KeyBank 2014 Annual Report Download - page 31

Declining asset prices could adversely affect us.
During the Great Recession, the volatility and disruption that the capital and credit markets experienced reached
extreme levels. This severe market disruption led to the failure of several substantial financial institutions,
causing the widespread liquidation of assets and constraining the credit markets. These asset sales, along with
asset sales by other leveraged investors, including some hedge funds, rapidly drove down prices and valuations
across a wide variety of traded asset classes. Asset price deterioration has a negative effect on the valuation of
many of the asset categories represented on our balance sheet, and reduces our ability to sell assets at prices we
deem acceptable. A further recession would likely reverse recent positive trends in asset prices.
We have concentrated credit exposure in commercial, financial and agricultural loans.
As of December 31, 2014, approximately 72% of our loan portfolio consisted of commercial, financial and
agricultural loans, commercial real estate loans, including commercial mortgage and construction loans, and
commercial leases. These types of loans are typically larger than residential real estate loans and consumer loans,
and have a different risk profile that includes, among other risks, a borrower’s failure to comply with applicable
environmental laws and regulations. The deterioration of a larger loan or a group of these loans could cause a
significant increase in nonperforming loans, which would result in net loss of earnings from these loans, an
increase in the provision for loan and lease losses, and an increase in loan charge-offs.
II. Compliance Risk
We are subject to extensive and increasing government regulation and supervision.
As a financial services institution, we are subject to extensive federal and state regulation and supervision, which
has increased in recent years due to the implementation of the Dodd-Frank Act and other financial reform
initiatives. Banking regulations are primarily intended to protect depositors’ funds, the DIF, consumers,
taxpayers, and the banking system as a whole, not our debtholders or shareholders. These regulations increase
our costs and affect our lending practices, capital structure, investment practices, dividend policy, ability to
repurchase our common shares, and growth, among other things.
We face increased regulation of our industry as a result of current and future initiatives intended to provide
financial market stability and enhance the liquidity and solvency of financial institutions. We expect continued
intense scrutiny from our bank supervisors in the examination process and aggressive enforcement of regulations
at the federal and state levels, particularly due to KeyBank’s and KeyCorp’s status as covered institutions under
the Dodd-Frank Act’s heightened prudential standards and regulations. We also face increased regulation from
efforts designed to protect consumers from financial abuse. Although many parts of the Dodd-Frank Act are now
in effect, other parts continue to be implemented. As a result, some uncertainty remains as to the aggregate
impact upon Key of the Dodd-Frank Act.
Changes to existing statutes, regulations or regulatory policies or their interpretation or implementation, and
becoming subject to additional heightened regulatory practices, requirements, or expectations, could affect us in
substantial and unpredictable ways. These changes may subject us to additional costs and increase our litigation
risk should we fail to appropriately comply. Such changes may also limit the types of financial services and
products we may offer, affect the investments we make, and change the manner in which we operate.
Additionally, federal banking law grants substantial enforcement powers to federal banking regulators. This
enforcement authority includes, among other things, the ability to assess civil money penalties, to issue cease and
desist or removal orders and to initiate injunctive actions against banking organizations and affiliated parties.
These enforcement actions may be initiated for violations of laws and regulations, for practices determined to be
unsafe or unsound, or for practices or acts that are determined to be unfair, deceptive, or abusive.
For more information, see “Supervision and Regulation” in Item 1 of this report.
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