Citibank 2012 Annual Report Download - page 312

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SUPERVISION, REGULATION AND OTHER
Citigroup is subject to regulation under U.S. federal and state laws, as well as
applicable laws in the other jurisdictions in which it does business.
General
As a registered bank holding company and financial holding company,
Citigroup is regulated and supervised by the Federal Reserve Board.
Citigroup’s nationally chartered subsidiary banks, including Citibank, N.A.,
are regulated and supervised by the Office of the Comptroller of the Currency
(OCC) and its state-chartered depository institution by the relevant state’s
banking department and the Federal Deposit Insurance Corporation (FDIC).
The FDIC also has back-up enforcement authority for banking subsidiaries
whose deposits it insures. Overseas branches of Citibank, N.A. are regulated
and supervised by the Federal Reserve Board and OCC and overseas subsidiary
banks by the Federal Reserve Board. Such overseas branches and subsidiary
banks are also regulated and supervised by regulatory authorities in the
host countries.
A U.S. financial holding company and the companies under its control
are permitted to engage in a broader range of activities in the U.S. and
abroad than permitted for bank holding companies and their subsidiaries.
Unless otherwise limited by the Federal Reserve Board, financial holding
companies generally can engage, directly or indirectly in the U.S. and
abroad, in financial activities, either de novo or by acquisition, by providing
after-the-fact notice to the Federal Reserve Board. These financial activities
include underwriting and dealing in securities, insurance underwriting
and brokerage and making investments in non-financial companies for a
limited period of time, as long as Citi does not manage the non-financial
company’s day-to-day activities, and its banking subsidiaries engage only
in permitted cross-marketing with the non-financial company. If Citigroup
ceases to qualify as a financial holding company, it could be barred from new
financial activities or acquisitions, and have to discontinue the broader range
of activities permitted to financial holding companies.
Citi is permitted to acquire U.S. depository institutions, including out-of-
state banks, subject to certain restrictions and the prior approval of federal
banking regulators. In addition, intrastate bank mergers are permitted
and banks in states that do not prohibit out-of-state mergers may merge. A
national bank can generally also establish a new branch in any state (to the
same extent as banks organized in the subject state) and state banks may
establish a branch in another state if permitted by the other state. However,
all bank holding companies, including Citigroup, must obtain the prior
approval of the Federal Reserve Board before acquiring more than 5% of
any class of voting stock of a U.S. depository institution or bank holding
company. The Federal Reserve Board must also approve certain additional
capital contributions to an existing non-U.S. investment and certain
acquisitions by Citigroup of an interest in a non-U.S. company, including
in a foreign bank, as well as the establishment by Citibank, N.A. of foreign
branches in certain circumstances.
For more information on U.S. and foreign regulation affecting Citigroup
and its subsidiaries, see “Risk Factors—Regulatory Risks” above.
Changes in Regulation
Proposals to change the laws and regulations affecting the banking and
financial services industries are frequently introduced in Congress, before
regulatory bodies and abroad that may affect the operating environment of
Citigroup and its subsidiaries in substantial and unpredictable ways. This
has been particularly true as a result of the financial crisis. Citigroup cannot
determine whether any such proposals will be enacted and, if enacted,
the ultimate effect that any such potential legislation or implementing
regulations would have upon the financial condition or results of operations
of Citigroup or its subsidiaries. For additional information regarding recently
enacted and proposed legislative and regulatory initiatives, including
significant provisions of the Dodd-Frank Act that have not been fully
implemented by the U.S. banking agencies, see “Risk Factors—Regulatory
Risks” above.
Other Bank and Bank Holding Company Regulation
Citigroup and its banking subsidiaries are subject to other regulatory
limitations, including requirements for banks to maintain reserves against
deposits, requirements as to risk-based capital and leverage (see “Capital
Resources and Liquidity—Capital Resources” above and Note 20 to the
Consolidated Financial Statements), restrictions on the types and amounts
of loans that may be made and the interest that may be charged, and
limitations on investments that can be made and services that can be offered.
The Federal Reserve Board may also expect Citigroup to commit resources
to its subsidiary banks in certain circumstances. Citigroup is also subject to
anti-money laundering and financial transparency laws, including standards
for verifying client identification at account opening and obligations to
monitor client transactions and report suspicious activities.
Securities and Commodities Regulation
Citigroup conducts securities underwriting, brokerage and dealing activities
in the U.S. through Citigroup Global Markets Inc. (CGMI), its primary
broker-dealer, and other broker-dealer subsidiaries, which are subject to
regulations of the SEC, the Financial Industry Regulatory Authority and
certain exchanges, among others. Citigroup conducts similar securities
activities outside the U.S., subject to local requirements, through various
subsidiaries and affiliates, principally Citigroup Global Markets Limited
in London, which is regulated principally by the U.K. Financial Services
Authority, and Citigroup Global Markets Japan Inc. in Tokyo, which is
regulated principally by the Financial Services Agency of Japan.