Wells Fargo 2011 Annual Report Download - page 103

event our credit ratings were to fall below investment grade, see
Note 16 (Derivatives) to Financial Statements in this Report.
We rely on dividends from our subsidiaries for
liquidity, and federal and state law can limit those
dividends. Wells Fargo & Company, the parent holding
company, is a separate and distinct legal entity from its
subsidiaries. It receives a significant portion of its funding and
liquidity from dividends and other distributions from its
subsidiaries. We generally use these dividends and distributions,
among other things, to pay dividends on our common and
preferred stock and interest and principal on our debt. Federal
and state laws limit the amount of dividends and distributions
that our bank and some of our nonbank subsidiaries, including
our broker-dealer subsidiaries, may pay to our parent holding
company. Also, our right to participate in a distribution of assets
upon a subsidiary’s liquidation or reorganization is subject to the
prior claims of the subsidiary’s creditors.
For more information, refer to the “Regulation and
Supervision – Dividend Restrictions” and “– Holding Company
Structure” sections in our 2011 Form 10-K and to Note 3 (Cash,
Loan and Dividend Restrictions) and Note 26 (Regulatory and
Agency Capital Requirements) to Financial Statements in this
Report.
RISKS RELATED TO FINANCIAL REGULATORY
REFORM AND OTHER LEGISLATION AND
REGULATIONS
Enacted legislation and regulation, including the Dodd-
Frank Act, as well as future legislation and/or
regulation, could require us to change certain of our
business practices, reduce our revenue and earnings,
impose additional costs on us or otherwise adversely
affect our business operations and/or competitive
position. Our parent company, our subsidiary banks and many
of our nonbank subsidiaries such as those related to our retail
brokerage and mutual fund businesses, are subject to significant
regulation under state and federal laws in the U.S., as well as the
applicable laws of the various jurisdictions outside of the U.S.
where we conduct business. These regulations protect
depositors, federal deposit insurance funds, consumers,
investors and the banking and financial system as a whole, not
necessarily our stockholders. Economic, market and political
conditions during the past few years have led to a significant
amount of new legislation and regulation in the U.S. and abroad.
These laws and regulations may affect the manner in which we
do business and the products and services that we provide, affect
or restrict our ability to compete in our current businesses or our
ability to enter into or acquire new businesses, reduce or limit
our revenue in businesses or impose additional fees, assessments
or taxes on us, intensify the regulatory supervision of us and the
financial services industry, and adversely affect our business
operations or have other negative consequences.
For example, in 2009 several legislative and regulatory
initiatives were adopted that affected revenue in 2011 and will
continue to affect our businesses and financial results, including
FRB amendments to Regulation E, which affect the way we may
charge overdraft fees, and the enactment of the Credit Card
Accountability Responsibility and Disclosure Act of 2009 (the
Card Act), which affects our ability to change interest rates and
assess certain fees on card accounts. We also implemented policy
changes to help customers limit overdraft and returned item
fees. The continuing impact of these laws and regulations on our
future revenue could vary materially due to a variety of factors,
including changes in customer behavior, economic conditions
and other potential offsetting factors.
On July 21, 2010, the Dodd-Frank Act, the most significant
financial reform legislation since the 1930s, became law. The
Dodd-Frank Act, among other things, (i) established the
Financial Stability Oversight Council to monitor systemic risk
posed by financial firms and imposes additional and enhanced
FRB regulations, including capital and liquidity requirements, on
certain large, interconnected bank holding companies such as
Wells Fargo and systemically significant nonbanking firms
intended to promote financial stability; (ii) creates a liquidation
framework for the resolution of covered financial companies, the
costs of which would be paid through assessments on surviving
covered financial companies; (iii) makes significant changes to
the structure of bank and bank holding company regulation and
activities in a variety of areas, including prohibiting proprietary
trading and private fund investment activities, subject to certain
exceptions; (iv) creates a new framework for the regulation of
over-the-counter derivatives and new regulations for the
securitization market and strengthens the regulatory oversight of
securities and capital markets by the SEC; (v) established the
Consumer Financial Protection Bureau (CFPB) within the FRB,
which has sweeping powers to administer and enforce a new
federal regulatory framework of consumer financial regulation;
(vi) may limit the existing pre-emption of state laws with respect
to the application of such laws to national banks, makes federal
pre-emption no longer applicable to operating subsidiaries of
national banks, and gives state authorities, under certain
circumstances, the ability to enforce state laws and federal
consumer regulations against national banks; (vii) provides for
increased regulation of residential mortgage activities; (viii)
revised the FDIC's assessment base for deposit insurance by
changing from an assessment base defined by deposit liabilities
to a risk-based system based on total assets; (ix) phases out over
three years beginning January 2013 the Tier 1 capital treatment
of trust preferred securities; (x) permitted banks to pay interest
on business checking accounts beginning on July 1, 2011; (xi)
authorized the FRB under the Durbin Amendment to adopt
regulations that limit debit card interchange fees received by
debit card issuers; and (xii) includes several corporate
governance and executive compensation provisions and
requirements, including mandating an advisory stockholder vote
on executive compensation.
The Dodd-Frank Act and many of its provisions became
effective in July 2010 and July 2011. However, a number of its
provisions still require extensive rulemaking, guidance, and
interpretation by regulatory authorities. Accordingly, in many
respects the ultimate impact of the Dodd-Frank Act and its
effects on the U.S. financial system and the Company still remain
uncertain. Nevertheless, the Dodd-Frank Act, including current
and future rules implementing its provisions and the
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