3 CCR 701-1
CB1.1 Scope [Section 11-102-103, C.R.S.] A. The Rules constitute a procedural guide for appearance and practice before, and action by, the Colorado State Banking Board. The Rules are promulgated pursuant to the provisions of the Colorado Banking Code, Section 11-102-103, C.R.S.
B. The regulations constitute substantive determinations of the Banking Board implementing various provisions of the Colorado Banking Code, as amended. Such regulations have been promulgated pursuant to the provisions of the Colorado Banking Code, Section 11-102-103, C.R.S. CB1.2 Definitions [Sections 11-101-101. 11-101-401, and 11-102-103, C.R.S.] A. As used by the Banking Board, unless the context otherwise requires:
1. “Code” means the Colorado Banking Code, as amended from time to time;
2. “Board” means the Colorado Banking Board appointed and serving pursuant to Section 11- 102-103, C.R.S., and 3. “Commissioner” means the State Bank Commissioner appointed and serving pursuant to the Colorado Constitution.
CB1.8 Appearance and Practice Before the Board.
Any interested person may appear before the Board pro se. Any person who is a member in good standing of the Bar of the highest court in any state or any federal court, may represent others before the Board by filing with the Commissioner his written declaration that he is currently qualified as provided by this paragraph and is expressly authorized to represent the particular party on whose behalf he acts. CB1.9 Application Procedure. [Section 11-103-303, C.R.S.] A. Persons desiring to organize a state bank shall complete and submit such application forms as may be required by the Commissioner from time to time. The Commissioner shall not accept for filing any application that is not complete in accordance with the instructions thereon. The Commissioner shall not accept for filing any application that does not have attached thereto the filing fee in the amount and in the manner prescribed by Paragraph (B) of this Rule.
B. Persons desiring to organize a state bank must pay a filing fee in the statutory amount at the time of filing each application. The filing fee shall be paid by cashier's check, or similar certified instrument in the statutory amount, payable to Colorado Division of Banking. If the application for charter is withdrawn by the incorporators prior to the date set for public hearing by the Banking Board, the statutory refund shall be made by the Commissioner to the incorporators.
C. Any amendment made to a pending application for charter subsequent to the date it is deemed to be filed in accordance with 11-103-303(2), such as a change in location, change in incorporators, change in proposed stockholders of more than five percent in the aggregate, or change in directors shall be deemed to be a withdrawal of the application, and the filing of a new application. New filing fees shall be paid at the time of any such amendment. CB1.10 Protests to Applications for Charter [Section 11-103-304, C.R.S.] A. Any person, firm, or corporation desiring to protest an application for charter for a proposed bank shall file with the Commissioner a notice of protest in accordance with the following schedule: 701_1_1.jpg B. Any protest desiring to file a motion to dismiss a charter application based upon defects in the application or in the notice of filing pursuant to Section 11-103-303, C.R.S. shall file such motion within the time provided in the schedule in Paragraph (A) of this Rule.
C. Any new bank granted preliminary approval subsequent to the published notice of hearing shall not be barred by this Rule from protesting an application for charter if the requirements of this Rule are not met in a timely manner.
D. Failure to comply with either of the requirements of this Rule may result in the denial of the right to appear, be heard, and introduce testimony at a charter appplication hearing. CB1.11 Application Documents Confidential.
Applications and exhibits attached thereto shall be open to the public for reasonable examination in advance of the hearing. Upon request and for good cause shown, the Commissioner may suppress and treat as confidential all Financial and Biographical Reports attached to the application. CB1.12 Competitive Applications [Section 11-103-304(7), C.R.S.] A. When two or more applications for charter for state banks that will serve the same community or area of the community are filed with the office of the State Bank Commissioner within ninety (90) days of each other, the Banking Board may, in accordance with Section 11-103-304(7), C.R.S., hold a joint hearing on such applications. Instead of a joint hearing, the Banking Board may hold separate hearings, and grant or deny any one or more of such applications without regard to the priority in time of filing of the applications. Unless a competing application is received by the office of the State Bank Commissioner within sixty (60) days after a competitive application is perfected, and perfected within ten (10) days after being notified of noncompliance with any requirements of the Banking Code pursuant to Section 11-103-303(2), C.R.S., or is perfected within ninety (90) days after a competitive application is perfected, the later competing application will not be considered by the Banking Board when considering the earlier competing application.
B. For the purpose of this Rule, an application is considered to be perfected when all defects noted by the Commissioner pursuant to the provision of Section 11-103-303(2), C.R.S., have been corrected and the amended application and proposed articles of incorporation have been received in the Commissioner's office. If no defects were found, perfection is deemed to occur on the date the application was originally received by the office of the Commissioner. CB1.13 Notice of Hearing.
Whenever a hearing is required by the Code, a notice thereof shall be given by the Commissioner to the party requesting the hearing, to other persons to whom notice must be given and to such other persons as the Commissioner in his discretion may specify. Such notice shall state the time, place, and nature of the hearing; the legal authority and jurisdiction under which the hearing is to be held; the matters constituting grounds for the hearing; and shall be delivered to such persons entitled to notice by this rule by personal service, by registered or certified mail, or by other appropriate means, sufficiently in advance of the date set for hearing in order to comply with the appropriate provisions of both the Code and the State Administrative Procedures Act.
CB1.14 Prehearing Conference. [Section 11-103-304. C.R.S.] A. The Commissioner may, on his or her own initiative, or at the request of any party, direct all parties and their counsel to meet with him or her at a specified time and place prior to any hearing:
1. To determine the necessity or desirability of amendments to an application;
2. To determine the names of witnesses and a general statement of the testimony expected of each witness;
3. To determine the number, description and purpose of exhibits intended to be offered at hearing and require the offering party to produce exhibits for inspection and marking at prehearing conference;
4. To determine matters, if any, of which the Banking Board will be requested to take administrative notice;
5. To consider any other matters that will simplify the issues and further aid in expeditious conduct at the hearing.
B. The Commissioner may require all parties to list, in writing, witnesses, exhibits and any matters that might expedite the hearing. A conference may, if requested in advance by any party, be recorded. If no verbatim transcript is taken, the Commissioner shall prepare a summarized report reciting the results of the conference. The report may be received into evidence by the Banking Board during open hearing.
C. Failure to comply with this rule may cause the Commissioner to continue a hearing to another date, or to preclude an offering party from introducing exhibits into evidence or from calling witnesses at the time of hearing.
CB1.15 Service Area Definition - Economic Feasibility Studies [Section 11-103-304(3)(a)(l)and(ll), C.R.S.] A. Each applicant for charter for a proposed bank shall file with the Commissioner and deliver to each person, firm, or corporation that has filed a notice of protest, at least sixty (60) days prior to the hearing on the application, a definition of the primary service area for the proposed bank and a definition of the secondary service area, if any, that the proposed bank intends to serve.
B. If the applicant for charter intends to offer a study of the economic feasibility of the proposed bank at the hearing, it shall be filed in the office of the Commissioner and delivered to each person, firm, or corporation that has filed a notice of protest at least thirty (30) days prior to the hearing.
C. If the protestant intends to offer a study of the economic feasibility of the proposed bank at the hearing, such study shall be filed in the office of the Commissioner and delivered to the applicant twenty (20) days prior to the hearing.
D. If the applicant for charter has any rebuttal economic feasibility material on which the applicant intends to rely, that is made necessary by a protestant's economic feasibility study, such rebuttal economic feasibility material shall be filed in the office of the Commissioner and delivered to each person, firm, or corporation that has filed a notice of protest at least ten (10) days prior to the hearing.
E. Mailing, with proof of mailing, three (3) days prior to a delivery date shall be deemed to constitute delivery on the required date.
F. Failure to comply with this Rule may cause the Commissioner to exclude the study, and testimony based thereon, from the hearing or to continue the hearing to another date. CB1.16 Nature of Hearings [Section 11-102-103(8), C.R.S.] A. All hearings and the taking of testimony before the Banking Board shall be open to the public. The Banking Board may, at any time, retire into private session to consult with the Attorney General's Office or to discuss any records deemed confidential under Section 11-102-306, C.R.S. CB1.17 Transcripts.
Hearings may, at the discretion of the Board, be recorded. If recorded, transcripts thereof shall be made available to any person upon payment to the reporter of the costs thereof. Upon the filing of transcripts by the recorder, alt parties shall be provided an opportunity to file motions to correct the record. The Board shall rule upon such motions prior to its deliberations upon the fact introduced at hearing. CB1.18 Order of Procedure.
Parties to hearings shall, unless otherwise ordered by the Board, be limited to the following orders of procedure:
(a) Primary party in interest. The primary party in interest shall present his case by calling witnesses and submitting other evidence;
(b) Other parties in interest. Other persons admitted as parties to the hearing may thereupon present witnesses and other evidence;
(c) Joint hearings. In the event that the Board conducts a single hearing to consider more than one application, then the party first perfecting its application shall first present its case, followed by the party that was second in perfecting its application.
Thereafter, other parties in interest may present witnesses and other evidence. If the parties applying for a charter intend to introduce evidence for the purpose of rebuttal, they shall do so in the order that they presented their cases.
(d) Further evidence. The Board may, of its own initiative, call for the production of further evidence upon any issue. It may also produce independent evidence through the Attorney General which is material to the issues or necessary to complete the record;
(e) Examination of witnesses. As may be permitted by the Board, any witness shall be subject to cross, re-direct and re-cross examination;
(f) Time allocation. The primary party in interest shall be permitted 3-1/2 hours within which to cross- examine adverse witnesses. Likewise, any other person admitted as a party to the hearing shall be allotted 3-1/2 hours. And, when there is more than one such other person admitted as a party to the hearing, these parties in interest collectively shall be allotted 3-1/2 hours and shall apportion such time among themselves. The Banking Board for good cause shown, may, upon motion, enlarge or diminish the times prescribed by this rule. CB1.19 Oral Argument - Briefs - Reopening.
The Board may permit oral argument and submission of briefs at the hearing. In addition, the Board may, upon appropriate notice to all parties and other interested persons, reopen any hearing at any time prior to the public announcement of its findings, conclusions and order. Proceedings which have been reopened shall be conducted pursuant to the rules established herein for hearings. CB1.20 Decision and Order.
Copies of a decision and order of the Board shall be furnished by the Commissioner to all parties to the proceedings, to appropriate state and federal supervisory authorities, and to such other interested persons as the Commissioner may determine.
Every decision and order shall be signed by the Commissioner and shall bear the date of official publication. A copy of every decision and order shall be attached to the official minutes of the Board together with a certificate showing the persons to whom copies thereof have been provided. CB1.21 Unclaimed Exhibits [Section 11-102-104, C.R.S.] A. In the event that a decision and order of the Banking Board is not appealed to a court of record, within sixty (60) days after the time for such appeal has lapsed, the Banking Board may direct the Commissioner to destroy any exhibits introduced at a hearing, unless he has received written notification from a party to a hearing of his intention to withdraw such exhibits. CB1.23 Declaratory Orders [Section 11-102-104(9), C.R.S.] A. Any person1 may petition the Banking Board for a declaratory order to terminate controversies or to remove uncertainties as to the applicability to the petitioner of any statutory provision or of any Rule or order of the Banking Board.
B. The Banking Board will determine, in its discretion and without notice to petitioner, whether to rule upon any such petition. If the Banking Board determines that it will not rule upon such a petition, the Banking Board shall promptly notify the petitioner of its action and state the reasons for such action.
C. In determining whether to rule upon a petition filed pursuant to this Rule, the Banking Board will consider the following matters among others:
1. Whether a ruling on the petition will terminate a controversy or remove uncertainties as to the applicability to petitioner of any statutory provision or Rule or order of the Banking Board.
2. Whether the petition involves any subject, question or issue that is the subject of a formal or informal matter or investigation currently pending before the Banking Board or a court involving one or more of the petitioners.
3. Whether the petition involves any subject, question, or issue that is the subject of a formal or informal matter or investigation currently pending before the Banking Board or a court but not involving any petitioner.
4. Whether the petition seeks a ruling on a moot or hypothetical question or will result in an advisory ruling or opinion.
5. Whether the petitioner has some other adequate legal remedy, other than an action for declaratory relief pursuant to Rule 57, Colorado Civil Procedures Act, that will terminate the controversy or remove any uncertainty as to the applicability to the petitioner of the statute, Rule, or order in question.
D. Any petition filed pursuant to this Rule shall set forth the following:
1. The name and address of the petitioner and whether the petitioner is licensed pursuant to Section 11-103-101, C.R.S., et seq.
2. The statute, Rule or order to which the petition relates.
3. A concise statement of all of the facts necessary to show the nature of the controversy or uncertainty and the manner in which the statute, Rule or order in question applies or potentially applies to the petitioner.
E. If the Banking Board determines that it will rule on the petition, the following procedures shall apply:
1. The Banking Board may rule upon the petition based solely upon the facts presented in the petition. In such a case:
a. Any ruling of the Banking Board will apply only to the extent of the facts presented in the petition and any amendment to the petition.
b. The Banking Board may order the petitioner to file a written brief, memorandum or statement of position.
c. The Banking Board may set the petition, upon due notice to petitioner, for a non- evidentiary hearing.
d. The Banking Board may dispose of the petition on the sole basis of the matters set forth in the petition.
e. The Banking Board may request the petitioner to submit additional facts, in writing. In such event, such additional facts will be considered as an amendment to the petition.
f. The Banking Board may take administrative notice of facts pursuant to the Administrative Procedures Act (Section 24-4-105 (8), C.R.S., 1973) and may utilize its experience, technical competence, and specialized knowledge in the disposition of the petition.
g. If the Banking Board rules upon the petition without a hearing, it shall promptly notify the petitioner of its decision.
2. The Banking Board may, in its discretion, set the petition for hearing, upon due notice to petitioner, for the purpose of obtaining additional facts or information or to determine the truth of any facts set forth in the petition or to hear oral argument on the petition. The notice to the petitioner setting such hearing shall set forth, to the extent known, the factual or other matters into which the Banking Board intends to inquire. For the purpose of such a hearing, to the extent necessary, the petitioner shall have the burden of proving all of the facts stated in the petition, all of the facts necessary to show the nature of the controversy or uncertainty and the manner in which the statute, Rule or order in question applies or potentially applies to the petitioner, and any other facts the petitioner desires the Banking Board to consider.
F. The parties to any proceeding pursuant to this Rule shall be the Banking Board and the petitioner. Any other person may seek leave of the Banking Board to intervene in such a proceeding, and leave to intervene will be granted at the sole discretion of the Banking Board. A petition to intervene shall set forth the same matters as required by paragraph (D) of this Rule. Any reference to a “petitioner” in this Rule also refers to any person who has been granted leave to intervene by the Banking Board.
G. Any declaratory order or other order disposing of a petition pursuant to this Rule shall constitute agency action subject to judicial review pursuant to Section 24-4-106 C R S. 1973. 1 Refer to existing definition of “person” in APA, rules or statute, if any. CB101.4 Records Retention [Section 11-102-104, C.R.S.] A. Every state financial institution shall retain records for at least the minimum periods of time as outlined under Paragraph (B) and (C) of this Rule. If other records with similar information, not enumerated in this Rule, are maintained by a financial institution, the retention period for the equivalent record should be followed. Record maintenance may include the use of automated or electronic records provided the records are easily retrievable, readily available for inspection, and capable of being reproduced in a hard copy.
B. Each depository institution shall permanently retain the following records: RECORDS THAT REQUIRE PERMANENT RETENTION Audit Reports to Permanent Directors Charged Off Asset Permanent Records Articles of Incorporation Permanent or Other Association, By Laws and Other Records of Organization, Amendments, etc.
Bank Charter Permanent Bank Examiner's Report Permanent Directors' Examination Permanent Reports Surety Bonds Permanent Minute Books of Permanent Meetings (Stockholders, Directors)
Required Reports to Permanent Supervisory Agencies Canceled Capital Stock Permanent Certificates Capital Stock Certificates Permanent Capital Stock Certificate Permanent Records of/or Stubs Capital Stock Ledger Permanent Capital Stock Transfer Permanent Ledger Capital Stock Transfer Permanent Register Receipts for Stock Permanent Certificates Receipts for Canceled Permanent Stock Certificates, Canceled Bonds, and Coupons Records of Stock Permanent Issuance and Transfer Shareholder List Permanent Statements of Beneficial Permanent Ownership Stock Certificate Book Permanent Stock Register Book Permanent Surety Bond for Lost Permanent Certificate Charged-off Loan Ledger Permanent Charged-off Records and Permanent Loan Ledger Daily Statement of Permanent Condition Affidavits of Lost Permanent Passbooks and Records of Transactions Based Thereon Savings Ledger Card or Permanent Sheet on Unclaimed or Dormant Deposits Bonds of Indemnity Permanent Dividend and Coupon Permanent Ledger Minutes of Investment Permanent and Trust Committee Meetings C. All other records, reports, or evidence of transactions shall be retained for a minimum period as required by taxing authorities, other state or federal regulations, and consistent with prudent business practices, unless the Banking Board deems it necessary to prescribe a longer period of time. The following is a list of suggested retention periods: SUGGESTED RECORD RETENTION PERIODS ACCOUNTING AND AUDITING Bank Call, Income, and 5 Years Dividend Reports Certified Checks 7 Years Certified Statements 5 Years (FDIC)
Debit and Credit Tickets 1 Year (If Source of Original Entry)
Differences Record 1 Year Drafts 7 Years Expense Checks 7 Years Expense Vouchers or 7 Years Invoices Financial Statements, 7 Years Consolidated Income and Dividend 5 Years Report Income and Expense 7 Years Report Money Order 7 Years Office Equipment, 7 Years Depreciation Records Paid Bills, Statements, 7 Years and Invoices Paid Cashier's Checks, 7 Years Certified Checks, or Receipts Therefor Report to Directors and 6 Years Executive Committee Tax Records 7 Years ADMINISTRATION General Determination of FDIC 5 Years Assessment Base Records Statements of Directors 2 Years and Principal Officers Insurance Authorization Statements 6 Years and Certificates for Bank to Act as Insurance Agent Bankers Blanket Bond 6 Years After Termination Records Relating to 6 Years Insurance Sold by Bank Records of All Bank 6 Years After Termination Insurance (Showing Policy Numbers, Premiums Paid, and Amounts Recovered)
Legal Attachments and/or 6 Years Garnishments Legal Records (Copies of 6 Years Court Orders, Decrees, Petitions, Adjudications, Pleadings, etc.)
