Fifth Third Bank 2014 Annual Report Download - page 175

173 Fifth Third Bancorp
Bancorp and its banking subsidiary are subject to specific
requirements or restrictions and general regulatory oversight. The
principal objectives of state and federal banking laws and
regulations and the supervision, regulation and examination of
banks and their parent companies (such as the Bancorp) by bank
regulatory agencies are the maintenance of the safety and
soundness of financial institutions, maintenance of the federal
deposit insurance system and the protection of consumers or
classes of consumers, rather than the specific protection of
shareholders of a bank or the parent company of a bank. To the
extent the following material describes statutory or regulatory
provisions, it is qualified in its entirety by reference to the
particular statute or regulation.
Regulators
The Bancorp and/or its banking subsidiary are subject to
regulation and supervision primarily by the FRB, the Consumer
Financial Protection Bureau (the “CFPB”) and the Ohio Division
of Financial Institutions (the “Division”) and additionally by
certain other functional regulators and self-regulatory
organizations. The Bancorp is also subject to regulation by the
SEC by virtue of its status as a public company and due to the
nature of some of its businesses. The Bancorp’ s banking
subsidiary is subject to regulation by the FDIC, which insures the
bank’ s deposits as permitted by law.
The federal and state laws and regulations that are applicable
to banks and to BHCs regulate, among other matters, the scope of
their business, their activities, their investments, capital and
liquidity levels, their reserves against deposits, the timing of the
availability of deposited funds, the amount of loans to individual
and related borrowers and the nature, amount of and collateral for
certain loans, and the amount of interest that may be charged on
loans as applicable. Various federal and state consumer laws and
regulations also affect the services provided to consumers.
The Bancorp and/or its subsidiary are required to file various
reports with, and is subject to examination by regulators,
including the FRB and the Division. The FRB, Division and the
CFPB have the authority to issue orders BHCs and/or banks to
cease and desist from certain banking practices and violations of
conditions imposed by, or violations of agreements with, the
FRB, Division and CFPB. Certain of the Bancorp’ s and/or its
banking subsidiary regulators are also empowered to assess civil
money penalties against companies or individuals in certain
situations, such as when there is a violation of a law or regulation.
Applicable state and federal laws also grant certain regulators the
authority to impose additional requirements and restrictions on
the activities of the Bancorp and or its banking subsidiary and, in
some situations, the imposition of such additional requirements
and restrictions will not be publicly available information.
Acquisitions
The BHCA requires the prior approval of the FRB for a BHC to
acquire substantially all the assets of a bank or to acquire direct or
indirect ownership or control of more than 5% of any class of the
voting shares of any bank, BHC or savings association, or to
increase any such non-majority ownership or control of any bank,
BHC or savings association, or to merge or consolidate with any
BHC.
The BHCA prohibits a BHC from acquiring a direct or
indirect interest in or control of more than 5% of any class of the
voting shares of a company that is not a bank or a BHC and from
engaging directly or indirectly in activities other than those of
banking, managing or controlling banks or furnishing services to
its banking subsidiaries, except that it may engage in and may
own shares of companies engaged in certain activities the FRB
has determined to be so closely related to banking or managing or
controlling banks as to be proper incident thereto.
Financial Holding Companies
The Gramm-Leach-Bliley Act of 1999 (“GLBA”) permits a
qualifying BHC to become a financial holding company (“FHC”)
and thereby to engage directly or indirectly in a broader range of
activities than those permitted for a BHC under the BHCA.
Permitted activities for a FHC include securities underwriting and
dealing, insurance underwriting and brokerage, merchant banking
and other activities that are declared by the FRB, in cooperation
with the Treasury Department, to be “financial in nature or
incidental thereto” or are declared by the FRB unilaterally to be
“complementary” to financial activities. In addition, a FHC is
allowed to conduct permissible new financial activities or acquire
permissible non-bank financial companies with after-the-fact
notice to the FRB. A BHC may elect to become a FHC if each of
its banking subsidiaries is well capitalized, is well managed and
has at least a “Satisfactory” rating under the Community
Reinvestment Act (“CRA”). The Dodd-Frank Wall Street Reform
and Consumer Protection Act (the “DFA”) also extended the well
capitalized and well managed requirement to the BHC. In 2000,
the Bancorp elected and qualified for FHC status under the
GLBA. To maintain FHC status, a holding company must
continue to meet certain requirements. The failure to meet such
requirements could result in material restrictions on the activities
of the FHC and may also adversely affect the FHC’ s ability to
enter into certain transactions or obtain necessary approvals in
connection therewith, as well as loss of FHC status. If restrictions
are imposed on the activities of an FHC, such information may
not necessarily be available to the public.
Dividends
The Bancorp depends in part upon dividends received from its
direct and indirect subsidiaries, including its indirect banking
subsidiary, to fund its activities, including the payment of
dividends. The Bancorp and its banking subsidiary are subject to
various federal and state restrictions on their ability to pay
dividends. The FRB has authority to prohibit BHCs from paying
dividends if such payment is deemed to be an unsafe or unsound
practice. The FRB has indicated generally that it may be an
unsafe or unsound practice for BHCs to pay dividends unless a
BHC’ s net income is sufficient to fund the dividends and the
expected rate of earnings retention is consistent with the
organization’ s capital needs, asset quality and overall financial
condition. The ability to pay dividends may be further limited by
provisions of the DFA and implanting regulations (see
“Regulatory Reform”).
Source of Strength
Under long-standing FRB policy and now as codified in the DFA,
a BHC is expected to act as a source of financial and managerial
strength to each of its banking subsidiaries and to commit
resources to their support. This support may be required at times
when the BHC may not have the resources to provide it.
FDIC Assessments
As contemplated by the DFA the FDIC has revised the
framework by which insured depository institutions with more
than $10 billion in assets (“large IDIs”) are assessed for purposes
of payments to the Deposit Insurance Fund (the “DIF”). The final
rule implementing revisions to the assessment system took effect
for the quarter beginning April 1, 2011.