PNC Bank 2006 Annual Report Download - page 17

FDIC deposit insurance premiums are “risk based”; therefore,
higher fee percentages would be charged to banks that have
lower capital ratios or higher risk profiles. These risk profiles
take into account weaknesses that are found by the primary
banking regulator through its examination and supervision of
the bank. A negative evaluation by the FDIC or a bank’s
primary federal banking regulator could increase the costs to a
bank and result in an aggregate cost of deposit funds higher
than that of competing banks in a lower risk category.
Our subsidiary banks are subject to “cross-guarantee”
provisions under federal law that provide that if one of these
banks fails or requires FDIC assistance, the FDIC may assess
a “commonly-controlled” bank for the estimated losses
suffered by the FDIC. Such liability could have a material
adverse effect on our financial condition or that of the
assessed bank. While the FDIC’s claim is junior to the claims
of depositors, holders of secured liabilities, general creditors
and subordinated creditors, it is superior to the claims of the
bank’s shareholders and affiliates, including PNC and
intermediate bank holding companies.
S ECURITIES AND R ELATED R EGULATION
The SEC, together with either the OCC or the Federal
Reserve, regulates our registered broker-dealer subsidiaries.
These subsidiaries are also subject to rules and regulations
promulgated by the National Association of Securities
Dealers, Inc. (“NASD”), among others. Hilliard Lyons is also
a member of the New York Stock Exchange and subject to its
regulations and supervision.
Several of our subsidiaries are registered with the SEC as
investment advisers and, therefore, are subject to the
requirements of the Investment Advisers Act of 1940 and the
SEC’s regulations thereunder. The principal purpose of the
regulations applicable to investment advisers is the protection
of clients and the securities markets, rather than the protection
of creditors and shareholders of investment advisors. The
regulations applicable to investment advisers cover all aspects
of the investment advisory business, including limitations on
the ability of investment advisers to charge performance-based
or non-refundable fees to clients; record-keeping; operational,
marketing and reporting requirements; disclosure
requirements; limitations on principal transactions between an
adviser or its affiliates and advisory clients; as well as general
anti-fraud prohibitions. These investment advisory
subsidiaries also may be subject to state securities laws and
regulations. In addition, our investment advisory subsidiaries
that are investment advisors to registered investment
companies and other managed accounts are subject to the
requirements of the Investment Company Act of 1940, as
amended, and the SEC’s regulations thereunder. PFPC is
subject to regulation by the SEC as a service provider to
registered investment companies.
Additional legislation, changes in rules promulgated by the
SEC, other federal and state regulatory authorities and self-
regulatory organizations, or changes in the interpretation or
enforcement of existing laws and rules may directly affect the
method of operation and profitability of investment advisers.
The profitability of investment advisers could also be affected
by rules and regulations that impact the business and financial
communities in general, including changes to the laws
governing taxation, antitrust regulation and electronic
commerce.
Recently, the SEC and other governmental agencies have been
investigating the mutual fund industry, including its service
providers. The SEC has adopted and proposed various rules,
and legislation has been introduced in Congress, intended to
reform the regulation of this industry. The effect of regulatory
reform has, and is likely to continue to, increase the extent of
regulation of the mutual fund industry and impose additional
compliance obligations and costs on our subsidiaries involved
with that industry.
Under various provisions of the federal securities laws
(including in particular those applicable to broker-dealers,
investment advisers and registered investment companies and
their service providers), a determination by a court or
regulatory agency that certain violations have occurred at a
company or its affiliates can result in fines, a limitation of
permitted activities, disqualification to continue to conduct
certain activities and an inability to rely on certain favorable
exemptions. Certain types of infractions and violations can
also affect a public company in its timing and ability to
expeditiously issue new securities into the capital markets. In
addition, expansion of activities of a broker-dealer generally
requires approval of the New York Stock Exchange and/or
NASD, and regulators may take into account a variety of
considerations in acting upon such applications, including
internal controls, capital, management experience and quality,
and supervisory concerns.
BlackRock has subsidiaries in securities and related
businesses subject to SEC and NASD regulation, as described
above. For additional information about the regulation of
BlackRock, we refer you to the discussion under the
“Regulation” section of Item 1 Business in BlackRock’s most
recent Annual Report on Form 10-K, which may be obtained
electronically at the SEC’s website at www.sec.gov.
COMPETITION We are subject to intense competition from
various financial institutions and from non-bank entities that
engage in similar activities without being subject to bank
regulatory supervision and restrictions.
In making loans, our subsidiary banks compete with
traditional banking institutions as well as consumer finance
companies, leasing companies and other non-bank lenders,
and institutional investors including CLO managers, hedge
funds, mutual fund complexes and private equity firms. Loan
pricing, structure and credit standards are under competitive
pressure as lenders seek to deploy capital and a broader range
7