Reports to Directors and 6 Years Executive Committee Tax Tax Controversies or 7 Years Proceedings Tax Records 7 Years CAPITAL Dividend Checks 7 Years Dividend Register 7 Years CERTIFICATES OF DEPOSIT Certificates 6 Years After Payment Information Return 7 Years (1099)
Ledger Cards 6 Years Signature Cards 6 Years After Payment Transaction Journal (If 6 Years Statement of Account History Not Otherwise Retained)
CHECKING ACCOUNTS Account Analysis (Work 2 Years Sheets or Cards, Average Balance Cards, Interest Computation Records, Service Charge Records, Statement Stubs)
Bookkeepers Daily Lists 2 Years of Checks Charged in Total to Customer Accounts (Short Lists) 2 Years Copies of Advises of 2 Years Deposits Copies of Advises of 2 Years Debits and Credits Customer Statements 6 Years Daily Report of 6 Years Overdrafts Daily Transactional 2 Years Journal Deposit Tickets and Other 2 Years Credits Individual Ledgers 2 Years Paid Checks (Front and 3 Years Back)
Partnership Agreement 7 Years After Closing and Authority Records of Current 5 Years Transactions of More than $10,000 Resolutions and 6 Years After Account Customer Authorizations Closed Signature Cards 7 Years After Account Closed Statement Mailing Order 1 Year Statement Receipt Cards 1 Year Stop Payment Order After 6 Years Expiration or Release Taxpayer ID/SS# of 5 Years After Account Depositor Closed Undelivered Statements 2 Years and Canceled Checks CHECKING ACCOUNTS - EDP SECTION Customer Statement 6 Years Overdrafts 6 Years Service Charges 2 Years Stop Payment Reports 6 Years Transaction Journal 2 Years COLLECTIONS Collection Payment 1 Year Records Collection Receipts 1 Year (Copy)
Collection Register 1 Year Coupon Cash Letters 1 Year (Outgoing)
Incoming Collection 1 Year Letters Incoming Contract or 6 Years After Closing Note Letters Installment Contract or 6 Years Note Records Outgoing Collection 1 Year Letters and Register COMMERCIAL LOANS Collateral Receipt 6 Years Record/Register Credit Files 6 Years After Termination of Account Evidence of Compliance 2 Years After Closing With Fair Credit Reporting Act Evidence of Compliance 2 Years After Each With Regulation Z Truth Required Disclosure in Lending Guaranteed Loans 6 Years (Complete Files)
Liability Ledger 6 Years Loan Applications 25 Months Loan Committee Minutes 6 Years Note or Discount Register 6 Years After Termination (If Used as Book of of Account Original Entry With Descriptions)
Receipts for Coupons 6 Years Removed From Collateral Records of Currency 5 Years Transactions of More Than $100,000 Resolutions 6 Years After Closing Statement of Purpose 3 Years After Close of Under Regulation U Account Transaction Journal (If 6 Years Used as Book of Original Entry)
CONSUMER CREDIT Borrower's Statement 6 Years Consumer Reports and 2 Years Consumer Credit Information Correspondence 2 Years Coupon Payments and 6 Years Loan Deposits (If Only Source of Original Entry)
Credit Applications and 25 Months Information (Declined)
Evidence of Compliance 2 Years With Fair Credit Reporting Act Evidence of Compliance 2 Years After Each With Regulation Z Truth Required Disclosure in Lending Installment Contracts or 6 Years Note Records Loan Journals, Records 6 Years and Note Register (If Only Source of Original Entry)
Loan Ledger Cards or 6 Years Sheets Loan Deposit and Loan 6 Years Payment Posting Journals (If Only Source of Original Entry)
CONSUMER CREDIT Note Register (If Used as 6 Years Book of Original Entry With Descriptions)
Rebate Receipts 6 Years Resolutions 6 Years Statement Regarding 3 Years Loan Secured by Stock CONSUMER CREDIT - EDP SECTION Daily Payment Journal 6 Years Pay Off and/or Rebate 6 Years Report Trial Balance (If Only 6 Years Complete History on Borrower)
CREDIT CARDS Borrower's Statement 6 Years Credit Applications and 25 Months Information (Declined)
Loan Journal (If Only 6 Years Source of Original Entry Loan Ledger Cards 6 Years After Account Closed Sales Drafts 6 Years CUSTOMER SERVICE Brokers' Confirmations 6 Years Brokers' Invoices 6 Years Brokers' Statements 6 Years Night Depository 6 Years Agreements and Resolutions Safekeeping Records and 6 Years After Close of Receipts Account Securities Buy and Sell 6 Years After Date of Orders Order DUE FROM BANKS Bank Statements 7 Years Drafts (Original 7 Years Information and 7 Years After Check Draft Documents Pertaining to Paid Issuance of Duplicate Checks and Drafts DUE TO BANKS Copies of Advices 7 Years Country Bank Ledger 7 Years Domestic Ledger 7 Years Foreign Ledger 7 Years Incoming Cash Letter 2 Years Memos (See Proof)
Proof Sheets 2 Years Resolutions 6 Years After Account Closed DUE TO BANKS Signature Cards 6 Years After Account Closed Undelivered Statements 2 Years and Canceled Checks GENERAL Foreign Exchange 5 Years Remittance Sheets or Books Night Depository 6 Years After Termination Agreements of Agreement Records of Currency 5 Years Transactions of More Than $10,000 Vault Records, Openings 1 Year and Closings Wage Price Rent Freeze 4 Years Records GENERAL LEDGER General Journal (If Used 6 Years as Book of Original Entry With Description)
General Ledger 6 Years General Ledger Tickets 6 Years INTERNATIONAL DEPARTMENT Cable Copies 6 Years Cable Requisitions 6 Years Foreign Asset Control 2 Years Records Foreign Collection 5 Years Register Foreign Draft 5 Years Applications Foreign Draft Carbons 5 Years Foreign Mail Transfer 5 Years Applications Letters of Credit 6 Years After Payment in Applications Full Letters of Credit Ledger 6 Years Records of Foreign 5 Years Financial Accounts INVESTMENTS Bond Ledger Sheets 6 Years Brokers' Confirmations 6 Years Brokers' Invoices 6 Years Brokers' Statements 6 Years Credit Information 6 Years After Closing Regarding Securities Underwritten or Purchased for Own Account OFFICIAL CHECKS AND DRAFTS Affidavits and Other 7 Years Records Support Issuance of Duplicate Checks, Drafts or Money Orders Cashier's Checks 7 Years (Canceled Certified Checks or 7 Years Receipts (Canceled and Not Returned)
Drafts (Canceled) 7 Years Expense Checks 7 Years (Canceled)
Expense Vouchers or 7 Years Invoices Money Orders, Bank or 7 Years Personal Receipts for Certified 7 Years Checks Records of Currency 5 Years Transactions of More Than $10,000 PERSONNEL Advertisements and 1 Year After Personnel Notices Action Attendance Records 2 Years (Time Cards)
Business Expenses of 7 Years Employees Reimbursed by Employer Employee Records 6 Years (Personnel Folders) After Termination Employment Applications 1 Year (Rejected)
Occupational Safety and 5 Years Health Act (OSHA)
Forms Payroll Checks 7 Years Salary Ledger 7 Years Wage and Tax Statement 4 Years (W-2) Records Wage Differential 2 Years Documentation PROOF, CLEARING, AND TRANSIT Copies of Advices of 2 Years Corrections Incoming Cash Letters 2 Years Inclearing Proofsheets 2 Years and/or Tapes Outclearing Proofsheets 2 Years and/or Tapes Outgoing Cash Letters 2 Years REAL ESTATE LOANS Annual Reports and 6 Years Customer Statements Debit and Credit Entries 6 Years (If only Source of Original Entry)
Evidence of Compliance 2 Years With Fair Credit Reporting Act Evidence of Compliance 2 Years After Each With Regulation Z Truth Required Disclosure in Lending Foreclosure Records 6 Years Guaranteed Loans 6 Years After Termination Complete Files Home Mortgage 5 Years Disclosure Act Information Ledger Cards 6 Years After Termination Loan Credit Files 6 Years After Closing RESPA Settlement 2 Years Statements Remittances 7 Years Transaction Journal (If 6 Years Only Source of Original Entry)
REAL ESTATE - EDP SECTION Daily Payment Journal 6 Years SAFE DEPOSIT VAULT Access Tickets 6 Years Canceled Signature Cards 6 Years Copies of Rent Receipts 6 Years Forced Entry Records 6 Years After Date of Entry Leases or Contracts, 6 Years Closed Accounts Receipts for Delivery of 6 Years Will, Burial Plot Deeds, Insurance Policies Records and Reports of 6 Years Contents of Opened Boxes Records of Sale to Satisfy 6 Years Lien SAVINGS ACCOUNTS Deposit (Tickets) 6 Years Ledger Cards 6 Years Power of Attorney 6 Years After Close of Account Records of Currency 5 Years Transactions More Than $10,000 Resolutions, 7 Years Authorizations Signature Cards 6 Years After Close of Account Tax Information Returns 7 Years Taxpayer ID# or SS# of 5 Years After Close of Depositor Account Transaction Journal (If 6 Years Only Source of Original Entry)
Withdrawals (Receipts or 6 Years Order)
SAVINGS ACCOUNTS - EDP SECTION Customer Statement 6 Years Interest Report 7 Years Transaction Journal 6 Years TELLERS Cash Item Register 1 Year Tellers' Blotter of 1 Year Journals Tellers' Difference 1 Year Record TRUST RECORDS Corporate Bond Ledger 7 Years After Termination of Account Brokers' Purchase and 7 Years Sale Confirmations Brokers' Statements 7 Years Buy and Sell Orders 7 Years Canceled Stock 7 Years Certificates Corporate Trust Ledger 7 Years Correspondence 7 Years Dividend Checks 7 Years Governing Instruments 7 Years After Termination of Trust Account Ledger Records 7 Years Receipts or Disposition 7 Years for Canceled Stock Certificates, Canceled Bonds and Coupons Registration Journals 7 Years After Termination of Account Signature Files 7 Years After Termination of Account Schedules of 7 Years Distributions Stock Transfer Ledger 7 Years Stock Transfer Memo 7 Years Tax Returns 7 Years Transfer Journal 7 Years Transfer Tax Waivers 7 Years Trust Asset Records 7 Years After Termination of Account Trust Journals (If Source 7 Years After Last Entry of Original Entry)
Trust Posting Tickets (If 7 Years Source of Original Entry)
Personal Accounting of Other 7 Years After Receipt Fiduciaries and Decrees, Receipts, or Releases Settling Accounts Account Review and 7 Years Investment Recommendations Adjudications 7 Years Personal Annual Audits and 7 Years Financial Reports;
Appraisals of Real and Personal Property Authorizations and 7 Years Approvals of Co- Fiduciaries and Consultants Brokers' Confirmations 7 Years Brokers' Statements 7 Years Buy and Sell Orders 7 Years Cash and Asset Ledgers 7 years Correspondence 7 Years Coupon Collection 7 Years Record Court Orders, Decrees, 7 Years Petitions, etc.
Debits and Credits (If 7 Years Source of Original Entry)
Federal Estate and State 7 Years Inheritance Tax Returns Federal and State Income 7 Years Tax Returns Federal Gift Tax Returns 7 Years Federal Nominee's 7 Years Information Return General Ledger 7 Years General Journal 7 Years Governing Instruments 7 Years Inventory Records 7 Years After Termination of Account Ledger Records 7 Years Legal Opinions and 7 Years Related Correspondence Letters of Appointment 7 Years After Termination of Appointment Participation Ledgers 7 Years Probate Records 7 Years After Termination of Account Real Estate Mortgage 7 Years Documents and Related Material Receipts, Authorizations, 7 Years Directions, Approvals Safekeeping Records and 7 Years Receipts Schedule of Distributions 7 Years Trust Agreements 7 Years After Date of Last Entry Trust Checks 7 Years Unclaimed Property Unclaimed Property 5 Years After Date Records Reportable Unclaimed Deposit 5 Years After Date Account Withdrawal Reportable Tickets or Checks Unclaimed or Dormant 5 Years After Date Deposit Ledgers (To Reportable Include Record of Date of Last Transaction or Communication From Owner)
CB101.7 Messenger Service A. Definition. For purposes of this Rule, a “messenger service” refers to any service, such as a courier service or armored car service, that is used by a state bank (institution) and its customers to pick up from, and deliver to, specific customers at locations such as their homes or offices items relating to transactions between the institution and such customers.
B. Pickup and delivery of items relating to nonbranching activities. An institution may establish and operate a messenger service, or use, with its customers, a third party messenger service, to transport items relevant to the institution's transactions with its customers without regard to the limitations set forth in title 11, article 105, C.R.S., provided the service does not engage in branching functions within the meaning of Section 11-101-401(10), C.R.S. In establishing or using such a facility, the institution may establish terms, conditions, and limitations that it deems appropriate to assure compliance with safe and sound banking practices.
C. Pickup delivery of items pertaining to branching functions by a messenger service established by a third party.
1. An institution and its customers may use a messenger service to pick up from, and deliver to, customers items which relate to branching functions within the meaning of Section 11- 101-401(10), C.R.S. without regard to the limitations set forth in title 11, article 105, C.R.S., provided the messenger service is established and operated by a third party. In using such a facility, an institution may establish terms, conditions, and limitations, not inconsistent with this rule, as it deems appropriate to assure compliance with safe and sound banking practices.
2. Whether a messenger service is established by a third party is based on a case-by-case review of all of the circumstances, provided a messenger service is established by a third party if:
a. A party other than the institution owns the service and its facilities (or rents them from another party other than the institution) and employs the persons engaged in the provision of the service; and b. The messenger service:
3. An institution is permitted to defray all or a part of the costs incurred by a customer in transporting items through a messenger service. Payment of such expenses may only cover costs associated with each transaction involving the customer and the messenger service. The institution may impose such terms, conditions, and limitations as it may deem appropriate with respect to the payment of such cost.
D. Pickup and delivery of items pertaining to branching activities where the messenger service is established by the institution. An institution may establish and operate a messenger service to transport items relevant to the institution's transactions with its customers if such transactions involve one or more branching functions within the meaning of Section 11-101-401(10), C.R.S., provided the institution receives approval to establish the proposed branch pursuant to the relevant provisions of title 11, article 105, C.R.S. and State Banking Board Rule CB101.54. CB101.10 Fiduciary Self-Dealing.
(a) Unless lawfully authorized by the instrument creating the relationship, by court order or by Colorado law, funds held by a state bank as fiduciary shall not be invested in stock or obligations of, or property acquired from, the bank or its directors, officers or employees of such affiliates. If the retention of stock or obligations of the bank or its affiliates is authorized by the instrument creating the relationship, by a court order or by Colorado law, a state bank as fiduciary may exercise rights to purchase its own stock or securities convertible into its own stock when offered pro rate to stockholders. When the exercise of rights or receipt of the stock dividend results in fractional share holding, additional fractional shares may be purchased to compliment the fractional shares acquired.
(b) A state bank may sell assets held by it as fiduciary in one account if the transaction is fair to both accounts and if such transaction is not prohibited by the terms of governing instrument.
(c) A state bank may deposit funds of the estate or trust account as time or demand deposits in its own banking department and may borrow money on behalf of the fiduciary account from itself and may pledge or encumber estate or trust assets as security for such loan provided such transactions are fair to the fiduciary account.
CB101.24 Agricultural Credit Corporations.
A state bank may invest in an agricultural credit corporation upon application to and approval by the Banking Board. The Board shall retain continuing authority to grant or deny each individual request based upon the information submitted therewith.
CB101.29 Bankers' Blanket Bond. [Section 11-103-601, C.R.S.] A. Any bankers' blanket bond procured by a state bank to satisfy the requirements of Section 11-103-601, C.R.S., shall provide that the bonding company providing the bond shall give at least ninety days notice of cancellation or non-renewal of such bond to the bank and to the Commissioner.
B. Any state bank that experiences difficulty in obtaining and maintaining blanket bond coverage shall notify the Commissioner:
a. When there is a lapse in fidelity coverage; and b. Monthly thereafter concerning actions and progress in obtaining coverage. CB101.31 Lease Financing [Section 11-102-104. C.R.S.] A. General Authority A state bank may engage in lease financing transactions provided the lease is a net, full payout lease, representing a non-cancelable obligation of the lessee. A “net lease” is a lease in which the bank is not directly or indirectly obligated to assume the expenses of maintaining the property. A “full payout” lease is a lease for which the bank expects to realize both return of its full investment and the cost of financing the property over the term of the lease. This payout can come from (1) rentals; (2) estimated tax benefits; and (3) the estimated residual value of the property at the expiration of the term of the lease.
B. Limitations Lease financing transactions entered into pursuant to this Rule are subject to the limitations on loans or extensions of credit pursuant to Banking Board Rule CB101.43. The Banking Board reserves the right to determine that such leases are also subject to the limitations of any other law, rule, or order.
C. Restrictions on Transactions with Affiliates Lease financing transactions entered into pursuant to this Rule are subject to the following restrictions on transactions with affiliates:
1. The terms and circumstances of the transaction, including credit standards, must be substantially the same, or at least as favorable to the bank or its subsidiary as those prevailing at the time for comparable transactions with or involving other non affiliated companies;
2. In the case of any affiliate, the aggregate amount of leased transactions of the bank and its subsidiaries does not exceed 10 percent of the total capital of the bank; and 3. In the case of all affiliates, the aggregate amount of leased transactions of the bank and its subsidiaries does not exceed 20 percent of the total capital of the bank. For the purposes of this Rule, any transaction by a bank with any person shall be deemed to be a transaction with an affiliate to the extent that the proceeds of the transaction are used for the benefit of, or transferred to that affiliate.
D. A bank may purchase or construct a municipal building, such as a school building, or other similar public facility and, as holder of legal title, lease the same to a municipality or other public authority having resources sufficient to make payment of all rentals as they become due. The lease agreement shall provide that upon its expiration the lessee will become owner of the building or facility.
E. Reference 1. Banking Board Rule CB101.43 is a Rule and regulation enacted by the Colorado State Banking Board and is administered by the Colorado Division of Banking.
2. For more detailed information pertaining to these provisions, please contact the Secretary to the Colorado State Banking Board at 1560 Broadway, Suite 1175, Denver, Colorado 80202, (303) 894-7575.
CB101.32 Activities That are Primarily Investments in Real Estate [Section 11-105-304(9)(a), C.R.S.
A. Pursuant to the provisions of Section 11-105-304(9)(a), C.R.S., a state chartered bank may make investments, not to exceed ten percent of its total assets, that are primarily investments in real estate or may acquire and hold the voting stock of one or more corporations the activities of which are primarily investments in real estate; except that, unless otherwise approved by the Board:
1. No state bank participating in the joint Federal Reserve Board-Federal Deposit Insurance Corporation-Office of the Comptroller of the Currency capital forbearance plan shall make total investments pursuant to Section 11-105-304(9)(a), C.R.S,. in excess of five percent of its total assets;
2. No state bank that has a regulatory composite examination rating (CAMELS) of “4” or “5” from any regulator shall make investments pursuant to Section 11-105-304(9)(a), C.R.S.; and 3. No state bank that has a regulatory composite examination rating (CAMELS) of “3” from any regulator and that is subject to a memorandum of understanding, cease and desist order, written agreement imposed by or entered into with any regulator of the state bank shall make total investments pursuant to Section 11-105-304(9)(a), C.R.S., in excess of five percent of its total assets.
CB101.36 Assessments and Fees [Sections 11-102-401, 11-103-302, 11-105-207, C.R.S.] A. Assessments 1. In order to cover the expenses, net of fee income, of the Division of Banking for the supervision of state banks subject to its jurisdiction, state banks shall be assessed at least semi-annually as of June 30 and December 31.
2. Each state bank subject to the jurisdiction of the Banking Board on either of the above dates shall be subject to the full assessment without proration for any reason.
3. Assessments for all state banks shall be determined on a consistent basis as the sum of a fee based on a fixed rate applied to total assets contained in the reports of condition of each bank submitted as of the above dates and a minimum assessment.
B. Fees 1. The Banking Board shall set fees annually by publishing a schedule of fees for services as of July 1 of each year.
2. Such schedule shall list all services performed that are subject to a fee and the fee to be charged. In addition, the fee schedule shall list fees set by statute, if any.
C. Payment of Assessments and Fees.
1. Assessments and fees shall be remitted to the Division of Banking in the form of a cashier's check or similar instrument payable to the Colorado Division of Banking.
2. The assessment and any fee relating to examinations shall be paid within twenty (20) days after a statement of the amount thereof shall have been received by the institution.
3. All other fees shall be paid at the time the service is rendered. Services relating to statutory application or notice are deemed to be rendered at the time of filing application or notice. CB101.37 Transactions With Affiliates and Loans to Executive Officers. Directors, and Principal Shareholders [Section 11-105-302, C.R.S.] A. Transactions With Affiliates 1. General Restrictions a. A bank and its subsidiaries may engage in a covered transaction with an affiliate only if:
b. For the purpose of this Rule, any transaction by a bank with any person shall be deemed to be a transaction with an affiliate to the extent that the proceeds of the transaction are used for the benefit of, or transferred to, that affiliate.
c. A bank and its subsidiaries may not purchase a low-quality asset from an affiliate unless the bank or such subsidiary, pursuant to an independent credit evaluation, committed itself to purchase such asset prior to the time such asset was acquired by the affiliate.
d. Any covered transactions and any transactions exempt under Paragraph (A)(4) of this Rule between a bank and an affiliate shall be on terms and conditions that are consistent with safe and sound banking practice.
2. Definitions a. For the purpose of this Rule, the term “affiliate” with respect to a bank means:
b. The following shall not be considered to be an affiliate:
c. A company or shareholder shall be deemed to have control over another company if:
d. The term “subsidiary” with respect to a specified company means a company that is controlled by such specified company.
e. The term “bank” includes a state bank, industrial bank, and banking association.
f. The term “company” means a corporation, partnership, business trust, association, or similar organization and, unless specifically excluded, the term “company” includes a “member bank” and a “bank.”
g. The term “covered transaction” means with respect to an affiliate of a bank:
h. The term “aggregate amount of covered transactions” means the amount of the covered transactions about to be engaged in added to the current amount of all outstanding covered transactions, i. The term “securities” means stocks, bonds, debentures, notes, or other similar obligations, j. The term “low quality asset” means an asset that falls in any one or more of the following categories:
k. The term “person” means an individual or a company.
3. Collateral for Certain Transactions with Affiliates a. Each loan or extension of credit to, or guarantee, acceptance, or letter of credit issued on behalf of, an affiliate by a bank or its subsidiary shall be secured at the time of the transaction by collateral having a market value equal to:
b. Any such collateral that is subsequently retired or amortized shall be replaced by additional eligible collateral where needed to keep the percentage of the collateral value relative to the amount of the outstanding loan or extension of credit, guarantee, acceptance, or letter of credit equal to the minimum percentage required at the inception of the transaction.
c. A low-quality asset shall not be acceptable as collateral for a loan or extension of credit to, or guarantee, acceptance, or letter of credit issued on behalf of, an affiliate.
d. The securities issued by an affiliate of the bank shall not be acceptable as collateral for a loan or extension of credit to, or guarantee, acceptance, or letter of credit issued on behalf of, that affiliate or any other affiliate of the bank.
e. The collateral requirements of this paragraph shall not be applicable to an acceptance that is already fully secured either by attached documents or by other property having an ascertainable market value that is involved in the transaction.
4. Exemptions: The provisions of this section, except Paragraph (A)(1)(d) of this Rule, shall not be applicable to:
a. Any transaction, subject to the prohibition contained in Paragraph (A)(1)(c) of this Rule, with a bank:
b. Making deposits in an affiliated bank or affiliated foreign bank in the ordinary course of correspondent business, subject to any restrictions that the Division of Banking may prescribe.
c. Giving immediate credit to an affiliate for uncollected items received in the ordinary course of business.
d. Making a loan or extension of credit to, or issuing a guarantee, acceptance, or letter of credit on behalf of, an affiliate that is fully secured by:
e. Purchasing securities issued by any company of the kinds described in section 4(c)(1) of the Bank Holding Company Act of 1956.
f. Purchasing assets having a readily identifiable and publicly available market quotation and purchased at that market quotation or, subject the prohibition contained in Paragraph (A)(1)(3) of this Rule, purchasing loans on a nonrecourse basis from affiliated banks.
g. Purchasing from an affiliate a loan or extension of credit that was originated by the bank and sold to the affiliate subject to a repurchase agreement or with recourse.
5. Rulemaking and Additional Exemptions a. The Banking Board may issue such further regulations, including definitions consistent with this Paragraph (A)(2) of this Rule, as may be necessary to administer and carry out the purposes of this section and to prevent evasions thereof and as are consistent with federal banking law or regulation.
b. The Banking Board may, at its discretion, by regulation exempt transactions or relationships from the requirements of Paragraph (A)(1) and (A)(3) of this Rule if it finds such exemptions to be in the public interest and consistent with the purposes of this paragraph and as are consistent with federal banking law or regulation.
B. Restrictions on Transactions With Affiliates 1. General Provisions a. Terms. A bank and its subsidiaries may engage in any of the transactions described in Paragraph (B)(1)(b) of this Rule only:
b. Transactions covered. Paragraph (B)(1)(a) of this Rule applies to the following:
c. Transactions that Benefit an Affiliate. For the purpose of Paragraph (B)(1) of this Rule, any transaction by a member or its subsidiary with any person shall be deemed to be a transaction with an affiliate of such bank if any of the proceeds of the transaction are used for the benefit of, or transferred to, such affiliate.
2. Prohibited Transactions a. In General. A bank or its subsidiary:
b. Exception. Paragraph (B)(1)(a)(2) of this Rule shall not apply if the purchase or acquisition of such securities has been approved, before such securities are initially offered for sale to the public, by a majority of the directors of the bank who are not officers or employees of the bank or any affiliate thereof.
c. Definitions. For the purpose of Paragraph (B) of this Rule:
3. Advertising Restriction. A member bank or any subsidiary or affiliate of a member bank shall not publish any advertisement or enter into any agreement stating or suggesting that the bank shall in any way be responsible for the obligations of its affiliates.
