Green Dot 2010 Annual Report Download - page 23

higher levels of capital in the future, and there can be no assurance that we will be able to maintain the
required ratios in future periods.
Under the regulatory framework that Congress has established and bank regulators have imple-
mented, banks are either “well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly
undercapitalized” or “critically undercapitalized.” Banks are generally subject to greater restrictions and
supervision than bank holding companies, and these restrictions increase as the financial condition of the
bank worsens. For instance, a bank that is not well-capitalized may not accept, renew or roll over brokered
deposits without the consent of the FDIC. If our proposed subsidiary bank were to become less than
adequately capitalized, the bank would need to submit to bank regulators a capital restoration plan that
was guaranteed by us, as its bank holding company. The bank would also likely become subject to broad
restrictions on activities, including establishing new branches, entering into new lines of business or
conducting activities that have the effect of limiting asset growth or preventing acquisitions. A bank that is
undercapitalized would also be prohibited from making capital distributions, including dividends, and from
paying management fees to its bank holding company if the institution would be undercapitalized after any
such distribution or payment. A significantly undercapitalized institution would be subject to mandatory
capital raising activities, restrictions on interest rates paid and transactions with affiliates, removal of
management and other restrictions. The FDIC has only very limited discretion in dealing with a critically
undercapitalized institution and is virtually required to appoint a receiver or conservator.
Source of Strength. Under Federal Reserve Board policy, bank holding companies are expected to
act as a source of strength to their bank subsidiaries and to commit capital and financial resources to
support them. This support may theoretically be required by the Federal Reserve Board at times when the
bank holding company might otherwise determine not to provide it. As noted above, if a bank becomes less
than adequately capitalized, it would need to submit an acceptable capital restoration plan that, in order to
be acceptable, would need to be guaranteed by the parent holding company. In the event of a bank holding
company’s bankruptcy, any commitment by the bank holding company to a federal bank regulator to
maintain the capital of a subsidiary bank would be assumed by the bankruptcy trustee and entitled to a
priority of payment.
Acquisitions of Bank Holding Companies. Under the BHC Act and the Change in Bank Control Act,
and their implementing regulations, Federal Reserve Board approval is necessary prior to any person or
company acquiring control of a bank or bank holding company, subject to certain exceptions. Control is
conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting
securities, and may be presumed to exist if a person acquires 10% or more of any class of voting securities.
These restrictions could affect the willingness or ability of a third party to acquire control of us following
completion of our proposed bank acquisition and for so long as we are a bank holding company.
Deposit Insurance and Deposit Insurance Assessments. Deposits accepted by banks, such as our
prospective bank subsidiary, have the benefit of FDIC insurance up to the applicable limits. The FDIC’s
Deposit Insurance Fund is funded by assessments on insured depository institutions, the level of which
depends on the risk category of an institution and the amount of insured deposits that it holds. These rates
currently range from 7 to 77.5 basis points on deposits. The FDIC may increase or decrease the
assessment rate schedule semi-annually, and has in the past required and may in the future require
banks to prepay their estimated assessments for future periods. The Dodd-Frank Wall Street Reform and
Consumer Protection Act, or the Dodd-Frank Act, changes the method of calculating deposit assess-
ments, requiring the FDIC to assess premiums on the basis of assets less tangible stockholders’ equity.
The FDIC has indicated that this change will likely result in a lower assessment rate because of the larger
assessment base. Because of the current stress on the FDIC’s Deposit Insurance Fund resulting from the
banking crisis, those fees have increased and are likely to stay at a relatively high level.
Community Reinvestment Act. The Community Reinvestment Act of 1977, or CRA, and the reg-
ulations promulgated by the FDIC to implement the CRA are intended to ensure that banks meet the credit
needs of their respective service areas, including low and moderate income communities and individuals,
consistent with safe and sound banking practices. The CRA regulations also require the banking
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