations to maintain a capital conservation buffer to avoid becoming subject to restrictions on capital distributions and certain discretionary bonus payments to management. The capital conservation buffer was at its fully phased-in level of 2.5% of risk-weighted assets throughout 2019. For certain large banking organizations, the capital conservation bufferSCB could be supplemented by a countercyclical capital buffer of up to an additional 2.5% of risk-weighted assets. This buffer is currently set at zero. An FRB policy statement establishes the framework and factors the FRB would use in setting and adjusting the amount of the countercyclical capital buffer. Covered banking organizations would generally have 12 months after the announcement of any increase in the countercyclical capital buffer to meet the increased buffer requirement, unless the FRB determines to establish an earlier effective date. If the full countercyclical buffer amount is implemented, Truist and Truist Bank would be required to maintain a CET1 capital ratio of at least 9.5%, a Tier 1 capital ratio of at least 11%11.0%, and a Total capital ratio of at least 13%13.0% to avoid limitations on capital distributions and certain discretionary incentive compensation payments.

Certain large banking organizations with trading assets and liabilities above certain thresholds, including Truist, are subject to the Market Risk Rule and must adjust their risk-based capital ratios to reflect the market risk of their trading activities. Refer to the “Market Risk” section of the MD&A for additional disclosures related to market risk management.

In addition, Truist and Truist Bank are subject to a Tier 1 leverage ratio, equal to the ratio of Tier 1 capital to quarterly average assets, (netnet of goodwill, certain other intangible assets, and certain other deductions).deductions. Category III banking organizations are also subject to a minimum 3.0% supplementary leverage ratio. The supplementary leverage ratio is calculated by dividing Tier 1 capital by total leverage exposure, which takes into account on-balance sheet assets as well as certain off-balance sheet items, including loan commitments and potential future exposure underof derivative contracts.

The total minimum regulatory capital ratios and well-capitalized minimum ratios applicable to Category III banking organizations are reflected in the table below. The FRB has not yet revised the well-capitalized standard for BHCs to reflect the higher capital requirements imposed under the Basel III Rules. For purposes of certain FRB rules, including determining whether a BHC meets the requirements to be a FHC, BHCs, such as Truist, must maintain a Tier 1 Risk-Based Capital Ratio of 6.0% or greater and a Total Risk-Based Capital Ratio of 10.0% or greater.greater to meet the well-capitalized minimum. The FRB may require BHCs, including Truist, to maintain capital ratios substantially in excess of mandated minimum levels, depending upon general economic conditions and a BHC'sBHC’s particular condition, risk profile, and growth plans. In September 2022, the FRB, FDIC, and OCC announced that they are developing a joint proposed rule to implement enhanced regulatory capital standards that align with those included in the Basel III Rules and plan to seek public input on the new capital standards as soon as possible. Refer to the “Capital” section in MD&A for disclosures containing the minimum regulatory capital ratios and well-capitalized minimum ratios applicable to Category III banking organizations.

The following table presents the minimum regulatoryTruist is required to submit its next capital ratios, well-capitalized minimums, and minimum ratio plus capital conservation buffer:

On December 21, 2018,In addition to the regulatory agencies issued a final rule that revises the agencies’ regulatory capital rules to reflect the impact of new accounting and reporting requirements under CECL. The rule identifies which allowances under the new current expected credit losses accounting standard would be eligibleCCAR stress testing for inclusion in regulatory capital, provides banking organizations the option to phase in the day-one effectsTruist, Truist Bank conducts company-run stress tests on regulatory capital that may result from the adoption of the new accounting standard over a three-year period, and amends certain regulatory disclosure requirements consistent with the new accounting standard.an annual basis, while only required biennially.

Certain BHCs and their bank subsidiaries, including Truist and Truist Bank, are subject to a minimum LCR. The LCR is designed to ensure that BHCs have sufficient high-quality liquid assets to survive a significant liquidity stress event lasting for 30 calendar days. In June 2016, the federal banking regulators proposed a rule to implement the NSFR. The NSFR is designed to promote stable, longer-term funding of assets and business activities over a one-year time horizon and would apply to Truist and Truist Bank, if adopted. Under the Tailoring Rules, Truist and Truist Bank, as Category III banking organizations, will qualify for reduced LCR and proposed NSFR requirements calibrated at 85% of the full requirements.

Truist also is subject to FRB rules that require certain large BHCs to among other things, conduct internal liquidity stress tests over a range of time horizons, maintain a buffer of highly liquid assets sufficient to meet projected net outflows under the BHC’s 30-day liquidity stress test, and maintain a contingency funding plan that meets certain requirements.