4. Definitions. For the purpose of Paragraph (B) of this Rule:
a. The term “affiliate” has the meaning given to such term in Paragraph (A)(2)(a) of this Rule; but does not include any company described in Paragraph (A)(2)(b) of this Rule, or any bank;
b. The terms “bank,” “subsidiary,” “person,” and “security,” other than security as used in Paragraph (B)(2) of this Rule have the meanings given to such terms in Paragraph (A)(2) of this Rule; and c. The term “covered transaction” has the meaning given to such term in Paragraph (A) (2)(g) of this Rule, but does not include any transaction which is exempt from such definition under Paragraph (A)(4) of this Rule.
5. Regulations. The Banking Board may prescribe regulations as are consistent with federal banking law or regulation to administer and carry out the purposes of Paragraph (B) of this Rule, including:
a. Regulations to further define terms used in Paragraph (B) of this Rule; and b. Regulations to:
C. Loans to Executive Officers, Directors, and Principal Shareholders 1. General Prohibitions a. Terms and Creditworthiness No bank may extend credit to any of its executive officers, directors, or principal shareholders or to any related interest of that person unless the extension of credit:
b. Prior Approval
c. Lending Limit No bank may extend credit to any of its executive officers or principal shareholders or to any related interest of that person in an amount that, when aggregated with the amount of all other extensions of credit by the bank to that person, exceeds the lending limit of the bank specified in Banking Board Rule CB101.43. This prohibition does not apply to an extension of credit by a bank to a company of which the bank is a subsidiary or to any other subsidiary of that company.
d. Aggregate Lending Limit
e. Overdrafts
2. Additional Restrictions on Loans to Executive Officers a. No bank may extend credit to any of its executive officers, and no executive officer of a bank shall borrow from or otherwise become indebted to the bank, except in the amounts, for the purposes, and upon the conditions specified in Paragraphs (A)(2)(c) and (d) of this Rule.
b. No bank may extend credit in an aggregate amount greater than the amount permitted in Paragraph (B)(2)(c)(3) of this Rule to a partnership in which one or more of the bank's executive officers are partners, and either individually or together, hold a majority interest. For the purposes of Paragraph (B)(2)(c)(3) of this Rule, the total amount of credit extended by a bank to such partnership is considered to be extended to each executive officer of the bank who is a member of the partnership.
c. A bank is authorized to extend credit to any executive officer of the bank:
d. Any extension of credit by a bank to any of its executive officers shall be:
3. Reference a. Banking Board Rule CB101.43 is a Rule enacted by the Colorado State Banking Board and is administered by the Colorado Division of Banking.
b. This Rule does not include amendments to or editions of the referenced material later than the effective date of this Rule, June 30,1997.
c. For more detailed information pertaining to these provisions, please contact the secretary to the Colorado State Banking Board at 1560 Broadway, Suite 1175, Denver Colorado 80202, (303) 894-7575.
CB101.38 Loans Secured by Corporate Stock [Section 11-105-302, C.R.S.] A. No state bank shall make any loan or discount secured by the shares of its own capital stock or by its obligations subordinate to deposits. No state bank shall purchase the stock of any other corporation except such as it may necessarily acquire in the protection or satisfaction of previously existing loans made in good faith and except as provided by statute, including Section 11-105-304, C.R.S. A state bank may purchase its own stock upon obtaining written approval from the Colorado Division of Banking, and the affirmative vote of shareholders owning two-thirds of the bank's capital stock. The repurchase of such stock should be accounted for in accordance with Section 11-105-304, C.R.S. This Rule shall not apply to any investment made by a bank acting as a fiduciary pursuant to the authority of Section 11-106-102, C.R.S., nor shall it apply to investments made pursuant to the authority of Sections 11-105-304(2), 11-105-304(9)(a), or 11- 105-501, C.R.S.
CB101.39 Sale of Federal Funds [Section 11-105-302, C.R.S.] A. Definition. “Sale of Federal funds” means, for purposes of this Rule, any transaction among depository institutions involving the transfer of immediately available funds resulting from credits to deposit balances at Federal Reserve banks or from credits to new or existing deposit balances due from a correspondent depository institution.
B. Sales of Federal funds with a maturity of one business day or under a continuing contract are not “loans and extensions of credit” for purposes of lending limits. However, sales of Federal funds with a maturity of more than one business day are subject to the lending limits.
C. A “continuing contract” refers to an agreement that remains in effect for more than one business day but has no specified maturity and requires no advance notice for termination. CB101.40 Investment in Small Business Investment Companies [Section 11-105-304, C.R.S.] A. Shares of stock in small business investment companies organized under the Small Business Investment Act of 1958, 15 USC 661 et seq., administered by the Small Business Administration, shall be eligible for purchase by state banks to the extent that in no event shall any state bank hold shares in an amount aggregating more than three percent of the bank's total capital.
B. This Rule does not include amendments to or editions of the referenced material later than the effective date of the Rule, July 1, 1990. For more detailed information pertaining to these provisions, please contact the secretary to the Banking Board at 1560 Broadway, Suite 1175, Denver, Colorado 80202, 303-894-7584.
CB101.41 Investment in a Bank Service Corporation [Section 11-105-304, C.R.S.] A. A state bank may invest not more than 10 percent of total capital, as defined in Banking Board Rule CB101.52, Paragraph (B)(30), in a bank service corporation. No state bank shall invest more than 5 percent of its total assets in a bank service corporation. CB101.42 Loans [Section 11-105-303, C.R.S.] Any state bank may make, arrange, purchase, or sell the following types of loans and extensions of credit.
A. Real Estate Lending 1. General.
a. Any state bank may make, arrange, purchase, or sell loans or extensions of credit secured by liens on interests in real estate.
2. Scope.
a. For the purposes of this Rule, loans secured by liens on interests in real estate include loans made upon the security of condominiums, leaseholds, cooperatives, forest tracts, construction project loans (except as specified in Paragraphs (2)(f) and (g)), and land sales contracts.
B. Other 1. Insured or Guaranteed Loans.
a. When the bank relies substantially on the insurance or guaranty of a governmental agency in making a loan. This includes loans which are:
b. When the bank relies substantially upon private company mortgage insurance or guaranty, but only to the extent of the insurance or guaranty.
2. Loans where the Bank looks for repayment by relying primarily on the borrower's general credit standing and forecast of income.
3. Loans secured by an assignment of rents under a lease.
4. Loans secured by the pledge or assignment of another real estate mortgage.
5. Loans secured by a valid liens on timber.
6. Loans having maturities not to exceed sixty (60) months made to finance the construction of a building or buildings, where there is a valid and binding agreement entered into by a financially responsible lender or other party to advance the full amount of the bank's loan upon completion of the building or buildings.
7. Loans having maturities not to exceed sixty (60) months made to finance the construction of residential or farm buildings.
8. Loans for which a security interest is taken in a mobile home.
9. Loans made previously where a security interest in real estate is taken subsequently in good faith.
10. Any type loan that a national bank has the authority to make pursuant to the provisions of Section 24 of the National Bank Act, 12 USC 1 et seq., administered by the Comptroller of the Currency.
11. Any type loan approved from time to time by the Banking Board.
3. Reference This Rule does not include amendments to or editions of the referenced material later than the effective date of the rule, July 1,1990. For more detailed information pertaining to these provisions, please contact the secretary to the Banking Board at 1560 Broadway, Suite 1175, Denver, Colorado 80202, 303 894- 7584.
CB101.44 Dividends [Section 11-103-406, C.R.S.] A. Purpose.
This Rule applies restrictions to the declaration and payment of dividends by a state chartered commercial bank.
B. Definitions. For the purposes of this Rule, the following definitions apply:
1. Capital surplus means the total of surplus as reportable in the bank's Report of Condition and Income and surplus on perpetual preferred stock.
2. Retained net income means the net income of a specified period less the total amount of all dividends declared in that period.
C. Earnings limitation on payment of dividends.
Unless the dividend is approved by the Banking Board, a bank shall not declare a dividend if the total amount of all dividends, including the proposed dividend, declared by such state bank in any calendar year exceeds the total of the bank's retained net income of that year to date, combined with its retained net income of the preceding two years. (The bank's net income during the current year and its retained net income from the prior two calendar years is reduced by any net losses incurred in the current or prior two years, and any required transfers to surplus or to a fund for the retirement of preferred stock.) D. Date of declaration of dividend.
The state bank shall use the date a dividend is declared for the purposes of determining compliance with this Rule.
CB101.45 Generally Accepted Accounting Principles [Section 11-103-502(3)(a), C.R.S.] A. Generally accepted accounting principles (GAAP) as defined in this Rule will consist of those opinions and statements generally recognized and supported by the Accounting Principles Board (APB) or the Financial Accounting Standards Board (FASB).
B. While it is the Banking Board's intention to require GAAP to be followed whenever appropriate, certain statements filed by banks with various state and federal regulatory agencies are supervisory and regulatory documents, not primarily accounting documents. Because of the special supervisory, regulatory, and economic policy needs of these reports, the instructions do not always follow GAAP. In reporting transactions not covered in principle by regulatory instructions, banks may follow GAAP. However, in such circumstances, unless the bank has already obtained a ruling from another regulatory agency pursuant to the policies expressed in Section 11-101-102, C.R.S., a specific ruling shall be sought promptly from the Board.
C. References: GAAP are issued by the FASB which is an arm of the Financial Accounting Foundation, an independently chartered institution. The APB is a committee of the American Institute of Certified Public Accountants. This Rule does not include amendments to or editions of the referenced material later than the effective date of this Rule. For more detailed information pertaining to this Rule, please contact the Secretary to the Colorado State Banking Board at 1560 Broadway, Suite1175, Denver, Colorado 80202, 303-894-7584. CB101.46 Standards for Determining Value of Asset [Section 11-102-102(3)(a), C.R.S.] A. For purposes of this section, the standard for the value of an asset shall be the lower of cost or market.
B. Valuation reserves, such as for bad debts or fixed asset depreciation, shall be established and assets will be depreciated or amortized where appropriate as required by GAAP or regulatory authorities.
C. References: Generally accepted accounting principles are issued by the Financial Accounting Standards Board which is an arm of the Financial Accounting Foundation, an independently chartered institution. This Rule does not include amendments to or editions of the referenced material later than the effective date of the rule, July 1, 1990. For more detailed information pertaining to these provisions, please contact the secretary to the Banking Board at 1560 Broadway, Suite 1175, Denver, Colorado 80202, 303-894-7584. CB101.47 Reports of New Executive Officers. Directors, and Persons in Control and Related Late Filing Penalty [Section 11-102-303(8) and (9)].
A. Any person who becomes and executive officer, director, or person responsible, directly or indirectly, for the management, control or operation of a bank, must notify in writing the Division of Banking within ninety (90) days thereafter.
The written notice must include a statement describing any civil or criminal offenses of which such person has been found guilty or liable by any federal or state court or federal or state regulatory agency.
B. In addition, any person who becomes an executive officer, director, or person responsible, directly or indirectly, for the management, control, or operation of a bank, must file a biographical report with the Division of Banking within ninety (90) days thereafter, if 1. The bank has been chartered less than two (2) years;
2. Within the preceding two (2) years, the bank has undergone a change in control that required a notice to be filed pursuant to Section 11-102-303, C.R.S.;
3. Within the preceding two (2) years, the bank holding company became a registered bank holding company, unless the bank holding company is owned or controlled by a registered bank holding company, or the bank holding company was established in a reorganization in which substantially all of the shareholders of the bank holding company were shareholders of the bank prior to the bank holding company's formation; or 4. The bank or bank holding company is not in compliance with all minimum capital requirements applicable to the institution as determined on the basis of the institution's most recent report of condition, examination, or is otherwise in a troubled condition as indicated by a composite rating of 3, 4, or 5 at the institution's most recent examination by a state or federal banking regulator.
The biographical report to be filed with the Division of Banking may be either on the form provided by the Division of Banking or the form filed with the institution's federal regulator for reporting the change of executive officer, director, or person in control.
C. For the purposes of this Rule, except as provided in Paragraph (D), the term “director” does not include an advisory director who:
1. Is not elected by the shareholders of the bank;
2. Is not authorized to vote on any matters before the board of directors; and 3. Provides solely general policy advice to the board of directors.
D. The Banking Board or the Division of Banking may otherwise determine that additional reporting is required of any person who becomes an executive officer, director, or person in control. Written notice will be provided by the Division of Banking to such person of any additional requirements.
E. The Banking Board may assess a $25.00 per day penalty for late filing of reports of new executive officers, directors, and persons in control which are required by Section 11-102-303(8) and (9), C.R.S., and this Rule. Said penalty may be waived by the Banking Board pursuant to statute. Filing of an incorrect report form is not grounds for the waiving of the penalty. CB101.48 Investment in Federal Home Loan Bank [Section 11-105-304(7), C.R.S.], A. A state bank may purchase and hold stock in and become a member of the Federal Home Loan Bank for the purpose of utilizing the services of or otherwise interacting with the Federal Home Loan Bank. The Federal Home Loan Bank Act, 12 USC 1424, provides Federal Home Loan Bank membership to any eligible bank insured by the Federal Deposit Insurance Corporation.
B. The Federal Home Loan Bank Act, also known as 12 USC 1424, amended 1989, is a law enacted by the United States Congress and administered by the Federal Housing Finance Board. This Rrule does not include amendments to or editions of the referenced material later than the effective date of this Rule, November 30, 1990. For detailed information pertaining to these provisions, please contact the secretary to the Banking Board at 1560 Broadway, Suite 1175, Denver, Colorado 80202, 303-894-7584.
CB101.49 Scope of Directors' Examinations [Section 11-103-502(3)(b), C.R.S.] A. Definitions For purposes of this Rule the term “reviewer” shall mean such public accountant or other independent person(s) as determined by the Banking Board.
B. Examination Scope For the purposes of Section 11-103-502(3)(b), C.R.S., a state bank (institution) at a minimum shall perform annually the procedures as set forth in Appendix A as the scope of a directors' examination. The recommended procedures are intended to address the high risk areas common to all financial institutions. However, each institution must review its own particular business and determine if additional procedures are required to cover other high risk areas. The reviewer should be informed of and permitted access to all examination reports, administrative orders, and any additional communications between the institution and the Division of Banking, including the Colorado State Banking Board, as well as, the appropriate federal regulatory agency. The reviewer should obtain institution management's written representation that he or she has been informed of and granted access to all such documents prior to completion of the field work.
C. Extent of Testing Where the procedures set forth in Appendix A require testing or determinations to be made, sampling may be used. Both judgmental and statistical sampling may be acceptable methods of selecting samples to test. Sample sizes should be consistent with generally accepted auditing standards or as agreed upon by the reviewer and the institution client. In any event, the sampling method and extent of testing, including sample size(s) used, should be disclosed in the directors' examination report.
D. Reports to be Filed with the Division of Banking After the completion of the procedures or agreed-upon procedures set forth in Appendix A, the independent reviewer should evaluate the results of his/her work and promptly prepare and submit a report addressed to the board of directors of the institution. This report should detail the findings and suggestions resulting from performance of these procedures. Independent reviewers should include in their report, as a minimum:
1. Financial statements (balance sheet and statement of earnings as of the examination date);
2. The accounts or items on which the procedures were applied;
3. The sampling methods used;
4. The procedures and agreed-upon extent of testing performed;
5. The accounting basis either generally accepted accounting principles (GAAP) or regulatory required accounting on which the accounts or items being audited are reported;
6. The reviewer's findings; and 7. The date as of which the procedures were performed.
The reviewer should sign and date the report, which should also disclose the reviewer's business address.
The institution must send a copy of this report, the engagement letter, and any management letter or similar letter of recommendations to the Division of Banking and the appropriate federal regulators within thirty (30) days after its receipt, but no later than one hundred fifty (150) days after the date of examination. In addition, each institution should promptly notify the Division of Banking when any reviewer is engaged to perform a directors' examination and when a change in its reviewer occurs.
E. References Generally accepted accounting principles are issued by the Financial Accounting Standard Board which is an arm of the Financial Accounting Foundation, an independently chartered institution. Section 23A of the Federal Reserve Act, also known as 12 USC 371 c, is a law enacted by the United States Congress and administered by the Board of Governors of the Federal Reserve System. Regulation O of the Board of Governors of the Federal Reserve System, also known as 12 CFR 215, is a regulation enacted by the Federal Reserve Board under the authority granted by the United States Congress and administered by the Board of Governors of the Federal Reserve System. This Rule does not include amendments to or editions of the referenced materials later than the effective date of the rule, October 24,1990 For more detailed information pertaining to this Rule, please contact the secretary to the Banking Board at 1560 Broadway, Suite 1175, Denver, CO 80202,303-894-7584. Appendix A CB101.49 For the purposes of Section 11-103-502(3)(b), C.R.S., a state bank (institution), at a minimum, shall have the following procedures performed annually.
A. Loans 1. Determine that the institution has policies that address the lending and collection functions. Read the institution's loan policies to determine whether they address the following items:
a. General fields of lending in which the institution will engage and the types of loans within each field;
b. Descriptions of the institution's normal trade area and circumstances under which the institution may extend credit to borrowers outside of such area;
c. Limitations on the maximum volume of each type of loan product in relation to total assets;
d. Responsibility of the Board of Directors in reviewing, ratifying, or approving loans;
e. Lending authority of the loan or executive committee (if such a committee exists);
f. Adherence to legal limits;
g. Types of secured and unsecured loans which will be granted;
h. Circumstances under which extensions or renewals of loans are granted.
i. Guidelines for rates of interest and terms of repayment for secured and unsecured loans;
j. Documentation required by the institution for each type of secured and unsecured loans;
k. Limitations on the amount advanced in relation to the value of various types of collateral;
l. Limitations on the extension of credit through overdrafts;
m. Level or amount of loans granted in specific industries or specific geography locations;
n. Guidelines for participations purchased and/or sold;
o. Guidelines for documentation of new loans prior to approval and updating loan files throughout the life of the loan;
p. Guidelines for loan review procedures by institution personnel including:
q. Collection procedures, including, but not limited to, actions to be taken against borrowers who fail to make timely payments;
r. Guidelines for nonaccrual loans (i.e., when an asset should be placed on nonaccrual, individuals responsible for identifying non-performing assets and placing them on nonaccrual, and circumstances under which an asset will be placed back on accrual.); and s. Guidelines for in-substance foreclosures.
2. Review the Board of Directors' minutes to determine that the loan policies have been reviewed and approved. Through review of the Board of Directors' minutes and through inquiry of executive officers, determine whether the Board of Directors revises the policies and procedures periodically as needed.
3. Obtain Loan Committee (or, if applicable, Board of Directors' minutes) and, through a comparison of loans made throughout the period with lending policies, determine whether loans are being made within the loan authorization policy.
4. Select a sample of borrowers (including loans from each major category) and determine through examination of loan files and other institution reports whether lending and collection policies are being followed (e.g., type of loan is in accordance with loan policy, funds were not advanced until after loan approval was received from proper loan authorization level, loan is within collateral policies, insurance coverage is adequate, and institution is named as loss payee).
5. Select a sample of borrowers from each major category of secured loans and determine through examinations of files and other institution reports whether collateral policies are being followed (e.g., loan is adequately collateralized, documentation is present and properly prepared, assignments are perfected, and collateral is properly valued, marketable, and has not become susceptible to deterioration in realizable value).
6. Review policies for checking floor plan merchandise, warehouse inventory and accounts receivable by responsible institution personnel and test for compliance.
7. Determine whether participations purchased and participations sold transactions have been reported to and authorized by the Board of Directors or Loan Committee, if applicable, through review of appropriate minutes.
8. On a test basis, review participations purchased to confirm that the institution does its own independent credit analysis. Also review participation documents and determine that terms and conditions between the lead institution and participants are specified, including:
a. Which party is paid first;
b. What happens in the event of default;
c. How set-offs received by either institution are to be treated;
d. How collection expenses are to be divided; and e. Who is responsible to collect the note in the event of default 9. Confirm sample of participations purchased and participations sold with participating institutions to verify that they are legitimate transactions and that they are properly reflected as being with or without recourse in the institution's records.
10. Balance detail ledgers or reconcile computer generated trial balances with the general ledger control accounts for each major category of loans, including loans carried as past due or in a nonaccrual status.
11. Confirm a sample of all loans within each major category. Include past due and nonaccrual loans in the verification process.
12. Review multiple loans to the same borrower with the same person as guarantor to determine if they were made on consecutive days to circumvent the loan authorization policy and to determine whether policies and procedures are designed to assure that all related credits are considered in loan granting and administration. Review these loans for relationships to institutions insiders or their related interests.
13. From reports to the board on the status of loans identified as warranting special attention, review the disposition of a sample of loans no longer appearing on these reports.
14. Test loan interest income and accrued interest by:
a. Determining the institutions method of calculating and recording interest accruals;
b. Obtaining trial balances of accrued interest;
c. Testing the reconciliation of the trial balances to the general ledger;
d. Determining that interest accruals are not made on nonaccrual loans;
e. Selecting sample items from each major category of loans
f. Performing an analytical review of yields on each major category of loans for reasonableness.
B. Allowance for Loan Losses 1. Test charge-offs and recoveries for proper authorization and/or reporting by reference to the board of directors' minutes. Review charged-off loans for any relationship with institution insiders or their related interests.
2. Review the institution's computation of the amount needed in the allowance for loan losses as of the end of the most recent quarter. Documentation should include consideration of the following matters:
a. General, local, national, and international (if applicable) economic conditions;
b. Trends in loan growth and depth of lending staff with expertise in these areas;
c. Concentrations of loans (e.g., by type, borrower, geographic area, and sector of the economy);
d. The extent of renewals and extensions to keep loans current;
e. The collectibility of nonaccrual loans;
f. Trends in the level of delinquent and classified loans compared with previous loan loss and recovery experience;
g. Results of regulatory examinations; and h. The collectibility of specific loans on the “watch list” taking into account borrower financial status, collateral type and value, payment history, and potential permanent impairment.
C. Securities 1. Review the investment policies and procedures established by the institution's board of directors. Review the board of directors (or investment committee) minutes for evidence that these policies and procedures are periodically reviewed and approved. The policies and procedures should include, but not be limited to:
a. Investment objectives, including use of “held for sale” and trading activities;
b. Permissible types of investments;
c. Diversification guidelines to prevent undue concentration;
d. Maturity schedules;
e. Limitation on quality ratings;
f. Hedging activities and other uses of futures, forwards, options, and other financial instruments;
g. Handling exceptions to standard policies;
h. Valuation procedures and frequency;
i. Limitations on the investment authority of officers; and j. Frequency of periodic reports to the board of directors on securities holdings.
