Fifth Third Bank 2012 Annual Report Download - page 170

168 Fifth Third Bancorp
Consumer Issues
The Dodd-Frank Act created 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,
the Dodd-Frank Act 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 Volcker Rule also generally
prohibits any banking entity from sponsoring or acquiring any
ownership interest in a private equity or hedge fund. The Volcker
rule, however, contains a number of exceptions, which exceptions
will be clarified upon promulgation of final rules adopted on an
interagency basis. The Volcker 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 Volcker rule
contains additional requirements applicable to any private equity
or hedge fund that is sponsored by the banking entity or for which
it serves as investment manager or investment advisor. The
Bancorp will be required to demonstrate that it has a satisfactory
compliance program specifically to monitor compliance with the
Volcker rule. Under the final rule to implement the conformance
period, the Bancorp will have until July 21, 2014, to fully
conform its activities and investments. The rule also grants the
FRB the authority to grant up to three one-year extension periods
for any illiquid funds.
Derivatives
The Dodd-Frank Act includes measures to broaden the scope of
derivative instruments subject to regulation by requiring clearing
and exchange trading of certain derivatives, imposing new capital
and margin requirements for certain market participants and
imposing position limits on certain over-the-counter derivatives.
To the extent that the Bancorp acts in certain capacities in trading
derivatives or trades a certain amount of certain derivatives
instruments, then certain affiliates of the Bancorp may be
required to register with the Commodity Futures Trading
Commission or the SEC. As with the Volcker Rule, the Bancorp
will be required to demonstrate that it has a satisfactory
compliance program to monitor the activities of any swap dealer
or major swap participant registered under the new regulations.
Although final rules defining certain key terms were adopted in
June, 2012, the ultimate impact of these derivatives regulations,
and the time it will take to comply, continues to remain uncertain.
The final regulations will impose additional operational and
compliance costs on us and may require us to restructure certain
businesses and negatively impact our revenues and results of
operations.
Interstate Bank Branching
The Dodd-Frank Act includes provisions permitting national and
insured state banks to engage in de novo interstate branching if,
under the laws of the state where the new branch is to be
established, a state bank chartered in that state would be permitted
to establish a branch.
Systemically Significant Companies and Capital
The Dodd-Frank Act creates a new regulatory regime for entities
that are deemed to be “systemically significant financial
companies.” The Dodd-Frank Act sets a $50 billion consolidated
asset floor for a bank holding company to be subject to the
heightened oversight and regulation, although the FRB can adjust
those amounts upward for some of the heightened standards under
certain circumstances. Dodd-Frank establishes a broad framework
for identifying, applying heightened supervision and regulation