Fifth Third Bank 2008 Annual Report Download - page 106

ANNUAL REPORT ON FORM 10-K
104 Fifth Third Bancorp
During these examinations, the FRB rates such institutions’
compliance with CRA as “Outstanding,” “Satisfactory,” “Needs
to Improve" or "Substantial Noncompliance.” Failure of an
institution to receive at least a “Satisfactory” rating could
inhibit such institution or its holding company from undertaking
certain activities, including engaging in activities permitted as a
financial holding company under the GLBA and acquisitions of
other financial institutions, or, as discussed above, require
divestitures. The FRB must take into account the record of
performance of banks in meeting the credit needs of the entire
community served, including low- and moderate-income
neighborhoods. Fifth Third Bank, Fifth Third Bank (Michigan)
and Fifth Third Bank, N.A. all received a “Satisfactory” CRA
rating. Because the Bancorp is an FHC, with limited exceptions,
the Bancorp may not commence any new financial activities or
acquire control of any companies engaged in financial activities
in reliance on the GLBA if any of the subsidiary banks receives
a CRA rating of less than “Satisfactory.”
The FRB has established capital guidelines for financial
holding companies. The FRB and the OCC have also issued
regulations establishing capital requirements for banks. Failure
to meet capital requirements could subject the Bancorp and its
subsidiary banks to a variety of restrictions and enforcement
actions. In addition, as discussed previously, each of the
Bancorp’s subsidiary banks must remain well capitalized for the
Bancorp to retain its status as a financial holding company.
The minimum risk-based capital requirements adopted by the
federal banking agencies follow the Capital Accord of the Basel
Committee on Banking Supervision. In 2004, the Basel
Committee published its new capital guidelines (Basel II)
governing the capital adequacy of large, internationally active
banking organizations (core” banking organizations with at
least $250 billion in total assets or at least $10 billion in foreign
exposure). The final rule to implement the advanced approaches
of Basel II for core banking organizations became effective on
April 1, 2008. Under Basel II, after a transition period, core
banking organizations are required to enhance the measurement
and management of their risks, including credit risk and
operational risk, through the use of advanced approaches for
calculating risk-based capital requirements. Other U.S. banking
organizations may elect to adopt the requirements of this rule (if
they meet applicable qualification requirements), but they are
not required to apply them.
In July 2008, the federal banking agencies issued a
proposed rule that would give all non-core banking
organizations, which are not required to adopt Basel II’s
advance approaches, such as Bancorp, with the option to adopt
a new risk-based framework. This framework would adopt the
standardized approach of Basel II for credit risk, the basic
indicator approach of Basel II for operational risk, and related
disclosure requirements. The proposed rule, if adopted, will
replace the earlier proposal to adopt the so-called Basel IA
option. Until such time as the new rules for non-core banking
organizations are adopted, Bancorp is unable to predict whether
it will adopt a standardized approach under Basel II.
The FRB, FDIC and other bank regulatory agencies have
adopted final guidelines (the “Guidelines) for safeguarding
confidential, personal customer information. The Guidelines
require each financial institution, under the supervision and
ongoing oversight of its Board of Directors or an appropriate
committee thereof, to create, implement and maintain a
comprehensive written information security program designed
to ensure the security and confidentiality of customer
information, protect against any anticipated threats or hazards to
the security or integrity of such information and protect against
unauthorized access to or use of such information that could
result in substantial harm or inconvenience to any customer.
The Bancorp has adopted a customer information security
program that has been approved by the Bancorp’s Board of
Directors (the “Board).
The GLBA requires financial institutions to implement
policies and procedures regarding the disclosure of nonpublic
personal information about consumers to non-affiliated third
parties. In general, the statute requires explanations to
consumers on policies and procedures regarding the disclosure
of such nonpublic personal information, and, except as
otherwise required by law, prohibits disclosing such
information except as provided in the subsidiary banks policies
and procedures. The subsidiary banks have implemented a
privacy policy effective since the GLBA became law, pursuant
to which all of its existing and new customers are notified of the
privacy policies.
The Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism
Act of 2001 (the “Patriot Act), designed to deny terrorists and
others the ability to obtain access to the United States financial
system, has significant implications for depository institutions,
brokers, dealers and other businesses involved in the transfer of
money. The Patriot Act, as implemented by various federal
regulatory agencies, requires financial institutions, including the
Bancorp and its subsidiaries, to implement new policies and
procedures or amend existing policies and procedures with
respect to, among other matters, anti-money laundering,
compliance, suspicious activity and currency transaction
reporting and due diligence on customers. The Patriot Act and
its underlying regulations also permit information sharing for
counter-terrorist purposes between federal law enforcement
agencies and financial institutions, as well as among financial
institutions, subject to certain conditions, and require the FRB
(and other federal banking agencies) to evaluate the
effectiveness of an applicant in combating money laundering
activities when considering applications filed under Section 3 of
the BHCA or the Bank Merger Act. The Bancorp’s Board has
approved policies and procedures that are believed to be
compliant with the Patriot Act.
Certain mutual fund and unit investment trust custody and
administrative clients are regulated as “investment companies”
as that term is defined under the Investment Company Act of
1940, as amended (the “ICA), and are subject to various
examination and reporting requirements. The provisions of the
ICA and the regulations promulgated thereunder prescribe the
type of institution that may act as a custodian of investment
company assets, as well as the manner in which a custodian
administers the assets in its custody. As a custodian for a
number of investment company clients, these regulations
require, among other things, that certain minimum aggregate
capital, surplus and undivided profit levels are maintained by
the subsidiary banks. Additionally, arrangements with clearing
agencies or other securities depositories must meet ICA
requirements for segregation of assets, identification of assets
and client approval. Future legislative and regulatory changes in
the existing laws and regulations governing custody of
investment company assets, particularly with respect to
custodian qualifications, may have a material and adverse
impact on the Bancorp. Currently, management believes the
Bancorp is in compliance with all minimum capital and
securities depository requirements. Further, the Bancorp is not
aware of any proposed or pending regulatory developments,
which, if approved, would adversely affect its ability to act as
custodian to an investment company.