2. Test the investment procedures and ascertain whether information reported to the board of directors (or investment committee) for securities transactions is in agreement with the supporting data by comparing the following information on such reports to the trade tickets for a sample of items (including futures, forwards, and options):
a. Descriptions b. Interest rate c. Maturity d. Par value, or number of shares e. Cost f. Market value on date of transaction (if different than cost) 3. Using the same sample items, analyze the securities register for accuracy and confirm the existence of the sample items by examining securities physically held in the institution and confirming the safekeeping of those securities held by others.
4. Balance investment subledger(s) or reconcile computer-generated trial balances with the general ledger control accounts for each type of security.
5. Review policies and procedures for controls which are designed to ensure that unauthorized transactions do not occur. Ascertain through reading of policies, procedures, and board of directors' minutes whether investment officers and/or appropriate committee members have been properly authorized to purchase/sell investments and whether there are limitations or restrictions on delegated responsibilities.
6. Obtain a schedule of the book, par, and market values of securities as well as their rating classifications. Test the accuracy of the market values of a sample of securities and compare the ratings listed to see that they correspond with those of the rating agencies. Review the institution's documentation on any permanent declines in value that have occurred among the sample of securities to determine that any recorded declines in market value are appropriately computed. Examine the institution's computation of the allowance account for securities, if any, for proper presentation and adequacy.
7. Test securities income and accrued interest by:
a. Determining the institution's method of calculating and recording interest accruals;
b. Obtaining trial balances of accrued interest;
c. Testing the reconciliation of the trial balances to the general ledger;
d. Determining that interest accruals are not made on defaulted issues;
e. Selecting items from each type of investment and money market holdings:
f. Performing an analytical review of yields on each type of investment and money market holdings for reasonableness.
8. Review investment accounts for volume of purchases, sales activity and length of time securities have been held. Inquire as to the institution's intent and ability to hold securities until maturity. (If there is frequent trading in an investment account, such activity may be inconsistent with the notion that the institution has the intent and ability to hold securities to maturity.) Test gains and losses on disposal of investment securities by sampling sales transactions and:
a. Determining sales prices by examining invoices or brokers' advices;
b. Checking for the use of trade date accounting and the computation of book value on trade date;
c. Determining that the general ledger has been properly relieved on the investment, accrued interest, premium, discount and other related accounts;
d. Recomputing the gain or loss and compare to the amount recorded in the general ledger; and e. Determining that the sates were approved by the board of directors or a designated committee or were in accordance with policies approved by the board of directors.
D. Insider Transactions NOTE: For purposes of this section of the procedures, insiders include all affiliates of the institution (including its parent holding company) and all subsidiaries of the institution, as those terms are defined in section 23A of the Federal Reserve Act, as well as the institution's executive officers, directors, principal shareholders, and their related interests, as those terms are defined in section 215.2 of Federal Reserve Regulation O.
1. Review the institution's policies and procedures to ensure that extensions of credit to and other transactions with insiders are addressed. Ascertain that these policies include specific guidelines defining fair and reasonable transactions between the institution and insiders and test insider transactions for compliance with these guidelines and statutory and regulatory requirements. Ascertain that the policies and procedures on extensions of credit comply with the requirements of Federal Reserve Regulation O.
2. Obtain an institution-prepared list of insiders, including any business relationships they may have other than as nominal customer. Also obtain a list of extensions of credit to and other transactions that the institution, its affiliates, and its subsidiaries have had with insiders that are outstanding as of the audit date or that have occurred since the prior year's external auditing procedures were performed. Compare these lists to those prepared for the prior year's external auditing program to test for completeness.
3. Review the board of directors' minutes, loan trial balances, supporting loan documentation, and other appropriate institution records in conjunction with the list of insiders obtained from the institution to verily that a sample of extensions of credit to and transactions with insiders were:
a. In compliance with institution policy for similar transactions and were at prevailing rates and terms at that time;
b. Subjected to the institution's normal underwriting criteria and deemed by the institution to involve no more than a normal degree of risk or present no other unfavorable features;
c. Approved by the board of directors in advance with the interested party abstaining from voting; and d. Within the aggregate lending limits imposed by Regulation O or other legal limits.
4. Review the institution's policies and procedures to ensure that expense accounts of individuals who are executive officers, directors, and principal shareholders are addressed and test a sample of the actual expense account records for compliance with these policies and procedures.
E. Internal Controls - General Accounting and Administrative Controls 1. Review the board of directors' minutes to verify that account reconciliation policies have been established and approved and are reviewed periodically by the board of directors. Determine that management has implemented appropriate procedures to ensure the timely completion of reconciliations of accounting records and the timely resolution of reconciling items.
2. Determine whether the institution's policies regarding segregation of duties and required vacations for employees (including those involved in the EDP function) have been approved by the board of directors and verify that these policies and the implementing procedures established by management are periodically reviewed, are adequate, and are followed.
3. Confirm a sample of deposits in each of the various types of deposit accounts maintained by the institution. Inquire about controls over dormant deposit accounts.
4. Test to determine that reconciliations are prepared for all significant asset and liability accounts and their related accrued interest accounts, if any, such as “due from” accounts; demand deposits; NOW accounts; money market deposit accounts; other savings deposits; certificates of deposit; and other time deposits. Review reconciliations for:
a. Timeliness and frequency;
b. Accuracy and completeness; and c. Review by appropriate personnel with no conflicting duties.
5. Compare a sample of balances per reconciliations to the general ledger and supporting trial balances.
6. Examine detail and aging of a sample of reconciling items from those accounts whose reconciliations have been tested and reviewed and a sample of items in suspense, clearing, and work-in-process accounts by:
a. Testing aging;
b. Determining whether items are followed up on and appropriately resolved on a timely bases; and c. Discussing items remaining on reconciliations and in the suspense account with appropriate personnel to ascertain whether any should be written off. Review a sample of charged-off reconciling and suspense items for proper authorization.
7. Verify through inquiry and observation that the institution maintains adequate records of its off- balance sheet activities, including, but not limited to, its outstanding letters of credit and its loan commitments. Review the institution's procedures for monitoring the extent of its credit exposure from such activities to determine whether probable or reasonably possible losses exist.
F. Internal Controls - Electronic Data Processing Controls 1. Read the board of directors' minutes to determine whether the board of directors has reviewed and approved the institution's electronic data processing (EDP) policies (including those regarding outside servicers, if any, and the in-house use of individual personal computers (PCs) and personalized programs for official institution records) at least annually, confirm that management has established appropriate implementing procedures, and verify the institution's compliance with these policies and procedures.
a. The policies and procedures for either in-house processing or use of an outside service center should include:
b. When an outside service center is employed, the policies and procedures should address the following additional items:
2. In the area of general EDP controls, determine through inquiry and observation that policies and procedures have been established for:
a. Management and user involvement and approval of new or modified application programs;
b. Authorization, approval and testing of system software modifications;
c. The controls surrounding computer operations processing;
d. Restricted access to computer operations facilities and resources including:
3. With respect to EDP applications controls, inquire about and observe:
a. The controls over:
b. The security over unissued or blank supplies of potentially negotiable items; and c. The control procedures on wire transfers including:
G. Trust Function 1. Supervisory Review a. Determine the significant functions of the department including areas of responsibility within the department and the financial institution b. Review the institution's written policies to determine sufficient guidelines are established to meet fiduciary responsibilities and to comply with applicable laws. Policies should include:
c. Ascertain the qualifications of the staff and the board of directors giving consideration to the nature of the fiduciary responsibilities accepted.
d. Determine if board policies are implemented and followed.
2. Accounting and Physical Controls a. Verify account assets. Include a confirmation from holders of assets retained outside the department.
b. Determine that the assets are adequately safeguarded, and held separate from other assets of the institution.
c. Verify that a vault record of assets under joint custody is maintained.
d. Verify prompt ledger control of assets (including worthless assets), received as original and subsequent deposits of assets, including stock splits and dividends.
e. Verify that fiduciary cash accounts are regularly and appropriately reconciled to demand deposit or money market account statements.
f. Verify that internal balancing control procedures are performed each time account ledgers are posted.
g. Verify that suspense or operating accounts are reconciled at least monthly, contain only appropriate items and are cleared in a timely manner.
h. Reconcile or verify the proper reconcilement of each of the following to the department's general ledger at least quarterly:
i. If applicable, verify reconcilements or reconcile outstanding bonds for bond trusteeships, or paying agent activities, j. Verify the accurate payment of dividends.
3. Activity Control a. Verify fees paid to the trust company.
b. Verify proceeds from sales of assets to brokers' invoices, sellers' receipts, or other evidence of sales price.
c. Verify payment for purchases of assets to brokers' invoices, sellers' receipts, or other evidence of purchase price.
d. Verify accuracy of amounts and receipt of income from investments.
4. Compliance a. Verify that transactions between fiduciary accounts and directors, officers or employees of the institution, its holding company or other related entity do not constitute self-dealing. In general, self-dealing is considered to exist when the fiduciary uses or obtains the property held in a fiduciary capacity for his or her own benefit.
b. Review fiduciary account holdings of the following items in light of self-dealing issues.
c. Verify that all accounts for which the institution has investment responsibilities are reviewed in accordance with Section 11-103-502(4), C.R.S.
d. Verify that cash receipts are promptly invested or distributed.
e. Verified and reviewed the annual audit of each collective investment fund.
5. Administrative Review a. Complete administrative reviews of all major account types, including but not limited to, personal trusts, estates, corporate trusts, collective investment funds, pension trusts and profit sharing trusts. An acceptable administrative review would perform the following practices:
A. Qualifications The following persons may qualify to be responsible for conducting a directors' examination of state-chartered banks:
1. A Certified Public Accountant(s) who holds an active certificate under the laws of this state, or who may practice in this state under a reciprocal agreement between Colorado and the holder's state of certification.
2. A qualified independent person(s) or firm whose credentials have been submitted to and approved by the Colorado State Banking Board to conduct such examinations. The Banking Board will take into consideration such things as past proven work of the person or firm, professional reputation, training and education, and capacity to perform the examination in a timely manner.
3. The Banking Board reserves the right to revoke any previously approved qualification for due cause.
B. Independence A person who conducts or reviews and/or approves a directors' examination (person) of a state-chartered bank (institution) must be independent with respect to the institution in fact and appearance. Independence will be considered impaired if, for example, during the period of the directors examination, or at the time of the issuing of the report, the person:
1. Had or was committed to acquire any direct or material indirect financial interest in the institution;
2. Was a trustee of any trust or executor or administrator of any estate if such trust or estate had or was committed to acquire any direct or material indirect financial interest in the institution;
3. Had any joint closely-held business investment with the institution or any officer, director, or principal stockholder thereof that was material in relation to the net worth of either the institution or the person; or 4. Had any loan to or from the institution or any officer, director, or principal shareholder thereof other than loans of the following kinds made by a financial institution under normal lending procedures, terms, and requirements:
a. Loans obtained by the person that are not material in relation to the net worth of the borrower;
b. Home mortgages; and c. Other secured loans, except those secured solely by a guarantee of the person. Independence will also be considered to be impaired if, during the period covered by the financial statements, during the period of the directors' examinations, or at the time of the issuing of the report, the person:
1. Was connected with the institution as a promoter, underwriter, voting trustee, director or officer, or in any capacity equivalent to that of a member of management or of an employee;
2. Was a trustee for any pension or profit sharing trust of the institution;
3. Received or had a commitment to receive other compensation from the institution or a third party, for services or products of others to be procured by the institution; or 4. Received or had a commitment from the institution to receive a contingent fee. For this purpose, a contingent fee means compensation for the performance of services payment of which, or the amount of which, is contingent upon the findings or results of such services. CB101.51 Minimum Capital Ratios [Section 11-103-201, C.R.S.] A. Purpose The Colorado State Banking Board believes that a minimum leverage ratio is necessary because the risk- based capital guidelines detailed in Banking Board Rule CB101.52, which are designed solely as a measure of credit risk, create the possibility for significant leverage. Assets that have no credit risk receive a zero percent risk weight and, therefore, require no capital. However, the Banking Board believes that every institution should have at least a base level of capital as protection against risks not measured by the risk-based capital ratio.
B. Definitions: For the purposes of this Rule:
1. Adjusted total assets means the average total assets figure required to be computed for and stated in an institution's most recent quarterly Consolidated Report of Condition and Income (Call Report), minus end-of-quarter intangible assets, deferred tax assets, and credit enhancing interest-only strips, that are deducted from Tier 1 capital, and minus nonfinancial equity investments for which a Tier 1 capital deduction is required pursuant to Paragraph (C)(1)(h) of Rule CB101.52. The Banking Board reserves the right to require an institution to compute and maintain its capital ratios on the basis of actual, rather than average, total assets when necessary to carry out the purposes of this regulation.
2. Tier 1 Capital means “Tier 1 Capital” as determined according to Banking Board Rule CB101.52-Risk-Based Capital Definitions and Adequacy, including the deductions described therein.
3. Tier 2 Capital means “Tier 2 Capital” as determined according to Banking Board Rule CB101.52-Risk-Based Capital Definitions and Adequacy, including the limitations described therein.
4. Total Capital means “Total Capital” as determined according to Banking Board Rule CB101.52- Risk-Based Capital Definitions and Adequacy, including the deductions described therein.
C. Reservation of Authority 1. Deductions from capital. Notwithstanding the definitions of Tier 1 Capital and Tier 2 Capital, the Banking Board may find that a newly developed or modified capital instrument constitutes Tier 1 Capital or Tier 2 Capital, and may permit one or more institutions to include all or a portion of funds obtained through such capital instruments as Tier 1 or Tier 2 Capital, permanently or on a temporary basis, for the purpose of compliance with the Banking Board Rules.
Similarly, the Banking Board may find that a particular intangible asset, deferred tax asset or credit-enhancing interest-only strip need not be deducted from Tier 1 or Tier 2 Capital. Conversely, the Banking Board may find that a particular intangible asset, deferred tax asset, credit-enhancing interest-only strip or other Tier 1 or Tier 2 Capital component has characteristics or terms that diminish its contribution to an institution's ability to absorb losses, and may require the deduction from Tier 1 or Tier 2 Capital of all of the component or of a greater portion of the component than is otherwise required.
2. Risk weight categories. Notwithstanding the risk categories in Banking Board Rule CB101.52, the Banking Board will look to the substance of the transaction and may find that the assigned risk weight for any asset or the credit equivalent amount or credit conversion factor for any off-balance sheet item does not appropriately reflect the risks imposed on an institution and may require another risk weight, credit equivalent amount, or credit conversion factor that the Banking Board deems appropriate. Similarly, if no risk weight, credit equivalent amount or credit conversion factor is specifically assigned, the Banking Board may assign any risk weight, credit equivalent amount, or credit conversion factor that the Banking Board deems appropriate. In making its determination, the Banking Board considers risks associated with the asset or off-balance sheet item as well as other relevant factors.
D. Minimum Capital Ratios 1. Risk-based capital ratio. All institutions must have and maintain the minimum risk-based capital ratios as set forth in Banking Board Rule CB101.52.
2. Total asset leverage ratio (Leverage Ratio). All institutions must have and maintain Tier 1 Capital in an amount equal to at least 3.0 percent of adjusted total assets.
3. Additional leverage ratio requirements. An institution operating at or near the level in Paragraph (D)(2) should have well-diversified risks, including no undue interest rate risk exposure; excellent control systems; good earnings; high asset quality; high liquidity; and well managed on- and off-balance sheet activities; and in general be considered a strong organization, rated composite 1 under the CAMELS rating system. For all but the most highly-rated institutions meeting the conditions set forth in this Paragraph, the minimum Tier 1 leverage ratio is 4 percent. In all cases, institutions should hold capital commensurate with the level and nature of all risks.
E. Establishment of Minimum Capital Ratios for an Individual Institution 1. Applicability The Banking Board may require higher minimum capital ratios for an individual institution in view of its circumstances. For example, higher capital ratios may be appropriate for:
a. A newly chartered institution;
b. An institution receiving special supervisory attention;
c. An institution that has, or is expected to have, losses resulting in capital inadequacy;
d. An institution with significant exposure due to risks from concentrations of credit, certain risks arising from nontraditional activities, or management's overall inability to monitor and control financial and operating risks presented by concentrations of credit and nontraditional activities;
e. An institution with significant exposure to declines in the economic value of its capital due to changes in interest rates;
f. An institution with significant exposure due to fiduciary or operational risk;
g. An institution exposed to a high degree of asset depreciation, or a low level of liquid assets in relation to short term liabilities;
h. An institution exposed to a high volume of, or particularly severe, problem loans;
i. An institution that is growing rapidly, either internally or through acquisition; or j. An institution that may be adversely affected by the activities or condition of its parent company, affiliates(s), or other persons or institutions including chain banking organizations, with which it has significant business relationships.
2. Standards for Determination of Appropriate Individual Minimum Capital Ratios. The appropriate minimum capital ratios for an individual institution cannot be determined solely through the application of a rigid mathematical formula or wholly objective criteria. The decision is necessarily based in part on subjective judgment grounded in Banking Board and Division of Banking expertise. The factors to be considered in the determination will vary in each case and may include, for example:
a. The conditions or circumstances leading to the Banking Board's determination that higher capital ratios are appropriate or necessary for the institution;
b. The exigency of those circumstances or potential problems;
c. The overall condition, management strength, and future prospects of the institution and, if applicable, its parent company and/or affiliate(s);
d. The institution's liquidity, capital, risk asset and other ratios compared to the ratios of its peer group; and e. The views of the institution's directors and senior management.
F. Unsafe and unsound practice. Any institution that has less than its minimum leverage capital requirement is deemed to be engaged in an unsafe and unsound practice. Except that such an institution that has entered into and is in compliance with a written agreement with the Banking Board or has submitted to the Banking Board and is in compliance with a plan approved by the Banking Board to increase its Tier 1 leverage capital ratio to such a level as the Banking Board deems appropriate and to take such other action as may be necessary for the institution to be operated so as not to be engaged in such an unsafe or unsound practice will not be deemed to be engaged in an unsafe or unsound practice on account of its capital ratios. An institution must file a written capital restoration plan with the Banking Board within forty-five (45) days of the date that the institution receives notice or is deemed to have notice that the institution is undercapitalized, unless the Banking Board notifies the institution in writing that the plan is to be filed within a different period. The Banking Board is not precluded from taking any enforcement action against an institution with capital above the minimum requirement if the specific circumstances deem such action to be appropriate.
G. Statute References to Capital 1. As referenced in the statutes the following definitions will apply:
a. Sections 11-103-202(1) and (2), C.R.S., shall refer to the leverage ratio.
b. Sections 11-103-203(3) and (4), C.R.S., shall refer to the leverage ratio.
c. Section 11-103-303(1)(a), C.R.S., shall refer to Total Capital.
d. Section 11-103-304(1)(d), C.R.S., shall refer to the leverage ratio and Tier 1, Tier 2, and Total Capital.
e. Section 11-103-402(1), C.R.S., shall refer to Total Capital.
f. Section 11-103-502(2)(a). C.R.S., shall refer to Total Capital.
g. Section 11-103-405(2), C.R.S., shall refer to Total Capital.
h. Section 11-103-702(1)(b), C.R.S., shall refer to the leverage ratio and Tier 1, Tier 2, and Total Capital, i. Section 11-103-703(3)(b), C.R.S., shall refer to the leverage ratio and Tier 1, Tier 2, and Total Capital.
j. Section 11-103-801(1), C.R.S., shall refer to Total Capital, k. Section 11-103-802(1)(a), C.R.S., shall refer to the leverage ratio.
l. Section 11-103-803(1)(b), C.R.S., shall refer to the leverage ratio and Tier 1, Tier 2, and Total Capital.
m. Section 11-103-806(1), C;R.S., shall refer to the leverage ratio, n. Sections 11-105-304(2),(5),(6), and (8), C.R.S., shall refer to Total Capital.
o. Section 11-105-402(1), C.R.S., shall refer to Tier 1 Capital, p. Section 11-105-501(2), C.R.S., shall refer to Tier 1 Capital. CB101.52 Risk-Based Capital Definitions and Adequacy [Section 11-103-201. C.R.S.] A. Purpose.
An important function of the Banking Board and the Division of Banking is to evaluate the adequacy of capital maintained by each regulated institution. Such an evaluation involves the consideration of numerous factors, including the riskiness of an institution's assets and off- balance sheet items. This Rule implements the Banking Board's risk-based capital guidelines. The risk-based capital ratio derived from these guidelines is an important factor in the Banking Board and the Division of Banking's evaluation of an institution's capital adequacy. However, because this measure addresses only credit risk, the 8 percent minimum ratio should not be viewed as the level to be targeted, but rather as a floor. The final supervisory judgment on an institution's capital adequacy is based on an individualized assessment of numerous factors, including those listed in Banking Board Rule CB101.51(E)(1). With respect to the consideration of these factors, the Banking Board and Division of Banking will give particular attention to any institution with significant exposure to declines in the economic value of its capital due to changes in interest rates. As a result, it may differ from the conclusion drawn from an isolated comparison of an institution's risk-based capital ratio to the 8 percent minimum specified in these guidelines. In addition to the standards established by these risk-based capital guidelines, all state-chartered commercial banks must maintain a minimum capital-to-total assets ratio in accordance with Banking Board Rule CB101.51.
Certain components of capital, categories of on-balance sheet assets, and categories of off- balance sheet items appearing in this Rule may not apply to state chartered commercial banks. Nothing in this Rule shall be construed to increase the powers of state chartered commercial banks.
B. Definitions. For the purposes of this Rule, the following definitions apply:
1. “Adjusted carrying value” means the aggregate value that investments are carried on the balance sheet of the institution reduced by any unrealized gains on the investments that are reflected in such carrying value but excluded from the institution's Tier 1 capital and reduced by any associated deferred tax liabilities. For example, for investments held as available-for-sale (AFS), the adjusted carrying value of the investments would be the aggregate carrying value of the investments (as reflected on the consolidated balance sheet of the institution) less any unrealized gains on those investments that are included in other comprehensive income and that are not reflected in Tier 1 capital, and less any associated deferred tax liabilities. Unrealized losses on AFS nonfinancial equity investments must be deducted from Tier 1 capital in accordance with Paragraph (B)(8) of this Rule. The treatment of small business investment companies that are consolidated for accounting purposes under generally accepted accounting principles is discussed in Paragraph (C)(1)(h)(2) of this Rule. For investments in a nonfinancial company that is consolidated for accounting purposes, the institution's adjusted carrying value of the investment is determined under the equity method of accounting (net of any intangibles associated with the investment that are deducted from the institution's Tier 1 capital in accordance with Paragraph (C)(1)(e) of this Rule). Even though the assets of the nonfinancial company are consolidated for accounting purposes, these assets (as well as the credit equivalent amounts of the company's off-balance sheet items) are excluded from the institution's risk-weighted assets.
