TCF Bank 2007 Annual Report Download - page 25

2007 Form 10-K | 5
Regulatory Capital Requirements TCF Financial and
TCF Bank are subject to regulatory capital requirements of
the FRB and the OCC, respectively, as described below. In
addition, these regulatory agencies are required by law to
take prompt action when institutions do not meet certain
minimum capital standards. The Federal Deposit Insurance
Corporation Improvement Act of 1991 (“FDICIA”) defines
five levels of capital condition, the highest of which is
“well-capitalized.” It requires that regulatory authorities
subject undercapitalized institutions to various restrictions
such as limitations on dividends or other capital distribu-
tions, limitations on growth or restrictions on activities.
Undercapitalized banks must develop a capital restoration
plan and the parent financial holding company is required
to guarantee compliance with the plan. TCF Financial and
TCF Bank are “well-capitalized” under the FDICIA capital
standards.
The FRB and the OCC also have adopted rules that could
permit them to quantify and account for interest-rate risk
exposure and market risk from trading activity and reflect
these risks in higher capital requirements. New legislation,
additional rulemaking, or changes in regulatory policies may
affect future regulatory capital requirements applicable to
TCF Financial and TCF Bank. The ability of TCF Financial and
TCF Bank to comply with regulatory capital requirements
may be adversely affected by legislative changes; future
rulemaking or policies of regulatory authorities; unantici-
pated losses or lower levels of earnings.
Restrictions on Distributions Dividends or other capital
distributions from TCF Bank to TCF Financial are an important
source of funds to enable TCF Financial to pay dividends on
its common stock, to make payments on TCF Financial’s bor-
rowings, or for its other cash needs. TCF Bank’s ability to pay
dividends is dependent on regulatory policies and regulatory
capital requirements. The ability to pay such dividends in
the future may be adversely affected by new legislation or
regulations, or by changes in regulatory policies. In general,
TCF Bank may not declare or pay a dividend to TCF Financial
in excess of 100% of its net retained profits for the current
year combined with its net retained profits for the preced-
ing two calendar years without prior approval of the OCC.
TCF Bank’s ability to make capital distributions in the future
may require regulatory approval and may be restricted by its
regulatory authorities. TCF Bank’s ability to make any such
distributions will also depend on its earnings and ability to
meet minimum regulatory capital requirements in effect
during future periods. These capital adequacy standards
may be higher in the future than existing minimum regulatory
capital requirements. The OCC also has the authority to pro-
hibit the payment of dividends by a national bank when it
determines such payments would constitute an unsafe and
unsound banking practice. In addition, income tax consider-
ations may limit the ability of TCF Bank to make dividend
payments in excess of its current and accumulated tax
“earnings and profits” (“E&P”). Annual dividend distributions
in excess of E&P could result in a tax liability based on the
amount of excess earnings distributed and current tax rates.
See “Management’s Discussion and Analysis of Financial
Condition and Results of Operations – Consolidated Financial
Condition Analysis – Liquidity Management” and Notes 13
and 14 of Notes to Consolidated Financial Statements.
Regulation of TCF and Affiliates and Insider
Transactions TCF Financial is subject to FRB regulations,
examinations and reporting requirements relating to bank
or financial holding companies. Bank subsidiaries of finan-
cial holding companies like TCF Bank are subject to certain
restrictions in their dealings with holding company affiliates.
A holding company must serve as a source of strength
for its subsidiary banks, and the FRB may require a holding
company to contribute additional capital to an under-
capitalized subsidiary bank. In addition, Section 55 of the
National Bank Act may permit the OCC to order the pro rata
assessment of shareholders of a national bank where the
capital of the bank has become impaired. If a shareholder
fails to pay such an assessment within three months, the
OCC may order the sale of the shareholder’s stock to cover a
deficiency in the capital of a subsidiary bank. In the event
of a holding company’s bankruptcy, any commitment by
the holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank would be assumed
by the bankruptcy trustee and may be entitled to priority
over other creditors.