eTrade 2002 Annual Report Download - page 80

Table of Contents
Index to Financial Statements
Quantitative measures established by regulation to ensure capital adequacy require a bank to maintain minimum amounts and ratios of Total
and Tier 1 Capital to risk-weighted assets and of Tier I Capital to adjusted total assets. To satisfy the capital requirements for a well capitalized
financial institution, a bank must maintain minimum Total and Tier 1 Capital to risk-weighted assets and Tier I Capital to adjusted total assets
ratios. See Note 25 of Item 8 Consolidated Financial Statements and Supplemental Data for the Bank for the current reporting period.
Regulatory review of our advertising practices could hinder our ability to operate our business and result in fines and other penalties
All marketing activities by our broker-dealer subsidiaries that are regulated by the NASD, are required to have all marketing materials reviewed
by a Series 24 licensed principal prior to release. The NASD has in the past asked us to revise certain marketing materials. In June 2001, we
settled a formal NASD investigation into our advertising practices and were fined by the NASD in connection with three advertisements that
were placed in 1999. The NASD can impose certain penalties for violations of its advertising regulations, including:
• censures or fines;
• suspension of all advertising;
• the issuance of cease-and-desist orders; or
• the suspension or expulsion of a broker-dealer or any of its officers or employees.
In addition, the federal banking agencies impose restrictions on bank advertising of non-deposit investment products to minimize the likelihood
of customer confusion.
As a savings and loan holding company, we are subject to regulations that could restrict our ability to take advantage of certain
business opportunities
We, as well as the Bank, are required to file periodic reports with the OTS, and are subject to examination by the OTS. The OTS also has
certain types of enforcement powers over ETFC and us, including the ability to issue cease-and-desist orders, force divestiture of the Bank and
impose civil money penalties for violations of federal banking laws and regulations or for unsafe or unsound banking practices. In addition,
under the Gramm-Leach-Bliley Act, our activities are now restricted to those that are financial in nature and certain real estate-related activities.
We may make merchant banking investments in companies whose activities are not financial in nature if those investments are made for the
purpose of appreciation and ultimate resale of the investment and we do not manage or operate the company. Such merchant banking
investments may be subject to maximum holding periods and special record keeping and risk management requirements.
We believe that all of our existing activities and investments are permissible under the new legislation, but the OTS has not yet interpreted these
provisions. Even if our existing activities and investments are permissible, we will be unable to pursue future activities that are not financial in
nature. We are also limited in our ability to invest in other savings and loan holding companies.
In addition to regulation as a savings and loan holding company, the Bank is subject to extensive regulation of its activities and investments,
capitalization, risk management policies and procedures and relationship with affiliated companies. In addition, as a condition to approving our
acquisition of ETFC, the OTS imposed various notice and other requirements, primarily a requirement that the Bank obtain prior approval from
the OTS of any future material changes to the Bank’ s business plan. Acquisitions of and mergers with other financial institutions, purchases of
deposits and loan portfolios, the establishment of new Bank subsidiaries and the commencement of new activities by Bank subsidiaries require
the prior approval of the OTS. These regulations and conditions could place us at a competitive disadvantage in an environment in which
consolidation within the financial services industry is prevalent. Also, these regulations and conditions could affect our ability to realize
synergies from future acquisitions, could negatively affect both us and the Bank following the acquisition and could also delay or prevent the
2003. EDGAR Online, Inc.