Oklahoma Administrative Code › Title 85 - State Banking Department › Chapter 10 - Supervision, Regulation, and Administration of Banks, Trust Companies, and the Oklahoma Banking Code › Subchapter 11 - Substantive Guidelines and Restrictions › Section 85:10-11-17 - Unsafe and unsound bank or trust practices

Current through Vol. 41, No. 20, July 1, 2024
(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.