eTrade 2005 Annual Report Download - page 20

Table of Contents
and suspension or expulsion by the NYSE and/or NASD, and could ultimately lead to the firm’s liquidation. In the past, our
broker-dealer subsidiaries have depended largely on capital contributions by us in order to comply with net capital requirements. If
such net capital rules are changed or expanded, or if there is an unusually large charge against net capital, operations that require an
intensive use of capital could be limited. Such operations may include investing activities, marketing and the financing of customer
account balances. Also, our ability to withdraw capital from brokerage subsidiaries could be restricted, which in turn could limit our
ability to repay debt and redeem or purchase shares of our outstanding stock.
Similarly, the Bank is subject to various regulatory capital requirements administered by the OTS. Failure to meet minimum capital
requirements can trigger certain mandatory, and possibly additional discretionary actions by regulators that, if undertaken, could harm
a bank’s operations and financial statements. A bank must meet specific capital guidelines that involve quantitative measures of a
bank’s assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. A bank’s capital
amounts and classification are also subject to qualitative judgments by the regulators about the strength of components of its capital,
risk weightings of assets, off-balance sheet transactions and other factors.
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 1 Capital to adjusted total assets. To satisfy the capital requirements for a
“well capitalized” financial institution, a bank must maintain higher Total and Tier 1 Capital to Risk-weighted Assets and Tier 1 Capital
to adjusted total assets ratios.
As a non-grandfathered savings and loan holding company, we are subject to regulations that could restrict our ability to take
advantage of certain business opportunities
We 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 us, ETB Holdings, Inc. and E*TRADE Re, LLC, including the ability to issue cease-and-desist orders, force
divestiture of the Bank and impose civil and monetary 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 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
recordkeeping and risk management requirements.
We believe all of our existing activities and investments are permissible under the Gramm-Leach-Bliley Act, but the OTS has not yet
fully interpreted these provisions. Even if our existing activities and investments are permissible, we are 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, the Bank is subject to extensive regulation of its activities and investments, capitalization, community reinvestment, risk
management policies and procedures and relationships with affiliated companies. 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, and in some cases the FDIC, which may deny approval or limit the
scope of our planned activity. 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 us following the acquisition and could also delay or prevent the
development, introduction and marketing of new products and services.
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2006. EDGAR Online, Inc.