Fifth Third Bank 2011 Annual Report Download - page 159

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Fifth Third Bancorp 157
executive officers and their financial performance, taking into
account any change in the value of the shares of a company’ s
stock and dividends or distributions.
The Dodd-Frank Act provides that the SEC must issue rules
directing the stock exchanges to prohibit listing any security of a
company unless the company develops and implements a policy
providing for disclosure of the policy of the company on
incentive-based compensation that is based on financial
information required to be reported under the securities laws and
that, in the event the company is required to prepare an
accounting restatement due to the material noncompliance of the
company with any financial reporting requirement under the
securities laws, the company will recover from any current or
former executive officer of the company who received incentive-
based compensation during the three-year period preceding the
date on which the company is required to prepare the restatement
based on the erroneous data, any exceptional compensation above
what would have been paid under the restatement.
The Dodd-Frank Act requires the SEC, by rule, to require
that each company disclose in the proxy materials for its annual
meetings whether an employee or board member is permitted to
purchase financial instruments designed to hedge or offset
decreases in the market value of equity securities granted as
compensation or otherwise held by the employee or board
member.
Corporate Governance
The Dodd-Frank Act clarifies that the SEC may, but is not
required to promulgate rules that would require that a company’ s
proxy materials include a nominee for the board of directors
submitted by a shareholder. Although the SEC promulgated rules
to accomplish this, these rules were invalidated by a federal
appeals court decision. The SEC has said that they will not
challenge the ruling, but has not ruled out the possibility that new
rules could be proposed.
The Dodd-Frank Act requires stock exchanges to have rules
prohibiting their members from voting securities that they do not
beneficially own (unless they have received voting instructions
from the beneficial owner) with respect to the election of a
member of the board of directors (other than an uncontested
election of directors of an investment company registered under
the Investment Company Act of 1940), executive compensation
or any other significant matter, as determined by the SEC by rule.
Credit Ratings
The Dodd-Frank Act includes a number of provisions that are
targeted at improving the reliability of credit ratings. The SEC has
been charged with adopting various rules in this regard.
Consumer Issues
The Dodd-Frank Act creates a new bureau, the CFPB, which has
the authority to implement regulations pursuant to numerous
consumer protection laws and has supervisory authority,
including the power to conduct examination and take enforcement
actions, with respect to depository institutions with more than $10
billion in consolidated assets. The CFPB also has authority, with
respect to consumer financial services to, among other things,
restrict unfair, deceptive or abusive acts or practices, enforce laws
that prohibit discrimination and unfair treatment and to require
certain consumer disclosures.
Debit Card Interchange Fees
The Dodd-Frank Act provides for a set of new rules requiring that
interchange transaction fees for electric debit transactions be
“reasonable” and proportional to certain costs associated with
processing the transactions. The FRB was given authority to,
among other things, establish standards for assessing whether
interchange fees are reasonable and proportional. In June 2011,
the FRB issued a final rule establishing certain standards and
prohibitions pursuant to the Dodd-Frank Act, including
establishing standards for debit card interchange fees and
allowing for an upward adjustment if the issuer develops and
implements policies and procedures reasonably designed to
prevent fraud. The provisions regarding debit card interchange
fees and the fraud adjustment became effective October 1, 2011.
The rules impose requirements on the Bancorp and its banking
subsidiary and may negatively impact our revenues and results of
operations.
FDIC Matters and Resolution Planning
The Dodd-Frank Act creates an orderly liquidation process that
the FDIC can employ for failing financial companies that are not
insured depository institutions. The Dodd-Frank Act gives the
FDIC new authority to create a widely available emergency
financial stabilization program to guarantee the obligations of
solvent depository institutions and their holding companies and
affiliates during times of severe economic stress. Additionally,
Dodd-Frank also codifies many of the temporary changes that had
already been implemented, such as permanently increasing the
amount of deposit insurance to $250,000.
In September 2011, the FDIC approved an interim final rule
that requires an insured depository institution with $50 billion or
more in total assets to submit periodic contingency plans to the
FDIC for resolution in the event of the institution’ s failure. The
rule became effective in January 2012, however, submission of
plans will be staggered over a period of time. The Bancorp’ s
banking subsidiary is subject to this rule.
In October 2011, the FRB issued a final rule implementing
resolution planning requirements in the Dodd-Frank Act. The
final rule requires bank holding companies with assets of $50
billion or more and nonbank financial firms designated by FSOC
for supervision by the FRB to annually submit resolution plans to
the FDIC and FRB. Each plan shall describe the company’ s
strategy for rapid and orderly resolution in bankruptcy during
times of financial distress. Under the final rule, companies will
submit their initial resolution plans on a staggered basis. The
Bancorp will be required to submit a resolution plan pursuant to
this rule.
Proprietary Trading and Investing in Certain Funds
The Dodd-Frank Act sets forth new restrictions on banking
organizations’ ability to engage in proprietary trading and
sponsorship of or investment in private equity and hedge funds
(the “Volcker rule”). The scope of the new restrictions will be
more clear upon adoption of final regulations promulgated under
the Volcker rule, however the Volker Rule also generally
prohibits any banking entity from sponsoring or acquiring any
ownership interest in a private equity or hedge fund. The Volker
rule, however, contains a number of exceptions, which exceptions
will be clarified upon promulgation of final rules adopted on an
interagency basis. The Volker rule permits transactions in the
securities of the U.S. government and its agencies, certain
government-sponsored enterprises and states and their political
subdivisions, as well as certain investments in small business
investment companies. Transactions on behalf of customers and
in connection with certain underwriting and market making
activities, as well as risk-mitigating hedging activities and certain
foreign banking activities are also permitted. De minimus
ownership of private equity or hedge funds will also be permitted
under final regulations as well. In addition to the general
prohibition on sponsorship and investment, the Volker rule