Bank of America 2011 Annual Report Download - page 62

60 Bank of America 2011
the mortgages in the Covered Trusts for these documentation
issues.
We estimate that the costs associated with additional servicing
obligations under the BNY Mellon Settlement contributed $400
million to the 2011 valuation charge related to the MSR asset.
The additional servicing actions are consistent with the consent
orders with the OCC and the Federal Reserve.
In addition, in connection with the Servicing Resolution
Agreements, BANA has agreed to implement certain additional
servicing changes. The uniform servicing standards established
under the Servicing Resolution Agreements are broadly consistent
with the residential mortgage servicing practices imposed by the
OCC consent order, however they are more prescriptive and cover
a broader range of our residential mortgage servicing activities.
These standards are intended to strengthen procedural
safeguards and documentation requirements associated with
foreclosure, bankruptcy, and loss mitigation activities, as well as
addressing the imposition of fees and the integrity of
documentation, with a goal of ensuring greater transparency for
borrowers. These uniform servicing standards also obligate us to
implement compliance processes reasonably designed to provide
assurance of the achievement of these objectives. Compliance
with the uniform servicing standards will be assessed by a monitor
based on the measurement of outcomes with respect to these
objectives. Implementation of these uniform servicing standards
is expected to incrementally increase costs associated with the
servicing process, but is not expected to result in material delays
or dislocation in the performance of our mortgage servicing
obligations, including the completion of foreclosures.
Regulatory Matters
See Item 1A. Risk Factors of this Annual Report on Form 10-K and
Note 14 – Commitments and Contingencies to the Consolidated
Financial Statements for additional information regarding
regulatory matters and risks.
Financial Reform Act
The Dodd-Frank Wall Street Reform and Consumer Protection Act
(Financial Reform Act), which was signed into law on July 21, 2010,
enacts sweeping financial regulatory reform and has altered and
will continue to alter the way in which we conduct certain
businesses, increase our costs and reduce our revenues. Many
aspects of the Financial Reform Act remain subject to final
rulemaking and will take effect over several years, making it difficult
to anticipate the precise impact on the Corporation, our customers
or the financial services industry.
Debit Interchange Fees
On June 29, 2011, the Federal Reserve adopted a final rule with
respect to the Durbin Amendment effective on October 1, 2011
which, among other things, established a regulatory cap for many
types of debit interchange transactions to equal no more than 21
cents plus five bps of the value of the transaction. The Federal
Reserve also adopted a rule to allow a debit card issuer to recover
one cent per transaction for fraud prevention purposes if the issuer
complies with certain fraud-related requirements, with which we
are currently in compliance. The Federal Reserve also approved
rules governing routing and exclusivity, requiring issuers to offer
two unaffiliated networks for routing transactions on each debit
or prepaid product, which are effective April 1, 2012. For additional
information, see Card Services on page 35.
Limitations on Proprietary Trading
On October 11, 2011, the Federal Reserve, OCC, FDIC and
Securities and Exchange Commission (SEC), representing four of
the five regulatory agencies charged with promulgating regulations
implementing limitations on proprietary trading as well as the
sponsorship of or investment in hedge funds and private equity
funds (the Volcker Rule) established by the Financial Reform Act,
released for comment proposed implementing regulations. On
January 11, 2012, the Commodity Futures Trading Commission
(CFTC), the fifth agency, released for comment its proposed
regulations under the Volcker Rule. The proposed regulations
include clarifications to the definition of proprietary trading and
distinctions between permitted and prohibited activities. However,
in light of the complexity of the proposed regulations and the large
volume of comments received (the proposal requested comments
on over 1,300 questions on 400 different topics), it is not possible
to predict the content of the final regulations or when they will be
issued.
The statutory provisions of the Volcker Rule will become
effective on July 21, 2012, whether or not the final regulations are
adopted, and it gives certain financial institutions two years from
the effective date, with opportunities for additional extensions, to
bring activities and investments into compliance. Although GBAM
exited its stand-alone proprietary trading business as of June 30,
2011 in anticipation of the Volcker Rule and further to our initiative
to optimize our balance sheet, the ultimate impact of the Volcker
Rule on us remains uncertain. However, based upon the content
of the proposed regulations, it is possible that the implementation
of the Volcker Rule could limit or restrict our remaining trading
activities. Implementation of the Volcker Rule could also limit or
restrict our ability to sponsor and hold ownership interests in hedge
funds, private equity funds and other subsidiary operations,
increase our operational and compliance costs, reduce our trading
revenues and adversely affect our results of operations. For
additional information about our trading business, see GBAM on
page 43.
Derivatives
The Financial Reform Act includes measures to broaden the scope
of derivative instruments subject to regulation by requiring clearing
and exchange trading of certain derivatives; imposing new capital,
margin, reporting, registration and business conduct requirements
for certain market participants; and imposing position limits on
certain OTC derivatives. The Financial Reform Act required
regulators to promulgate the rulemakings necessary to implement
these regulations by July 16, 2011. However, the rulemaking
process was not completed as of this date, and is not expected
to conclude until well into 2012. Further, the regulators granted
temporary relief from certain requirements that would have taken
effect on July 16, 2011 absent any rulemaking. The SEC temporary
relief is effective until final rules relevant to each requirement
become effective. The CFTC temporary relief is effective until the
earlier of July 16, 2012 or the date on which final rules relevant
to each requirement become effective. The ultimate impact of
these derivatives regulations and the time it will take to comply
continues to remain uncertain. The final regulations will impose
additional operational and compliance costs on us and may require
us to restructure certain businesses, thereby negatively impacting
our revenues and results of operations.