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that technical flaws or employee tampering or manipulation of those systems could result in losses that are difficult to
detect. We also may be subject to disruptions of our operating systems arising from events that are wholly or partially
beyond our control (for example, computer viruses or electrical or telecommunications outages, or natural disasters,
disease pandemics or other damage to property or physical assets) which may give rise to disruption of service to
customers and to financial loss or liability. We are further exposed to the risk that our external vendors may be unable
to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational errors by their
employees) and to the risk that our (or our vendors’) business continuity and data security systems might prove to be
inadequate. The occurrence of any of these risks could result in a diminished ability to operate our business (for
example, by requiring us to expend significant resources to correct the defect), as well as potential liability to clients,
reputational damage and regulatory intervention, which could adversely affect our business, financial condition and
results of operations, perhaps materially.
Previously enacted and potential future financial regulatory reforms could have a significant impact on our
business, financial condition and results of operations.
The Dodd-Frank Wall Street Reform and Consumer
Protection Act was enacted in July 2010. Dodd-Frank is having a broad impact on the financial services industry,
including significant regulatory and compliance changes. Many of the requirements called for in Dodd-Frank will be
implemented over time, and most will be facilitated by the enactment of regulations over the course of several years.
Given the uncertainty associated with the manner in which the provisions of Dodd-Frank will be implemented, the full
extent to which they will impact our operations is unclear. The changes resulting from Dodd-Frank may impact the
profitability of business activities, require changes to certain business practices, impose more stringent capital, liquidity
and leverage requirements or otherwise adversely affect our business. In particular, the potential impact of Dodd-Frank
on our operations and activities, both currently and prospectively, include, among others:
•
an increase in our cost of operations due to greater regulatory oversight, supervision and examination of
banks and bank holding companies, and higher deposit insurance premiums;
•
the limitation of our ability to expand consumer product and service offerings due to more stringent
consumer protection laws and regulations;
•
a material negative impact on our cost of funds when deposit rates increase, since financial institutions can
now pay interest on business checking accounts;
•
a potential reduction in fee income, due to limits on interchange fees applicable to larger institutions which
could ultimately lead to a competitive-driven reduction in the fees we receive; and
•
a potential increase in competition due to the elimination of remaining barriers to de novo interstate
branching.
Further, we may be required to invest significant management attention and resources to evaluate and make any changes
necessary to comply with new statutory and regulatory requirements under the Dodd-Frank Act, which may negatively
impact results of operations and financial condition. We cannot predict whether there will be additional laws or reforms
that would affect the U.S. financial system or financial institutions, when such changes may be adopted, how such
changes may be interpreted and enforced or how such changes may affect us. However, the costs of complying with
any additional laws or regulations could have a material adverse effect on our financial condition and results of
operations.
We may be adversely affected by the financial stability of other financial institutions.
Our ability to engage in
routine funding transactions could be adversely affected by the actions and liquidity of other financial institutions.
Financial institutions are often interconnected as a result of trading, clearing, counterparty, or other business
relationships. We have exposure to many different industries and counterparties, and routinely execute transactions
with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment
banks, and other institutional clients. Many of these transactions expose us to credit risk in the event of a default by a
counterparty or client. Even if the transactions are collateralized, credit risk could exist if the collateral held by us
cannot be liquidated at prices sufficient to recover the full amount of the credit or derivative exposure due to us. Any
such losses could adversely affect our business, financial condition or results of operations.
Changes in interest rates could adversely affect our profitability, business and prospects.
Net interest income,
and therefore earnings, can be adversely affected by differences or changes in the interest rates on, or the re-pricing
frequency of, our financial instruments. In addition, fluctuations in interest rates can affect the demand of customers
for products and services, and an increase in the general level of interest rates may adversely affect the ability of certain