2. “Allowances for loan and lease losses” means those general valuation allowances that have been established through charges against earnings to absorb losses on loan and lease financing receivables. Allowances for loan and lease losses exclude allocated transfer risk reserves established, and specific reserves created against, against identified loss.
3. “Associated company” means any corporation, partnership, business trust, joint venture, association, or similar organization in which an institution directly or indirectly holds a 20 to 50 percent ownership interest.
4. “Banking and finance subsidiary” means any subsidiary of an institution that engages in banking and finance-related activities.
5. “Cash items in the process of collection” means checks or drafts in the process of collection that are drawn on another depository institution, including a central bank, and that are payable immediately upon presentation in the country in which the reporting institution's office that is clearing or collecting the check or draft is located; United States Government checks that are drawn on the United States Treasury or any other United States Government or Government-sponsored agency and that are payable immediately upon presentation; broker's security drafts and commodity or bill-of-lading drafts payable immediately upon presentation in the United States or the country in which the reporting institution's office that is handling the drafts is located; and unposted debts.
6. “Central government” means the national governing authority of a country; it includes the departments, ministries and agencies of the central government and the central bank. The U.S. Central Bank includes the twelve Federal Reserve Banks. The definition of central government does not include the following: State, provincial or local governments; commercial enterprises owned by the central government which are entities engaged in activities involving trade, commerce or profit that are generally conducted or performed in the private sector of the United States economy; and noncentral government entities whose obligations are guaranteed by the central government.
7. “Commitment” means any arrangement that obligates an institution to:
a. Purchase loans or securities; or b. Extend credit in the form of loans or leases, participations in loans or leases, overdraft facilities, revolving credit facilities, or similar transactions.
8. “Common stockholders' equity” means common stock, common stock surplus, undivided profits, capital reserves, and adjustments for the cumulative effect of foreign currency translation, less net unrealized holding losses on available-for-sale equity securities with readily determinable fair values.
9. “Conditional guarantee” means a contingent obligation of the United States Government or its agencies, or the central government of an Organization of Economic Cooperation and Development (OECD) country, the validity of which to the beneficiary is dependent upon some affirmative action; e.g., servicing requirements, on the part of the beneficiary of the guarantee or a third party.
10. “Deferred tax assets” means the tax consequences attributable to tax carryforwards and deductible temporary differences. Tax carryforwards are deductions or credits that cannot be used for tax purposes during the current period, but can be carried forward to reduce taxable income or taxes payable in a future period or periods. Temporary differences are financial events or transactions that are recognized in one period for financial statement purposes, but are recognized in another period or periods for income tax purposes. Deductible temporary differences are temporary differences that result in a reduction of taxable income in a future period or periods.
11. “Derivative contract” means generally a financial contract whose value is derived from the values of one or more underlying assets, reference rates or indexes of asset values. Derivative contracts include interest rate, foreign exchange rate, equity, precious metals and commodity contracts, or any other instrument that poses similar credit risks.
12. “Depository institution” means a financial institution that engages in the business of banking; that is recognized as a bank by the bank supervisory or monetary authorities of the country of its incorporation and the country of its principal banking operations; that receives deposits to a substantial extent in the regular course of business; and that has the power to accept demand deposits. In the United States, this definition encompasses all federally insured offices of commercial banks, mutual and stock savings banks, savings or building and loan associations (stock and mutual), cooperative banks, credit unions, and international banking facilities of domestic depository institutions. In addition, this definition encompasses all federally insured Colorado state chartered offices of industrial banks and trust companies. Bank holding companies are excluded from this definition. For the purposes of assigning risk weights, the differentiation between OECD depository institutions and non-OECD depository institutions is based on the country of incorporation. Claims on branches and agencies of foreign banks located in the United States are to be categorized on the basis of the parent bank's country of incorporation.
13. “Equity investment” means any equity instrument including warrants and call options that give the holder the right to purchase an equity instrument, any equity feature of a debt instrument (such as a warrant or call option), and any debt instrument that is convertible into equity. An investment in any other instrument, including subordinated debt or other types of debt instruments, may be treated as an equity investment if the Banking Board determines that the instrument is the functional equivalent of equity or exposes the institution to essentially the same risks as an equity instrument.
14. “Exchange rate contracts” include: Cross-currency interest rate swaps; forward foreign exchange rate contracts; currency options purchased; and any similar instrument that, in the opinion of the Banking Board gives rise to similar risks.
15. “Goodwill” means an intangible asset that represents the excess of the purchase price over the fair market value of tangible and identifiable intangible assets acquired in purchases accounted for under the purchase method of accounting.
16. “Intangible assets” include mortgage and non-mortgage servicing assets [but exclude any interest only (lO) strips receivable related to these mortgage and nonmortgage servicing assets], purchased credit card relationships, goodwill, favorable leaseholds, and core deposit value.
17. “Interest rate contracts” include: Single currency interest rate swaps; basis swaps; forward rate agreements; interest rate options purchased; forward deposits accepted; and any similar instrument that, in the opinion of the Banking Board, gives rise to similar risks, including when-issued securities.
18. “Multifamily residential property” means any residential property consisting of five or more dwelling units including apartment buildings, condominiums, cooperatives, and other similar structures primarily for residential use, but not including hospitals, nursing homes, or other similar facilities.
19. “Nationally recognized statistical rating organization (NRSRO)” means an entity recognized by the Division of Market Regulation of the Securities and Exchange Commission (or any successor Division) (Commission or SEC) as a nationally recognized statistical rating organization for various purposes, including the Commission's uniform net capital requirements for brokers and dealers.
20. “Nonfinancial equity investment” means any equity investment held by an institution in a nonfinancial company through a small business investment company (SBIC) under section 302(b) of the Small Business Investment Act of 1958 or under the portfolio investment provisions of Regulation K. An equity investment made under section 302(b) of the Small Business Investment Act of 1958 in a SBIC that is not consolidated with the institution is treated as a nonfinancial equity investment in the manner provided in Paragraph (C)(1)(h)(2)(c) of this Rule. A nonfinancial company is an entity that engages in any activity that has not been determined to be permissible for an institution to conduct directly or to be financial in nature or incidental to financial activities under section 4(k) of the Bank Holding Company Act.
21. “OECD-based country” means a member of the grouping of countries that are full members of the OECD regardless of entry date, plus countries that have concluded special lending arrangements with the International Monetary Fund (IMF) associated with the IMF's General Arrangements to Borrow but excludes any country that has rescheduled its external sovereign debt within the previous five years. These countries are hereinafter referred to as “OECD countries.” A rescheduling of external sovereign debt generally would Include any renegotiation of terms arising from a country's inability or unwillingness to meet its external debt service obligations, but generally would not include renegotiations of debt in the normal course of business, such as a renegotiation to allow the borrower to take advantage of a decline in interest rates or other changes in market conditions. (As of November 1995, the OECD countries included the following countries: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Iceland, Ireland, Italy, Japan, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, Turkey, the United Kingdom, and the United States; and Saudi Arabia had concluded special lending arrangements with the IMF associated with the IMF's General Arrangements to Borrow.) 22. “Original maturity” means, with respect to a commitment, the earliest possible date after a commitment is made on which the commitment is scheduled to expire (i.e., it will reach its stated maturity and cease to be binding on either party), provided that either:
a. The commitment is not subject to extension or renewal and will actually expire on its stated expiration date; or b. If the commitment is subject to extension or renewal beyond its stated expiration date, the stated expiration date will be deemed the original maturity only if the extension or renewal must be based upon terms and conditions independently negotiated in good faith with the customer at the time of the extension or renewal and upon a new, bona fide credit analysis utilizing current information on financial condition and trends.
23. “Preferred stock” includes the following instruments:
a. “Convertible preferred stock,” which means preferred stock that is mandatorily convertible into either common or perpetual preferred stock;
b. “Intermediate-term preferred stock,” which means preferred stock with an original maturity of at least five years, but less than twenty (20) years;
c. “Long-term preferred stock,” which means preferred stock with an original maturity of twenty (20) years or more; and d. “Perpetual preferred stock,” which means preferred stock without a fixed maturity date that cannot be redeemed at the option of the holder, and that has no other provisions that will require future redemption of the issue. For purposes of these instruments, preferred stock that can be redeemed at the option of the holder is deemed to have an “original maturity” of the earliest possible date on which it may be so redeemed.
24. “Public-sector entities” include states, local authorities and governmental subdivisions below the central government level in an OECD country. In the United States, this definition encompasses a state, county, city, town, or other municipal corporation, a public authority, and generally any publicly-owned entity that is an instrumentality of a state or municipal corporation. This definition does not include commercial companies owned by the public sector.
25. “Reciprocal holdings of bank capital instruments” means cross-holdings or other formal or informal arrangements in which two or more banking organizations swap, exchange, or otherwise agree to hold each other's capital instruments. This definition does not include holdings of capital instruments issued by other banking organizations that were taken in satisfaction of debts previously contracted, provided that the reporting institution has not held such instruments for more than five (5) years or a longer period approved by the Banking Board.
26. “Replacement cost” means, with respect to interest rate and exchange rate contracts, the toss that would be incurred in the event of a counterparty default, as measured by the net cost of replacing the contract at the current market value. If default would result in a theoretical profit, the replacement value is considered to be zero. The mark-to-market process should incorporate changes in both interest rates and counterparty credit quality.
27. “Residential properties” means houses, condominiums, cooperative units, and manufactured homes. This definition does not include boats or motor homes, even if used as a primary residence.
28. “Risk-weighted assets” means the sum of total risk-weighted balance sheet assets and the total of risk-weighted off-balance sheet credit equivalent amounts. Risk-weighted balance sheet and off-balance sheet assets are calculated in accordance with Paragraph (D) of this Rule.
29. “Subsidiary” means any corporation, partnership, business trust, joint venture, association or similar organization in which an institution directly or indirectly holds more than a 50 percent ownership interest. This definition does not include ownership interests that were taken in satisfaction of debts previously contracted, provided that the reporting institution has not held the interest for more than five years or a longer period approved by the Banking Board.
30. “Total capital” means the sum of an institution's core (Tier 1) and qualifying supplementary (Tier 2) capital elements.
31. “Unconditionally cancelable” means, with respect to a commitment-type lending arrangement, that the institution may, at any time, with or without cause, refuse to advance funds or extend credit under the facility. In the case of home equity lines of credit, the institution is deemed able to unconditionally, cancel the commitment if it can, at its option, prohibit additional extensions of credit, reduce the line, and terminate the commitment to the full extent permitted by relevant state and Federal law.
32. “United States Government or its agencies” means an instrumentality of the United States Government whose debt obligations are fully and explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the United States Government.
33. “United States Government-sponsored agency” means an agency originally established or chartered to serve public purposes specified by the United States Congress, but whose obligations are not explicitly guaranteed by the full faith and credit of the United States Government. 34. “Walkaway clause” means a provision in a bilateral netting contract that permits a nondefaulting counterparty to make a lower payment than it would make otherwise under the bilateral netting contract, or no payment at all, to a defaulter or the estate of a defaulter, even if the defaulter or the estate of the defaulter is a net creditor under the bilateral netting contract.
C. Components of Capital. An institution's qualifying capital base consists of two types of capital--core (Tier 1) and supplementary (Tier 2).
1. Tier 1 Capital. The following elements comprise an institution's Tier 1 capital:
a. Common stockholders' equity;
b. Noncumulative perpetual preferred stock and related surplus (Preferred stock issues where the dividend is reset periodically based upon current market conditions and the institution's current credit rating, including but not limited to, auction rate, money market or remarketable preferred stock, are assigned to Tier 2 capital, regardless of whether the dividends are cumulative or noncumulative.); and c. Minority interests in the equity accounts of consolidated subsidiaries, except that minority interests in a small business investment company or investment fund that holds nonfinancial equity investments, and minority interests in a subsidiary that is engaged in nonfinancial activities and is held under one of the legal authorities listed in Paragraph (B)(20) of this Rule, are not included in Tier 1 capital or total capital.
d. Less: Goodwill;
e. Less: Other intangible assets, other than mortgage servicing assets, purchased credit card relationships, and nonmortgage servicing assets. (Intangible assets are defined to exclude IO strips receivable related to these mortgage and non- mortgage servicing assets. See Paragraph (B)(16) of this Rule. Consequently, IO strips receivable related to mortgage and non-mortgage servicing assets are not required to be deducted under this Paragraph. However, credit-enhancing interest-only strips as defined in Paragraph (E)(1)(b) of this Rule are deducted from Tier 1 capita! in accordance with Paragraph (C)(1)(g) of this Rule. Any noncredit-enhancing IO strips receivable are subject to a 100 percent risk weight under Paragraph (D)(7)(d) of this Rule.) For the purpose of determining Tier 1 capital, mortgage servicing assets, purchased credit card relationships, and nonmortgage servicing assets will be deducted from assets and from common stockholders' equity to the extent that these items do not meet the conditions, limitations, and restrictions described in this section. Institutions may elect to deduct disallowed servicing assets on a basis that is net of any associated deferred tax liability. Deferred tax liabilities netted in this manner cannot also be netted against deferred tax assets when determining the amount of deferred tax assets that are dependent upon future taxable income.
g. Less: Credit-enhancing interest-only strips (as defined in Paragraph (E)(1)(b) of this Rule). Credit-enhancing interest-only strips, whether purchased or retained, that exceed 25 percent of Tier 1 capital must be deducted from Tier 1 capital. Purchased and retained credit-enhancing interest-only strips, on a non-tax adjusted basis, are included in the total amount that is used for purposes of determining whether an institution exceeds its Tier 1 capital.
h. Less: Nonfinancial equity investments as provided by this section.
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2. Tier 2 Capital. Tier 2 capital is limited to 100 percent of Tier 1 capital. The following elements comprise an institution's Tier 2 capital:
a. Allowance for loan and lease losses, up to a maximum of 1.25 percent of risk- weighted assets. (The amount of the allowance for loan and lease losses that may be included in capita! is based on a percentage of risk-weighted assets. The gross sum of risk-weighted assets used in this calculation includes all risk- weighted assets, with the exception of the assets required to be deducted from capital under Paragraph (D) of this Rule in establishing risk-weighted assets (i.e., the assets required to be deducted from capital under Paragraph (C) of this Rule. An institution may deduct reserves for loan and lease losses in excess of the amount permitted to be included as capital, as well as allocated transfer risk reserves and reserves held against other real estate owned, from the gross sum of risk-weighted assets in computing the denominator of the risk-based capital ratio.)
b. Cumulative perpetual preferred stock, long-term preferred stock, convertible preferred stock, and any related surplus, without limit, if the issuing institution has the option to defer payment of dividends on these instruments. For long-term preferred stock, the amount that is eligible to be included as Tier 2 capital is reduced by 20 percent of the original amount of the instrument (net of redemptions) at the beginning of each of the last five years of the life of the instrument.
c. Hybrid capital instruments, without limit. Hybrid capital instruments are those instruments that combine certain characteristics of debt and equity, such as perpetual debt. To be included as Tier 2 capital, these instruments must meet the following criteria:
(Mandatory convertible debt instruments that meet the requirements of Paragraphs (C)(2)(d)(1) through (8) and that unqualifiedly require the issuer to exchange either common or perpetual preferred stock for such instruments by a date at or before the maturity of the instrument (the maturity of these instruments must be 12 years or less), or that have been previously approved as capital by the Banking Board, are treated as qualifying hybrid capital instruments.)
d. Term subordinated debt instruments and intermediate-term preferred stock and related surplus are included in Tier 2 capital, but only to a maximum of 50 percent of Tier 1 capital as calculated after deductions pursuant to Paragraphs (C)(1)(d) through
e. Up to 45 percent of pretax net unrealized holding gains (that is, the excess, if any, of the fair value over historical cost) on available-for-sale equity securities with readily determinable fair values. However, the Banking Board may exclude all or a portion of these unrealized gains from Tier 2 capital if the Banking Board determines that the equity securities are not prudently valued. Unrealized gains (losses) on other types of assets, such as institution premises and available-for- sale debt securities, are not included in Tier 2 capital, but the Banking Board may take these unrealized gains (losses) into account as additional factors when assessing an institution's overall capital adequacy.
3. Deductions From Total Capital (the sum of Tier 1 capital plus Tier 2 capital). The following items are deducted from an institution's capital base when calculating its risk-based capital ratio.
a. Investments, both equity and debt, in unconsolidated banking and finance subsidiaries that are deemed to be capital of the subsidiary. The Banking Board may require deduction of investments in other subsidiaries and associated companies on a case-by-case basis.
b. Reciprocal cross-holdings of capital instruments issued by banks.
D. Risk Categories/Weights for On-Balance Sheet Assets and Off-Balance Sheet Items 1. The denominator of the risk-based capital ratio, i.e., an institution's risk-weighted assets, is derived by assigning that institution's assets and off-balance sheet items to one of the four risk categories detailed in Paragraph (D)(7) of this Rule. Each category has a specific risk weight.
2. Before an off-balance sheet item is assigned a risk weight, it is converted to an on-balance sheet credit equivalent amount in accordance with Paragraph (D)(8) of this Rule.
3. The risk weight assigned to a particular asset or on-balance sheet credit equivalent amount determines the percentages of that asset/credit equivalent that is included in the denominator of the institution's risk-based capital ratio. Any asset deducted from an institution's capital in computing the numerator of the risk-based capital ratio is not included as part of the institution's risk-weighted assets.
4. The Banking Board reserves the right to require an institution to compute its risk-based capital ratio on the basis of average, rather than period-end, risk-weighted assets when necessary to carry out the purposes of these guidelines.
5. Some of the assets on an institution's balance sheet may represent an indirect holding of a pool of assets, e.g., mutual funds, that encompasses more than one risk weight within the pool. In those situations, the institution may assign the asset to the risk category applicable to the highest risk-weighted asset that pool is permitted to hold pursuant to its stated investment objectives in the fund's prospectus. Alternatively, the institution may assign the asset on a pro rata basis to different risk categories according to the investment limits in the fund's prospectus. In either case, the minimum risk weight that may be assigned to such a pool is 20 percent. If an institution assigns the asset on a pro rata basis, and the sum of the investment limits in the fund's prospectus exceeds 100 percent, the institution must assign the highest pro rata amounts of its total investment to the higher risk category. If, in order to maintain a necessary degree of liquidity, the fund is permitted to hold an insignificant amount of its assets in short-term, highly-liquid securities of superior credit quality (that do not qualify for a preferential risk weight), such securities generally will not be taken into account in determining the risk category into which the institution's holding in the overall pool should be assigned. The prudent use of hedging instruments by a fund to reduce the risk of its assets will not increase the risk- weighting of the investment in that fund above the 20 percent category. However, if a fund engages in any activities that are deemed to be speculative in nature or has any other characteristics that are inconsistent with the preferential risk weighting assigned to the fund's assets, the institution's investment in the fund will be assigned to the 100 percent risk category. More detail on the treatment of mortgage-backed securities is provided in Paragraph (D)(7)(c)(6) of this Rule.
6. In addition, when certain institutions that are engaged in trading activities calculate the risk- based capital ratio under this Rule, the institution must also refer to Appendix B, which incorporates capital charges for certain market risk into the risk-based capital ratio. When calculating the risk-based capital ratio, such institutions are required to refer to Appendix B for supplemental rules to determine qualifying and excess capital, calculate risk- weighted assets, calculate market risk equivalent assets and add them to risk-weighted assets, and calculate risk-based capital ratios as adjusted for market risk. (Trading activity means the gross sum of trading assets and liabilities as reported in the institution's most recent Call Report.
7. On-Balance Sheet Assets. The following are the risk categories/weights for on-balance sheet assets:
a. Zero percent risk weight.
b. Twenty percent risk weight.
c. Fifty percent risk weight.
NOTE: An institution subject to the market risk capital requirements pursuant to Appendix B of this Rule may calculate the capital requirement for qualifying securities borrowing transactions pursuant to Paragraph (C)(1)(a)(2) of Appendix B of this Rule.
8. Off-Balance Sheet Activities. The risk weight assigned to an off-balance sheet item is determined by a two-step process. First, the face amount of the off-balance sheet item is multiplied by the appropriate credit conversion factor specified in this Paragraph (D)(8). This calculation translates the face amount of an off-balance sheet item into an on- balance sheet credit equivalent amount. Second, the resulting credit equivalent amount is then assigned to the proper risk category using the criteria regarding obligors, guarantors and collateral listed in Paragraph (D)(7) of this Rule. Collateral and guarantees are applied to the face amount of an off-balance sheet item; however, with respect to derivative contracts under Paragraph (D)(8)(e) of this Rule, collateral and guarantees are applied to the credit equivalent amounts of such derivative contracts. The following are the credit conversion factors and the off-balance sheet items to which they apply. However, direct credit substitutes, recourse obligations, and securities issued in connection with asset securitizations are treated as described in Paragraph (E) of this Rule.
a. One hundred percent credit conversion factor.
b. Fifty percent credit conversion factor.
c. Twenty percent credit conversion factor.
(1) Trade-related contingencies. These are short-term self-liquidating instruments used to finance the movement of goods and are collateralized by the underlying shipment. A commercial letter of credit is an example of such an instrument.
d. Zero percent credit conversion factor.
(1) Unused portion of commitments with an original maturity of one year or less.
(2) Unused portion of commitments with an original maturity of greater than one year, if they are unconditionally cancelable (see Paragraph (B)(31) of this Rule) at any time at the option of the institution and the institution has the contractual right to make, and in fact does make, either:
(3) The unused portion of retail credit card lines or other related plans that are unconditionally cancelable by the institution in accordance with applicable law.
e. Derivative Contracts (1) Calculation of Credit Equivalent Amounts. The credit equivalent amount of a derivative contract equals the sum of the current credit exposure and the potential future credit exposure of the derivative contract. The calculation of credit equivalent amounts must be measured in U.S. dollars, regardless of the currency or currencies specified in the derivative contract,
701_1_3.jpg NOTE: For purposes of calculating either the potential future credit exposure under Paragraph (D)(8)(e)(1)(b) of this Rule or the gross potential future credit exposure under Paragraph (D)(8)(e)(2)(a)(2) of this Rule for foreign exchange contracts and other similar contracts in which the notional principal is equivalent to the cash flows, total notional principal is the net receipts to each party falling due on each value date in each currency. No potential future credit exposure is calculated for single currency interest rate swaps in which payments are made based upon two floating rate indices (so-called floating/floating or basis swaps); the credit equivalent amount is measured solely on the basis of the current credit exposure.