The federal banking agencies are required to take "prompt“prompt corrective action"action” with respect to financialFDIC-insured depository institutions that do not meet minimum capital requirements. The law establishes five categories for this purpose: "well-capitalized," "adequately“well-capitalized,” “adequately capitalized," "undercapitalized," "significantly undercapitalized"” “undercapitalized,” “significantly undercapitalized,” and "critically“critically undercapitalized."” To be considered "well-capitalized,"“well-capitalized,” an IDI must maintain minimum capital ratios and must not be subject to any order or written directive to meet and maintain a specific capital level for any capital measure. An institution that fails to remain well-capitalized becomes subject to a series of restrictions that increase in severity as its capital condition weakens. Such restrictions may include a prohibition on capital distributions, restrictions on asset growth, or restrictions on the ability to receive regulatory approval of applications. The regulations apply only to banks and not to BHCs. However, the FRB is authorized to take appropriate action at the holding company level, based on the undercapitalized status of the holding company’s subsidiary banking institutions. In certain instances relating to an undercapitalized banking institution, the BHC, in its capacity as a source of strength would be required to guarantee the performance of the undercapitalized subsidiary’s capital restoration plan and could be liable for civil money damages for failure to fulfill those guarantee commitments.

In addition, failure to meet capital requirements may cause an institution to be directed to raise additional capital. Federal law further mandates that the agencies adopt safety and soundness standards generally relating to operations and management, asset quality and executive compensation, and authorizes administrative action against an institution that fails to meet such standards. Failure to meet capital guidelines may subject a banking organization to a variety of other enforcement remedies, including additional substantial restrictions on its operations and activities, termination of deposit insurance by the FDIC and, under certain conditions, the appointment of a conservator or receiver.

There are various legal restrictions on the extent to which Truist and its non-bank subsidiaries may borrow or otherwise engage in certain types of transactions with Truist Bank. Under the Federal Reserve Act and FRB regulations, Truist Bank and its subsidiaries are subject to quantitative and qualitative limits on extensions of credit, purchases of assets, and certain other transactions involving its non-bank affiliates. In addition, transactions between Truist Bank and its non-bank affiliates are required to be on arm’s length terms and must be consistent with standards of safety and soundness.

Truist is subject to numerous laws that limit its acquisition activity.may require regulatory approval for acquisitions. For example, under the BHCA, a BHC may not directly or indirectly acquire ownership or control of more than 5% of the voting shares or substantially all of the assets of any BHC or bank or merge or consolidate with another BHC without the prior approval of the FRB. The BHCA and other federal law enumerateslaws enumerate the factors the FRB must consider when reviewing the merger of BHCs, the acquisition of banks or the acquisition of voting securities of a bank or BHC. These factors include the competitive effects of the proposal in the relevant geographic markets; the financial and managerial resources and future prospects of the companies and banks involved in the transaction; the effect of the transaction on the financial stability of the United States; the organizations’ compliance with anti-money laundering laws and regulations; the convenience and needs of the communities to be served; and the records of performance under the CRA of the IDIs involved in the transaction.

After a bank has established branches in a state through an interstate merger transaction, the bank may establish and acquire additional branches at any location in the state where a bank headquartered in that state could have established or acquired branches under applicable federal or state law. These regulatory considerations are applicable to privately negotiated acquisition transactions.

The FRB has supervisory and enforcement powers over BHCs and their nonbanking subsidiaries. The FRB has authority to prohibit activities that represent unsafe or unsound practices or constitute violations of law, rule, regulation, administrative order, or written agreement with a federal regulator. These powers may be exercised through the issuance of confidential supervisory actions, cease and desist orders, civil monetary penalties, or other actions.

There also are a number of obligations and restrictions imposed on BHCs and their IDI subsidiaries by federal law and regulatory policy that are designed to reduce potential loss exposure to depositors and the DIF in the event the IDI is insolvent or is in danger of becoming insolvent. For example, the FRB requires a BHC to serve as a source of financial strength to its subsidiary IDIs and to commit financial resources to support such institutions in circumstances where it might not do so otherwise.

Banking regulators also have broad supervisory and enforcement powers over Truist Bank, including the power to impose confidential supervisory actions, fines and other civil and criminal penalties, and to appoint a receiver in order to conserve the assets of Truist Bank for the benefit of depositors and other creditors. The NCCOB also has the authority to take possession of a North Carolina state bank in certain circumstances, including among other things, when it appears that such bank has violated its charter or any applicable laws, is conducting its business in an unauthorized or unsafe manner, is in an unsafe or unsound condition to transact its business or has an impairment of its capital stock.

