Fifth Third Bank 2013 Annual Report Download - page 36

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
34 Fifth Third Bancorp
investments could result in Fifth Third receiving less
value than it would otherwise have received.
 The FDIC and the Federal Reserve adopted a final
rule that requires bank holding companies that have
$50 billion or more in assets, like Fifth Third, to
periodically submit to the Federal Reserve, the FDIC
and the FSOC a plan discussing how the company
could be resolved in a rapid and orderly fashion if the
company were to fail or experience material financial
distress. In a related rulemaking, the FDIC adopted a
final rule that requires insured depository institutions
with $50 billion or more in assets, like Fifth Third, to
annually prepare and submit a resolution plan to the
FDIC, which would include, among other things, an
analysis of how the institution could be resolved
under the Federal Deposit Insurance Act, as
amended (the “FDIA”) in a manner that protects
depositors and limits losses or costs to creditors of
the bank. Initial plans for Fifth Third and its bank
subsidiary have been submitted, in accordance with
the final regulatory rules, for review by the FDIC, the
Federal Reserve, and the FSOC. The Federal Reserve
and the FDIC may jointly impose restrictions on
Fifth Third or its bank subsidiary, including
additional capital requirements or limitations on
growth, if the agencies determine that the institution’s
plan is not credible or would not facilitate a rapid and
orderly resolution of Fifth Third under the U.S.
Bankruptcy Code, or Fifth Third Bank under the
FDIA, and additionally could require Fifth Third to
divest assets or take other actions if it did not submit
an acceptable resolution within two years after any
such restrictions were imposed.
 Title VII of Dodd-Frank imposes a new regulatory
regime on the U.S. derivatives markets. While some
of the provisions related to derivatives markets went
into effect on July 16, 2011, most of the new
requirements await final regulations from the relevant
regulatory agencies for derivatives, the Commodities
Futures Trading Commission (“CFTC”) and the
SEC. One aspect of this new regulatory regime for
derivatives is that substantial oversight responsibility
has been provided to the CFTC, which, as a result,
will for the first time have a meaningful supervisory
role with respect to some of our businesses.
Although the ultimate impact will depend on the final
regulations, Fifth Third expects that its derivatives
business will likely be subject to new substantive
requirements, including registration with the CFTC,
margin requirements in excess of current market
practice, capital requirements specific to this
business, real time trade reporting and robust record
keeping requirements, business conduct requirements
(including daily valuations, disclosure of material risks
associated with swaps and disclosure of material
incentives and conflicts of interest), and mandatory
clearing and exchange trading of all standardized
swaps designated by the relevant regulatory agencies
as required to be cleared. These requirements will
collectively impose implementation and ongoing
compliance burdens on Fifth Third and will
introduce additional legal risk (including as a result of
newly applicable antifraud and anti-manipulation
provisions and private rights of action). Depending
on the final rules that relate to Fifth Third’s swaps
businesses, the nature and extent of those businesses
may change.
 Financial institutions may be required, regardless of
risk, to pay taxes or other fees to the U.S. Treasury.
Such taxes or other fees could be designed to
reimburse the U.S. Treasury for the many
government programs and initiatives it has taken or
may undertake as part of its economic stimulus
efforts. The Department of Treasury issued an
interim final rule in 2012 to establish an assessment
schedule for the collection of fees from bank holding
companies with at least $50 billion in assets and
foreign banks with at least $50 billion in assets in the
U.S. to cover the expenses of the Office of Financial
Research and FSOC. In August 2013, the FRB also
adopted a final rule to implement an assessment
provision under the Dodd-Frank Act equal to the
expense the FRB estimates are necessary or
appropriate to supervise and regulate bank holding
companies with $50 billion or more in assets.
 On July 31, 2013, the U.S. District Court for the
District of Columbia issued an order granting
summary judgment to the plaintiffs in a case
challenging certain provisions of the FRB’s rule
concerning electronic debit card transaction fees and
network exclusivity arrangements that were adopted
to implement Section 1075 of the Dodd-Frank Act,
known as the Durbin Amendment. The Court held
that, in adopting the Current Rule, the FRB violated
the Durbin Amendment’s provisions concerning
which costs are allowed to be taken into account for
purposes of setting fees that are reasonable and
proportional to the costs incurred by the issuer and
therefore, the Current Rule’s maximum permissible
fees were too high. In addition, the Court held that
the Current Rule’s network non-exclusivity
provisions concerning unaffiliated payment networks
for debit cards also violated the Durbin Amendment.
The Court vacated the Current Rule, but stayed its
ruling to provide the FRB an opportunity to replace
invalidated portions. The FRB has appealed this
decision. If this decision is ultimately upheld and/or
the FRB re-issues rules for purposes of implementing
the Durbin Amendment in a manner consistent with
this decision, the amount of debit card interchange
fees the Bancorp would be permitted to charge
would likely be reduced, thereby negatively affecting
the Bancorp’s financial performance.
It is clear that the reforms, both under the Dodd-Frank Act and
otherwise, will have a significant effect on the entire financial
industry. Although it is difficult to predict the magnitude and extent
of these effects at this stage, Fifth Third believes compliance with
the Dodd-Frank Act and its implementing regulations and other
initiatives will likely negatively impact revenue and increase the cost
of doing business, both in terms of transition expenses and on an
ongoing basis, and may also limit Fifth Third’s ability to pursue
certain desirable business opportunities. Any new regulatory
requirements or changes to existing requirements could require