(2) Derivative contracts subject to a qualifying bilateral netting contract.
(a) Netting calculation. The credit equivalent amount for multiple derivative contracts executed with a single counterparty and subject to a qualifying bilateral netting contract pursuant to Paragraph (D)(8)(e)(2)(b) of this Rule is calculated by adding the net current credit exposure and the adjusted sum of the potential future credit exposure for all derivative contracts subject to the qualifying bilateral netting contract.
(b) Qualifying bilateral netting contact. In determining the current credit exposure for multiple derivative contracts executed with a single counterparty, an institution may net derivative contracts subject to a qualifying bilateral netting contract by offsetting positive and negative mark-to-market values, provided that:
(3) Risk-weighting. Once the institution determines the credit equivalent amount for a derivative contract or a set of derivative contracts subject to a qualifying bilateral netting contract, the institution assigns that amount to the risk weight category appropriate to the counterparty, or, if relevant, the nature of any collateral or guarantee. However, the maximum weight that will be applied to the credit equivalent amount of such derivative contract(s) is 50 percent. (Derivative contracts are an exception to the general rule of applying collateral and guarantees to the face value of off-balance sheet items. The sufficiency of collateral and guarantees is determined on the basis of the credit equivalent amount of derivative contracts. However, collateral and guarantees held against a qualifying bilateral netting contract is not recognized for capital purposes unless it is legally available for all contracts included in the qualifying bilateral netting contract.) (4) Exceptions. The following derivative contracts are not subject to the above calculation, and therefore, are not part of the denominator of an institution's risk-based capital ratio:
(a) An exchange rate contract with an original maturity of 14 calendar days or less (gold contracts do not qualify for this exception); and (b) A derivative contract that is traded on an exchange requiring the daily payment of any variations in the market value of the contract.
E. Recourse, Direct Credit Substitutes and Positions in Securitizations 1. Definitions. For purposes of Paragraph (E) of this Rule, the following definitions apply.
a. “Credit derivative” means a contract that allows one party (the protection purchaser) to transfer the credit risk of an asset or off-balance sheet credit exposure to another party (the protection provider). The value of a credit derivative is dependent, at least in part, on the credit performance of a “reference asset.” b. “Credit-enhancing interest-only strip” means an on-balance sheet asset that, in form or in substance:
c. “Credit-enhancing representations and warranties” means representations and warranties that are made or assumed in connection with a transfer of assets (including loan servicing assets) and that obligate an institution to protect investors from losses arising from credit risk in the assets transferred or the loans serviced. Credit-enhancing representations and warranties include promises to protect a party from losses resulting from the default or nonperformance of another party or from an insufficiency in the value of the collateral. Credit- enhancing representations and warranties do not include:
d. “Direct credit substitute” means an arrangement in which an institution assumes, in form or in substance, credit risk associated with an on- or off-balance sheet asset or exposure that was not previously owned by the institution (third-party asset) and the risk assumed by the institution exceeds the pro rata share of the institution's interest in the third-party asset. If an institution has no claim on the third-party asset, then the institution's assumption of any credit risk is a direct credit substitute. Direct credit substitutes include:
e. “Externally rated” means that an instrument or obligation has received a credit rating from at least one nationally recognized statistical rating organization.
f. “Face amount” means the notional principal, or face value, amount of an off-balance sheet item; the amortized cost of an asset not held for trading purposes; and the fair value of a trading asset.
g. “Financial asset” means cash or other monetary instrument, evidence of debt, evidence of an ownership interest in an entity, or a contract that conveys a right to receive or exchange cash or another financial instrument from another party.
h. “Financial standby letter of credit” means a letter of credit or similar arrangement that represents an irrevocable obligation to a third-party beneficiary:
i. “Mortgage servicer cash advance” means funds that a residential mortgage servicer advances to ensure an uninterrupted flow of payments, including advances made to cover foreclosure costs or other expenses to facilitate the timely collection of the loan. A mortgage servicer cash advance is not a recourse obligation or a direct credit substitute if:
j. “Nationally recognized statistical rating organization (NRSRO)” means an entity recognized by the Division of Market Regulation of the Securities and Exchange Commission (or any successor Division) (Commission) as a nationally recognized statistical rating organization for various purposes, including the Commission's uniform net capital requirements for brokers and dealers.
k. “Recourse” means an institution's retention, in form or in substance, of any credit risk directly or indirectly associated with an asset it has sold that exceeds a pro rata share of that institution's claim on the asset. If an institution has no claim on a sold asset, then the retention of any credit risk is recourse. A recourse obligation typically arises when an institution transfers assets and retains an explicit obligation to repurchase assets or to absorb losses due to a default on the payment of principal or interest or any other deficiency in the performance of the underlying obligor or some other party. Recourse may also exist implicitly if an institution provides credit enhancement beyond any contractual obligation to support assets it has sold. The following are examples of recourse arrangements:
i. “Residual interest” means any on-balance sheet asset that represents an interest (including a beneficial interest) created by a transfer that qualifies as a sale (in accordance with generally accepted accounting principles) of financial assets, whether through a securitization or otherwise, and that exposes an institution to any credit risk directly or indirectly associated with the transferred asset that exceeds a pro rata share of that institution's claim on the assets, whether through subordination provisions or other credit enhancement techniques. Residual interests generally include credit-enhancing interest-only strips, spread accounts, cash collateral accounts, retained subordinated interests (and other forms of overcollateralization) and similar assets that function as a credit enhancement. Residual interests further include those exposures that, in substance, cause the institution to retain the credit risk of an asset or exposure that had qualified as a residual interest before it was sold. Residual interests generally do not include interests purchased from a third party.
m. “Risk participation” means a participation in which the originating party remains liable to the beneficiary for the full amount of an obligation (e.g., a direct credit substitute) notwithstanding that another party has acquired a participation in that obligation.
n. “Securitization” means the pooling and repackaging by a special purpose entity of assets or other credit exposures that can be sold to investors, Securitization includes transactions that create stratified credit risk positions whose performance is dependent upon an underlying pool! of credit exposures, including loans and commitments.
o. “Structured finance program” means a program where receivable interests and asset- backed securities issued by multiple participants are purchased by a special purpose entity that repackages those exposures into securities that can be sold to investors. Structured finance programs allocate credit risks, generally, between the participants and credit enhancement provided to the program.
p. “Traded position” means a position retained, assumed or issued in connection with a securitization that is externally rated, where there is a reasonable expectation that, in the near future, the rating will be relied upon by:
2. Credit equivalent amounts and risk weights of recourse obligations and direct credit substitutes.
a. Credit-equivalent amount. Except as otherwise provided, the credit-equivalent amount for a recourse obligation or direct credit substitute is the full amount of the credit- enhanced assets for which the institution directly or indirectly retains or assumes credit risk multiplied by a 100 percent conversion factor.
b. Risk-weight factor. To determine the institution's risk-weighted assets for off-balance sheet recourse obligations and direct credit substitutes, the credit equivalent amount is assigned to the risk category appropriate to the obligor in the underlying transaction, after considering any associated guarantees or collateral. For a direct credit substitute that is an on-balance sheet asset (e.g., a purchased subordinated security), an institution must calculate risk-weighted assets using the amount of the direct credit substitute and the full amount of the assets it supports, i.e., all the more senior positions in the structure.
3. Credit equivalent amount and risk weight of participations in, and syndications of, direct credit substitutes. The credit equivalent amount for a participation interest in, or syndication of, a direct credit substitute is calculated and risk weighted as follows:
a. In the case of a direct credit substitute in which an institution has conveyed a risk participation, the full amount of the assets that are supported by the direct credit substitute is converted to a credit equivalent amount using a 100 percent conversion factor. The pro rata share of the credit equivalent amount that has been conveyed through a risk participation is then assigned to whichever risk- weight category is lower: the risk-weight category appropriate to the obligor in the underlying transaction, after considering any associated guarantees or collateral, or the risk-weight category appropriate to the party acquiring the participation. The pro rata share of the credit equivalent amount that has not been participated out is assigned to the risk-weight category appropriate to the obligor after considering any associated guarantees or collateral.
b. In the case of a direct credit substitute in which the institution has acquired a risk participation, the acquiring institution's pro rata share of the direct credit substitute is multiplied by the full amount of the assets that are supported by the direct credit substitute and converted using a 100 percent credit conversion factor. The resulting credit equivalent amount is then assigned to the risk-weight category appropriate to the obligor in the underlying transaction, after considering any associated guarantees or collateral.
c. In the case of a direct credit substitute that takes the form of a syndication where each institution or participating entity is obligated only for its pro rata share of the risk and there is no recourse to the originating entity, each institution's credit equivalent amount will be calculated by multiplying only its pro rata share of the assets supported by the direct credit substitute by a 100 percent conversion factor. The resulting credit equivalent amount is then assigned to the risk-weight category appropriate to the obligor in the underlying transaction, after considering any associated guarantees or collateral.
4. Externally rated positions: credit-equivalent amounts and risk weights.
a. Traded positions. With respect to a recourse obligation, direct credit substitute, residual interest (other than a credit-enhancing interest-only strip) or asset- or mortgage-backed security that is a “traded position” and that has received an external rating on a long-term position that is one grade below investment grade or better or a short-term position that is investment grade, the institution may multiply the face amount of the position by the appropriate risk weight, determined in accordance with Tables C or D of this Rule (stripped mortgage- backed securities or other similar instruments, such as interest-only or principal- only strips, that are not credit enhancing must be assigned to the 100 percent risk category). If a traded position receives more than one external rating, the lowest single rating will apply.
701_1_4.jpg b. Non-traded positions. A recourse obligation, direct credit substitute, residual interest (but not a credit-enhancing interest-only strip) or asset- or mortgage-backed security extended in connection with a securitization that is not a “traded position” may be assigned a risk weight in accordance with Paragraph (E)(4)(a) of this Rule if:
5. Senior positions not externally rated. For a recourse obligation, direct credit substitute, residual interest or asset- or mortgage-backed security that is not externally rated but is senior or preferred in all features to a traded position (including collateralization and maturity) an institution may apply a risk weight to the face amount of the senior position in accordance with Paragraph (E)(4)(a) of this Rule, based upon the traded position, subject to any current or prospective supervisory guidance and the institution satisfying the Banking Board that this treatment is appropriate. This Paragraph (E) will apply only if the traded position provides substantive credit support to the unrated position until the unrated position matures.
6. Residual Interests.
a. Concentration limit on credit-enhancing interest-only strips. In addition to the capital requirement provided by Paragraph (E)(6)(b) of this Rule, an institution must deduct from Tier 1 capital all credit-enhancing interest-only strips in excess of 25 percent of Tier 1 capital in accordance with Paragraph (C)(1)(e) of this Rule.
b. Credit-enchancing interest-only strip capital requirement. After applying the concentration limit to credit-enhancing interest-only strips in accordance with Paragraph (E)(6)(a) of this Rule, an institution must maintain risk-based capital for a credit-enhancing interest-only strip equal to the remaining amount of the credit-enhancing interest-only strip (net of any existing associated deferred tax liability), even if the amount of risk-based capital required to be maintained exceeds the full risk-based capital requirement for the assets transferred. Transactions that, in substance, result in the retention of credit risk associated with a transferred credit-enhancing interest-only strip will be treated as if the credit-enhancing interest-only strip was retained by the institution and not transferred.
c. Other residual interests capital requirement. Except as provided in Paragraphs (E)(4) and (5) of this Rule, an institution must maintain risk-based capital for a residual interest (excluding a credit-enhancing interest-only strip) equal to the face amount of the residual interest that is retained on the balance sheet (net of any existing associated deferred tax liability), even if the amount of risk-based capital required to be maintained exceeds the full risk-based capital requirement for the assets transferred. Transactions that, in substance, result in the retention of credit risk associated with a transferred residual interest will be treated as if the residual interest was retained by the institution and transferred, d. Residual interests and other recourse obligations. Where the aggregate capital requirement for residual interests (including credit-enhancing interest-only strips) and recourse obligations arising from the same transfer of assets exceed the full risk-based capital requirement for those assets, an institution must maintain risk- based capital equal to the greater of the risk-based capital requirement for the residual interest as calculated under Paragraphs (E)(6)(a) through (c) of this Rule or the full risk-based capital requirement for the assets transferred.
7. Positions that are not rated by an NRSRO. A position (but not a residual interest) extended in connection with a securitization and that is not rated by an NRSRO may be risk-weighted based on the institution's determination of the credit rating of the position, as specified in Table E of this Rule, multiplied by the face amount of the position. In order to qualify for this treatment, the institution's system for determining the credit rating of the position must meet one of the three alternative standards set out in Paragraphs (E)(7)(a) through (c) of this Rule.
701_1_5.jpg a. Internal risk rating used for asset-backed programs. A direct credit substitute (but not a purchased credit-enhancing interest-only strip) is assumed by an institution in connection with an asset-backed commercial paper program sponsored by the institution and the institution is able to demonstrate to the satisfaction of the Banking Board, prior to relying upon its use, that the institution's internal credit risk rating system is adequate. Adequate internal credit risk rating systems usually contain the following criteria:
b. Program Ratings. A direct credit substitute or recourse obligation (but not a residual interest) is assumed or retained by an institution in connection with a structured finance program and a NRSRO ha reviewed the terms of the program and stated a rating for positions associated with the program. If the program has options for different combinations of assets, standards, internal credit enhancements and other relevant factors, and the NRSRO specifies ranges of rating categories to them, the institution may apply the rating category applicable to the option that corresponds to the institution's position. In order to rely on a program rating, the institution must demonstrate to the Banking Board's satisfaction that the credit risk rating assigned to the program meets the same standards generally used by NRSROs for rating traded positions. The institution must also demonstrate to the Banking Board's satisfaction that the criteria underlying the NRSRO's assignment of ratings for the program are satisfied for the particular position. If an institution participates in a securitization sponsored by another party the Banking Board may authorize the institution to use this approach based on a program rating obtained by the sponsor of the program.
c. Computer Program. The institution is using an acceptable credit assessment computer program to determine the rating of a direct credit substitute or recourse obligation (but not a residual interest) extended in connection with a structured finance program. A NRSRO must have developed the computer program and the institution must demonstrate to the Banking Board's satisfaction that ratings under the program correspond credibly and reliably with the rating of traded positions.
8. Limitations on risk-based capital requirements.
a. Low-level exposure rule. If the maximum contractual exposure to loss retained or assumed by an institution is less than the effective risk-based capital requirement, as determined in accordance with Paragraph (E)(2) of this Rule, for the asset supported by the institution's position, the risk-based capital required under this Rule is limited to the institution's contractual exposure, less any recourse liability account established in accordance with generally accepted accounting principles. This limitation does not apply when an institution provides credit enhancement beyond any contractual obligation to support assets that it has sold.
b. Related on-balance sheet assets. If an asset is included in the calculation of the risk- based capital requirements under this Paragraph (E) of this Rule and also appears as an asset on an institution's balance sheet, the asset is risk-weighted only under this Paragraph (E) of this Rule, except in the case of loan servicing assets and similar arrangements with embedded recourse obligations or direct credit substitutes. In that case, both the on-balance sheet servicing assets and the related recourse obligations or direct credit substitutes must both be separately risk-weighted and incorporated into the risk-based capital calculation.
9. Alternative Capita! Calculation for Small Business Obligations, a. Definitions. For purposes of this Paragraph (E)(9):
b. Capital and reserve requirements. Notwithstanding the risk-based capital treatment outlined in Paragraph (C)(1)(g) and any other subsection (other than subsection
c. Limit on aggregate amount of recourse. The total outstanding amount of recourse retained by a qualified institution with respect to transfers of small business loans and leases of personal property and included in the risk-weighted assets of the institution as described in Paragraph (E)(9)(b) of this Rule may not exceed 15 percent of the institution's total capital after adjustments and deductions, unless the Banking Board specifies a greater amount by order.
d. Institution that ceases to be qualified or that exceeds aggregate limit. If an institution ceases to be a qualified institution or exceeds the aggregate limit in Paragraph (E)(9)(c) of this Rule, the institution may continue to apply the capital treatment described in Paragraph (E)(9)(b) of this Rule to transfers of small business loans and leases of persona! property that occurred when the institution was qualified and did not exceed the limit.
F. Target Ratios 1. As of December 31,1992:
a. All institutions are expected to maintain a minimum ratio of total capital (after deductions) to risk-weighted assets of 8.0 percent.
b. Tier 2 capital elements qualify as part of an institution's total capital base up to a maximum of 100 percent of that institution's Tier 1 capital.
c. In addition to the standards established by these risk-based capital guidelines, all institutions must maintain a minimum capital-to-total asset ratio, in accordance with the provisions of Banking Board Rule CB101.51.
APPENDIX ASUMMARY DEFINITIONS RELATING TO RISK BASED CAPITAL TABLE 1 SUMMARY OF RISK WEIGHTS AND RISK CATEGORIES Category 1Zero Percent Category 220 Percent Category 350 Percent Category 4100 Percent 1. Cash (domestic and 1. Portions of loans and 1. Revenue bonds or 1. All other claims on foreign). other assets collateralized similar obligations, private obligors. by securities issued or including loans and guaranteed by the U.S. leases, that are Government or its obligations of public agencies, or other OECD sector entities in OECD central governments. The countries, but for which degree of collateralization the government entity is is determined by current committed to repay the market value. debt only out of revenues from the facilities financed.
2. Balances due from, and 2. Portions of loans and 2. Credit equivalent 2. Claims on non-OECD claims on, Federal other assets conditionally amounts of interest rate financial institutions with Reserve Banks and guaranteed by the U.S. and exchange rate related a residual maturity central banks in other Government or its contracts, except for those exceeding one year. OECD countries. agencies, or other OECD assigned to a lower risk Claims on non-OECD central governments. category. central banks with a residual maturity exceeding one year are included in this category unless they qualify for Item 4 of Category 1.
3. Claims on, or 3. Portions of loans and 3. Assets secured by a 3. Claims on non-OECD unconditionally other assets collateralized first mortgage on a one- central governments that guaranteed by, the U.S. by cash on deposit in the to-four family residential are not included in Item 4 Government or its lending institution. property that are not more of Category 1. agencies, or other OECD than ninety (90) days past central governments. due, on nonaccrual or restructured.
4. That portion of local 4. All claims (long- and 4. Loans to residential 4. Obligations issued by currency claims on, or short-term) on, or real estate builders for state or local governments unconditionally guaranteed by, OECD one-to- four family (including industrial guaranteed by, non- depository institutions. residential property development authorities OECD central construction that have and similar entitles) governments to the extent been presold pursuant to repayable solely by a the institution has local legally binding written private party or currency liabilities in that sales contract. enterprise. country.
5. Gold bullion held in 5. Claims on, or 5. Assets secured by a 5. Premises, plant, and the institution's own guaranteed by, non- first mortgage on equipment; other fixed vaults or in another OECD depository multifamily residential assets; and other real institution's vaults on an institutions with a properties. estate owned. allocated basis, to the residual maturity of one extent it is backed by year or less.
gold bullion liabilities.
6. Federal Reserve Bank 6. Cash items in the 6. Investments in stock. process of collection. unconsolidated subsidiaries, joint ventures, or associated companies (unless deducted from capital).
Government is a shareholder or a contributing member.
TABLE 2 CREDIT CONVERSION FACTORS FOR OFF-BALANCE SHEET ITEMS 100 Percent Conversion 50 Percent Conversion 20 Percent Conversion Zero Percent Factor Factor Factor Conversion Factor
2. Risk participations in 2. Unused portion of 2. Unused portions of bankers' acceptances and commitments with an commitments that are participations in direct original maturity unconditionally credit substitutes (e.g., exceeding one year. cancelable at any time, standby letters of credit). regardless of maturity.
3. Sale and repurchase 3. Revolving agreements and asset underwriting facilities sales with resource, if not (RUFs), note issuance already included on the facilities (NIFs), and balance sheet. other similar arrangements.
4. Forward agreements (i.e., contractual obligations) to purchase assets, including financing facilities with certain draw down.
TABLE 3TREATMENT OF DERIVATIVE CONTRACTS 1. The current exposure method is used to calculate the credit equivalent amounts of derivative contracts. These amounts are assigned a risk weight appropriate to the obligor or any collateral or guarantee. However, the maximum risk weight is limited to 50 percent. Multiple derivative contracts with a single counterparty may be netted if those contracts are subject to a qualifying bilateral netting contract.
CONVERSION FACTOR MATRIX 701_1_6.jpg 2. The following derivative contracts will be excluded:
a. Exchange rate contract(s) with an original maturity of 14 calendar days or less; and b. Derivative contract(s) traded on exchanges and subject to daily margin requirements. TABLE 4DEFINITION OF CAPITAL Capital components are distributed between two categories (Tier 1 and Tier 2). Tier 2 capital elements will qualify as part of an institution's total capital base up to a maximum of 100 percent of that institution's Tier 1 capital. Beginning December 31, 1992, the minimum risk-based capital standard will be 8.0 percent. 701_1_7.jpg APPENDIX B MARKET RISK A. Purpose and Applicability.
1. The purpose of this Appendix is to ensure that institutions with significant exposure to market risk maintain adequate capital to support that exposure. This Appendix supplements and adjusts the risk-based capital ratio calculations under this Rule with respect to those institutions.
2. Applicability.
a. This Appendix applies to any institution whose trading activity (on a worldwide consolidated basis) equals:
NOTE: Trading activity means the gross sum of trading assets and liabilities as reported in the institution's most recent quarterly Call Report.
b. The Banking Board may apply this Appendix to any institution if it deems it necessary or appropriate for safe and sound practices.
c. The Banking Board may exclude any institution otherwise meeting the criteria from Paragraph (A)(2)(a) of this Appendix from coverage under this Appendix if it determines the institution meets such criteria as a consequence of accounting, operational, or similar considerations, and the Banking Board deems it consistent with safe and sound practices.
B. Definitions 1. “Covered position” means all positions in an institution's trading account, and all foreign exchange and commodity positions, whether or not in the trading account. Positions include on-balance sheet assets and liabilities and off-balance sheet items. Securities subject to repurchase and lending agreements are included as if they are still owned by the lender. (Subject to supervisory review, an institution may exclude structural positions in foreign currencies from its covered positions.)
