Green Dot 2012 Annual Report Download - page 21

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Source of Strength. Under Federal Reserve Board policy, bank holding companies are expected to act as a source
of strength to their bank subsidiaries. This support may theoretically be required by the Federal Reserve Board at
times when the bank holding company might otherwise determine not to provide it. As noted above, if a bank becomes
less than adequately capitalized, it would need to submit an acceptable capital restoration plan that, in order to be
acceptable, would need to be guaranteed by the parent holding company. In the event of a bank holding company’s
bankruptcy, any commitment by the bank holding company to a federal bank regulator to maintain the capital of a
subsidiary bank would be assumed by the bankruptcy trustee and entitled to a priority of payment. In addition, under
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the Federal Reserve
Board is required to adopt new regulations formally requiring bank holding companies to serve as a source of strength
to their subsidiary depository institutions. The Federal Reserve Board has not yet proposed rules to implement this
requirement.
Acquisitions of Bank Holding Companies. Under the BHC Act and the Change in Bank Control Act, and their
respective implementing regulations, Federal Reserve Board approval is necessary prior to any person or company
acquiring control of a bank or bank holding company, subject to certain exceptions. Control is conclusively presumed
to exist if an individual or company acquires 25% or more of any class of voting securities, and may be presumed to
exist if a person acquires 10% or more of any class of voting securities. These restrictions could affect the willingness
or ability of a third party to acquire control of us for so long as we are a bank holding company particularly if the third
party was not also a bank holding company.
Deposit Insurance and Deposit Insurance Assessments. Deposits accepted by banks, such as our subsidiary
bank, have the benefit of FDIC insurance up to the applicable limits. The FDIC’s Deposit Insurance Fund is funded by
assessments on insured depository institutions, the level of which depends on the risk category of an institution and
the amount of insured deposits that it holds. These rates currently range from 2.5 to 45 basis points on deposits. The
FDIC may increase or decrease the assessment rate schedule semi-annually, and has in the past required and may
in the future require banks to prepay their estimated assessments for future periods. The Dodd-Frank Act changes
the method of calculating deposit assessments, requiring the FDIC to assess premiums on the basis of assets less
tangible stockholders’ equity. The FDIC has indicated that this change will likely result in a lower assessment rate
because of the larger assessment base. Because of the current stress on the FDIC’s Deposit Insurance Fund resulting
from the banking crisis, those fees have increased and are likely to stay at a relatively high level.
Community Reinvestment Act. The Community Reinvestment Act of 1977, or CRA, and the regulations promulgated
by the FDIC to implement the CRA are intended to ensure that banks meet the credit needs of their respective service
areas, including low and moderate income communities and individuals, consistent with safe and sound banking
practices. The CRA regulations also require the banking regulatory authorities to evaluate a bank’s record in meeting
the needs of its service area when considering applications to establish new offices or consummate any merger or
acquisition transaction. The federal banking agencies are required to rate each insured institution’s performance under
the CRA and to make that information publicly available. Our subsidiary bank currently complies with the CRA through
investments and other activities that are designed to benefit the needs of low and moderate income communities.
Restrictions on Transactions with Affiliates and Insiders. Transactions between a bank and its nonbanking affiliates
are regulated by the Federal Reserve Board. These regulations limit the types and amount of these transactions,
require certain levels of collateral for loans to affiliated parties and generally require those transactions to be on an
arm’s-length basis. As a bank holding company, our transactions with our subsidiary bank are limited by these
regulations, although we do not anticipate that these restrictions will adversely affect our ability to conduct our current
operations or materially prohibit us from engaging in activities that are currently contemplated by our business strategies.
Issuing Banks. All of the GPR cards that we provide and the Walmart gift cards we service are issued by either a
federally- or state-chartered bank. Thus, we are subject to the oversight of the regulators for, and certain laws applicable
to, these card issuing banks. These banking laws require us, as a servicer to the banks that issue our cards, among
other things, to undertake compliance actions similar to those described under “Anti-Money Laundering Laws” above
and to comply with the privacy regulations promulgated under the GLB Act as discussed under “Privacy and Information
Safeguard Laws” above. Our subsidiary bank is subject to the additional regulatory oversight and legal obligations
described above, in its capacity as issuing bank of our GPR cards.
Other. The policies of regulatory authorities, including the monetary policy of the Federal Reserve Board, have a
significant effect on the operating results of bank holding companies and their subsidiaries. Moreover, additional
changes to banking laws and regulations are possible in the near future. The Dodd-Frank Act made numerous changes
to the regulatory framework governing banking organizations, and many of these changes require rulemakings by
regulators, only a portion of which have been completed. These regulations could likewise substantially affect our
business and operations. In addition, the U.S. Congress is considering various proposals relating to the activities and
supervision of banks and bank holding companies, some of which could materially affect our operations and those of