Fifth Third Bank 2011 Annual Report Download - page 32

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
30 Fifth Third Bancorp
commencement of new activities) and could ultimately result in the
loss of financial holding company status. In addition, failure by the
Bancorp’s banking subsidiary to meet applicable capital guidelines
could subject the bank to a variety of enforcement remedies
available to the federal regulatory authorities. These include
limitations on the ability to pay dividends, the issuance by the
regulatory authority of a capital directive to increase capital, and the
termination of deposit insurance by the FDIC.
Fifth Third’s business, financial condition and results of
operations could be adversely affected by new or changed
regulations and by the manner in which such regulations are
applied by regulatory authorities.
Current economic conditions, particularly in the financial markets,
have resulted in government regulatory agencies placing increased
focus on and scrutiny of the financial services industry. The U.S.
government has intervened on an unprecedented scale, responding
to what has been commonly referred to as the financial crisis, by
introducing various actions and passing legislations such as the
Dodd Frank Act. Such programs and legislation subject Fifth Third
and other financial institutions to restrictions, oversight and/or
costs that may have an impact on Fifth Third’s business, financial
condition, results of operations or the price of its common stock.
New proposals for legislation and regulations continue to be
introduced that could further substantially increase regulation of the
financial services industry. Fifth Third cannot predict whether any
pending or future legislation will be adopted or the substance and
impact of any such new legislation on Fifth Third. Additional
regulation could affect Fifth Third in a substantial way and could
have an adverse effect on its business, financial condition and
results of operations.
Fifth Third is subject to various regulatory requirements that
limit its operations and potential growth.
Under federal and state laws and regulations pertaining to the safety
and soundness of insured depository institutions and their holding
companies, the FRB, the CFPB, and the Ohio Division of Financial
Institutions have the authority to compel or restrict certain actions
by Fifth Third and its banking subsidiary. Fifth Third and its
banking subsidiary are subject to such supervisory authority and,
more generally, must, in certain instances, obtain prior regulatory
approval before engaging in certain activities or corporate decisions.
There can be no assurance that such approvals, if required, would
be forthcoming or that such approvals would be granted in a timely
manner. Failure to receive any such approval, if required, could limit
or impair Fifth Third’s operations, restrict its growth and/or affect
its dividend policy. Such actions and activities subject to prior
approval include, but are not limited to, increasing dividends paid by
Fifth Third or its banking subsidiary, entering into a merger or
acquisition transaction, acquiring or establishing new branches, and
entering into certain new businesses.
In addition, Fifth Third, as well as other financial institutions
more generally, have recently been subjected to increased scrutiny
from regulatory authorities stemming from broader systemic
regulatory concerns, including with respect to stress testing, capital
levels, asset quality, provisioning and other prudential matters,
arising as a result of the recent financial crisis and efforts to ensure
that financial institutions take steps to improve their risk
management and prevent future crises.
In some cases, regulatory agencies may take supervisory actions
that may not be publicly disclosed, which restrict or limit a financial
institution. Finally, as part of Fifth Third’s regular examination
process, Fifth Third’s and its banking subsidiary’s respective
regulators may advise it and its banking subsidiary to operate under
various restrictions as a prudential matter. Such supervisory actions
or restrictions, if and in whatever manner imposed, could have a
material adverse effect on Fifth Third’s business and results of
operations and may not be publicly disclosed.
Fifth Third and/or its affiliates are or may become involved
from time to time in information-gathering requests,
investigations and proceedings by government and self-
regulatory agencies which may lead to adverse consequences.
Fifth Third and/or its affiliates are or may become involved from
time to time in information-gathering requests, reviews,
investigations and proceedings (both formal and informal) by
government and self-regulatory agencies, including the SEC,
regarding their respective businesses. Such matters may result in
material adverse consequences, including without limitation, adverse
judgments, settlements, fines, penalties, injunctions or other actions,
amendments and/or restatements of Fifth Third’s SEC filings
and/or financial statements, as applicable, and/or determinations of
material weaknesses in its disclosure controls and procedures. The
SEC is investigating and has made several requests for information,
including by subpoena, concerning issues which Fifth Third
understands relate to accounting and reporting matters involving
certain of its commercial loans. This could lead to an enforcement
proceeding by the SEC which, in turn, may result in one or more
such material adverse consequences.
Deposit insurance premiums levied against Fifth Third may
increase if the number of bank failures increase or the cost of
resolving failed banks increases.
The FDIC maintains a DIF to resolve the cost of bank failures. The
DIF is funded by fees assessed on insured depository institutions
including Fifth Third. The magnitude and cost of resolving an
increased number of bank failures have reduced the DIF. Future
deposit premiums paid by Fifth Third depend on the level of the
DIF and the magnitude and cost of future bank failures. Fifth Third
also may be required to pay significantly higher FDIC premiums
because market developments have significantly depleted the DIF
of the FDIC and reduced the ratio of reserves to insured deposits.
Legislative or regulatory compliance, changes or actions or
significant litigation, could adversely impact Fifth Third or the
businesses in which Fifth Third is engaged.
Fifth Third is subject to extensive state and federal regulation,
supervision and legislation that govern almost all aspects of its
operations and limit the businesses in which Fifth Third may
engage. These laws and regulations may change from time to time
and are primarily intended for the protection of consumers,
depositors and the deposit insurance funds. The impact of any
changes to laws and regulations or other actions by regulatory
agencies may negatively impact Fifth Third or its ability to increase
the value of its business. Additionally, actions by regulatory agencies
or significant litigation against Fifth Third could cause it to devote
significant time and resources to defending itself and may lead to
penalties that materially affect Fifth Third and its shareholders.
Future changes in the laws, including tax laws, or regulations or
their interpretations or enforcement may also be materially adverse
to Fifth Third and its shareholders or may require Fifth Third to
expend significant time and resources to comply with such
requirements.
On July 21, 2010 the President of the United States signed into
law the Dodd-Frank Act. The Dodd-Frank Act will have material
implications for Fifth Third and the entire financial services
industry. Among other things it will or potentially could:
 Result in Fifth Third being subject to enhanced oversight
and scrutiny as a result of being a bank holding company
with $50 billion or more in consolidated assets;
 Result in the appointment of the FDIC as receiver of Fifth
Third in an orderly liquidation proceeding, if the Secretary of
the U.S. Treasury, upon recommendation of two-thirds of