2. “Market risk” means the risk of loss resulting from movements in market prices. Market risk consists of general market risk and specific risk components.
a. “General market risk” means changes in the market value of covered positions resulting from broad market movements, such as changes in the general level of interest rates, equity prices, foreign exchange rates, or commodity prices.
b. “Specific risk” means changes in the market value of specific positions due to factors other than broad market movements and includes default and event risk as well as idiosyncratic variations.
3. Tier 1 and Tier 2 capital are defined in Paragraph (C) of this Rule.
4. Tier 3 capital is subordinated debt that is unsecured; is fully paid up; has an original maturity of at least two years; is not redeemable before maturity without prior approval by the Banking Board; includes a lock-in clause precluding payment of either interest or principle (even at maturity) if the payment would cause the issuing institution's risk-based capital ratio to fall below the minimum required under this Rule; and does not contain and is not covered by any covenants, terms, or restrictions that are inconsistent with safe and sound practices.
5. “Value-at-risk (VAR)” means the estimate of the maximum amount that the value of covered positions could decline during a fixed holding period within a stated confidence level, measured in accordance with Paragraph (D) of this Appendix.
C. Adjustments to the Risk-Based Capital Ratio Calculations 1. Risk-based capital ratio denominator. An institution subject to this Appendix shall calculate its risk-based capital ratio denominator as follows:
a. Adjusted risk-weighted assets.
b. Measure for market risk. Calculate the measure for market risk, which equals the sum of the VAR-based capital charge, the specific risk add-on (if any), and the capital charge for de minimus exposures (if any).
c. Market risk equivalent assets. Calculate market risk equivalent assets by multiplying the measure for market risk (as calculated in Paragraph (C)(1)(b) of this Appendix) by 12.5.
d. Denominator calculation. Add market risk equivalent assets (as calculated in Paragraph (C)(1)(c) of this Appendix) to adjusted risk-weighted assets (as calculated in Paragraph (C)(1)(a) of this Appendix). The resulting sum is the institution's risk-based capital ratio denominator.
2. Risk-based capital ratio numerator. An institution subject to this Appendix shall calculate its risk-based capital ratio numerator by allocating capital as follows:
a. Credit risk allocation. Allocate Tier 1 and Tier 2 capital equal to 8.0 percent of adjusted risk-weighted assets (as calculated in Paragraph (C)(1)(a) of this Appendix). (An institution may not allocate Tier 3 capital to support credit risk.) b. Market risk allocation. Allocate Tier 1, Tier 2, and Tier 3 capital equal to the measure for market risk as calculated in Paragraph (C)(1)(b) of this Appendix. The sum of Tier 2 and Tier 3 capital allocated for market risk must not exceed 250 percent of Tier 1 capital allocated for market risk. (This requirement means that Tier 1 capital allocated in this Paragraph must equal at least 28.6 percent of the measure for market risk.)
c. Restrictions.
d. Numerator calculation. Add Tier 1 capital (both allocated and excess), Tier 2 capital (both allocated and excess), and Tier 3 capital (allocated under Paragraph (C)(2)
D. Internal Models 1. General. For risk-based capita! purposes, an institution subject to this Appendix must use its internal model to measure its daily VAR, in accordance with the requirements of this Appendix. The Banking Board may permit an institution to use alternative techniques to measure the market risk of de minimus exposures so long as the techniques adequately measure associated market risk.
(An institution's internal model may use any generally accepted measurement techniques, such as variance-covariance models, historical simulations, or Monte Carlo simulations. However, the level of sophistication and accuracy of an institution's internal model must be commensurate with the nature and size of its covered positions. An institution that modifies its existing modeling procedures to comply with the requirements of this Appendix for risk-based capital purposes should, nonetheless, continue to use the internal model it considers most appropriate in evaluating risks for other purposes.) 2. Qualitative requirements. An institution subject to this Appendix must have a risk management system that meets the following minimum qualitative requirements:
a. The institution must have a risk control unit that reports directly to senior management and is independent from business trading units.
b. The institution's internal risk measurement model must be integrated into the daily management process.
c. The institution's policies and procedures must identify, and the institution must conduct, appropriate stress tests and backtests. The institution's policies and procedures must identify the procedures to follow in response to the results of such tests.
d. The institution must conduct independent review of its risk measurement and risk management systems at least annually.
3. Market risk factors. The institution's internal model must use risk factors sufficient to measure the market risk inherent in all covered positions. The risk factors must address interest rate risk, equity price risk, foreign exchange rate risk, and commodity price risk. (For material exposures in the major currencies and markets, modeling techniques must capture spread risk and must incorporate enough segments of the yield curve--at least six--to capture differences in volatility and less than perfect correlation of rates along the yield curve.)
4. Quantitative requirements. For regulatory capital purposes, VAR measures must meet the following quantitative requirements:
a. The VAR measures must be calculated on a daily basis using a 99 percent, one-tailed confidence level with a price shock equivalent to a ten (10) business day movement in rates and prices. In order to calculate VAR measures based on a ten (10) day price shock, the institution may either calculate ten (10) day figures directly or convert VAR figures based on holding periods other than ten (10) days to the equivalent of a ten (10) day holding period (for instance, by multiplying a one (1) day VAR measure by the square root of ten).
b. The VAR measures must be based on an historical observation period (or effective observation period for an institution using a weighting scheme or other similar method) of at least one (1) year. The institution must update data sets at least once every three (3) months or more frequently as market conditions warrant.
c. The VAR measurements must include the risks arising from the non-linear price characteristics of options positions and the sensitivity of the market value of the positions to changes in the volatility of the underlying rates or prices. An institution with a large or complex options portfolio must measure the volatility of options positions by different maturities.
d. The VAR measures may incorporate empirical correlations within and across risk categories, provided that the institution's process for measuring correlations is sound. In the event that the VAR measures do not incorporate empirical correlations across risk categories, then the institution must add the separate VAR measures for the four major risk categories to determine its aggregate VAR measure.
5. Backtesting a. Beginning one (1) year after an institution starts to comply with this Appendix, it must conduct backtesting by comparing each of its most recent two hundred fifty (250) business days' actual net trading profit or loss with the corresponding daily VAR measures generated for internal risk measurement purposes and calibrated to a one-day holding period and a 99 percent, one-tailed confidence level. (Actual net trading profits and losses typically include such things as realized and unrealized gains and losses on portfolio positions as well as fee income and commissions associated with trading activities.)
b. Once each quarter, the institution must identify the number of exceptions that is, the number of business days for which the magnitude of the actual daily net trading loss, if any, exceeds the corresponding daily VAR measures.
c. An institution must use the multiplication factor indicated in Table 1 of this Appendix in determining its capital charge for market risk under Paragraph (C)(1)(b)(1)(b) of this Appendix until it obtains the next quarter's backtesting results, unless the Banking Board determines that a different adjustment or other action is appropriate.
TABLE 1MULTIPLICATION FACTOR BASED ON RESULTS OF BACKTESTING 701_1_8.jpg E. Specific Risk 1. Specific risk surcharge. For the purposes of this Paragraph (C)(1)(b)(2) of this Appendix, an institution shall calculate its surcharge as follows:
a. Internal models that incorporate specific risk.
b. Specific risk surcharge for specific risk not modeled, if an institution does not model specific risk in accordance with Paragraph (E)(1)(a) of this Appendix, then the institution shall calculate its specific risk surcharge using the standard specific risk capital charge in accordance with Paragraph (E)(3) of this Appendix.
2. Covered debt and equity position. If a model includes the specific risk of covered debt positions but not covered equity positions (or vice versa), then the institution may reduce its specific risk charge for the included positions under Paragraph (E)(1)(a)(2) of this Appendix. The specific risk charge for the positions not included equals the standard specific risk capital charge under Paragraph (E)(3) of this Appendix.
3. Standard specific risk capital charge. The standard specific risk capital charge equals the sum of the components for covered debt and equity positions as follows:
a. Covered debt positions
TABLE 2SPECIFIC RISK WEIGHTING FACTORS FOR COVERED DEBT POSITIONS 701_1_9.jpg b. Covered equity positions
F. The Banking Board reserves the authority to modify the application of any provisions in this Appendix to any institution, upon reasonable justification.
CB101.53 Loan Production Office [Section 11-105-101(1). C.R.S.] A. A Loan Production Office (LPO) is defined as a location other than the bank's main office where only the solicitation and origination of loans by employees or agents of a state bank or of a subsidiary corporation are conducted, provided that the loans are approved and made at the main office of the bank or at an office of the subsidiary located on the premises of or contiguous to the main office of the bank and which location is subject to notification and the fee provisions of this Rule.
B. Approval of loans at the main office is not intended to be perfunctory, i.e. merely final execution of the loan documents. Approval at the main office shall be in accordance with safe and sound banking practice, including a review of the credit quality of the loan and a determination that it meets the bank's credit standards. In making an independent credit decision, the employee at the main office may consider recommendations made by the LPO as a factor when assessing the credit quality of the loan.
C. Application to Operate a LPO or Application to Change Location of a LPO shall be filed with the Banking Board on a form provided by the Division of Banking. A completed application shall be filed at least sixty (60) days prior to the anticipated first day of operating at a location. The application shall be accompanied by a fee as set by the Banking Board pursuant to Section 11- 102-104(11), C.R.S.
CB101.54 Branching Practices [Section 11-105-601, C.R.S., et. seq.] A. Notification of intent to establish a branch pursuant to Section 11-105-602(3)(a), C.R.S.
1. Pursuant to Section 11-105-602(3)(a), C.R.S., any bank, industrial bank, or savings and loan association may, upon thirty (30) days' prior written notice to the Banking Board or the Bank Commissioner, establish one or more de novo branches anywhere in this state. Any bank, industrial bank, or savings and loan association that has had its charter approved on or after April 1, 1991, may, upon thirty (30) days' written notice to the Banking Board or to the Bank Commissioner, be converted to a branch of any bank, industrial bank, or savings and loan association.
2. The notice of intent to establish a branch shall be filed on a form provided by the Division of Banking.
B. Change in Location of a Branch 1. The Banking Board may take into consideration the following factors in determining whether to approve or to deny an application for change in location of a branch:
a. There are significant supervisory concerns with respect to the applicant or any affiliated institution; or, b. The applicant's record of helping to meet the credit needs of its entire community, including low- and moderate-income neighborhoods, consistent with the safe and sound operation of an financial institution, is less than satisfactory; or, c. Any financial or other business arrangement, direct or indirect, involving the principal office or branch and insiders (directors, officers, employees, and shareholders owning or controlling, directly or indirectly, ten percent or more of the outstanding voting stock thereof) involves terms and conditions more favorable to the insiders than would be available in a comparable transaction with unrelated parties.
2. The location of a branch can be changed as follows:
a. A financial institution, without Banking Board approval, may relocate a branch not in excess of one-half mile from its approved location provided written notice is submitted to the Bank Commissioner at least thirty (30) days prior to relocation. The notice must include the new address of the branch and the effective date of the relocation.
b. A financial institution desiring to relocate a branch more than one-half mile from the approved location shall file an application with the Banking Board.
3. Application to change location of a branch shall be filed on a form approved by the Division of Banking.
C. Establishment of a Mobile Branch 1. Definitions For purposes of this section, the term mobile branch shall refer to a vehicle equipped and operated in such a manner as to permit employees or agents of the financial institution to conduct transactions pertaining to branching activities as defined pursuant to Section 11- 101-401, C.R.S. A messenger service established by the financial institution pursuant to Rule CB101.7(d) for the pickup and delivery of items pertaining to branching activities is considered a mobile branch. The other provisions of this Rule, except for Paragraph (B), shall be applicable to mobile branches.
2. A financial institution authorized to operate a mobile branch shall comply with the following limitations:
a. A financial institution may equip and utilize interchangeable vehicles in the operation of a single mobile branch, provided such vehicles are not operated simultaneously.
b. A monthly log shall be maintained for each mobile branch operated. Such log shall identify the routes traveled and the locations of stops made during the month. This information shall be made available to Division of Banking staff in the same manner as required by Paragraph (F) of this Rule.
c. Physical security devices reasonably designed to provide protection of assets and the physical safety of the mobile branch personnel and .customers shall be developed and implemented.
d. Surety bond coverage appropriate to the activities of the mobile branch shall be maintained.
e. A mobile branch shall only be operated at locations within the service area approved by the Banking Board.
f. A mobile branch shall not be operated in such a manner as to limit or exclude services to any class of customer within the approved service area.
D. Closing a Branch [Section 11-105-606, C.R.S.] Any financial institution that seeks to close a branch previously in operation shall notify the Banking Board in writing of its intention and its reasons for such action, and shall include with such notice a copy of “The Notice of Branch Closing” required to be filed with the appropriate federal regulatory agency. Such notice shall be received by the Banking Board ninety (90) days prior to the proposed closing. Such branch may be closed, unless the Banking Board or Bank Commissioner, within fifteen (15) days of receipt of such notification, gives written notification of objections and the grounds therefore to the financial institution or requests additional information. If the Banking Board or Bank Commissioner requests additional information, the above ninety (90) day period shall commence running upon receipt of such additional information.
E. Branch Hours of Operation A financial institution shall notify the Bank Commissioner of the hours during which a branch will be open for business and any changes thereto on or before the effective date of the hours of operation.
F. Branch Records Records of loans and deposits originating at a branch shall be made available to the Division of Banking staff at the principal office of the financial institution or such other central location as may be mutually agreed upon by the financial institution's management and the Bank Commissioner. A principal office is that office in this state which is designated as the principal office of the financial institution in its articles of incorporation and may also be known as a main office or a head office.
G. Notification of Conversion of an Affiliate or an Acquisition to a Branch Notice of intent to convert an affiliate or an acquisition to a branch shall be filed on the form provided by the Division of Banking.
H. Meaning of Control and Controlling For the purpose of Section 11-101-401, C.R.S., a financial institution shall be deemed to control an affiliate institution if the financial institution:
1. Directly or indirectly owns, controls, holds with power to vote, or holds proxies representing twenty-five percent or more of the outstanding voting stock thereof;
2. Controls in any manner the election of a majority of the directors thereof; or 3. Exercises a controlling influence over the management or policies thereof. CB101.55 Contractual Acceptance of Deposits [Section 11-105-604, C.R.S.] A. Board of Directors' Review and Approval The Board of Directors of a financial institution shall fully review all relevant issues involved in a contract pursuant to Section 11-105-604, C.R.S. (deposit contract). Review and approval shall be noted in the minutes.
B. Filing of Deposit Contract A financial institution that enters into a deposit contract must file with the State Bank Commissioner a copy of the deposit contract within thirty (30) days after its effective date.
C. Contents of Deposit Contract In addition to the terms that would be found in any contract, including, but not limited to, the names of the parties, purpose of the contract, place of performance, consideration, and term, the following provisions are required in a deposit contract:
1. Extension or amendment-The contract shall provide that notice be given to the State Bank Commissioner within thirty (30) days after any extension or amendment to the contract.
2. Termination-The contract shall provide that notice be given to the State Bank Commissioner within thirty (30) days after the termination of the agreement and shall provide for reasonable disclosure to the customer prior to termination.
D. Any deposit contract entered into pursuant to the provisions of Section 11-105-604, C.R.S. shall not constitute a branch.
CB101.56 Investment in Tax Lien Sale Certificates of Purchase [Section 11-105-302, C.R.S.] A. General Matters 1. Any institution desiring to invest in Tax Lien Sale Certificates of Purchase (TLSCP) must receive approval of the Banking Board prior to the commencement of the activity. The institution must file an application with the Banking Board on the form provided by the Division of Banking.
2. No institution that has a regulatory composite examination rating (CAMELS) of “4” or “5” from any regulator shall purchase TLSCPs. No institution that has a regulatory composite examination rating CAMELS of “3” from any regulator and that is subject to a memorandum of understanding, cease and desist order, or written agreement imposed by or entered into with any regulator of the institution shall purchase TLSCPs. In the event that a institution's CAMELS rating is reduced to a “4” or “5” or to a “3” subject to regulatory action, that institution shall make no additional purchases of TLSCPs except such endorsements to previously purchased TLSCPs as may be necessary to protect the institution's investment in TLSCP purchases made prior to the reduction in its CAMELS rating, or until such time as its CAMELS rating has been restored to “3” or better, and it otherwise qualifies to purchase TLSCPs.
3. Institutions that are approved to purchase TLSCPs shall be restricted to purchases of TLSCPs on property situated in the county in which that institution has its principal place of business, or situated in a contiguous county.
4. The purchase of TLSCPs shall be restricted to certificates arising from delinquent ad valorem taxes representing liens on 1-4 single family occupied residences or undeveloped residential lots in established subdivisions the improvements of which are maintained by the county in which they are situated.
5 The purchase of a TLSCP and related endorsements shall not be considered an investment in real estate for purposes of Section 11-105-304(9)(a), C.R.S. until such time as a treasurer's deed to the underlying property is issued to the institution.
B. Capital Restrictions 1. The aggregate value of TLSCPs and endorsements owned by an institution shall not exceed 15 percent of the institution's Tier 1 Capital plus its loan loss reserves.
2. The face value of TLSCPs (not including endorsements) purchased in any one year shall not exceed 6 percent of Tier 1 Capital plus loan loss reserves. This restriction will provide a cushion for endorsements of certificates in future periods.
3. At no time shall the face value of any TLSCP for a single property exceed one percent of the institution's Tier 1 Capital plus loan loss reserves.
4, The value of a TLSCP shall mean the redemption price of the original certificate and subsequent endorsements.
C. Due Diligence Must Be Exercised By The Purchasing Institution:
1. Prior to acquiring a TLSCP, institutions shall:
a. Obtain written owners and encumbrances report;
b. Make a physical inspection of the property;
c. Obtain photographs of the property; and d. Obtain a copy of the assessment card for the property as prepared by the county assessor's office.
2. Prior to making an endorsement of a TLSCP the institution shall update and review the property, including:
a. A written updated owners and encumbrances report;
b. Make a physical inspection of the property;
c. Obtain photographs of the property; and d. Obtain an updated copy of the assessment card for the property as prepared by the county tax assessor's office.
3. Prior to making an application for a treasurer's deed on a TLSCP, the institution shall update and review the property, including:
a. A written updated owners and encumbrances report;
b. Make a physical inspection of the property;
c. Obtain photographs of the property;
d. Obtain an updated copy of the assessment card for the property as prepared by the county tax assessor's office; and e. Evaluate any and all risks attendant with property ownership at the time including any potential environmental or hazardous material issues.
4. If at any stage of the above due diligence any unsafe or unsound risk is revealed, the institution shall not purchase, endorse, or apply for the deed.
5. The institution shall maintain records documenting its due diligence efforts for each TLSCP until such time as the underlying property is redeemed.
D. Regulatory Reporting 1. TLSCPs shall be included in the Report of Condition as “Other Assets” until such time as the treasurer's deed to the underlying property is issued to the institution.
2. TLSCPs shall be assigned to the 100 percent risk-weighted category for the calculation of risk- based capital pursuant to Banking Board Rule CB101.52.
CB101.57 Suspicious Activity Reports [Section 11-102-104, C.R.S.] A. A federally insured state chartered institution shall file with the State Bank Commissioner (Commissioner) a copy of the form filed to report apparent criminal violations, FFIEC Form- Suspicious Activity Report, with the U.S. Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) pursuant to 12 U.S.C. 324, 334, et. al. The form shall be filed with the Commissioner within three business days of the filing of said form with the FinCEN. The fact that a report is required by this Rule should not in any case deter the institution from first informing the Commissioner by telephone or other expeditious means of an apparent violation when such is deemed fitting.
B. Failure to comply with this Rule may result in a levy by the Banking Board of a penalty of up to $25.00 per day for each day the report is not filed.
C. 12 U.S.C. 324, 334 and 12 U.S.C. 93a are federal statutes granting authority to the Board of Governors of the Federal Reserve System and the Federal Deposit Insurance Corporation. This Rule does not include amendments to or editions of the referenced material later than the effective date of this Rule. For more detailed information pertaining to this Rule, please contact the Secretary to the Colorado State Banking Board at 1560 Broadway, Suite 1175, Denver, CO 80202, (303) 894-7584.
CB101.58 Investment in a Subsidiary [Section 11-105-304(7), C.R.S.] A. General Limitations A state bank may invest in a subsidiary corporation or limited liability company (LLC) that engages in activities in which the parent bank may engage, subject to the same limitations the parent bank would be subject to if it were engaged in the activity, provided that the parent bank holds at least an 80 percent ownership interest in the subsidiary corporation or LLC.
B. Additional Limitations The subsidiary of a state bank may invest in a subsidiary corporation or LLC at less than an 80 percent ownership level provided that each of the following conditions are met:
1. The activities of the subsidiary corporation or LLC in which the investment is made are limited to activities that are part of, or incidental to, the business of banking;
2. The bank is able to prevent the subsidiary corporation or LLC from engaging in activities that do not meet the foregoing standard;
3. The bank's loss exposure is limited, as both a legal and accounting matter, and the bank does not have open-ended liability for the obligations of the subsidiary corporation or LLC; and 4. The investment is convenient or useful to the bank in carrying out its business and not a mere passive investment unrelated to the bank's business.
CB101.59 Investment Powers [Section 11-105-304(7), C.R.S.] A. A state bank may make such investments, subject to such limitations, as a national bank can make pursuant to paragraph Seventh of 12 USC 24 and Part 1 of 12 CFR, Sections 1.3, 1.4, 1.5, 1.7, 1.8, 1.9, 1.10, and 1.11. These investment powers do not relate to underwriting or dealing in securities.
B. Reference: 12 USC 24 was enacted by the United States Congress and is administered by Comptroller of the Currency. 12 CFR 1 is issued and administered by the Comptroller of Currency under the general authority of the national banking laws, 12 USC 1 et seq. and under specific authority contained in paragraph Seventh of 12 USC 24.
C. This Rule does not include amendments to or editions of the referenced material later than the effective date of the Rule, May 21,1992.
