Wells Fargo 2012 Annual Report Download - page 96

Regulatory Reform (continued)
capital requirements and leverage limits, liquidity
requirements, counterparty credit exposure limits, risk
management requirements, stress testing requirements,
debt-to-equity limits, and early remediation requirements
for large BHCs like Wells Fargo. During 2012, the FRB and
OCC issued final rules related to stress testing requirements
for large bank holding companies (BHCs) and banks. For
additional information, see the “Capital Management”
section of this Report. The FRB has not issued final rules
implementing the remaining December 2011 proposals. The
Dodd-Frank Act also establishes the Financial Services
Oversight Council (FSOC) and the Office of Financial
Research, which may recommend new systemic risk
management requirements and require new reporting of
systemic risks.
x Regulation of consumer financial products. The Dodd-
Frank Act established the Consumer Financial Protection
Bureau (CFPB) to ensure consumers receive clear and
accurate disclosures regarding financial products and to
protect them from hidden fees and unfair or abusive
practices. In January 2013, the CFPB issued eight final
rules, which are generally effective in January 2014. The
Ability-to-Repay and Qualified Mortgage Standards Rule
implements the Dodd-Frank Act requirement that creditors
originating residential mortgage loans make a reasonable
and good faith determination that each applicant has a
reasonable ability to repay. The rule also establishes a
definition of a “qualified mortgage,” which appears to
support a broad access to credit for consumers coupled with
legal protections for lenders and secondary market
purchasers, particularly for prime Qualified Mortgage loans.
The second major set of rules, Mortgage Servicing
Standards under the Real Estate Settlement Procedures Act
(RESPA) and the Truth in Lending Act (TILA), address a
number of requirements, including the obligation of
servicers to correct errors identified by borrowers, to
provide information in response to certain borrower
requests, and to provide protections to borrowers in case of
force-placed insurance. Other provisions in the rules
address policy and procedural requirements, information
requirements on loss mitigation options for delinquent
borrowers, and requirements to evaluate borrower
applications for loss mitigation options. In addition, the
rules establish a number of customer notice or statement
requirements, disclosure requirements to customers
regarding certain interest rate adjustments, and
requirements in responding to customer payoff requests.
We are currently analyzing the rules to consider the
similarities between the rules and the national servicing
settlement requirements that Wells Fargo has already
implemented. Additional rules recently issued by the CFPB
address loan originator compensation restrictions, high-cost
mortgage requirements, appraisal delivery requirements,
appraisals for higher-priced mortgages, and escrow
standards for higher-priced mortgages. We are currently
analyzing the requirements of all the final rules, but at this
time the Company cannot predict the long-term impact of
these final rules on our mortgage origination and servicing
activities or on our financial results. In addition to these
recently proposed rules, the CFPB has indicated that in the
coming months it expects to release a rule integrating
disclosures required of lenders and settlement agents under
TILA and RESPA and to propose regulations expanding the
scope of information lenders must report in connection with
mortgage and other housing-related loan applications.
In addition to these rulemaking activities, the CFPB is
continuing its on-going examination activities with respect
to a number of consumer businesses and products,
including an examination of our mortgage origination and
related compliance management activities. We also expect
the CFPB will examine our residential mortgage servicing
activities. At this time, the Company cannot predict the full
impact of the CFPB’s rulemaking and supervisory authority
on our business practices or financial results.
x Enhanced regulation of money market mutual funds. In
November 2012, the FSOC proposed new regulations to
address the perceived risks that money market mutual
funds may pose to the financial stability of the United
States. These proposals include implementation of floating
net asset value requirements, redemption holdback
provisions, and capital buffer requirements and would be in
addition to regulatory changes made by the SEC to the
market in January 2010. The proposals were subject to
public comment. Once the FSOC adopts final
recommendations, the SEC must either implement the
recommendations or explain in writing the reasons the
recommendations were not adopted. The Company will
monitor any final recommendations and the SEC’s response
to determine the impact to our business. In addition,
members of the SEC have recently made public statements
indicating that the SEC is working on its own reform
proposals independent of the FSOC’s rulemaking process
and that the SEC could issue its own proposals in the
coming months.
Regulatory Capital Guidelines and Capital Plans
In December 2010, the BCBS finalized the Basel III standards
for determining regulatory capital. When fully phased in by
2019, the Basel III standards will require BHCs to maintain a
minimum ratio of Tier 1 common equity to risk-weighted assets
of at least 7.0%. In November 2011, the BCBS released its final
rule for a common equity surcharge on certain designated global
systemically important banks (G-SIBs). The Financial Stability
Board (FSB), in an updated list published in November 2012
based on year-end 2011 data, identified the Company as one of
the 28 G-SIBs and provisionally determined that our surcharge
would be 1.0%. The FSB may revise the list of G-SIBs and their
required surcharge prior to implementation based on additional
or future data.
In June 2012, the federal banking regulators jointly
published three notices of proposed rulemaking that will
substantially amend the risk-based capital rules for banks. The
proposed rules are intended to implement the Basel III
regulatory capital reforms in the U.S., comply with changes
required by the Dodd-Frank Act, and replace the existing Basel
I-based capital requirements. Although the proposals
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