US Bank 2013 Annual Report Download - page 150

The value to the Company of other assets such as
investment securities, most of which are debt securities or
other financial instruments supported by loans, similarly
would be negatively impacted by widespread decreases in
credit quality resulting from a weakening of the economy.
Downward valuation of debt securities could also negatively
impact the Company’s capital position.
Continued elevated unemployment, under-employment
and household debt, along with continued stress in the
consumer real estate market and certain commercial real
estate markets, pose challenges to domestic economic
performance and the financial services industry. The
sustained high unemployment rate and the lengthy duration
of unemployment have directly impaired consumer finances
and pose risks to the financial services industry. Continued
uncertainty in the housing market and elevated levels of
distressed and delinquent mortgages pose further risks to
the housing market. These factors continue to negatively
impact the credit performance of real estate related loans
and have resulted in, and may continue to result in,
significant write-downs of asset values by the Company and
other financial institutions. Additionally, the current
environment of heightened scrutiny of financial institutions,
as well as a continued concern regarding the possibility of a
return to recessionary conditions, has resulted in increased
public awareness of and sensitivity to banking fees and
practices.
Notwithstanding improved financial market conditions in
Europe, many of the structural issues remain and problems
could resurface which could have significant adverse effects
on the Company’s business, results of operations, financial
condition and liquidity. Further deterioration in economic
conditions in Europe could slow the recovery of the domestic
economy or negatively impact the Company’s borrowers or
other counterparties that have direct or indirect exposure to
Europe. Additional negative market developments may
further erode consumer confidence levels and may cause
adverse changes in payment patterns, causing increases in
delinquencies and default rates. Such developments could
increase the Company’s charge-offs and provision for credit
losses. Any future economic deterioration that affects
household or corporate incomes and the continuing concern
regarding the possibility of a return to recessionary
conditions could also result in reduced demand for credit or
fee-based products and services. A worsening of these
conditions would likely exacerbate the lingering effects of the
difficult market conditions experienced by the Company and
others in the financial services industry.
The Company is subject to extensive government
regulation and supervision, and the regulatory
environment for the financial services industry is
being significantly impacted by financial regulatory
reform initiatives in the United States, including the
Dodd-Frank Wall Street Reform and Consumer
Protection Act Federal and state regulation and supervision
has increased in recent years due to the implementation of the
Dodd-Frank Wall Street Reform and Consumer Protection Act
(the “Dodd-Frank Act”) and other financial reform initiatives.
The Company will continue to face such increased regulation
into 2014 and in future years, as a result of current and future
initiatives intended to provide economic stimulus, financial
market stability, and enhancement of the liquidity and
solvency of financial institutions. Banking regulations are
primarily intended to protect depositors’ funds, federal deposit
insurance funds, and the banking system as a whole, not the
Company’s debt holders or shareholders. These regulations
affect the Company’s lending practices, capital structure,
investment practices, dividend policy, ability to repurchase
common stock, and growth, among other things.
Changes to statutes, regulations or regulatory policies,
or their interpretation or implementation, and/or the
continued heightening of regulatory practices, requirements
or expectations, could affect the Company in substantial and
unpredictable ways. Although many parts of the Dodd-Frank
Act are now in effect, other parts are still in the
implementation stage, which is likely to continue for several
years, including new capital rules effective January 1, 2014,
which phase in through 2018. Accordingly, some uncertainty
remains as to the aggregate impact upon the Company of
the Dodd-Frank Act as fully implemented.
The Company expects more intense scrutiny from bank
supervisors in the examination process and more aggressive
enforcement of regulations on both the federal and state
levels, particularly due to the Company’s status as a covered
institution for the enhanced prudential standards
promulgated under the Dodd-Frank Act. Federal banking law
grants substantial enforcement powers to federal banking
regulators. This enforcement authority includes, among other
things, the ability to assess civil money penalties, to issue
cease and desist or removal orders and to initiate injunctive
actions against banking organizations and institution-
affiliated parties. These enforcement actions may be initiated
for violations of laws and regulations and unsafe or unsound
practices. If the Company were the subject of an
enforcement action, it could have an adverse impact on the
Company.
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