Truist Bank'sBank’s deposits are insured by the FDIC up to the applicable limits, which is currently $250,000 per account ownership type. The FDIC imposes a risk-based deposit premium assessment system that determines assessment rates for an IDI based on an assessment rate calculator, which is based on a number of elements to measure the risk each IDI poses to the DIF. The assessment rate is applied to total average assets less tangible equity, as defined under the Dodd-Frank Act. The assessment rate schedule can change from time to time at the discretion of the FDIC, subject to certain limits. Under the current system, premiums are assessed quarterly.

In March 2016,The FDIC, as required under the Federal Deposit Insurance Act, established a plan in September 2020 to restore the DIF reserve ratio to meet or exceed the statutory minimum of 1.35% within eight years. This plan did not include an increase in the deposit insurance assessment rate. Based on the FDIC’s recent projections, however, the FDIC imposed a temporary surcharge for insured depository institutions with total assetsdetermined that the DIF reserve ratio is at risk of at least $10 billion, which took effect July 1, 2016 and ended onnot reaching the statutory minimum by the statutory deadline of September 30, 2018. Truist incurred incremental2028 without increasing the deposit insurance assessment rates. In October 2022, the FDIC adopted a final rule to increase initial base deposit insurance assessment rate schedules uniformly by 2 basis points, beginning on January 1, 2023. This rule is expected to increase Truist’s regulatory charges of $63premiums by approximately $100 million annually. The FDIC also concurrently maintained the Designated Reserve Ratio for 2018, $84 million for 2017 and $42 million for 2016 arising from the surcharge.DIF at 2%.

In connection with its lending and leasing activities, Truist Bank is subject to a number of federal and state laws designed to protect borrowers and promote lending to various sectors of the economy and population. The CFPB examines Truist and Truist Bank for compliance with a broad range of federal consumer financial laws and regulations, including the laws and regulations that relate to deposit products, credit card, mortgage, automobile, student, and other consumer loans, and other consumer financial products and services offered. The federal consumer financial protection laws that are subject to the CFPB’s supervision and enforcement powers include, among others, the Truth in Lending Act, Truth in Savings Act, HMDA, FCRA,Fair Credit Reporting Act, Electronic Funds Transfer Act, Real Estate Settlement Procedures Act, Fair Debt CollectionsCollection Practices Act, Equal Credit Opportunity Act, and Fair Housing Act. The CFPB also has authority to take enforcement actions to prevent and remedy acts and practices relating to consumer financial products and services that it deems to be unfair, deceptive, or abusive, and to impose new disclosure requirements for any consumer financial product or service.

The CFPB may issue regulations that impact products and services offered by Truist or Truist Bank. The regulations could reduce the fees that Truist receives, alter the way Truist provides its products and services, or expose Truist to greater risk of private litigation or regulatory enforcement action. The CFPB may engage in rulemakings affecting prepaid cards, data on small business lending, HMDA, and payday, vehicle title, and certain high-cost installment loans.

The Patriot Act is intended to strengthen the ability of U.S. law enforcement agencies and intelligence communities to cooperate in the prevention, detection, and prosecution of international money laundering and the financing of terrorism. The Patriot Act contains anti-money laundering measures affecting IDIs, broker-dealers and certain other financial institutions. The Patriot Act includes the International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001, which requires such financial institutions to implement policies and procedures to combat money laundering and the financing of terrorism and grants the Secretary of the U.S. Treasury broad authority to establish regulations and to impose requirements and restrictions on financial institutions'institutions’ operations. The Patriot Act imposes substantial obligations on financial institutions to maintain appropriate policies, procedures and processes to detect, prevent, and report money laundering, terrorist financing, and other financial crimes. Failure to comply with these regulations may result in fines, penalties, lawsuits, regulatory sanctions, reputationreputational damage, or restrictions on business. In addition, the Patriot Act requires the federal bank regulatory agencies to consider the effectiveness of a financial institution'sinstitution’s anti-money laundering activities when reviewing bank mergers and BHC acquisitions.

Truist iscontinues to be subject to a number of anti-money launderingexaminations and ongoing monitoring to assess compliance with BSA/AML laws and regulations as a result of being a financial company headquartered in the United States. AML requirements are primarily derived from the Bank Secrecy Act, as amended by the the Patriot Act.regulations. These laws and regulations are designed to preventprotect the financial system from being used by criminals to hide illicit proceeds and to impede terrorists' ability to access and move funds used in support of terrorist activities. Among other things, BSA/AML laws and regulations requirerequiring financial institutions to establish develop and implement BSA/AML programs that meet certain standards, including, in some instances, expanded reporting, particularly indesigned to detect, deter, and prevent the areause of suspicious transactions,the financial system to facilitate the funding of illicit and enhanced information gathering and recordkeeping requirements. Failurecriminal activities. In addition, Truist is also subject to complyprohibitions with applicable laws and regulations or maintain adequate AML related controls can leadrespect to significant monetary penalties and reputational damage.

