Green Dot 2011 Annual Report Download - page 21

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total consolidated assets. Tier 1 capital, or “core” capital, generally consists of common stockholders’ equity, perpetual
non-cumulative preferred stock and, up to certain limits, other capital elements. Tier 2 capital consists of supplemental
capital items such as the allowance for loan and lease losses, certain types of preferred stock, hybrid capital securities
and certain types of debt, all subject to certain limits. Total capital is the sum of Tier 1 capital plus Tier 2 capital.
Our subsidiary bank is also subject to separate capital and leverage requirements that we have committed to with
the Federal Reserve Board and Utah Department of Financial Institutions. As of December 31, 2011, we and our
subsidiary bank are each “well-capitalized” under the above standards and presently exceed our respective capital
and leverage commitments. It is possible, however, that regulators may require us or our subsidiary bank to maintain
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 implemented, 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 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 further restrictions on activities, including 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. 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. In addition, under
the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, the Federal Reserve
Board is required by July 2012 to adopt new regulations formally requiring bank holding companies to serve as a
source of strength to their subsidiary depository institutions. The Federal Reserve Board has not yet proposed rules
to implement this requirement.
Acquisitions of Bank Holding Companies. Under the BHC Act and the Change in Bank Control Act, and their
respective 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 for so long as we are a bank holding company.
Deposit Insurance and Deposit Insurance Assessments. Deposits accepted by banks, such as our subsidiary
bank, 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 Act changes
the method of calculating deposit assessments, 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 regulations 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 regulatory authorities to evaluate a bank’s record in meeting
the needs of its service area when considering applications to establish new offices or consummate any merger or