eTrade 2001 Annual Report Download - page 93

with respect to our banking activities. Our ability to comply with all applicable laws and rules is largely dependent on our
establishment and maintenance of a compliance system (including proper supervisory procedures and books and records
requirements), as well as our ability to attract and retain qualified compliance personnel. We could be subject to disciplinary or other
actions due to claimed noncompliance in the future, which could harm our business.
If we do not maintain the capital levels required by regulators, we may be fined or forced out of business
The SEC, NASDR, OTS and various other regulatory agencies have stringent rules with respect to the maintenance of specific levels
of net capital by securities broker-dealers and regulatory capital by banks. Net
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capital is the net worth of a broker or dealer (assets minus liabilities), less deductions for certain types of assets. If a securities firm
fails to maintain the required net capital it may be subject to suspension or revocation of registration by the SEC and suspension or
expulsion by the NASDR, and could ultimately lead to the firm’ s liquidation. In the past, our broker-dealer subsidiaries have depended
largely on capital contributions by us in order to comply with net capital requirements. If such net capital rules are changed or
expanded, or if there is an unusually large charge against net capital, operations that require the intensive use of capital could be
limited. Such operations may include investing activities, marketing and the financing of customer account balances. Also, our ability
to withdraw capital from brokerage subsidiaries could be restricted, which in turn could limit our ability to pay dividends, repay debt
and redeem or purchase shares of our outstanding stock. A large operating loss or charge against net capital could adversely affect our
ability to expand or even maintain our present levels of business, which could harm our business.
The table below summarizes the minimum net capital requirements for our domestic broker-dealer subsidiaries as of December 31,
2001 (in thousands):
Required
Net Capital
Net Capital Excess
Net Capital
E*TRADE Securities $ 34,208 $ 240,141 $ 205,933
E*TRADE Institutional Securities, Inc. $ 250 $ 6,407 $ 6,157
E*TRADE Marquette Securities, Inc. $ 250 $ 532 $ 282
E*TRADE Global Asset Management, Inc. $ 282 $ 8,999 $ 8,717
E*TRADE Canada Securities Corporation $ 100 $ 283 $ 183
Web Street Securities and subsidiary $ 250 $ 796 $ 546
Dempsey $ 802 $ 8,787 $ 7,985
GVR, LLC $ 1,000 $ 4,100 $ 3,100
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 harm 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
2002. EDGAR Online, Inc.