Federal law grants substantial enforcement powers to federal financial institution regulators, OFAC and law enforcement agencies with respect to AML laws and regulations. This enforcement authority includes, among other things, the ability to assess significant civil or countries, identified as "Specially Designated Nationals," such as terroristscriminal monetary penalties, fines, or restitution; to issue cease and narcotics traffickers.desist or removal orders; and to initiate injunctive actions against financial institutions and institution-affiliated parties. These rules require the blockingenforcement actions may be initiated for violations of assets held by,laws and prohibit transfers of property to such individuals, entitiesregulations and unsafe or countries. Blocked assets, such as property or bank deposits, cannot be paid out, withdrawn, set off or transferred in any manner without a license from OFAC. Truist maintains an OFAC program designed to ensure compliance with OFAC requirements. Failure to comply with such requirements could subject Truist to serious legal and reputational consequences, including criminal penalties.unsound practices.

Various federal and state laws and regulations contain extensive data privacy and cybersecurity provisions, and the regulatory framework for data privacy and cybersecurity is rapidly evolving. The FRB, FDIC, and other bank regulatory agencies have adopted guidelines for safeguarding confidential, personal customer information. These guidelines require each financial institution, under the supervision and ongoing oversight of its board of directors or an appropriate committee thereof, to create, implement, and maintain a comprehensive written information security program designed to ensure the security and confidentiality of customer information, protect against any anticipated threats or hazards to the security or integrity of such information and protect against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any customer. In addition, various U.S. regulators, including the FRB and the SEC, have increased their focus on cyber security through guidance, examinations, and regulations.

TheAt the federal level, the GLBA requires financial institutions to implement policies and procedures regarding the disclosure of nonpublic personal information about consumers to non-affiliated third parties. In general, the statute requires explanations to consumers on policies and procedures regarding the disclosure of such nonpublic personal information and, except as otherwise required by law, prohibits disclosing such personal information except as provided in the banking subsidiary’s policies and procedures.

States are also increasingly proposing or enacting legislation that relates to data privacy and data protection such as the California Consumer Privacy Act which went into effect on January 1, 2020.Act. Truist has undertaken significant efforts to comply with these laws and continues to assess their requirements and applicability to Truist. These laws and proposed legislation are still subject to revision or formal guidance and they may be interpreted or applied in a manner inconsistent with the Company'sCompany’s understanding. California voters also recently passed the California Privacy Rights Act, which became effective on January 1, 2023, and significantly modifies the California Consumer Privacy Act, including by imposing additional obligations on covered companies and expanding California consumers’ rights with respect to certain sensitive personal information, potentially resulting in further uncertainty and requiring Truist to incur additional costs to comply. Truist may be subject to similar laws in other states where Truist does business or in states where Truist may collect personal information of residents.

In addition, the promulgation in 2017 of the New York Department of Financial Services Cybersecurity Regulation, which was proposed to be updated in November 2022, and the National Association of Insurance Commissioners Insurance Data Security Model Law (which has been adopted by eight states as of February 2020) are driving significant cybersecurity compliance activities for Truist. Both of these regulations include phased compliance periods as well as attestation of compliance by Truist.

Like other lenders, Truist Bank uses credit bureau data in theirits underwriting activities. The Fair Credit Reporting Act regulates reporting information to credit bureaus, prescreening individuals for credit offers, sharing of information between affiliates, and using affiliate data for marketing purposes. Similar state laws may impose additional requirements on Truist Bank. Truist is also subject to rules and regulations issued by the Federal Trade Commission, which regulates unfair or deceptive acts or practices, including with respect to data privacy and cybersecurity. Moreover, the U.S. Congress has recently considered, and is currently considering various proposals for more comprehensive data privacy and cybersecurity legislation, to which we may be subject if passed.

The CRA requires Truist Bank'sBank’s primary federal bank regulatory agency, the FDIC, to assess the bank'sbank’s record in meeting the credit needs of the communities served by the bank, including low- and moderate-income neighborhoods and persons. Institutions are assigned one of four ratings: "Outstanding," "Satisfactory," "Needs“Outstanding,” “Satisfactory,” “Needs to Improve"Improve,” or "Substantial“Substantial Noncompliance."” This assessment is considered for any bank that applies to merge or consolidate with or acquire the assets or assume the liabilities of an IDI, or to open or relocate a branch office. The CRA record of each subsidiary bank of a FHC also is assessed by the FRB in connection with reviewing any proposed acquisition or merger application. On December For its most recent CRA examination period, Truist received the highest possible overall rating of “Outstanding” from the FDIC.

