PNC Bank 2014 Annual Report Download - page 36

As a regulated financial services firm, we are subject to
numerous governmental regulations, and the financial
services industry as a whole is subject to significant
regulatory reform initiatives in the United States and
elsewhere.
PNC is a bank holding company (BHC) and a financial
holding company and is subject to numerous governmental
regulations involving both its business and organization.
Our businesses are subject to regulation by multiple banking,
consumer protection, securities and derivatives regulatory
bodies. Applicable laws and regulations restrict our ability to
repurchase stock or to receive dividends from subsidiaries that
operate in the banking and securities businesses and impose
capital adequacy requirements. PNC’s ability to service its
obligations and pay dividends to shareholders is largely
dependent on the receipt of dividends and advances from its
subsidiaries, primarily PNC Bank. The Federal Reserve
requires a BHC to act as a source of financial and managerial
strength for its subsidiary banks. The Federal Reserve could
require PNC to commit resources to PNC Bank when doing so
is not otherwise in the interests of PNC or its shareholders or
creditors.
Applicable laws and regulations restrict permissible activities
and investments and require compliance with protections for
loan, deposit, brokerage, fiduciary, mutual fund and other
customers, and for the protection of customer information,
among other things. We are also subject to laws and
regulations designed to combat money laundering, terrorist
financing, and transactions with persons, companies or foreign
governments designated by U.S. authorities.
Starting shortly after the beginning of the financial crisis in
2007, we have faced, and expect to continue to face for the
foreseeable future, increased regulation of the financial
services industry as a result of initiatives intended to promote
the safety and soundness of financial institutions, financial
market stability, the transparency and liquidity of financial
markets, and consumer and investor protection. We also
expect, in many cases, more intense scrutiny from bank,
consumer protection and other supervisors in the examination
process and more aggressive enforcement of laws and
regulations on both the federal and state levels. Compliance
with regulations and other supervisory initiatives will likely
increase the company’s costs and reduce its revenue, and may
limit the company’s ability to pursue certain desirable
business opportunities. New reforms will also introduce
additional legal risk (including as a result of newly applicable
antifraud and anti-manipulation provisions and private rights
of action) and affect regulatory oversight, applicable capital
and liquidity requirements, and residential mortgage and other
consumer financial products. The consequences of
noncompliance with applicable laws and regulations can
include substantial monetary and nonmonetary sanctions as
well as damage to our reputation and businesses.
A number of reform provisions are likely to significantly
impact the ways in which banks and BHCs, including PNC, do
business. Some of the reform initiatives have led to the
formation of new regulatory bodies, such as the CFPB, which
has authority to regulate consumer financial products and
services sold by banks and non-bank companies and to
supervise banks with assets of more than $10 billion and their
affiliates for compliance with federal consumer protection
laws. Other agencies have significant new powers relevant to
PNC, such as the authority now held by the CFTC to regulate
non security-based swaps, which, among other things, led
PNC Bank to register with the CFTC as a swap dealer in early
2013.
See Supervision and Regulation in Item 1 of this Report for
more information concerning the regulation of PNC and
recent initiatives to reform financial institution regulation,
including some of the matters discussed in this Risk Factor.
Note 20 Regulatory Matters in the Notes To Consolidated
Financial Statements in Item 8 of this Report also discusses
some of the regulation applicable to PNC.
The following describes the key risks associated with some of
the initiatives recently undertaken as part of the regulatory
reform initiatives affecting the financial services industry,
either where pending rules have not yet been finalized or
where the impact of new rules has not been substantially
realized.
• In December 2013, the U.S. banking agencies, the
SEC and the CFTC adopted regulations
implementing the Volcker Rule provisions of Dodd-
Frank. The Volcker Rule prohibits banks and their
affiliates from engaging in some types of proprietary
trading and restricts the ability of banks and their
affiliates to sponsor, invest in or have specified other
financial relationships with certain types of private
funds (referred to as covered funds). We discuss the
Volcker Rule in the Supervision and Regulation
section included in Item 1 of this Report. PNC
discontinued its designated proprietary trading
operations several years ago. We currently do not
expect the proprietary trading aspects of the final
regulations to have a material effect on PNC’s
businesses or revenue. Nevertheless, the Volcker
Rule regulations place limits and conditions on many
types of permissible trading activities, including
transactions conducted for purposes of hedging,
liquidity management, underwriting or to facilitate
customer transactions. These limits and restrictions
could cause PNC to forego engaging in hedging or
other transactions that it would otherwise undertake
in the ordinary course of business and, thus, to some
extent, may limit the ability of PNC to most
effectively hedge its risks, manage its balance sheet
or provide products or services to its customers.
• In addition, as of December 31, 2014, PNC held
interests in private equity and hedge funds that are
18 The PNC Financial Services Group, Inc. – Form 10-K