frameworki t would followi n setting the countercyclical capital buffer, a macroprudential tool that would raise capital requirements when therei s an elevated risk of above normal lossesi n the U.S. financial system. Furthermore, the Basel Committee on Banking Supervision (the “Basel Committee”) has published several consultative papers regarding (i) the standardized approach to credit risk, (ii) a fundamental review of the trading book, (iii)i nterest rate riski n the banking book, and (iv) operational risk. Finally, the Basel Committee has publishedi ts final net stable funding ratio framework. The U.S. banking regulators are expected toi ncorporate all of these measuresi nto domestic regulation. The ultimatei mpact on the Company’s capital andl iquidity will depend on the final U.S. rulemakings andi mplementation process thereafter.

The Company is subject to significant financial and reputational risks from potential legal liability and governmental actions The Company faces significantl egal risksi ni ts business, and the volume of claims and amount of damages and penalties claimedi nl itigation and governmental proceedings againsti t and other financial institutions are increasing. Customers, clients and other counterparties have grown morel itigious and are making claims for substantial or indeterminate amounts of damages, while banking regulators and certain other governmental authorities, such as the U.S. Department of Justice, have demonstrated ani ncreasing focus on enforcement,i ncludingi n connection with alleged violations ofl aw and customer harm.I n addition, governmental authorities have begun to seek criminal penalties against companiesi n the financial services sector for regulatory violations and have begun to require an admission of wrongdoing from financial institutionsi n connection with settling such matters. Criminal convictions or admissions of wrongdoingi n a settlement with the government canl ead to greater exposurei n civil litigation and reputational harm.

As an example ofi ncreased risks arising froml itigation, the Company and otherl arge financial institutions have been sued over the past several yearsi n their capacity as trustee for residential mortgage–backed securities (“RMBS”) trusts. The plaintiffsi n these actions allege that the significantl osses they incurred asi nvestorsi n the RMBS trusts were caused by the trustees’ failure to enforcel oan repurchase obligations and to abide by appropriate standards of care after events of default allegedly occurred, while also arguing to broaden the trustees’ duties. Although the Company has deniedl iability and believesi t has meritorious defensesi n these cases, any finding ofl iability or new or enhanced dutiesi n one or more of these cases against the Company, or another financial institution, could resulti n a significant financial loss or require a modification to the Company’s business practices, which could negativelyi mpact the Company’s financial results.

Increasedl itigation costs, substantial legal liability or significant governmental action against the Company could materiallyi mpacti ts financial condition and results of operations or cause significant reputational harm to the Company, whichi n turn could adverselyi mpacti ts business prospects.

The Company faces increased regulatory and legal risk arising out of its mortgage lending and servicing businesses The Companyi s subject toi nvestigations, examinations andi nquiries by government agencies and bank regulators concerning mortgage-related practices,i ncluding those related to compliance with selling guidelines relating to residential homel oans sold to GSEs, foreclosure-related expenses submitted to the Federal Housing Administration or GSEs for reimbursement,l ender-placedi nsurance, and notices and filingsi n bankruptcy cases. The Companyi s cooperating fully with thesei nvestigations, examinations and inquiries, any of which couldl ead to administrative orl egal proceedings or settlements. Remediesi n such proceedings or settlements mayi nclude fines, penalties, restitution or alterations to the Company’s business practices, which could increase the Company’s operating expenses and decreasei ts revenue. Additionally, reputational damage arising from these or otheri nquiries andi ndustry-wide publicity could also have an adverse effect upon the Company’s existing mortgage business and could reduce future business opportunities.

In addition to governmental or regulatoryi nvestigations, the Company,l ike other companies with residential mortgage origination and servicing operations, faces the risk of class actions and otherl itigation arising out of these operations.

The Company may be required to repurchase mortgage loans or indemnify mortgage loan purchasers as a result of breaches in contractual representations and warranties When the Company sells mortgagel oans thati t has originated to various parties,i ncluding GSEs,i ti s required to make customary representations and warranties to the purchaser about the mortgagel oans and the manneri n which they were originated. The Company may be required to repurchase mortgagel oans or be subject toi ndemnification claimsi n the event of a breach of contractual representations or warranties thati s not remedied within a certain period. Contracts for residential mortgagel oan sales to the GSEs include various types of specific remedies and penalties that could be applied toi nadequate responses to repurchase requests.I f economic conditions and the housing market deteriorate or the GSEsi ncrease their claims of breached representations and warranties, the Company could have increased repurchase obligations andi ncreasedl oss severity on repurchases, requiring material increases toi ts repurchase reserve.

The Company is exposed to risk of environmental liability when it takes title to properties In the course of the Company’s business, the Company may foreclose on and