In June 2022, the FRB, FDIC, and OCC issued a joint proposal to amend their regulations implementing the CRA. The proposed rules would materially revise the current CRA framework, including new assessment area requirements, new methods of calculating credit for lending, investment and service activities, and additional data collection and reporting requirements. The proposed rule included analysis indicating a significant increase in the thresholds for large banks to overhaulreceive “Outstanding” ratings in the regulatory framework for evaluating banks' CRA performance.future.

There are federal consumer protection laws related to automated overdraft payment programs offered by financial institutions. The CFPB prohibits financial institutions from charging consumers fees for paying overdrafts on automated teller machine and one-time debit card transactions, unless a consumer consents, or opts in, to the overdraft service. Financial institutions must also provide consumers with a notice that explains the financial institution'sinstitution’s overdraft services, including the associated fees and the consumer'sconsumer’s choices. In addition, FDIC-supervised institutions must monitor overdraft payment programs for "excessive“excessive or chronic"chronic” client use and undertake "meaningful“meaningful and effective"effective” follow-up action with clients that overdraw their accounts more than six times during a rolling 12-month period. Financial institutions must also impose daily limits on overdraft charges, review and modify check-clearing procedures, prominently distinguish account balances from available overdraft coverage amounts, and ensure board and management oversight regarding overdraft payment programs. In 2022, Truist launched a new approach to the checking account experience, designed to address clients’ direct feedback, which includes no overdraft fees.

Truist is prohibited under the Volcker Rule from (i) engaging in proprietary trading for our own account,activities, and (ii) having certain ownership interests in and relationships with covered private funds. The fundamental prohibitions of the Volcker Rule apply to banking entities of any size, including Truist and its affiliates. The Volcker Rule regulations contain exemptions or exclusions, including for market-making, hedging, underwriting, trading in U.S. government and agency obligations and also permit certain ownership interests in certain types of funds to be retained.funds. They also permit the offering and sponsoring of funds under certain conditions. The Volcker Rule regulations impose significant compliance obligations on banking entities. Truist has put in place the compliance programs required by the Volcker Rule and has either divested or received extensions for any holdings in illiquid funds.

The Dodd-Frank Act established a comprehensive regulatory regime for the OTC swaps market, aimed at increasing transparency, and reducing systemic risk in the derivatives markets, including requirements for central clearing, exchange trading, capital adequacy, margin, reporting, and recordkeeping. The Dodd-Frank Act requires that certain swap dealers and security-based swap dealers register with one or both of the SEC and CFTC, depending on the nature of the swaps business. Truist Bank provisionally registered with the CFTC as a swap dealer, subjecting Truist Bank to requirements under the CFTC’s regulatory regime, including trade reporting and record keeping requirements, marginrecordkeeping requirements, business conduct requirements (including daily valuations, disclosure of material risks associated with swaps and disclosure of material incentives and conflicts of interest), and mandatory clearing and exchange trading requirements for certain standardized swaps designated by the CFTC. The NFA is the primary self-regulatory organization for Truist’s swap dealer.

In November 2021, Truist Bank expects to registerconditionally registered with the SEC as a security-based swap dealer in 2021. Such registration will subjectdealer. As a result, Truist Bank’s security-based swaps business is now subject to requirements that are similar to the CFTC rules applicable to swap dealers, including trade reporting, business conduct standards, recordkeeping, margin, and potentially mandatory clearing and exchange trading requirements.

Truist Bank’s uncleared swaps and security-based swaps are subject to variation margin and initial margin requirements. The variation margin requirements, are currently in effect and the initial margin requirements are phasing in over a period of four years, and will bewhich have been fully phased-in onacross the industry as of September 1, 2020, depending on the level of derivatives activity of the swap dealer and the relevant counterparty. Truist Bank’s derivatives business involving uncleared swaps is expected to become subject to initial margin requirements established by the FRB, which may subject Truist Bank to initial margin requirements that exceed current market practice.2022.

