Fifth Third Bank 2010 Annual Report Download - page 133

Fifth Third Bancorp 131
institutions and their parent companies. Virtually all aspects of
the business of the Bancorp and its subsidiary bank are subject
to specific requirements or restrictions and general regulatory
oversight. The principal objectives of state and federal banking
laws are the maintenance of the safety and soundness of
financial institutions and the federal deposit insurance system
and the protection of consumers or classes of consumers, rather
than the specific protection of shareholders of a bank or the
parent company of a bank, such as the Bancorp. In addition, the
supervision, regulation and examination of the Bancorp and its
subsidiaries by the bank regulatory agencies is not intended for
the protection of the Bancorp’s security holders. To the extent
the following material describes statutory or regulatory
provisions, it is qualified in its entirety by reference to the
particular statute or regulation.
The Bancorp is subject to regulation and supervision by the
FRB and the Ohio Division of Financial Institutions (the
“Division”). The Bancorp is required to file various reports
with, and is subject to examination by, the FRB and the
Division. The FRB has the authority to issue orders to bank
holding companies to cease and desist from unsound banking
practices and violations of conditions imposed by, or violations
of agreements with, the FRB. The FRB is also empowered to
assess civil money penalties against companies or individuals
who violate the BHCA or orders or regulations there under, to
order termination of non-banking activities of non-banking
subsidiaries of bank holding companies, and to order
termination of ownership and control of a non-banking
subsidiary by a bank holding company. Applicable state and
federal law also grant the FRB and the Division the authority to
impose additional requirements and restrictions on the activities
of the Bancorp and its subsidiary bank and, in some situations,
the imposition of such additional requirements and restrictions
will not be publicly available information.
The BHCA requires the prior approval of the FRB, for a
bank holding company to acquire substantially all the assets of
a bank or to acquire direct or indirect ownership or control of
more than 5% of any class of the voting shares of any bank,
bank holding company or savings association, or to increase
any such non-majority ownership or control of any bank, bank
holding company or savings association, or to merge or
consolidate with any bank holding company.
The Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 generally authorizes bank holding
companies to acquire banks located in any state, subject to
certain state-imposed age and deposit concentration limits, and
also generally authorizes interstate bank holding company and
bank mergers and to a lesser extent, interstate branching.
The Gramm-Leach-Bliley Act of 1999 (“GLBA”) permits
a qualifying bank holding company to become a financial
holding company (“FHC”) and thereby to engage directly or
indirectly in a broader range of activities than those permitted
for a bank holding company under the BHCA. Permitted
activities for a FHC include securities underwriting and dealing,
insurance underwriting and brokerage, merchant banking and
other activities that are declared by the FRB, in cooperation
with the Treasury Department, to be “financial in nature or
incidental thereto” or are declared by the FRB unilaterally to be
“complementary” to financial activities. In addition, a FHC is
allowed to conduct permissible new financial activities or
acquire permissible non-bank financial companies with after-
the-fact notice to the FRB. A bank holding company may elect
to become a FHC if each of its subsidiary banks is well
capitalized, is well managed and has at least a “Satisfactory”
rating under the Community Reinvestment Act (“CRA”). Dodd-
Frank also extended the well capitalized and well managed
requirement to the bank holding company. In 2000, the
Bancorp elected and qualified for FHC status under the GLBA.
To maintain FHC status, a holding company must continue to
meet certain requirements. The failure to meet such
requirements could result in restrictions on the activities of the
FHC or loss of FHC status. If restrictions are imposed on the
activities of an FHC, such information may not necessarily be
available to the public.
Unless a bank holding company becomes a FHC under
GLBA, the BHCA also prohibits a bank holding company from
acquiring a direct or indirect interest in or control of more than
5% of any class of the voting shares of a company that is not a
bank or a bank holding company and from engaging directly or
indirectly in activities other than those of banking, managing or
controlling banks or furnishing services to its subsidiary banks,
except that it may engage in and may own shares of companies
engaged in certain activities the FRB has determined to be so
closely related to banking or managing or controlling banks as
to be proper incident thereto.
The FRB has authority to prohibit bank holding companies
from paying dividends if such payment is deemed to be an
unsafe or unsound practice. The FRB has indicated generally
that it may be an unsafe or unsound practice for bank holding
companies to pay dividends unless a bank holding company’s
net income is sufficient to fund the dividends and the expected
rate of earnings retention is consistent with the organization’s
capital needs, asset quality and overall financial condition. The
Bancorp depends in part upon dividends received from its
subsidiary bank to fund its activities, including the payment of
dividends and its subsidiary bank is subject to regulatory
limitations on the amount of dividends it may declare and pay.
Under FRB policy, a bank holding company is expected to
act as a source of financial and managerial strength to each of
its subsidiary banks and to commit resources to their support.
This support may be required at times when the bank holding
company may not have the resources to provide it.
The Bancorp’s subsidiary bank is subject to extensive
federal and state regulation and examination by the Division,
the FRB, and the FDIC, which insures the deposits of the
Bancorp’s subsidiary bank to the maximum extent permitted by
law. The federal and state laws and regulations that are
applicable to banks regulate, among other matters, the scope of
their business, their investments, their reserves against deposits,
the timing of the availability of deposited funds, the amount of
loans to individual and related borrowers and the nature,
amount of and collateral for certain loans, and the amount of
interest that may be charged on loans. Various federal and state
consumer laws and regulations also affect the operations of
banks.
In 2006, the Federal Deposit Insurance Reform Act of
2005 was signed into law (“FDIRA”). Pursuant to the FDIRA,
the Bank Insurance Fund and Savings Association Fund were
merged to create the Deposit Insurance Fund (the “DIF”). The
FDIC was granted broader authority in adjusting deposit
insurance premium rates and more flexibility in establishing the
designated reserve ratio.
As contemplated by the Dodd-Frank Act the FDIC has
revised the framework by which insured depository institutions
with more than $10 billion in assets (“large IDIs”) are assessed
for purposes of payments to the DIF. The final rule
implementing revisions to the assessment system was released
on February 7, 2011, and will take effect for the quarter
beginning April 1, 2011.