December 22, 2008

James S. Keller, Esq.

Chief Regulatory Counsel

The PNC Financial Services Group, Inc.

One PNC Plaza, 21st Floor

Pittsburgh, Pennsylvania 15222

Dear Mr. Keller:

This is in response to the request by The PNC Financial Services Group, Inc. 

(“PNC”), Pittsburgh, Pennsylvania, for temporary relief from the Board’s risk-based 

and leverage capital guidelines for bank holding companies (“Capital Rules”)1

PNC has requested that the Board (i) grant PNC additional time to comply with 

the 15 percent limit (“15 percent limit”) on including restricted core capital elements 

in tier 1 capital that will apply to internationally active banking organizations as of

March 31, 2009;

in 

connection with its proposal to acquire National City Corporation (“National City”), 

Cleveland, Ohio.

2 (ii) allow PNC to include a greater amount of deferred tax assets 

that are dependent on future taxable income (“DTAs”) in tier 1 capital than is 

permitted by the Capital Rules; and (iii) allow PNC to delay implementation of the 

Basel II advanced risk-based capital adequacy framework (“Advanced Approaches”).

3

 

The Board has broad authority to provide exemptions from the Capital Rules.

4

 1

 12 CFR part 225, Appendices A and D.

2

 70 Federal Register 11827 (March 10, 2005). Restricted core capital elements 

include qualifying cumulative perpetual preferred stock, certain forms of minority 

interest, and qualifying trust preferred securities. See 12 CFR part 225, 

Appendix A, § II.A.1.a.

3

 12 CFR part 225, Appendix G.

4

 See 12 CFR part 225, Appendix A, § III.A; 12 CFR part 225, Appendix D, § II.b.; 

12 CFR part 225 Appendix G, § 1(c).
- 2 -

Under the Capital Rules, cumulative perpetual preferred stock and trust 

preferred securities may not comprise more than 25 percent of a bank holding 

company’s tier 1 capital. As of March 31, 2009, however, internationally active 

banking organizations will be subject to the 15 percent limit. The Capital Rules

define an internationally active banking organization to include, among other things, a 

bank holding company with total consolidated assets of $250 billion or more. After 

its acquisition of National City, PNC’s total consolidated assets would exceed 

$250 billion, and it would become an internationally active banking organization

subject to the 15 percent limit. PNC has requested a four-year transition period before

becoming subject to the 15 percent limit. PNC has represented that, until it entered 

into an agreement to acquire National City in the fall of 2008, it did not anticipate 

becoming an internationally active banking organization by March 31, 2009. 

Although the Board understands that PNC did not anticipate being subject to 

the 15 percent limit until recently and would need some additional time to implement 

plans for compliance after its acquisition of National City, PNC has not provided 

sufficient support for its request for relief from the limit for a four-year period. After 

reviewing the facts and circumstances of PNC’s request, the Board concludes that a 

one-year transition period would allow PNC to make adjustments to its capital policy 

and strengthen its capital position in anticipation of being subject to the new limit. 

The Board expects PNC to strengthen the components of its tier 1 capital base during 

this adjustment period and believes that a longer time frame for adjustment would 

weaken incentives to implement capital plans and policies that are based on 

compliance with the limit. Accordingly, the Board grants PNC relief from the 

15 percent limit until March 31, 2010. After the consummation of its proposed 

acquisition of National City and until March 31, 2010, PNC must comply with the 

Capital Rules on the same basis as non-internationally active bank holding companies.

The Capital Rules limit the amount of DTAs that a bank holding company may 

include in tier 1 capital to the lesser of (i) 10 percent of tier 1 capital or (ii) the amount 

of DTAs that the bank holding company expects to realize within one year of the 

calendar quarter-end date based on projections of future taxable income for that year

(“look-forward period”).

5

The Board believes that granting a look-forward period of five years with no 

limit would inappropriately provide PNC immediate capital relief for DTAs based on 

projections of earnings so far into the future as to be largely speculative in nature. 