Truist’s broker-dealer and investment adviser subsidiaries are subject to regulation by the SEC. FINRA is the primary self-regulatory organization for Truist’s registered broker-dealer and investment adviser subsidiaries. Truist’s broker-dealer and investment adviser subsidiaries also are subject to additional regulation by states or local jurisdictions. The SEC and FINRA have active enforcement functions that oversee broker-dealers and investment advisers and can bring actions that result in fines, restitution, a limitation on permitted activities, disqualification to continue to conduct certain activities and an inability to rely on certain favorable exemptions. Certain types of infractions and violations also can affect Truist’s ability to expeditiously issue new securities into the capital markets.expeditiously. In addition, certain changes in the activities of a broker-dealer require approval from FINRA, and FINRA takes into account a variety of considerations in acting upon applications for such approval, including internal controls, capital levels, management experience and quality, prior enforcement and disciplinary history, and supervisory concerns.

Truist is subject to certain enhanced deposit insurance recordkeeping requirements adopted by the FDIC. To facilitate prompt payment of FDIC-insured deposits when large IDIs fail, FDIC rules require IDIs with two million or more deposit accounts to maintain complete and accurate data on each depositor'sdepositor’s ownership interest by right and capacity and to develop the capability to calculate the insured and uninsured amounts for each deposit owner by ownership right and capacity. Compliance with the rule is required by April 1, 2020. In July 2019, the FDIC amended the rules related to recordkeeping requirements and timely deposit insurance determination to allow covered IDIs, such as Truist, an optional one-year extension of the original compliance deadline to April 1, 2021.

During May 2016, several financial regulators jointly issued a proposed rule designedOn August 16, 2022, the U.S. Inflation Reduction Act of 2022 was signed into law effective for tax years beginning after December 31, 2022. The Company continues to prohibit incentive-based compensation arrangementsanalyze the impacts of the Inflation Reduction Act on its future results of operations but does not currently expect that could encourage inappropriate risks by providing excessive compensation or that could lead tothe Inflation Reduction Act will have a material impact on its financial loss. The proposed rule would require the applicable compensation arrangements to be considered against a number of factors, including a requirement that the arrangements contain both financial and non-financial measures of performance. In addition, the requirements would differ based on the size of the institution, and institutions with assets exceeding $50 billion would be subject to mandatory deferral, forfeiture/adjustment and clawback requirements for employees subject to the rule.statements.

Truist is subject to examinations by federal and state banking regulators, as well as the SEC, CFTC, FINRA, NYSE,NFA, various taxing authorities, and various state insurance and securities regulators. Truist periodically receives requests for information on business and accounting practices from regulatory authorities in various states, including state insurance commissions and state attorneys general, securities regulators, and other regulatory authorities, concerning Truist's business and accounting practices.authorities. Such requests are considered incidental to the normal conduct of business.

Truist had approximately 59,000 employees.also leverages a skilled contingent workforce, which is not reflected in the table, as an important part of the Company’s overall workforce strategy.

The following discussion sets forth some of the more important risk factors that could materially affect Truist’s financial condition and operations. When a risk factor spans several risk categories, the risks have been listed by their primary risk category. The risks described are not all inclusive. Additional risks that are not presently known or risks deemed immaterial may have a material adverse effect on Truist'sTruist’s financial condition, results of operations, business, and prospects.

Truist’s balance sheet can be sensitive to movements in market interest rates and spreads as well as basis risk arising from the Company's ALM activities, which management must closely monitor.spreads. In addition to the impact of the general economy, changes in interest rates or in valuations in the debt or equity markets could directly impact the Company in one or more of the following ways:

RegionalNational, regional, and local economic conditions, competitive pressures and the policies of regulatory authorities affect interest income and interest expense. When interest rates rise, funding costs may rise faster than the yield the Company earns on assets, causing net interest margin to contract. Higher interest rates may also result in lower mortgage production income and elevated charge-offs in certain categories of the loan portfolio. Conversely, when interest rates fall, the yield the Company earns on assets may fall faster than the Company’s ability to lower rates paid on deposits or borrowings.

Changes in monetary and fiscal policies, including FRB policies, can adversely affect profitability and cannot be controlled or predicted by the Company. FRB policies can:

A prolonged period of slow growth in the U.S. economy as a whole or in any regional markets that Truist serves, or any deterioration in economic conditions or the financial markets may disrupt or dampen the economy, which could materially adversely affect the Company’s financial condition and results.

If economic conditions deteriorate, the Company may see lower demand for loans by creditworthy clients, reducing the Company’s interest income. In addition, if unemployment levels increase or if real estate prices decrease, the Company would expect tocould incur higher charge-offs and may incur higher expenses in connection with adjustments toadverse conditions in the reasonable and supportable forecasts used to estimate the allowance for credit losses in accordance with CECL requirements. These conditions may adversely affect not only consumer loan performanceborrowers but also commercial and industrial and commercial real estate loans,borrowers, especially for those businesses that rely on the health of industries or properties that may suffer from deteriorating economic conditions. The ability of these borrowers to repay their loans may be reduced, causing the Company to incur higher credit losses.

