Fifth Third Bank 2012 Annual Report Download - page 34

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
32 Fifth Third Bancorp
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, and interviews of certain of our current and
former officers and employees and others, 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. Many parts of the Dodd-Frank Act are
now in effect, while others are in an implementation stage likely to
continue for several years. A number of reform provisions are likely
to significantly impact the ways in which banks and bank holding
companies, including Fifth Third and its bank subsidiary, conduct
their business:
 The newly created regulatory bodies include the
CFPB and the FSOC. The CFPB has been given
authority to regulate consumer financial products and
services sold by banks and non-bank companies and
to supervise banks with assets of more than $10
billion and their affiliates for compliance with Federal
consumer protection laws. Any new regulatory
requirements promulgated by the CFPB could
require changes to our consumer businesses, result in
increased compliance costs and affect the streams of
revenue of such businesses. The FSOC has been
charged with identifying systemic risks, promoting
stronger financial regulation and identifying those
non-bank companies that are systemically important
and thus should be subject to regulation by the
Federal Reserve. In addition, in extraordinary cases
and together with the Federal Reserve, the FSOC
could break up financial firms that are deemed to
present a grave threat to the financial stability of the
United States.
 The Dodd-Frank Act “Volcker Rule” provisions
prohibit banks and bank holding companies from
engaging in certain types of proprietary trading. The
scope of the proprietary trading prohibition, and its
impact on Fifth Third, will depend on the definitions
in the final rule, particularly those definitions related
to statutory exemptions for risk-mitigating hedging
activities; market-making; and customer-related
activities.
 The Volcker Rule and the rulemakings promulgated
thereunder are also expected to restrict banks and
their affiliated entities from investing in or