PNC Bank 2010 Annual Report Download - page 15
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Please find page 15 of the 2010 PNC Bank annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.organizations, or changes in the interpretation or enforcement of
existing laws and rules may directly affect the method of
operation and profitability of our businesses. The profitability of
our businesses 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.
There are numerous rules governing the regulation of financial
services institutions and their holding companies.
Accordingly, the following discussion is general in nature and
does not purport to be complete or to describe all of the laws
and regulations that apply to us. To a substantial extent, the
purpose of the regulation and supervision of financial services
institutions and their holding companies is not to protect our
shareholders and our non-customer creditors, but rather to
protect our customers and the financial markets in general.
B
ANK
R
EGULATION
As a bank holding company and a financial holding company,
we are subject to supervision and regular inspection by the
Federal Reserve. PNC Bank, N.A. and its subsidiaries are
subject to supervision and examination by applicable federal
banking agencies, principally the OCC. As a result of Dodd-
Frank, subsidiaries of PNC Bank, N.A. will be subject to state
law and regulation to the same extent as if they were not
subsidiaries of a national bank, such as PNC Bank, N.A.
Additionally, based on Dodd-Frank, state authorities may
assert that certain state consumer financial laws that provide
different requirements or limitations than Federal law may
apply to national banks, including PNC Bank, N.A. Such state
laws may be preempted if they meet certain standards set forth
in Dodd-Frank.
Dodd-Frank established the 10-member inter-agency Financial
Stability Oversight Council (FSOC), which is charged with
identifying systemic risks and strengthening the regulation of
financial holding companies and certain non-bank companies
deemed to be “systemically important” and could, in
extraordinary cases, break up financial firms that are deemed to
be “too big to fail.” It also requires the Federal Reserve Board
to establish prudential standards for bank holding companies
with total consolidated assets equal to or greater than $50
billion that are more stringent than the standards and
requirements applicable to bank holding companies with assets
below this threshold and that increase in stringency for bank
holding companies that present heightened risk to the financial
system, such as the extent of leverage and off-balance sheet
exposures. These heightened prudential standards may include
risk-based capital requirements, leverage limits, liquidity
requirements, overall risk management requirements, resolution
plan and credit exposure requirements, and concentration limits.
The FSOC also makes recommendations to the Federal Reserve
Board concerning the establishment and refinement of these
prudential standards and reporting and disclosure requirements.
These heightened standards will apply to PNC since we have
more than $50 billion in assets. The Federal Reserve Board has
not yet proposed or issued these standards, so we cannot predict
what the standards will be at this time.
Because of PNC’s voting ownership interest in BlackRock,
BlackRock is subject to the supervision and regulation of the
Federal Reserve.
Parent Company Liquidity and Dividends. The principal
source of our liquidity at the parent company level is
dividends from PNC Bank, N.A. PNC Bank, N.A. is subject to
various federal restrictions on its ability to pay dividends to
PNC Bancorp, Inc., its direct parent. PNC Bank, N.A. is also
subject to federal laws limiting extensions of credit to its
parent holding company and non-bank affiliates as discussed
in Note 21 Regulatory Matters in the Notes To Consolidated
Financial Statements in Item 8 of this Report, which is
incorporated herein by reference. Further information on bank
level liquidity and parent company liquidity and on certain
contractual restrictions is also available in “Liquidity Risk
Management” in the Risk Management section and “PNC
Capital Trust E Trust Preferred Securities” and “Acquired
Entity Trust Preferred Securities” in the Off-Balance Sheet
Arrangements and VIEs section of Item 7 of this Report, and
in Note 13 Capital Securities of Subsidiary Trusts and
Perpetual Trust Securities in the Notes To Consolidated
Financial Statements in Item 8 of this Report.
Under Federal Reserve policy, a bank holding company is
expected to serve as a source of financial strength to its
subsidiary bank and to commit resources to support such
bank. Consistent with the “source of strength” policy for
subsidiary banks, the Federal Reserve has stated that, as a
matter of prudent banking, a bank holding company generally
should not maintain a rate of cash dividends unless its net
income available to common shareholders has been sufficient
to fully fund the dividends and the prospective rate of earnings
retention appears to be consistent with the corporation’s
capital needs, asset quality and overall financial condition.
Further, in the November 17, 2010 announcement of its
supervisory assessment of the capital adequacy of the bank
holding companies that participated in the Supervisory Capital
Assessment Program, discussed above, the Federal Reserve
stated that it expects plans submitted in 2011 will reflect
conservative dividend payout ratios and net share repurchase
programs, and that requests that imply dividend payout ratios
above 30% of net income will receive particularly close
scrutiny. The Federal Reserve stated that it further expects that
plans will allow for significant accretion of capital after taking
into consideration all proposed capital actions.
Additional Powers Under the GLB Act. The GLB Act permits
a qualifying bank holding company to become a “financial
holding company” and thereby to affiliate with financial
companies engaging in a broader range of activities than
would otherwise be permitted for a bank holding company.
Permitted affiliates include securities underwriters and
dealers, insurance companies and companies engaged in other
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