Fifth Third Bank 2014 Annual Report Download - page 176

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174 Fifth Third Bancorp
Prior to the passage of the DFA, a large IDI’ s DIF premiums
principally were based on the size of an IDI’ s domestic deposit
base. The DFA changed the assessment base from a large IDI’ s
domestic deposit base to its total assets less tangible equity. In
addition to potentially greatly increasing the size of a large IDI’ s
assessment base, the expansion of the assessment base affords the
FDIC much greater flexibility to vary its assessment system based
upon the different asset classes that large IDIs normally hold on
their balance sheets.
To implement this provision, the FDIC created an
assessment scheme vastly different from the deposit-based
system. Under the new system, large IDIs are assessed under a
complex “scorecard” methodology that seeks to capture both the
probability that an individual large IDI will fail and the
magnitude of the impact on the DIF if such a failure occurs.
Transactions with Affiliates
Sections 23A and 23B of the Federal Reserve Act, restrict
transactions between a bank and its affiliates (as defined in
Sections 23A and 23B of the Federal Reserve Act), including a
parent BHC. The Bancorp’ s banking subsidiary is subject to
certain restrictions, including but not limited to restrictions on
loans to its affiliates, on investments in the stock or securities
thereof, on the taking of such stock or securities as collateral for
loans to any borrower, and on the issuance of a guarantee or letter
of credit on their behalf. Among other things, these restrictions
limit the amount of such transactions, require collateral in
prescribed amounts for extensions of credit, prohibit the purchase
of low quality assets and require that the terms of such
transactions be substantially equivalent to terms of comparable
transactions with non-affiliates. Generally, the Bancorp’ s banking
subsidiary is limited in its extension of credit to any affiliate to
10% of the banking subsidiary’ s capital stock and surplus and its
extension of credit to all affiliates to 20% of the banking
subsidiary’ s capital stock and surplus.
Community Reinvestment Act
The CRA generally requires insured depository institutions to
identify the communities they serve and to make loans and
investments and provide services that meet the credit needs of
those communities. Furthermore, the CRA requires the FRB to
evaluate the performance of the Bancorp’ s banking subsidiary in
helping to meet the credit needs of its communities. As a part of
the CRA program, the banking subsidiary is subject to periodic
examinations by the FRB, and must maintain comprehensive
records of their CRA activities for this purpose. During these
examinations, the FRB rates such institutions’ compliance with
the CRA as “Outstanding,” “Satisfactory,” “Needs to Improve” or
“Substantial Noncompliance.” Failure of an institution to receive
at least a “Satisfactory” rating could inhibit such institution or its
holding company from undertaking certain activities, including
engaging in activities permitted as a financial holding company
under the GLBA and acquiring other financial institutions. The
FRB must take into account the record of performance of banks in
meeting the credit needs of the entire community served,
including low- and moderate-income neighborhoods. Fifth Third
Bank received a “Satisfactory” CRA rating in its most recent
CRA examination.
Capital
The FRB has established capital guidelines for BHCs and FHCs.
The FRB, the Division and the FDIC have also issued regulations
establishing capital requirements for banks. Failure to meet
capital requirements could subject the Bancorp and its banking
subsidiary to a variety of restrictions and enforcement actions. In
addition, as discussed previously, the Bancorp and its banking
subsidiary must remain well capitalized and well managed for the
Bancorp to retain its status as a FHC. See the “Regulatory
Reform” section for additional information on capital
requirements impacting the Bancorp.
Privacy
The FRB, FDIC and other bank regulatory agencies have adopted
final guidelines (the “Guidelines) for safeguarding confidential,
personal customer information. The Guidelines require each
financial institution, under the supervision and ongoing oversight
of its Board of Directors or an appropriate committee thereof, to
create, implement and maintain a comprehensive written
information security program designed to ensure the security and
confidentiality of customer information, protect against any
anticipated threats or hazards to the security or integrity of such
information and protect against unauthorized access to or use of
such information that could result in substantial harm or
inconvenience to any customer. The Bancorp has adopted a
customer information security program that has been approved by
the Bancorp’ s Board of Directors.
The GLBA requires financial institutions to implement
policies and procedures regarding the disclosure of nonpublic
personal information about consumers to non-affiliated third
parties. In general, the statute requires explanations to consumers
on policies and procedures regarding the disclosure of such
nonpublic personal information, and, except as otherwise required
by law, prohibits disclosing such information except as provided
in the banking subsidiary’ s policies and procedures. The
Bancorp’ s banking subsidiary has implemented a privacy policy.
Anti-Money Laundering
The Uniting and Strengthening America by Providing
Appropriate Tools Required to Intercept and Obstruct Terrorism
Act of 2001 (the “Patriot Act”), designed to deny terrorists and
others the ability to obtain access to the United States financial
system, has significant implications for depository institutions,
brokers, dealers and other businesses involved in the transfer of
money. The Patriot Act, as implemented by various federal
regulatory agencies, requires financial institutions, including the
Bancorp and its subsidiaries, to implement new policies and
procedures or amend existing policies and procedures with
respect to, among other matters, anti-money laundering,
compliance, suspicious activity and currency transaction reporting
and due diligence on customers. The Patriot Act and its
underlying regulations also permit information sharing for
counter-terrorist purposes between federal law enforcement
agencies and financial institutions, as well as among financial
institutions, subject to certain conditions, and require the FRB
(and other federal banking agencies) to evaluate the effectiveness
of an applicant in combating money laundering activities when
considering applications filed under Section 3 of the BHCA or the
Bank Merger Act. The Bancorp’ s Board has approved policies
and procedures that are believed to be compliant with the Patriot
Act.
Exempt Brokerage Activities
The GLBA amended the federal securities laws to eliminate the
blanket exceptions that banks traditionally have had from the
definition of “broker” and “dealer.” The GLBA also required that
there be certain transactional activities that would not be