 PNC has asked to be allowed to include all DTAs in its 

tier 1 capital for five years, with no limit, as part of its overall plan for orderly 

absorption of the assets and liabilities of National City. 

 5

 See 12 CFR part 225, Appendix A, § II.A.4.a.
- 3 -

However, a more limited look-forward period of three years or less, while maintaining 

a DTA ceiling of 10 percent of tier 1 capital, would allow PNC to use a substantial 

portion of the large amount of DTAs to be generated from acquiring a banking 

organization with financial difficulties. At the same time, a look-forward period of 

three years or less would provide greater certainty that PNC would obtain capital 

relief only for those DTAs that it would be able to use based on actual future earnings. 

In accordance with these conclusions, the Board grants PNC’s request in part. After 

consummation of its acquisition of National City and until January 1, 2010, PNC may 

include an aggregate amount of DTAs in tier 1 capital equal to the lesser of 

(i) 10 percent of tier 1 capital or (ii) the sum of (A) the amount of DTAs acquired as a 

result of its acquisition of National City that PNC expects to realize within three years 

of the calendar quarter-end date based on projections of future taxable income for 

those three years plus (B) the amount of DTAs not related to National City that PNC 

expects to realize within one year of the calendar quarter-end date based on 

projections of future taxable income for that year. From January 1, 2010, to 

January 1, 2011, PNC may apply a look-forward period of two years, rather than three 

years, in the manner described above for DTAs acquired as a result of its acquisition 

of National City. This temporary DTA relief will expire on January 1, 2011.

The Board concludes that the limited and temporary relief from the Capital 

Rules described above would permit PNC to implement its capital and integration 

plans for National City in a safe, sound, and orderly manner. The Board notes that

PNC would be well capitalized (as defined in section 225.2 of the Board’s 

Regulation Y6

On consummation of its acquisition of National City, PNC would become 

subject to the Advanced Approaches due to its asset size.

) on consummation of the acquisition of National City even without the 

regulatory capital relief provided by the exemptions. Furthermore, PNC has 

acknowledged to the Board that it must seek to augment capital during the period the 

relief applies, through retention of earnings or the issuance of common stock or other 

capital instruments.

7

 6

 12 CFR 225.2(r).

7

 See 12 CFR part 225, Appendix G, § 1(b)(1).

 PNC has requested that the 

Board permit it to delay application of the Advanced Approaches until six months 

after completion of its integration of National City. The Board notes that a great deal 

of flexibility is built into the implementation requirements of the Advanced 

Approaches that should accommodate PNC’s adoption of them after it acquires 

National City. Under the Advanced Approaches, PNC would have until six months 

after the end of the year in which the acquisition is consummated to formulate an 
- 4 -

internal plan for implementation of the Advanced Approaches for consideration by its 

board of directors. In addition, PNC has up to three years from the end of the year in 

which the acquisition is consummated to complete its parallel run under the Advanced 

Approaches. Furthermore, the Federal Reserve may extend this timeframe, if 

appropriate, based on the facts and circumstances of PNC’s implementation process. 

Accordingly, the Board declines to provide PNC an extension of the time period for 

implementation of the Advanced Approaches at this time.

These determinations are specifically conditioned on compliance by PNC with 

all the commitments and representations made to the Board in connection with the 

request for exemptions. These commitments and representations are deemed to be 

conditions imposed in writing by the Board in connection with granting the requests

and, as such, may be enforced in proceedings under applicable law. These

determinations are based on the specific facts and circumstances of the existing and 

proposed relationships between PNC and National City. Any material change in those 

facts or circumstances or any failure by PNC to observe any of its commitments or 

representations may result in a different determination or in revocation of the 

exemptions.

Sincerely yours,

(signed)

Robert deV. Frierson

Deputy Secretary of the Board

cc: Federal Reserve Bank of Cleveland

Office of the Comptroller of the Currency

Federal Deposit Insurance Corporation