US Bank 2015 Annual Report Download - page 159

Heightened Standards and the Federal Reserve’s Enhanced
Prudential Supervision Rules have required and will continue
to require significant Board of Directors oversight and
management focus on governance and risk-management
activities. The OCC has also recently proposed guidelines
that, if implemented, will require banks to develop and
maintain a recovery plan subject to regulatory review, which
could present new challenges and demands on resources. In
addition, many parts of the Dodd-Frank Act are still in the
implementation stage, which leaves some uncertainty as to its
fully implemented aggregate impact upon the Company.
The financial services industry is facing more intense
scrutiny from bank supervisors in the examination process
and more aggressive enforcement of regulations on both the
federal and state levels, particularly with respect to mortgage-
related practices and other consumer compliance matters,
and compliance with Bank Secrecy Act/anti-money
laundering requirements and sanctions compliance
requirements as administered by the Office of Foreign Assets
Control. In accordance with this trend, the Company entered
into a Consent Order with the OCC in October 2015 that
concerns deficiencies in its Bank Secrecy Act/anti-money
laundering compliance program, and requires an ongoing
review of that program. Federal banking law grants
substantial enforcement powers to federal banking regulators.
This enforcement authority includes, among other things, the
ability to assess significant civil or criminal monetary penalties,
fines, or restitution; 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
does not make satisfactory progress toward addressing the
requirements of the October 2015 Consent Order, for
example, it may be required to enter into further orders and
settlements, pay fines or other penalties or further modify its
business practices (which may increase the Company’s
operating expenses and decrease its revenue). Foreign
supervisors also have increased regulatory scrutiny and
enforcement in areas related to consumer compliance, money
laundering, and information technology systems and controls,
among others. Any future enforcement action could have a
material adverse impact on the Company.
In general, the amounts paid by financial institutions in
settlement of proceedings or investigations and the severity of
other terms of regulatory settlements have been increasing
dramatically and are likely to continue to increase. In some
cases, governmental authorities have required criminal pleas
or other extraordinary terms as part of such settlements,
which could have significant consequences for a financial
institution, including loss of customers, restrictions on the
ability to access the capital markets, and the inability to
operate certain businesses or offer certain products for a
period of time. Violations of laws and regulations or deemed
deficiencies in risk management practices also may be
incorporated into the Company’s bank supervisory ratings. A
downgrade in these ratings, or other regulatory actions and
settlements, such as the October 2015 Consent Order, can
limit the Company’s ability to pursue acquisitions or conduct
other expansionary activities for a period of time and require
new or additional regulatory approvals before engaging in
certain other business activities.
Compliance with new regulations and supervisory
initiatives may continue to increase the Company’s costs. In
addition, regulatory changes may reduce the Company’s
revenues, limit the types of financial services and products it
may offer, alter the investments it makes, affect the manner in
which it operates its businesses, increase its litigation and
regulatory costs should it fail to appropriately comply with
new laws and regulatory requirements, and increase the
ability of non-banks to offer competing financial services and
products. See “Supervision and Regulation” in the Company’s
Annual Report on Form 10-K for additional information
regarding the extensive regulatory framework applicable to
the Company.
More stringent requirements related to capital and
liquidity have been adopted by U.S. banking regulators
that may limit the Company’s ability to return earnings
to shareholders or operate or invest in its business U.S.
banking regulators have adopted more stringent capital- and
liquidity-related standards applicable to larger banking
organizations, including the Company. The rules require
banks to hold more and higher quality capital as well as
sufficient unencumbered liquid assets to meet certain stress
scenarios defined by regulation. The implementation of these
rules including the common equity tier 1 capital conservation
buffer, or additional capital- and liquidity-related rules could
require the Company to take further steps to increase its
capital, increase its investment security holdings, divest
assets or operations or otherwise change aspects of its
capital and/or liquidity measures, including in ways that may
be dilutive to shareholders or could limit the Company’s ability
to pay common stock dividends, repurchase its common
stock, invest in its businesses or provide loans to its
customers. See “Supervision and Regulation” in the
Company’s Annual Report on Form 10-K for additional
information regarding the capital and liquidity requirements
under the Dodd-Frank Act and Basel III.
Additional requirements are expected in the future. The
Board of Governors of the Federal Reserve System has
recently proposed a policy statement that details the
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