Huntington National Bank 2011 Annual Report Download - page 41

dividends or to reinstate common stock repurchase programs. We expect to receive the results of their evaluation
by the end of the 2012 first quarter. While we can give no assurances as to the outcome or specific interactions
with the regulators, we believe we have a strong capital position.
Federal Reserve Maturity Extension Program — Under the maturity extension program (“Operation
Twist”) announced on September 21, 2011, the Federal Reserve noted its intention to sell $400 billion of shorter-
term Treasury securities by the end of 2012 and use the proceeds to buy longer-term securities. This will extend
the average maturity of the securities in the Federal Reserve’s portfolio. By reducing the supply of longer-term
securities in the market, it is the FOMC’s intention to put downward pressure on longer-term interest rates,
including rates on financial assets that investors consider to be close substitutes for longer-term Treasury
securities. Further, it is their objective that the reduction in longer-term interest rates, in turn, will contribute to a
broad easing in financial market conditions that will provide additional stimulus to support the economic
recovery. We do not anticipate that this program will have a material impact on our current securities portfolio or
future investment strategy. However, it could cause our net interest margin to decline modestly. For further
discussion, see the Market Risk section of our MD&A.
Durbin Amendment — The Durbin Amendment to the Dodd-Frank Act instructed the Federal Reserve to
review and establish the rate merchants pay banks for electronic clearing of debit card transactions (i.e., the
interchange rate). As part of its review, the Federal Reserve’s objective was to establish standards for assessing
debit card interchange fees receivable by debit card issuers that are reasonable and proportional to the costs
incurred by the issuers for electronic debit transactions. During 2011, the Federal Reserve issued its final rule
establishing standards for debit card interchange fees and prohibiting network exclusivity arrangements and
routing restrictions. Under the final rule, the maximum permissible interchange fee that an issuer may receive for
an electronic debit transaction is the sum of 21 cents per transaction, a 1 cent fraud prevention adjustment, and 5
basis points multiplied by the value of the transaction. This provision regarding debit card interchange fees
became effective on October 1, 2011. As a result of implementing this lower debit card interchange fee structure,
our 2011 fourth quarter electronic banking income declined $17.3 million from the 2011 third quarter.
Resolution Plan — The Federal Reserve and FDIC issued final regulations as required by section 165 of the
Dodd-Frank Act regarding resolution plans, also referred to as “living wills.” Insured depository institutions with
$50 billion or more in total assets must submit to the FDIC a plan whereby the institution can be resolved by the
FDIC, in the event of failure, in a manner that ensures depositors will receive access to insured funds within the
required timeframes and generally ensures an orderly liquidation of the institution. Additionally, bank holding
companies with assets of $50 billion or more are required to submit to the Federal Reserve and the FDIC a plan
that, in the event of material financial distress or failure, establishes the rapid and orderly liquidation of the
company under the bankruptcy code and in a way that would not pose systemic risk to the financial system of the
United States. The regulations allow for a tiered approach for complying with the requirements based on
materiality of the institution. Currently, we are required to submit resolution plans as prescribed by December 31,
2013.
Recent Industry Developments
Recent industry events and related supervisory guidance brought about by the continued weak housing
market have caused us to evaluate certain aspects of our mortgage operations, including a review of our MSR
valuation.
Mortgage Servicing Rights — MSR fair values are estimated based on residential mortgage servicing
revenue in excess of estimated market costs to service the underlying loans. Historically, the estimated market
cost to service has been stable. Due to changes in the regulatory environment related to loan servicing and
foreclosure activities since 2008 in reaction to the housing crises, costs to service mortgages are likely to
increase, though the potential impact on the market costs to service remains uncertain. Certain large residential
mortgage loan servicers entered into consent orders with banking regulators in April 2011, which require the
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