Huntington National Bank 2015 Annual Report Download - page 22

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as a bank holding company), and any of their subsidiaries and affiliates (collectively, "banking entities") from engaging in short-
term proprietary trading and from acquiring or retaining ownership interests in, sponsoring, or having certain relationships with a
hedge fund or private equity fund ("covered funds"). These prohibitions are subject to a number of statutory exemptions,
restrictions, and definitions. On December 18, 2014, the Federal Reserve announced it acted under Section 619 to give banking
entities until July 21, 2016, to conform investments in and relationships with covered funds and foreign funds that were in place
prior to December 31, 2013 (“legacy covered funds”). The Federal Reserve also announced its intention to act this year to grant
banking entities an additional one-year extension of the conformance period until July 21, 2017, to conform ownership interests in
and relationships with legacy covered funds. The Bank continues its “good faith” efforts to conform with proprietary trading
prohibitions and associated compliance requirements. The Company does not expect Volcker compliance to have a material impact
on its business model.
The Volcker Rule's prohibitions impact the ability of U.S. banking entities to provide investment management products and
services that are competitive with nonbanking firms generally and with non-U.S. banking organizations in overseas markets. The
rule also effectively prohibits short-term trading strategies by any U.S. banking entity if those strategies involve instruments other
than those specifically permitted for trading.
The final Volcker Rule regulations do provide certain exemptions allowing banking entities to continue underwriting,
market-making, and hedging activities and trading certain government obligations, as well as various exemptions and exclusions
from the definition of “covered funds”. The level of required compliance activity depends on the size of the banking entity and the
extent of its trading. CEOs of larger banking entities, including Huntington, have to attest annually in writing that their
organization has in place processes to establish, maintain, enforce, review, test, and modify compliance with the Volcker Rule
regulations. Banking entities with significant permitted trading operations will have to report certain quantitative information,
beginning between June 30, 2014 and December 31, 2016, depending on the size of the banking entity’s trading assets and
liabilities.
On January 14, 2014, the five federal agencies approved an interim final rule to permit banking entities to retain interests in
certain collateralized debt obligations backed primarily by trust preferred securities from the investment prohibitions of the Volcker
Rule. Under the interim final rule, the agencies permit the retention of an interest in or sponsorship of covered funds by banking
entities if certain qualifications are met. In addition, the agencies released a non-exclusive list of issuers that meet the requirements
of the interim final rule. At December 31, 2015, we had investments in eight different pools of trust preferred securities. Seven of
our pools are included in the list of non-exclusive issuers. We have analyzed the other pool that was not included on the list and
believe that we will continue to be able to own this investment under the final Volcker Rule regulations.
There are restrictions on our ability to pay dividends.
Dividends from the Bank to the parent company are the primary source of funds for payment of dividends to our
shareholders. However, there are statutory limits on the amount of dividends that the Bank can pay to the holding company.
Regulatory approval is required prior to the declaration of any dividends in an amount greater than its undivided profits or if the
total of all dividends declared in a calendar year would exceed the total of its net income for the year combined with its retained
net income for the two preceding years, less any required transfers to surplus or common stock. The Bank is currently able to pay
dividends to the holding company subject to these limitations.
If, in the opinion of the applicable regulatory authority, a bank under its jurisdiction is engaged in, or is about to engage in,
an unsafe or unsound practice, such authority may require, after notice and hearing, that such bank cease and desist from such
practice. Depending on the financial condition of the Bank, the applicable regulatory authority might deem us to be engaged in an
unsafe or unsound practice if the Bank were to pay dividends to the holding company.
The Federal Reserve and the OCC have issued policy statements that provide that insured banks and bank holding companies
should generally only pay dividends out of current operating earnings. Additionally, the Federal Reserve may prohibit or limit bank
holding companies from making capital distributions, including payment of preferred and common dividends, as part of the annual
capital plan approval process.
We are subject to the current capital requirements mandated by the Federal Reserve and Basel III capital and liquidity
frameworks.
The Federal Reserve sets risk-based capital ratio and leverage ratio guidelines for bank holding companies. Under the
guidelines and related policies, bank holding companies must maintain capital sufficient to meet both a risk-based asset ratio test
and a leverage ratio test on a consolidated basis. The risk-based ratio is determined by allocating assets and specified off-balance
sheet commitments into risk-weighted categories, with higher weighting assigned to categories perceived as representing greater
risk. The risk-based ratio represents total capital divided by total risk-weighted assets. The leverage ratio is core capital divided by
total assets adjusted as specified in the guidelines. The Bank is subject to substantially similar capital requirements.