US Bank 2008 Annual Report Download - page 124

affected by fluctuations in interest rates. Volatility in interest
rates can also result in the flow of funds away from financial
institutions into direct investments. Direct investments, such
as U.S. Government and corporate securities and other
investment vehicles (including mutual funds) generally pay
higher rates of return than financial institutions, because of
the absence of federal insurance premiums and reserve
requirements.
There can be no assurance that recently enacted
legislation will stabilize the U.S. financial markets The
Emergency Economic Stabilization Act of 2008 (the
“EESA”) was signed into law in October 2008 for the
purpose of stabilizing and providing liquidity to the
U.S. financial markets. Shortly thereafter, the
U.S. Department of the Treasury announced a program
under the EESA pursuant to which it would make senior
preferred stock investments in participating financial
institutions (the “TARP Capital Purchase Program”). In
February 2009, the American Recovery and Reinvestment
Act of 2009 (the “Stimulus Bill”) was passed, which is
intended to stabilize the financial markets and slow or
reverse the downturn in the U.S. economy, and which
revised certain provisions of the EESA. The FDIC has also
commenced a guarantee program under which the FDIC
would offer a guarantee of certain financial institution
indebtedness in exchange for an insurance premium to be
paid to the FDIC by issuing financial institutions.
There can be no assurance, however, that the EESA and
its implementing regulations, the Stimulus Bill, the FDIC
programs, or any other governmental program will have a
positive impact on the financial markets. The failure of the
EESA, the Stimulus Bill, the FDIC programs, or any other
actions of the U.S. government to stabilize the financial
markets and a continuation or worsening of current
financial market conditions could materially and adversely
affect the Company’s business, financial condition, results of
operations, access to credit or the trading price of the
Company’s common stock.
The Company may be adversely affected by recently
enacted or contemplated legislation and rulemaking The
programs established or to be established under the EESA
and Troubled Asset Relief Program, as well as restrictions
contained in current or future rules implementing or related
to them and those contemplated by the Stimulus Bill, may
adversely affect the Company. In specific, any governmental
or regulatory action having the effect of requiring the
Company to obtain additional capital, whether from
governmental or private sources, could have a material
dilutive effect on current shareholders. The Company faces
increased regulation of the Company’s business and
increased costs associated with these programs. The EESA,
as amended by the Stimulus bill, contains, among other
things, significant restrictions on the payment of executive
compensation, which may have an adverse effect on the
retention or recruitment of key members of senior
management. Also, the Company’s participation in the
TARP Capital Purchase Program limits (without the consent
of the Department of Treasury) the Company’s ability to
increase the Company’s dividend and to repurchase the
Company’s common stock for up to three years. Similarly,
programs established by the FDIC may have an adverse
effect on the Company, due to the costs of participation.
Other changes in the laws, regulations and policies
governing financial services companies could alter the
Company’s business environment and adversely affect
operations The Board of Governors of the Federal Reserve
System regulates the supply of money and credit in the
United States. Its fiscal and monetary policies determine in a
large part the Company’s cost of funds for lending and
investing and the return that can be earned on those loans
and investments, both of which affect the Company’s net
interest margin. Federal Reserve Board policies can also
materially affect the value of financial instruments that the
Company holds, such as debt securities and mortgage
servicing rights.
The Company and its bank subsidiaries are heavily
regulated at the federal and state levels. This regulation is to
protect depositors, federal deposit insurance funds and the
banking system as a whole. Congress and state legislatures
and federal and state agencies continually review banking
laws, regulations and policies for possible changes. Changes
in statutes, regulations or policies could affect the Company
in substantial and unpredictable ways, including limiting the
types of financial services and products that the Company
offers and/or increasing the ability of non-banks to offer
competing financial services and products. The Company
cannot predict whether any of this potential legislation will
be enacted, and if enacted, the effect that it or any
regulations would have on the Company’s financial
condition or results of operations.
The soundness of other financial institutions could
adversely affect the Company The Company’s ability to
engage in routine funding transactions could be adversely
affected by the actions and commercial soundness of other
financial institutions. Financial services institutions are
interrelated as a result of trading, clearing, counterparty or
other relationships. The Company has exposure to many
different counterparties, and the Company routinely
executes transactions with counterparties in the financial
industry, including brokers and dealers, commercial banks,
investment banks, mutual and hedge funds, and other
institutional clients. As a result, defaults by, or even rumors
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