Bank Holding Company Regulation by saj38576


									          To the extent that the following information describes statutory or regulatory provisions, it is qualified in its
entirety by reference to the particular statutory or regulatory provisions themselves. Proposals to change laws and
regulations are frequently introduced in Congress, the state legislatures, and before the various bank regulatory
agencies. National Penn cannot determine the likelihood or timing of enactment of any such proposals or legislation
or the impact they may have on National Penn and its subsidiaries. A change in law, regulations or regulatory
policy may have a material effect on the business of National Penn and its subsidiaries.

Bank Holding Company Regulation

         National Penn is registered as a bank holding company under the Bank Holding Company Act of 1956, as
amended (“BHCA”), and is subject to inspection, examination and supervision by the Board of Governors of the
Federal Reserve System (the “Federal Reserve”).

          In general, the BHCA limits the business in which a bank holding company may engage to banking,
managing or controlling banks and other activities that the Federal Reserve determines to be appropriately incidental
to the business of banking. The Gramm-Leach-Bliley Act of 1999 (“GLBA”) amended the BHCA and established a
new kind of bank holding company called a “financial holding company.” GLBA expanded the permissible
activities of a bank holding company that elects to become a financial holding company. A financial holding
company may engage in any type of financial activity. Although National Penn believes that it is eligible to do so,
National Penn has not elected to become a “financial holding company.” See “Gramm-Leach-Bliley Act” below.

         Bank holding companies are required to file periodic reports with, and are subject to examination by, the
Federal Reserve. Federal Reserve regulations require a bank holding company to serve as a source of financial and
managerial strength to its subsidiary banks. Pursuant to these “source of strength” regulations, the Federal Reserve
may require National Penn to commit its resources to provide adequate capital funds to National Penn Bank during
periods of financial stress or adversity. This support may be required at times when National Penn is unable to
provide such support. Any capital loans by National Penn to National Penn Bank would be subordinate in right of
payment to deposits and certain other indebtedness of National Penn Bank.

          If any insured depository institution subsidiary of a bank holding company becomes “undercapitalized” (as
defined by regulations) and is required to file a capital restoration plan with its appropriate federal banking agency,
the Federal Deposit Insurance Act (“FDIA”) requires a bank holding company to guarantee the depository
institution’s compliance with its capital restoration plan, up to specified limits.

          The BHCA gives the Federal Reserve the authority to require a bank holding company to terminate any
activity or relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a bank) upon the Federal
Reserve’s determination that such activity or control constitutes a serious risk to the financial soundness and
stability of any bank subsidiary of the bank holding company.

         The BHCA prohibits National Penn from acquiring direct or indirect control of more than 5% of the
outstanding shares of any class of voting stock or substantially all of the assets of any bank, or merging or
consolidating with another bank holding company, without prior approval of the Federal Reserve. Such a
transaction may also require approval of the Pennsylvania Department of Banking. Pennsylvania law permits
Pennsylvania bank holding companies to control an unlimited number of banks.

          The BHCA further prohibits National Penn from engaging in or from acquiring ownership or control of
more than 5% of the outstanding shares of any class of voting stock of any company engaged in a non-banking
business unless such business is determined by the Federal Reserve, by regulation or by order, to be so “closely
related to banking” as to be a “proper incident” thereto. The BHCA does not place territorial restrictions on the
activities of such non-banking-related businesses.


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