eTrade 2000 Annual Report Download - page 58

VERSUS Brokerage Services (U.S.),
Inc
$ 100 $ 233 $ 133
Similarly, banks, such as the Bank, are subject to various regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material adverse effect on a bank’ s operations and financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action, a bank must meet specific capital guidelines that
involve quantitative measures of a bank’ s assets, liabilities and certain off-balance-sheet items as calculated under regulatory
accounting practices. A bank’ s capital amounts and classification are also subject to qualitative judgments by the regulators about the
strength of components of the bank’ s capital, risk weightings of assets and off-balance-sheet transactions, and other factors.
Quantitative measures established by regulation to ensure capital adequacy require a bank to maintain minimum amounts and ratios of
total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. To be categorized as well capitalized, a bank
must maintain minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in the following table.
The table below summarizes the capital adequacy requirements for the Bank as of September 30, 2000 (dollars in thousands):
Actual Required
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Amount Ratio Amount Ratio
Core Capital (to adjusted tangible
assets)
$ 582,058 6.5 % >$449,843 >5.0 %
Tier 1 Capital (to risk weighted assets) $ 582,058 16.8 % >$207,890 >6.0 %
Total Capital (to risk weighted assets) $ 592,597 17.1 % >$346,483 >10.0 %
Regulatory review of our advertising practices could hinder our ability to operate our business and result in fines and other
penalties
We have initiated an aggressive marketing campaign designed to bring brand name recognition to E*TRADE and the Bank. All
marketing activities by E*TRADE Securities are regulated by the NASDR, and all marketing materials must be reviewed by an
E*TRADE Securities Series 24 licensed principal prior to release. The NASDR has in the past asked us to revise certain marketing
materials. We are currently the subject of formal NASDR and SEC investigations into our advertising practices. At the same time, we
voluntarily agreed to prefile all advertising ten days prior to first use for the NASDR’ s review and comment for the period beginning
June 12, 2000 and ending on September 12, 2000. The NASDR can impose certain penalties for violations of its advertising
regulations, including:
censures or fines;
suspension of all advertising;
the issuance of cease-and-desist orders; or
the suspension or expulsion of a broker-dealer or any of its officers or employees.
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If we were to solicit orders from our customers or make investment recommendations, we would become subject to additional
regulations that could be burdensome and subject us to fines and other penalties
We do not currently solicit orders from our customers or make investment recommendations. However, if we were to engage in such
activities, we would become subject to additional rules and regulations governing, among other things, sales practices and the
suitability of recommendations to customers. Compliance with these regulations could be burdensome, and, if we fail to comply, we
could be subject to fines and other penalties. We have recently established a new company, eAdvisor, with Ernst & Young LLP that
will provide financial advice for online investors.
2002. EDGAR Online, Inc.