BB&T 2010 Annual Report Download - page 38

The federal banking agencies, including the Federal Reserve, the FDIC and the OTS, are required to take
“prompt corrective action” in respect of depository institutions and their bank holding companies that do not
meet minimum capital requirements. The law establishes five capital categories for insured depository
institutions for this purpose: “well-capitalized,” “adequately capitalized,” “undercapitalized,” “significantly
undercapitalized” and “critically undercapitalized.” To be considered “well-capitalized” under these standards, an
institution must maintain a total risk-based capital ratio of 10% or greater; a Tier 1 risk-based capital ratio of 6%
or greater; a leverage capital ratio of 5% or greater; and must not be subject to any order or written directive to
meet and maintain a specific capital level for any capital measure.
BB&T, Branch Bank and BB&T FSB are all classified as “well-capitalized.” Federal law also requires the
bank regulatory agencies to implement systems for “prompt corrective action” for institutions that fail to meet
minimum capital requirements within the five capital categories, with progressively more severe restrictions on
operations, management and capital distributions according to the category in which an institution is placed.
Failure to meet capital requirements also may cause an institution to be directed to raise additional capital.
Federal law also mandates that the agencies adopt safety and soundness standards relating generally to
operations and management, asset quality and executive compensation, and authorizes administrative action
against an institution that fails to meet such standards.
In addition to the “prompt corrective action” directives, failure to meet capital guidelines may subject a
banking organization to a variety of other enforcement remedies, including additional substantial restrictions on
its operations and activities, termination of deposit insurance by the FDIC and, under certain conditions, the
appointment of a conservator or receiver.
Deposit Insurance Assessments
The deposits of the Banks are insured by the DIF of the FDIC up to the limits set forth under applicable law
and are subject to the deposit insurance premium assessments of the DIF. The FDIC imposes a risk-based
deposit premium assessment system, which was amended pursuant to the Federal Deposit Insurance Reform Act
of 2005 (the “Reform Act”) and further amended by the Dodd-Frank Act. Under this system, as amended, the
assessment rates for an insured depository institution vary according to the level of risk incurred in its activities.
To arrive at an assessment rate for a banking institution, the FDIC places it in one of four risk categories
determined by reference to its capital levels and supervisory ratings. In addition, in the case of those institutions
in the lowest risk category, the FDIC further determines its assessment rate based on certain specified financial
ratios or, if applicable, its long-term debt ratings. The assessment rate schedule can change from time to time, at
the discretion of the FDIC, subject to certain limits. On November 12, 2009, the FDIC adopted a rule requiring
banks to prepay three years’ worth of premiums to replenish the depleted insurance fund. The FDIC has
published guidelines under the Reform Act on the adjustment of assessment rates for certain institutions. Under
the current system, premiums are assessed quarterly. In addition, insured deposits have been required to pay a
pro rata portion of the interest due on the obligations issued by the Financing Corporation (“FICO”) to fund the
closing and disposal of failed thrift institutions by the Resolution Trust Corporation.
The Dodd-Frank Act imposes additional assessments and costs with respect to deposits. Under the Dodd-
Frank Act, the FDIC is directed to impose deposit insurance assessments based on total assets rather than total
deposits, as well as making permanent the increase of deposit insurance to $250,000 and providing for full
insurance of non-interest bearing transaction accounts beginning December 31, 2010, for two years. The Federal
Reserve is also directed to collect fees from systemically important companies to cover the costs associated with
its supervisory and regulatory responsibilities with respect to such companies. In February 2011, the FDIC
adopted a final rule on the deposit insurance assessment system. The rule is effective as of April 1, 2011 and
revises the assessment system applicable to large banks, such as BB&T, to comply with Dodd-Frank and also
includes a revised assessment rate process with the goal of differentiating insured depository institutions who
pose greater risk to the DIF. The first assessments under the new rule will be payable in the third quarter of
2011.
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