PNC Bank 2009 Annual Report Download - page 27

characterized by disciplined credit management and limited
exposure to earnings volatility resulting from interest rate
fluctuations and the shape of the interest rate yield curve. We
made substantial progress in transitioning our balance sheet
throughout 2009, working to institute our moderate risk
philosophy throughout our expanded franchise. Our actions
have created a well-positioned balance sheet, strong bank
level liquidity and investment flexibility to adjust, where
appropriate and permissible, to changing interest rates and
market conditions.
We also continue to be focused on building capital in the
current environment characterized by economic and
regulatory uncertainty. See the Funding and Capital Sources
section of the Consolidated Balance Sheet Review section and
the Liquidity Risk Management section of this Item 7.
S UPERVISORY C APITAL A SSESSMENT P ROGRAM (S TRESS
TESTS )
On May 7, 2009, the Board of Governors of the Federal
Reserve System announced the results of the stress tests
conducted by banking regulators under the Supervisory
Capital Assessment Program with respect to the 19 largest
bank holding companies. As a result of this test, the Federal
Reserve concluded that PNC was well capitalized but that, in
order to provide a greater cushion against the risk that
economic conditions over the next two years are worse than
currently anticipated, PNC needed to augment the
composition of its capital by increasing the common
shareholders’ equity component of Tier 1 capital. In May
2009 we raised $624 million in new common equity through
the issuance of 15 million shares of common stock. In
connection with the Supervisory Capital Assessment Program,
we submitted a capital plan which was accepted by the Federal
Reserve.
R ECENT M ARKET AND I NDUSTRY D EVELOPMENTS
Since the middle of 2007 and with a heightened level of
activity during 2008 and 2009, there has been unprecedented
turmoil, volatility and illiquidity in worldwide financial
markets, accompanied by uncertain prospects for sustaining a
fragile economic recovery that began mid-year 2009. In
addition, there have been dramatic changes in the competitive
landscape of the financial services industry during this time.
Recent efforts by the Federal government, including the US
Congress, the US Department of the Treasury, the Federal
Reserve, the FDIC, and the Securities and Exchange
Commission, to stabilize and restore confidence in the
financial services industry have impacted and will likely
continue to impact PNC and our stakeholders. These efforts,
which will continue to evolve, include the Emergency
Economic Stabilization Act of 2008, the American Recovery
and Reinvestment Act of 2009, and other legislative,
administrative and regulatory initiatives, including the US
Treasury’s TARP Capital Purchase Program, the FDIC’s
Temporary Liquidity Guarantee Program (TLGP) and the
Federal Reserve’s Commercial Paper Funding Facility
(CPFF).
These programs include the following:
TARP C APITAL P URCHASE P ROGRAM
The TARP Capital Purchase Program enabled US financial
institutions to build capital through the sale to the US
Treasury of senior preferred shares of stock to increase the
flow of financing to US businesses and consumers and to
support the US economy.
Note 19 Equity included in our Notes To Consolidated
Financial Statements within Item 8 of this Report includes
information regarding the preferred stock and the related
warrant that we issued under this program. See Repurchase of
Outstanding TARP Preferred Stock above.
FDIC T EMPORARY L IQUIDITY G UARANTEE P ROGRAM
The FDIC’s TLGP is designed to strengthen confidence and
encourage liquidity in the banking system by:
• Guaranteeing newly issued senior unsecured debt of
eligible institutions, including FDIC-insured banks
and thrifts, as well as certain holding companies
(TLGP-Debt Guarantee Program), and
• Providing full deposit insurance coverage for
non-interest bearing transaction accounts in FDIC-
insured institutions, regardless of the dollar amount
(TLGP -Transaction Account Guarantee Program).
In December 2008, PNC Funding Corp issued fixed and
floating rate senior notes totaling $2.9 billion under the
FDIC’s TLGP-Debt Guarantee Program. In March 2009, PNC
Funding Corp issued floating rate senior notes totaling $1.0
billion under this program. Each of these series of senior notes
is guaranteed through maturity by the FDIC.
From October 14, 2008 through December 31, 2009, PNC
Bank, National Association (PNC Bank, N.A.) participated in
the TLGP-Transaction Account Guarantee Program. Under
this program, all non-interest bearing transaction accounts
were fully guaranteed by the FDIC for the entire amount in the
account. Coverage under this program is in addition to, and
separate from, the coverage available under the FDIC’s
general deposit insurance rules.
Beginning January 1, 2010, PNC Bank, N.A. is no longer
participating in the TLGP-Transaction Account Guarantee
Program. Thus, as of December 31, 2009, funds held in
noninterest-bearing transaction accounts were no longer
guaranteed in full under the TLGP—Transaction Account
Guarantee Program, but are insured up to $250,000 under the
FDIC’s general deposit insurance rules.
Federal Reserve Commercial Paper Funding Facility (CPFF)
Effective October 28, 2008, Market Street Funding LLC
(Market Street) was approved to participate in the Federal
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