Discover 2014 Annual Report Download - page 32

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regulation of the Federal Reserve. As a large provider of consumer financial services, we are subject to the supervision,
examination and regulation of the Consumer Financial Protection Bureau (the "CFPB").
We operate two banking subsidiaries, each of which is in the United States. Discover Bank, our main banking
subsidiary, offers credit card loans, student loans, personal loans and home equity loans as well as certificates of
deposit, savings and checking accounts and other types of deposit accounts. Discover Bank is chartered and regulated
by the Office of the Delaware State Bank Commissioner (the "Delaware Commissioner"), and is also regulated by the
Federal Deposit Insurance Corporation (the "FDIC"), which insures its deposits up to applicable limits and serves as the
bank's primary federal banking regulator. Our other bank, Bank of New Castle, is also chartered and regulated by the
Delaware Commissioner and insured and regulated by the FDIC.
Bank Holding Company Regulation
Permissible activities for a bank holding company include those activities that are so closely related to banking as
to be a proper incident thereto, such as consumer lending and other activities that have been approved by the Federal
Reserve by regulation or order. Certain servicing activities are also permissible for a bank holding company if
conducted for or on behalf of the bank holding company or any of its affiliates. Impermissible activities for bank holding
companies include activities that are related to commerce such as retail sales of nonfinancial products.
A financial holding company and the non-bank companies under its control are permitted to engage in activities
considered financial in nature, incidental to financial activities, or complementary to financial activities, if the Federal
Reserve determines that such activities pose no risk to the safety or soundness of depository institutions or the financial
system in general. Being a financial holding company under the Gramm-Leach-Bliley Act requires that the depository
institutions that we control meet certain criteria, including capital, management and Community Reinvestment Act
requirements. In addition, under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank
Act") we are required to meet certain capital and management criteria to maintain our status as a financial holding
company. Failure to meet the criteria for financial holding company status results in restrictions on new financial
activities or acquisitions and could require discontinuance of existing activities that are not generally permissible for
bank holding companies.
Federal Reserve regulations and the Federal Deposit Insurance Act (the "FDIA"), as amended by the Dodd-Frank
Act, require that bank holding companies serve as a source of strength to each subsidiary bank and commit resources
to support each subsidiary bank. This support may be required at times when a bank holding company may not be
able to provide such support without adversely affecting its ability to meet other obligations.
The Dodd-Frank Act addresses risks to the economy and the payments system, especially those posed by large
systemically significant financial firms. Bank holding companies with $50 billion or more in total consolidated assets,
including Discover, are considered systemically significant under the Dodd-Frank Act and are subject to heightened
prudential standards established by the Federal Reserve. Regulatory developments, findings and ratings could
negatively impact our business strategies or require us to: limit or change our business practices, restructure our
products in ways that we may not currently anticipate, limit our product offerings, invest more management time and
resources in compliance efforts, limit the fees we can charge for services, or limit our ability to pursue certain business
opportunities and obtain related required regulatory approvals. For additional information regarding bank regulatory
limitations on acquisitions and investments, see "— Acquisitions and Investments." See Note 19: Litigation and
Regulatory Matters to our consolidated financial statements for more information on recent matters affecting Discover.
Regulatory developments could also impact our strategies, the value of our assets, or otherwise adversely affect our
businesses. For more information regarding the regulatory environment and developments under the Dodd-Frank Act,
see "Management's Discussion and Analysis of Financial Condition and Results of Operations — Regulatory
Environment and Developments" and “Risk Factors."
Capital, Dividends and Share Repurchases
We, Discover Bank and Bank of New Castle are subject to capital adequacy guidelines adopted by federal
banking regulators, which include maintaining minimum capital and leverage ratios for capital adequacy and higher
ratios to be deemed "well-capitalized." As a bank holding company, we were required to maintain Tier 1 and total
capital equal to at least 4% and 8% of our total risk-weighted assets, respectively, prior to January 1, 2015. We were
also required to maintain a minimum "leverage ratio" (Tier 1 capital to adjusted total assets) of 4% to 5% prior to
January 1, 2015, depending upon criteria defined and assessed by the Federal Reserve. Further, under the Federal
Reserve's annual capital plan requirements, we are required to demonstrate that under stress scenarios we will maintain