The deterioration of economic conditions also could adversely affect financial results for the Company’s fee-based businesses, including the Company’s insurance brokerage, wealth management, investment advisory, trading and investment banking businesses. Truist earns fee income from, among other activities, managing assets for clients, and providing brokerage and other investment advisory and wealth management services. Investment management fees are often based on the value of assets under management and a decrease in the market prices of those assets could reduce the Company’s fee income. Changes in stock or fixed income market prices or client preferences could affect the trading activity of investors, reducing commissions and other fees earned from the Company’s brokerage business. Poor economic conditions and volatile or unstable financial markets would likely adversely affect the Company’s capital markets-related businesses.

Instability in global economic conditions and geopolitical matters, as well as volatility in financial markets, could have a material adverse effect on the Company’s results of operations earnings and financial condition. The macroeconomic environment in the United States is susceptible to global events and volatility in financial markets. For example, trade negotiations between the U.S. and other nations remainsremain uncertain and could adversely impact economic and market conditions for the Company and its clients and counterparties.

A transition away from the widespread use of LIBOR to alternative rates and certain other potential interest rate benchmarksbenchmark reforms will continue over the course of the next year. The publication of the one-week and two-month U.S. dollar LIBOR settings ceased as of December 31, 2021, while certain U.S. dollar LIBOR tenors are the subject of recent national, international and other regulatory guidance and proposals for reform. These reforms may cause such benchmarksexpected to perform differently than in the past or have other consequences which cannotcontinue to be predicted. The United Kingdom’s Financial Conduct Authority, which regulates LIBOR, has publicly announced that it intends to stop compelling banks to submit information to the administrator of LIBOR after 2021. The continuation of LIBOR cannot be guaranteed after 2021. Truist has LIBOR-based contracts that extend beyond 2021 included in loans and leases, securities, deposits, short-term borrowings, long-term debt and derivative financial instruments. While there is no consensus on what rate or rates may become accepted alternatives to LIBOR, apublished until June 30, 2023.

A group of market participants convened by the FRB, the ARRC, has selected the SOFR as its recommended alternative to U.S. dollar LIBOR. Truist offers SOFR-based lending solutions to wholesale and consumer clients and enters into SOFR-based derivative contracts. The FRB of New York started to publish SOFR in April 2018. SOFR is a broad measurepassage of the costAdjustable Interest Rate (LIBOR) Act by Congress, and the Federal Reserve’s implementing rule, should decrease the risk of overnight borrowings collateralizedcontracts that are not remediated prior to the cessation deadline by U.S. Treasury securities.providing the terms for a transition to SOFR. Truist is also supporting “credit sensitive” alternatives, such as Bloomberg Short-Term Bank Yield and other alternatives as they develop in the market.

SOFR or anotherother alternative reference rate becomes an accepted alternative to LIBOR, itrates may perform differently than LIBOR in response to changing market conditions. For example, SOFR could experience greater decreases during times of economic stress, which could require the Company to lend at lower rates at times when the Company’s borrowing costs are increasing.

The market transition away from LIBOR to alternative reference rates is complex and could have a range of adverse effects on the Company’s business, financial condition, and results of operations. In particular, any such transition could:

The transition away from LIBOR to an alternative reference rate will requirerates has required the transition to or development of appropriate systems, models, and analytics to effectively transition the Company’s risk management and other processes from LIBOR-based products to those based on the applicable alternative reference rate, such as SOFR. Truist has developed a LIBOR transition team and project plan that outlines timelinesto address the transition. Truist has largely completed its assessment of risks related to the transition from LIBOR and priorities to preparecontinues its processes, systems and people to support this transition. Timelines and priorities include assessing the impact on the Company’s clients, as well as assessing system requirements for operational processes.remediation efforts. There can be no guarantee that these efforts will successfully mitigate the operational risks associated with the transition away from LIBOR to an alternative reference rate.

The manner and impact of the transition from LIBOR to an alternative reference rate, as well as the effect of these developments on the Company’s funding costs, loan, investment securities, and trading securitiesderivative portfolios, andas well as ALM, and business, is uncertain.

