SunTrust 2010 Annual Report Download - page 40

municipalities was prevalent and threatened the risk of increased local taxes and budget cuts. At the Federal government
level, Congress reached a compromise and maintained lower individual tax rates for at least two years. The Federal Reserve
has forecast a gradual economic recovery through 2011, and, as a result, the Federal Reserve has reaffirmed that it will
maintain key interest rates at record lows for an extended period of time as long as the economic data supports these low
rates. Additionally, the Federal Reserve announced towards the end of 2010 that they would further intercede in the financial
markets, in the form of additional financial support, if needed. Pursuant to this, the Federal Reserve announced reinvestments
of $600 billion of Treasury securities through the middle of 2011 in an attempt to maintain lower interest rates and stimulate
additional growth in the economy and to spur expanded consumer and business spending. Despite the slow and uneven
economic recovery, the equity markets provided some encouragement for the recovery, advancing more than 10% during
2010.
Regulatory and financial reform was a focal point during the year as the financial reform bill, known as the Dodd-Frank Act,
was signed into law during the third quarter and its implementation will result in significant changes to the financial services
industry. The ultimate impact to us and the financial services industry as a whole remains largely to be determined, as the
work of translating legislative policies into regulation continues. However, while it is clear that financial regulation will
affect our operations, compliance requirements, and, accordingly, our financial results, we believe that it will be manageable.
Some of the regulations will likely have little impact on our results. Conversely, other items will have a quantifiable effect in
the near term, such as new regulations regarding debit interchange fees. The regulation imposes a limitation on fees and is
still in the comment period. We are hopeful that the final regulation takes into account a less narrow interpretation of the
costs to operate a debit card business when establishing interchange fees. The reform bill also mandated changes in FDIC
assessments and addressed a multitude of other industry supervisory matters. While this legislation dictates a number of
regulatory rule changes which have the potential to adversely impact us and others within our industry, we cannot determine
at the present time what the absolute impacts will be when the regulations are eventually finalized. In addition to the reform
bill, during the year the Federal Reserve implemented changes to Regulation E that restricts our ability to charge our clients
overdraft fees for ATM and debit card transactions. We implemented the changes to Regulation E during 2010 and the
impact will continue into 2011 as clients continue to decide if they will “opt-in” to overdraft coverage. We are actively
evaluating regulatory and legislative developments and will be in a position to comply with new requirements and take
appropriate actions as warranted.
In addition to the regulatory reform items discussed above, new capital and liquidity requirements were proposed during
2010 that will impact us and our peers as they are phased in over the next several years. The Federal Reserve, under the
Collins Amendment of the Dodd-Frank Act, and the BCBS, in Basel III, proposed significant changes to the regulatory
capital requirements. The Federal Reserve is expected to adopt new capital requirements for certain bank holding companies
that are at least as stringent as those already applicable to insured depositary institutions. As a result, certain of our capital
instruments that are currently considered Tier 1 capital, will be phased out over a three year period starting on January 1,
2013. We believe this will have about a 170 basis point downward impact to our Tier 1 capital ratio over that three year
period if capital doesn’t increase over this same time frame as an offset to the impact. The BCBS proposed capital
requirements seek to further strengthen financial institutions’ capital positions by mandating a higher minimum level of
common equity to be held, along with a capital conservation buffer to withstand future periods of stress. Our capital position
today is particularly strong, especially considering our improving credit risk profile and relatively low market risk. At
present, our Tier 1 common equity is in excess of the minimum common equity and additional conservation buffer stipulated
by these newly proposed requirements. Regardless, complying with these new capital requirements will likely affect our
results, and the extent to which we will be affected will be known with more certainty once additional clarity is provided on
the underlying details of these new requirements. These new requirements must be endorsed by the U.S. banking regulators,
which is expected, and are anticipated to be phased-in through 2019 as they are currently proposed by the BCBS. In addition
to the capital proposal, the BCBS also proposed standards that would increase and standardize global liquidity standards.
These proposals would require us, and other financial institutions, to comply with two new liquidity measurements; the LCR
and NSFR. See “Liquidity Risk” in this MD&A where these ratios are discussed further. Our regulators have not yet adopted
these proposed standards, but the BCBS’s recommended adoption dates are for the beginning of 2015 and 2018 for the
respective standards. The proposed standards may lead to changes in our funding structure and/or investment portfolio, but
until the proposed standards are translated into a final regulation we cannot quantify the impact.
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