KeyBank 2014 Annual Report Download - page 25

KeyCorp-defined baseline scenario and at least one KeyCorp-defined one stress scenario) on their consolidated
earnings, losses, and capital over a nine-quarter planning horizon, taking into account their current condition,
risks, exposures, strategies, and activities. While KeyBank must only conduct an annual stress test, KeyCorp
must conduct both an annual and a mid-cycle stress test. KeyCorp and KeyBank are required to report the results
of their annual stress tests to the Federal Reserve and OCC in early January of each year. KeyCorp is required to
report the results of its 2015 mid-cycle stress test to the Federal Reserve during the period of July 5, 2015 to
August 4, 2015, inclusive. Summaries of the results of these company-run stress tests are disclosed each year
under the “Regulatory Disclosure” tab of Key’s Investor Relations website: http://www.key.com/ir.
Dividend restrictions
Federal banking law and regulations impose limitations on the payment of dividends by our national bank
subsidiaries (like KeyBank). Historically, dividends paid by KeyBank have been an important source of cash
flow for KeyCorp to pay dividends on its equity securities and interest on its debt. Dividends by our national
bank subsidiaries are limited to the lesser of the amounts calculated under an earnings retention test and an
undivided profits test. Under the earnings retention test, without the prior approval of the OCC, a dividend may
not be paid if the total of all dividends declared by a bank in any calendar year is in excess of the current year’s
net income combined with the retained net income of the two preceding years. Under the undivided profits test, a
dividend may not be paid in excess of a bank’s undivided profits. Moreover, under the FDIA, an insured
depository institution may not pay a dividend if the payment would cause it to be in a less than “adequately
capitalized” prompt corrective action capital category or if the institution is in default in the payment of an
assessment due to the FDIC. For more information about the payment of dividends by KeyBank to KeyCorp,
please see Note 3 (“Restrictions on Cash, Dividends and Lending Activities”) in this report.
FDIA, Resolution Authority and Financial Stability
Deposit insurance and assessments
The DIF provides insurance coverage for domestic deposits funded through assessments on insured depository
institutions like KeyBank. The amount of deposit insurance coverage for deposits is $250,000 per depository.
The FDIC must assess the premium based on an insured depository intuition’s assessment base, calculated as its
average consolidated total assets minus its average tangible equity. KeyBank’s current annualized premium
assessments can range from $.025 to $.45 for each $100 of its assessment base. The rate charged depends on
KeyBank’s performance on the FDIC’s “large and highly complex institution” risk-assessment scorecard, which
includes factors such as KeyBank’s regulatory rating, its ability to withstand asset and funding-related stress, and
the relative magnitude of potential losses to the FDIC in the event of KeyBank’s failure.
Conservatorship and receivership of insured depository institutions
Upon the insolvency of an insured depository institution, the FDIC will be appointed as receiver or, in rare
circumstances, conservator for the insolvent institution under the FDIA. In an insolvency, the FDIC may
repudiate or disaffirm any contract to which the institution is a party if the FDIC determines that performance of
the contract would be burdensome and that disaffirming or repudiating the contract would promote orderly
administration of the institution’s affairs. If the contractual counterparty made a claim against the receivership
(or conservatorship) for breach of contract, the amount paid to the counterparty would depend upon, among other
factors, the receivership (or conservatorship) assets available to pay the claim and the priority of the claim
relative to others. In addition, the FDIC may enforce most contracts entered into by the insolvent institution,
notwithstanding any provision that would terminate, cause a default, accelerate or give other rights under the
contract solely because of the insolvency, the appointment of the receiver (or conservator), or the exercise of
rights or powers by the receiver (or conservator). The FDIC may also transfer any asset or liability of the
insolvent institution without obtaining approval or consent from the institution’s shareholders or creditors. These
provisions would apply to obligations and liabilities of KeyCorp’s insured depository institution subsidiaries,
such as KeyBank, including obligations under senior or subordinated debt issued to public investors.
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