SECTION 85:10-11-17. Unsafe and unsound bank or trust practices

(a)   Section 203(2) of the Code provides that in addition to the other powers conferred by the Banking Code, the Board shall have the power to define any term not defined therein.

(b)   State-chartered banks and trust companies are prohibited from engaging in unsafe or unsound practices. As used in the Code, unsafe or unsound banking or trust practice shall be defined as any action, or lack of action, that is contrary to generally accepted standards of prudent operation of a bank or trust company which leads to an abnormal risk of loss or damage to a bank or trust company, its shareholders or depositors, or the insurance fund of the FDIC. The seriousness of each action or inaction, and its likely results, must be considered; an imprudent action or inaction is not automatically an unsafe or unsound banking practice.

(c)   Whether a particular activity is an unsafe or unsound banking practice must be determined in light of all relevant facts. The Department furnishes the following list as a guideline only. The activities described herein are not irrebuttably presumed to be unsafe or unsound. Conversely, not all practices which might under the circumstances be termed unsafe or unsound are mentioned here:

(1)   Operating with management whose policies and practices are detrimental to the bank or trust company and jeopardize the safety of the bank's or trust company's deposit.

(2)   Operating with total adjusted capital and reserves that are inadequate in relation to the kind and quality of the assets of the bank or trust company.

(3)   Operating in a way that produces a deficit in net operating income.

(4)   Operating with a serious lack of liquidity, especially in view of the asset and deposit structure of the bank or trust company.

(5)   Engaging in speculative and hazardous investment policies.

(6)   Paying excessive cash dividends.

(7)   Excessive reliance on purchased deposits.

(8)   Excessive reliance on letters of credit either issued by the bank or accepted as collateral to loans advanced.

(9)   Excessive amounts of loan participations sold.

(10)   Paying interest on participations without advising participating institution that the course of interest was not from the borrower.

(11)   Selling participations without disclosing to the purchasers of those participations material, non-public information known to the bank.

(12)   Failure to limit, control and document contingent liabilities.

(13)   Engaging in hazardous lending and lax collection policies and practices, as evidenced by:

(A)   an excessive volume of loans subject to adverse classification,

(B)   an excessive volume of loans without adequate documentation, including credit information,

(C)   excessive net loan losses,

(D)   an excessive volume of loans in relation to the total assets and deposits of the bank or trust company,

(E)   an excessive volume of weak and self-serving loans to persons connected with the bank or trust company, especially if a significant portion of these loans are adversely classified,

(F)   excessive concentrations of credit, especially if a substantial portion of this credit is adversely classified,

(G)   indiscriminate participation in weak and undocumented loans originated by other institutions,

(H)   failing to adopt written loan policies,

(I)   an excessive volume of overdue loans, and

(J)   failure to diversify the loan portfolio of the bank.

(14)   Permitting officers to engage in lending practices beyond the scope of their position.

(15)   Operating the bank with inadequate internal controls.

(16)   Operating the bank with excessive volume of out-of-territory loans.

(17)   Failure to heed warnings and admonitions of the supervisory authorities of the bank or trust company.

(18)   Continued and flagrant violation of any laws, rules, regulations or written agreements between the bank or trust company and the Commissioner or the Board, or order of the Commissioner or Board.

(19)   Any action likely to cause insolvency or substantial dissipation of assets or earnings of the bank or trust company or likely to seriously weaken the condition of the bank or trust company or otherwise seriously prejudice the interest of its depositors.

[Source: Amended at 15 Ok Reg 2952, eff 7-15-98; Amended at 25 Ok Reg 1064, eff 5-25-08]