PNC Bank 2012 Annual Report Download - page 53

institution determines its risk-weighted assets for risk-based
capital purposes under the Basel II framework applicable to
large or internationally active banks (referred to as the
advanced approaches) and under the Basel I framework
applicable to all banking institutions (referred to as the
standardized approach). For additional information on the
proposed capital rules issued by the U.S. banking agencies in
June 2012 and the potential impact of such rules on PNC,
please see Risk Factors in Item 1A of this Report.
The public comment period on these three sets of proposed
rules closed on October 22, 2012, and final rules have not yet
been issued. The agencies originally proposed that the Basel
III and advanced approaches proposal would become effective
on January 1, 2013, but subsequently indicated that the
effective date of these rules remains under consideration. The
standardized approach proposal is proposed to become
effective on January 1, 2015.
In June 2012, the Federal banking agencies also adopted final
market risk capital rules to implement the enhancements to the
market risk framework adopted by the Basel Committee
(commonly referred to as “Basel II.5”). The final rules, which
apply to PNC, became effective January 1, 2013 and, among
other things, narrow the types of positions that are subject to
the market risk capital framework, establish a new stressed
Value at Risk (“VaR”) charge for covered trading positions,
provide for certain market risk-related public disclosures and
replace references to credit ratings in the market risk rules
with alternative methodologies for assessing credit risk.
A number of other reform provisions are likely to significantly
impact the ways in which banks and bank holding companies,
including PNC, do business. We provide additional
information on a number of these provisions (including new
regulatory agencies (such as the Consumer Financial
Protection Bureau (CFPB)), consumer protection regulation,
enhanced prudential standards (including stress test
requirements), limitations on investment in and sponsorship of
funds, risk retention by securitization participants, new
regulation of derivatives, and potential applicability of state
consumer protection laws) and some of their potential impacts
on PNC in Item 1 Business–Supervision and Regulation and
Item 1A Risk Factors of this Report.
As noted in prior filings, in April 2011, PNC and other
mortgage servicers entered into Consent Orders with the OCC
and Federal Reserve Board requiring, among other matters,
that the servicers retain independent consultants to conduct
reviews of default and foreclosure files from the 2009-2010
timeframe regarding possible improper financial harm to
borrowers as a result of such default and foreclosure activities.
In early 2013, PNC and 12 other servicers agreed with the
OCC and the Federal Reserve to end the independent
consultants’ files review program and to replace it with an
accelerated remediation process. PNC agreed to pay
approximately $70 million for distribution to potentially
affected borrowers in the review population, and agreed to
provide approximately $111 million in additional loss
mitigation or other foreclosure prevention relief, which may
be satisfied pursuant to the amended consent orders by a
variety of borrower relief actions or by additional cash
payments or resource commitments to borrower counseling or
education. PNC expects residential mortgage foreclosure-
related compliance expenses to decrease substantially in 2013
compared with 2012.
There have been, and continue to be, numerous other
governmental, legislative and regulatory inquiries and
investigations on this topic and other issues related to
mortgage lending and servicing. These inquiries and
investigations may result in significant additional actions,
penalties or other remedies.
For additional information, including with respect to some of
the governmental, legislative and regulatory inquiries and
investigations, please see Risk Factors in Item 1A of this
Report and Note 23 Legal Proceedings and Note 24
Commitments and Guarantees in the Notes To Consolidated
Financial Statements in Item 8 of this Report.
The mortgage industry, including PNC, has seen further
changes in behavior and demand patterns of government-
sponsored enterprises, FHLMC and FNMA, for loans sold into
agency securitizations, primarily focused on loans originated
prior to 2008. PNC recorded an additional pre-tax provision of
$761 million in 2012 for residential mortgage repurchase
obligations related to expected elevated levels of repurchase
demands bringing the total reserve on our balance sheet for
residential mortgage repurchase claims at December 31, 2012
to $614 million.
H URRICANE S ANDY
During the last week of October 2012, Hurricane Sandy
caused widespread damage along the East Coast particularly
in New Jersey, a key market area for us. The storm resulted in
significant property damage to our customers, the closing or
disruption of many businesses and damage to the community
infrastructure. Despite the damage and disruption to some of
its branches and facilities, PNC assisted its customers, clients
and borrowers in the affected areas. PNC waived a number of
checking account and loan fees, including late payment fees
on business and consumer loans, which did not have a
significant impact to PNC’s financial statements. PNC also
incurred expenses related to Hurricane Sandy the majority of
which are related to damage to branches in the affected areas.
In addition, PNC also experienced some credit-related
expenses. These expenses did not have a significant impact to
PNC’s financial statements.
34 The PNC Financial Services Group, Inc. – Form 10-K