Truist incurs credit risk, which is the risk of lossesloss if the Company’s borrowers do not repay loans or if the Company’s counterparties fail to perform according to the terms of their contracts. A number of products expose the Company to credit risk, including loans leveraged loans,and leases, and lending commitments, derivatives, trading assets, and assets held for sale.investment securities. Changes in credit quality can have a significant impact on the Company’s earnings.earnings and capital position. The Company estimates and establishes contractual lifetime reserves for credit risks and credit losses inherent in its determination of credit exposure (including unfunded credit commitments).exposure. This process, which is critical to the Company’s financial results and condition, requires difficult, subjectivecomplex calculations and complex judgments,extensive use of judgment, considering both external and borrower-specific factors that might impair the ability of borrowers to repay their loans. As is the case with any such assessments, there is always the chance that the Company will fail to identify the properall pertinent factors or that the Company will fail to accurately estimate the impacts of factors identified.

Credit losses may exceed the amount of the Company’s reserves as a result ofdue to changing economic conditions, including falling real estate orprices, falling commodity prices, and higher unemployment, or other factors such as changes in borrower behavior. There is no assurance that reserves will be sufficient to cover all incurred credit losses. In the event of significant deterioration in current or projected future economic conditions, the Company may be required to increase reserves in future periods, which would reduce the Company’s earnings and potentially impact its capital.

The Company’s credit risk and credit losses can increase if the Company’s loans are concentrated in borrowers engaged in the same or similar activities or in borrowers who as a group may be uniquely or disproportionately affected by economic, market conditions, or market conditions. climate change.

Deterioration in economic conditions, housing conditions, or real estate values, including as a result of climate change or natural disasters, in thesethe markets in which the Company operates could result in materially higher credit losses. The Company is also subject to physical risks of climate change, which could manifest in the form of asset quality deterioration and could be exacerbated by specific portfolio concentrations, and transition risks of climate change, which could manifest through longer-term shifts in market dynamics and consumer preferences and could be exacerbated in specific industries that may be more sensitive or vulnerable to a transition to a low carbon economy.

Deposits are a low cost and stable source of funding. Truist competes with banks and other financial institutions for deposits and as a result, the Company could risk losinglose deposits in the future, or see an increase in costs associated with maintaining deposits. Clientsclients may shift their deposits into higher cost products, or the Company may need to raise interest rates to avoid deposit attrition. Funding costs may also increase if deposits lost are replaced with wholesale funding. Higher funding costs reduce Truist’s net interest margin, net interest income, and net income. In recent months, the environment for maintaining and growing deposits has become more challenging as the FRB reduces the size of its balance sheet through quantitative tightening and continues to increase interest rates giving clients an incentive to move deposits to money market funds and other higher-yielding alternatives, which could lead to an increase in the reliance on higher cost wholesale funding.

Truist sells a portion of the mortgage loans originatedthat it originates to reduce the Company’s retained credit risk and to provide funding capacity for originating additional loans. GSEs could limit their purchases of conforming loans due to capital constraints or other changes in their criteria for conforming loans (e.g., maximum loan amount or borrower eligibility). This potential reduction in purchases could limit the Company’s ability to fund new loans.

Proposals have been presented to reform the housing finance market in the U.S., including the role of the GSEs in the housing finance market. The extent and timing of any such regulatory reform of the housing finance market and the GSEs, as well as any effect on the Company’s business and financial results, are uncertain.

Ratings agencies regularly evaluate Truist and its subsidiaries. RatingsCredit ratings are based on a number ofinfluenced by many factors, including the financial strengthCompany’s profitability, asset quality, capital levels, liquidity, business mix, operations, and risk management practices. Credit ratings may also be influenced by other factors, some of which are outside the CompanyCompany’s control, such as recent and anticipated economic trends, geopolitical risk, legislative and regulatory developments, including implied levels of government support during a crisis, environmental, social, and governance considerations, and litigation, as well as conditions affectingchanges to the financial services industry generally. Failurerating agencies’ methodologies, among others. Truist’s failure to maintain thosecredit ratings could adversely affect funding costcosts and increase the Company’s cost of capital. A downgrade to Truist’s credit downgraderatings might also affect the Company’s ability to attract or retain deposits from commercial and corporate clients. Additionally,adversely impact the Company’s ability to conduct derivatives business with certain clients and counterparties could also be impacted and could trigger obligations to make cash or collateral payments to certain clients and counterparties. Additionally, a ratings downgrade could affect the Company’s ability to attract or retain funding, including deposits from commercial and corporate clients.

The Parent Company relies upon capital markets access and dividends from affiliates for funding and has less access to contingent funding sources than the Bank. If the Bank were subject to a financial stress, its dividends to the Parent Company could be reduced or eliminated in order to support Bank capital ratios or other regulatory requirements. This would increase the Parent Company’s reliance on capital markets at a time when spreads and funding costs are likely elevated due the stress impacting the Bank.