PDF Version

Pursuant to the GLB Act, a bank holding company may elect to become a financial holding companyto engage in a broader range of activities that are financial in nature, including securities underwriting,dealing and market making, securitizing assets, sponsoring mutual funds and investment companies,engaging in insurance underwriting and brokerage activities and investing (without providing routinemanagement) in companies engaged in non-financial activities. To qualify as a financial holding company,each of a bank holding company’s U.S. subsidiary banks and other depository institution subsidiaries, whichare not subject to an exemption, must be and remain at all times well capitalized and well managed. Inaddition, each such subsidiary must have achieved at least a “satisfactory” rating under the CommunityReinvestment Act (“CRA”) in the evaluation preceding the financial holding company election. WhileFTB&T is subject to CRA requirements, Fiduciary Trust remains exempt from such requirements because itqualifies as a special purpose bank. If, however, we do not continue to meet all of the requirements forstatus as a financial holding company, we would, depending on which requirement is not met, be required to(i) cause Fiduciary Trust or FTB&T to meet such requirement and, in the meantime, seek prior FRBapproval to undertake certain new activities or certain banking and non-banking acquisitions, or (ii) eitherdiscontinue our banking (but not our thrift) business, or discontinue those activities not generallypermissible for bank holding companies.The BHC Act generally requires that a bank holding company obtain prior approval of the FRB beforeacquiring control of any bank. In addition, the FRB may impose limitations, restrictions, or prohibitions onthe activities or acquisitions of a financial holding company if the FRB believes that the financial holdingcompany does not have appropriate financial and managerial resources. The GLB Act establishes the FRBas the umbrella supervisor for financial holding companies and adopts an administrative approach toregulation that generally requires the FRB to defer to the actions and requirements of the U.S. “functional”regulators of subsidiary broker/dealers, investment advisers, investment companies, insurance companies,and other regulated non-depository institutions. The FRB, however, retains broad authority to prohibitactivities of bank holding companies and their non-banking subsidiaries that represent unsafe and unsoundbanking practices or that constitute violations of law or regulation. Civil money penalties may be imposedfor certain activities conducted on a knowing or reckless basis if those activities cause a substantial loss tothe bank holding company.Each of our banking subsidiaries is subject to restrictions under federal law that limit transactions withFranklin and its non-bank subsidiaries, including loans and other extensions of credit, investments, or assetpurchases. These and various other transactions, including any payment of money to Franklin and itsnon-bank subsidiaries, must be on terms and conditions that are, or in good faith would be, offered tocompanies that are not affiliated with these entities. In addition, these laws and related regulations may limitthe Company’s ability to obtain funds from subsidiary banks or affiliates.The operations and activities of Fiduciary Trust are subject to extensive regulation, supervision andexamination by the FDIC and NYSBD while the operations and activities of our other subsidiaries,including FTB&T, are subject to oversight by the OTS and various state regulators. The laws andregulations of these regulators generally impose restrictions and requirements, with which we must comply,on capital adequacy, anti-money laundering, management practices, liquidity, branching, earnings, loans,dividends, investments, reserves against deposits and the provision of services.The federal banking agencies and the NYSBD have broad enforcement powers, including the power toterminate deposit insurance, impose substantial fines and other civil and criminal penalties and appoint aconservator or receiver. Failure to comply with applicable laws, regulations and supervisory agreements couldsubject Franklin, our thrift and banking subsidiaries, as well as officers, directors and other so-called“institution-affiliated parties” of these organizations to administrative sanctions and potentially substantial civilmoney penalties. In addition, the appropriate federal banking agency may appoint the FDIC as conservator orreceiver for a banking institution, or the FDIC may appoint itself if certain circumstances exist.21