D. For more detailed information pertaining to these provisions, please contact the secretary for the State Banking Board at 1560 Broadway, Suite 1175, Denver, Colorado 80202, (303) 894-7575. CB101.60 Investments in Community Development Projects [Sections 11-103-101 (4) and 11-105- 304(7), C.R.S.] A. Occasionally state banks are asked to contribute to a community development corporation wherein the bank will receive an equity interest in or evidence of debt that may have value in the future, but that is clearly not a bankable asset by ordinary standards. Such “investment” may be made and charged off as a contribution. If the bank wishes to carry the investment as an asset, the Division will treat it as permissible under Sections 11-103-101(4) and 11-105-304(7), C.R.S., provided, that the following conditions are met:
1. The project must be of a predominantly civic, community, or public nature and not merely private and entrepreneurial.
2. The bank's investment in any one project does not exceed 2 percent of its total capital, as defined in Banking Board Rule CB101.52, Paragraph (B)(30), and its aggregate investment in all such projects does not exceed 5 percent of its total capital.
3. Such investments are accounted for on the bank's books under “other assets.” 4. The project has received approval that it meets the above conditions from the Banking Board or the Office of the Comptroller of the Currency.
B. Certain institutions are prohibited from participating in this activity as follows:
1. No bank participating in the joint Federal Reserve Board-Federal Deposit Insurance Corporation-Office of the Comptroller of the Currency capital forbearance plan shall engage in such activity.
2. No bank that has a regulatory composite examination rating (CAMELS) of “4” or “5” from any regulator shall engage in such activity.
3. No bank that has a regulatory composite examination rating (CAMELS) of “3” from any regulator and that is subject to a memorandum of understanding, cease and desist order, written agreement imposed by or entered into with any regulator of the bank shall engage in such activity without the express written approval of the Banking Board. CB101.61 Appraisal of Other Real Estate [Section 11-105-401(1)(d), C.R.S.] A. The initial appraisal of Other Real Estate (ORE) shall be performed by a registered, licensed, or certified appraiser as defined in Section 12-61-706, C.R.S. However, if the asset has a current book value of $100,000 or less at the time the asset is classified as ORE, an analysis, evaluation, opinion, conclusion, notation, or compilation of data may be performed by an officer, director, or regular salaried employee of a financial institution who has not, directly or indirectly, participated in the lending transaction or by an officer, director, or regular salaried employee of its affiliate who has not, directly or indirectly, participated in the lending transaction.
B. Subsequent appraisals of an ORE asset with a book value of more than $100,000 shall be performed by a licensed or certified appraiser as defined in Section 12-61-706, C.R.S., according to the following schedule:
1. All financial institutions shall obtain subsequent appraisals of an ORE asset at intervals not to exceed twenty-four (24) months.
2. If such an appraiser, as defined in Section 12-61-706, C.R.S., or other person approved by the Banking Board certifies in writing that the fair market value has not declined, such appraiser's or other person's opinion may be substituted for a subsequent appraisal.
C. Reference: Sections 12-61-706 and 718(2), C.R.S., are laws enacted by the Legislature of the State of Colorado and administered by the Board of Real Estate Appraisers of the Colorado Department of Regulatory Agencies. This Rule does not include amendments to or editions of the referenced material later than July 30, 1993. For more detailed information pertaining to these provisions, please contact the Secretary to the Colorado State Banking Board at 1560 Broadway, Suite 1175, Denver, Colorado 80202, (303) 894-7584.
CB101.62 Pledging Assets [Section 11-102-104(5), C.R.S.] A. A state bank may, upon the deposit with it of any funds by a federally-recognized Indian Tribe, or any officer, employee or agent thereof in his or her official capacity, give security for the safekeeping and prompt payment of the funds so deposited by the deposit of United States bonds and other collateral eligible under Banking Board Rule PDP3 for pledging to protect public deposits.
B. A pledge of eligible collateral shall be evidenced by a security agreement which:
1. Is in writing;
2. Was executed by the bank and the Indian tribe contemporaneously with acquisition of the collateral;
3. Was approved by the bank's board of directors or loan committee (which approval is reflected in the official minutes of a meeting of the board or committee);
4. Has been an official record of the bank continuously from the time of execution. CB101.64 Lending Limits [Section 11-105-303, C.R.S.] A. Definitions For the purposes of this Rule:
1. “Borrower” means a person who is named as a borrower or debtor in a loan or extension of credit, or any other person, including a drawer, endorser, or guarantor, who is deemed to be a borrower under the “direct benefit” or “common enterprise” tests set forth in Paragraph (H)(2) and (3) of this Rule.
2. “Capital and surplus” means a bank's Tier 1 and Tier 2 capital included in the institution's risk- based capital; plus the balance of a bank's allowance for loan and lease losses not included in the bank's Tier 2 capital, for the purposes of calculating risk-based capital.
3. “Close of business” means the time at which a bank closes its accounting records for the business day.
4. “Consumer” means the user of any products, commodities, goods, or services, Whether leased or purchased, but does not include any person who purchases products or commodities for resale or fabrication into goods for sale.
5. “Consumer paper” means paper relating to automobiles, mobile homes, residences, office equipment, household items, tuition fees, insurance premium fees, and similar consumer items. Also included is paper covering the lease (where the bank is not the owner or lessor) or purchase of equipment for use in manufacturing, farming, construction, or excavation.
6. “Contractual commitment to advance funds” includes a bank's obligation to:
a. Make payment (directly or indirectly) to a third person contingent upon default by the bank's customer in the performance of an obligation under the terms of that customer's contract with the third person or upon some other stated condition;
b. Guarantee or act as a surety for the benefit of a person;
c. Advance funds under a qualifying commitment to lend, as defined in Paragraph (A)
d. Advance funds under a standby letter of credit, as defined in Paragraph (A)(18) of this Rule, a put, or other similar arrangement.
7. “Control” is presumed to exist when a person directly or indirectly, or acting through or together with one or more persons:
a. Owns, controls, or has the power to vote 25 percent of more of any class of voting securities of another person;
b. Controls, in any manner, the election of a majority of the directors, trustees, or other persons exercising similar functions of another person; or c. Has the power to exercise a controlling influence over the management or policies of another person.
8. “Current market value” means the bid or closing price listed for an item in a regularly published listing or an electronic reporting service.
9. “Financial instrument” means stocks, notes, bonds, and debentures traded on a national securities exchange, OTC margin stocks (as defined in Regulation U, 12 CFR part 221 of the Federal Reserve Board), commercial paper, negotiable certificates of deposit, bankers' acceptances, and shares in money market and mutual funds of the type that issue shares in which banks may perfect a security interest. Financial instruments may be denominated in foreign currencies that are freely convertible to U.S. dollars. The term “financial instrument” does not include mortgages.
10. “Loans and extensions of credit” means a bank's direct or indirect advance of funds to, or on behalf of, a borrower based on an obligation of the borrower to repay the funds, or repayable from specific property pledged by or on behalf of the borrower.
a. Loans and extensions of credit for the purposes of this Rule include:
b. The following items do not constitute loans or extensions of credit for the purposes of this Rule:
11. “Person” means an individual; sole proprietorship; partnership; joint venture; association; trust; estate; business trust; limited liability company; corporation; not-for-profit corporation; sovereign government or agency; instrumentality; or political subdivision thereof; or any similar entity or organization.
12. “Qualifying commitment to lend” means a legally binding written commitment to lend that, when combined with all other outstanding loans and qualifying commitments to a borrower, was within the bank's lending limit when entered into, and has not been disqualified.
a. In determining whether a commitment is within the bank's lending limit when made, the bank may deduct from the amount of the commitment the amount of any legally binding loan participation commitments that are issued concurrent with the bank's commitment and that would be excluded from the definition of “loan or extension of credit” under Paragraph (A)(10) of this Rule.
b. If the bank subsequently chooses to make an additional loan, and that subsequent loan, together with all outstanding loans and qualifying commitments to a borrower, exceeds the bank's applicable lending limit at that time, the bank's qualifying commitments to the borrower that exceed the bank's lending limit at that time are deemed to be permanently disqualified, beginning with the most recent qualifying commitment and proceeding in reverse chronological order. When a commitment is disqualified, the entire commitment is disqualified and the disqualified commitment is no longer considered a “loan or extension of credit.” Advances of funds under a disqualified or non-qualifying commitment may only be made to the extent that the advance, together with all other outstanding loans to the borrower, do not exceed the bank's lending limit at the time of the advance, calculated pursuant to Paragraph (G) of this Rule.
13. “Readily marketable collateral” means financial instruments and bullion that are salable under ordinary market conditions with reasonable promptness at a fair market value determined by quotations based on actual transactions on an auction or similarly available daily bid and ask price market.
14. “Readily marketable staple” means an article of commerce, agriculture, or industry, such as wheat and other grains, cotton, wool, and basic metals such as tin, copper and lead, in the form of standardized interchangeable units, that is easy to sell in a market with sufficiently frequent price quotations.
a. An article comes within this definition if:
b. Whether an article qualifies as a readily marketable staple depends upon existing conditions at the time the loan or extension of credit that is secured by the staple is made.
15. “Residential real estate loan” means a loan or extension of credit that is secured by 1-4 family residential real estate.
16. “Sale of federal funds” means any transaction between depository institutions involving the transfer .of immediately available funds resulting from credits to deposit balances at Federal Reserve Banks, or from credits to new or existing deposit balances due from a correspondent depository institution.
17. “Small business loan” means a loan or extension of credit secured by nonfarm nonresidential properties or a commercial or industrial loan as defined in the instructions for preparation of the Consolidated Report of Condition and Income.
18. “Standby letter of credit” means any letter of credit, or similar arrangement, that represents an obligation to the beneficiary on the part of the issuer to:
a. Repay money borrowed by or advanced to or for the account of the account party;
b. Make payment on account of any indebtedness undertaken by the account party; or c. Make payment on account of any default by the account party in the performance of an obligation.
B. General Limitations 1. A bank's total outstanding loans and extensions of credit to one borrower may not exceed 15 percent of the bank's capital and surplus, plus an additional 10 percent of the bank's capital and surplus, if the amount that exceeds the bank's 15 percent general limit is fully secured by readily marketable collateral as defined in Paragraph (A)(13) of this Rule. To qualify for the additional 10 percent limit, the bank must perfect a security interest in the collateral under applicable law and the collateral must have a current market value at all times of at least 100 percent of the amount of the loan or extension of credit that exceeds the bank's 15 percent general limit.
C. Additional Limitations The following loans or extensions of credit are subject to the lending limits set forth below. When loans and extensions of credit qualify for more than one additional lending limit, the additional limits are cumulative.
1. Loans secured by .bills of lading or warehouse receipts covering readily marketable staples as defined in Paragraph (A)(14) of this Rule.
a. A bank's loans or extensions of credit to one borrower secured by bills of lading, warehouse receipts, or similar documents transferring or securing title to readily marketable staples, may not exceed 35 percent of the bank's capital and surplus in addition to the amount allowed under the bank's general limit. The market value of the staples securing the loan must at all times equal at least 115 percent of the outstanding loan amount that exceeds the bank's general limit.
b. The staples must be nonperishable, may be refrigerated or frozen, and must be fully covered by insurance, if such insurance is customary. Whether a staple is non- perishable must be determined on a case-by-case basis because of differences in handling and storing commodities.
c. This additional limit applies to a loan or extension of credit arising from a single transaction or secured by the same staples, provided that the duration of the loan or extension of credit is:
d. The holder of the warehouse receipts, order bills of lading, documents qualifying as documents of title under the Uniform Commercial Code, or other similar documents, must have control and be able to obtain immediate possession of the staple so that the bank is able to sell the underlying staples and promptly transfer title and possession to a purchaser if default should occur on a loan secured by such documents. The existence of a brief notice period, or similar procedural requirements under applicable law, for the disposal of the collateral will not affect the eligibility of instruments for this additional limit.
2. Discount of installment consumer paper.
a. A bank's loans and extensions of credit to one borrower that arise from the discount of negotiable or nonnegotiable installment consumer paper, as defined in Paragraph (A)(5) of this Rule, that carries a full recourse endorsement or unconditional guarantee by the person selling the paper, may not exceed 10 percent of the bank's capital and surplus in addition to the amount allowed under the bank's general limit. An unconditional guarantee may be in the form of a repurchase agreement or separate guarantee agreement. A condition reasonably within the power of the bank to perform, such as the repossession of collateral, will not make conditional an otherwise unconditional guarantee.
b. Where the seller of the paper offers only partial recourse to the bank, the lending limits of this section apply to the obligation of the seller to the bank, which is measured by the total amount of paper the seller may be obligated to repurchase or has guaranteed.
c. Where the bank is relying primarily upon the maker of the paper for payment of the loans or extensions of credit and not upon any full or partial recourse endorsement or guarantee by the seller of the paper, the lending limits of this Rule apply only to the maker. The bank must substantiate its reliance on the maker with:
d. Where paper is purchased in substantial quantities, the records, evaluation, and certification must be in a form appropriate for the class and quantity of the paper involved. The bank may use sampling techniques, or other appropriate methods, to independently verify the reliability of the credit information supplied by the seller.
3. Loans secured by documents covering livestock.
a. A bank's loans or extensions of credit to one borrower secured by shipping documents or instruments that transfer or secure title to, or give a first lien on livestock, may not exceed 10 percent of the bank's capital and surplus in addition to the amount allowed under the bank's general limit. The market value of the livestock securing the loan must at all times equal at least 115 percent of the amount of the outstanding loan that exceeds the bank's general limit. For the purposes of this Rule, the term “livestock” includes dairy and beef cattle, hogs, sheep, goats, horses, mules, poultry, and fish, whether or not held for resale.
b. The bank must maintain in its files an inspection and valuation for the livestock pledged that is reasonably current, taking into account the nature and frequency of turnover of livestock to which the documents relate, but in any case not more than twelve (12) months old.
c. Under the laws of this state, persons furnishing pasturage under a grazing contract may have a lien on the livestock for the amount due for pasturage. If a lien that is based on pasturage furnished by the lienor prior to the bank's loan or extension of credit is assigned to the bank by a recordable instrument and protected against being defeated by some other lien or claim, by payment to a person other than the bank, or otherwise, it will qualify under this additional limit provided the amount of the perfected lien is at least equal to the amount of the loan, and the value of the livestock is at no time less than 115 percent of the portion of the loan or extension of credit that exceeds the bank's general limit. When the amount due under the grazing contract is dependent upon future performance, the resulting lien does not meet the requirements of the additional limit.
4. Loans secured by dairy cattle. A bank's loans and extensions of credit to one borrower that arise from the discount by dealers in dairy cattle of paper given in payment for the cattle, may not exceed 10 percent of the bank's capital and surplus in addition to the amount allowed under the bank's general limit. To qualify, the paper must:
a. Carry the full recourse endorsement or unconditional guarantee of the seller; and b. Be secured by the cattle being sold, pursuant to liens that allow the bank to maintain a perfected security interest in the cattle under applicable law.
5. Additional advances to complete project financing pursuant to renewal of a qualifying commitment to lend. A bank may renew a qualifying commitment to lend, as defined in Paragraph (A)(12) of this Rule, and complete funding under that commitment if all of the following criteria are met:
a. The completion of funding is consistent with safe and sound banking practices and is made to protect the position of the bank;
b. The completion of funding will enable the borrower to complete the project for which the qualifying commitment to lend was made; and c. The amount of the additional funding does not exceed the unfunded portion of the bank's qualifying commitment to lend.
D. Not Subject to Lending Limits 1. Loans arising from the discount of commercial or business paper.
a. Loans or extensions of credit arising from the discount of negotiable commercial or business paper that evidences an obligation to the person negotiating the paper. The paper must:
b. A failure to pay principal or interest on commercial or business paper when due does not result in a loan or extension of credit to the maker or endorser of the paper; however, the amount of such paper must thereafter be counted in determining whether additional loans or extensions of credit to the same borrower may be made within the limits of this Rule.
2. Banker acceptances. A bank's acceptance of drafts eligible for rediscount under 12 U.S.C. 372 and 373, or a bank's purchase of acceptances created by other banks that are eligible for rediscount under those sections; but not including:
a. A bank's acceptance of drafts ineligible for rediscount (which constitutes a loan by the bank to the customer for whom the acceptance was made, in the amount of the draft);
b. A bank's purchase of ineligible acceptances created by other banks (which constitutes a loan from the purchasing bank to the accepting bank, in the amount of the purchase price); and c. A bank's purchase of its own acceptances (which constitutes a loan to the bank's customer for whom the acceptance was made, in the amount of the purchase price).
3. Loans secured by U.S. obligations. Loans or extensions of credit, or portions thereof, to the extent fully secured by the current market value of:
a. Bonds, notes, certificates of indebtedness, or Treasury bills of the United States or by similar obligations fully guaranteed as to principal and interest by the United States;
b. Loans to the extent guaranteed as to repayment of principal by the full faith and credit of the U.S. government, as set forth in Paragraph (D)(4)(b) of this Rule;
c. To qualify under this paragraph, the bank must perfect a security interest in the collateral under applicable law.
4. Loans to or guaranteed by a federal agency.
a. Loans or extensions of credit to any department, agency, bureau, board, commission, or establishment of the United States, or any corporation wholly owned directly or indirectly by the United States.
b. Loans or extensions of credit, including portions thereof, to the extent secured by unconditional takeout commitments or guarantees of any of the foregoing governmental entities. The commitment or guarantee must:
5. Loans to or guaranteed by general obligations of a state or political subdivision.
a. A loan or extension of credit to a state or political subdivision that constitutes a general obligation of the state or political subdivision, and for which the lending bank has an opinion of counsel or the opinion of the state Attorney General, or other state legal official with authority to opine on the obligation in question, that the loan or extension of credit is a valid and enforceable general obligation of the borrower; and b. A loan or extension of credit, including portions thereof, to the extent guaranteed or secured by a general obligation of the state or political subdivision and for which the lending bank has an opinion of counsel or the opinion of the state Attorney General, or other state legal official with authority to opine on the guarantee or collateral in question, that the guarantee or collateral is a valid and enforceable general obligation of that public body.
6. Loans secured by segregated deposit accounts. Loans or extensions of credit, including portions thereof, to the extent secured by a segregated deposit account in the lending bank, provided a security interest in the deposit has been perfected under applicable law.
a. Where the deposit is eligible for withdrawal before the secured loan matures, the bank must establish internal procedures to prevent release of the security without the lending bank's prior consent.
b. A deposit that is denominated and payable in a currency other than that of the loan or extension of credit that it secures may be eligible for this exception if the currency is freely convertible to U.S. dollars.
7. Loans to financial institutions with the approval of the Banking Board.
a. Loans or extensions of credit to any financial institution or to any receiver, conservator, or other agent in charge of the business and property of a financial institution when an emergency situation exists and a bank is asked to provide assistance to another financial institution and the loan is approved by the Banking Board.
8. Loans to the Student Loan Marketing Association. Loans or extensions of credit to the Student Loan Marketing Association.
9. Loans to industrial development authorities. A loan or extension of credit to an industrial development authority or similar public entity created to construct and lease a plant facility, including a health care facility, to an industrial occupant will be deemed a loan to the lessee, provided that:
a. The bank evaluates the creditworthiness of the industrial occupant before the loan is extended to the authority;
b. The authority's liability with respect to the loan is limited solely to whatever interest it has in the particular facility;
c. The authority's interest is assigned to the bank as security for the loan, or the industrial occupant issues a promissory note to the bank that provides a higher order of security than the assignment of a lease; and d. The industrial occupant's lease rentals are assigned and paid directly to the bank.
10. Loans to leasing companies. A loan or extension of credit to a leasing company for the purpose of purchasing equipment for lease will be deemed a loan to the lessee, provided that:
a. The bank evaluates the creditworthiness of the lessee before the loan is extended to the leasing corporation;
b. The loan is without recourse to the leasing corporation;
c. The bank is given a security interest in the equipment and in the event of default may proceed directly against the equipment and the lessee for any deficiency resulting from the sale of the equipment;
d. The leasing corporation assigns all of its rights under the lease to the bank;
e. The lessee's lease payments are assigned and paid to the bank; and f. The lease terms are subject to the same limitations that would apply to a bank acting as a lessor.
E. Special Lending Authority 1. In addition to the general limitations set forth in Paragraph (B) of this Rule, a bank that has applied to the Division of Banking, and received approval from the Commissioner, to exercise special lending authority may make loans or extensions of credit in an amount up to 10 percent of its capital and surplus.
2. The total amount of a bank's loans and extensions of credit made pursuant to Paragraphs (B) and (E) of this rule shall not exceed 25 percent of the bank's capital and surplus.
3. The total outstanding amount of a bank's loans and extension of credit to all of its borrowers made pursuant to the special lending authority provided in this Paragraph (E) shall not exceed 150 percent of the bank's capital and surplus.
F. Application Process 1. A bank must submit an application to the Division of Banking and receive written approval from the Commissioner prior to using the special lending authority authorized in Paragraph (E) of this Rule.
2. The Commissioner will approve such requests for special lending authority upon receipt of a completed application and finding that such approval is consistent with safe and sound banking practices.
3. To be deemed complete, an application for special lending authority must include:
a. A copy of a written resolution by a majority of the bank's board of directors approving the use of the special lending limit in Paragraph (E) of this Rule and confirming the terms and conditions for use of the special lending authority;
b. A description of how the board will exercise its continuing responsibility to oversee the use of this special lending authority; and c. Confirmation that the bank is in compliance with the minimum capital standards set forth in Banking Board Rule CB101.51; that the bank is not operating under a formal or Informal enforcement or corrective action based on safety and soundness concerns; and that the bank's composite CAMELS rating, and the Capital, Asset Quality, and Management subcomponent ratings assigned at the most recent safety and soundness examination conducted by the Division of Banking, or the bank's primary federal regulator, are either “1” or “2.” 4. The Commissioner may rescind a bank's authority to use the special lending limits in Paragraph (E) of this Rule at any time, based upon concerns about the bank's overall credit risk management systems and controls, a decline in capital, or deterioration in the bank's composite or component ratings. The bank must cease making new loans or extensions of credit in reliance on the special limits upon receipt of such notice.
G. Calculation of Lending Limits 1. Calculation date. For purposes of determining compliance with this Rule, a bank shall calculate its lending limit as of the most recent of the following dates:
a. The last day of the preceding calendar quarter; or b. The date on which there is a change in the bank's capital category.
2. Effective date.
a. A bank's lending limit calculated in accordance with Paragraph (G)(1)(a) of this Rule will be effective as of the earlier of the following dates:
b. A bank's lending limit calculated in accordance with Paragraph (G)(1)(b) of this Rule will be effective on the date that the limit is to be calculated.
3. More frequent calculations. If the Banking Board determines for safety and soundness reasons that a bank should calculate its lending limit more frequently than required by Paragraph (G)(1) of this Rule, the Banking Board may provide written notice to the bank directing the bank to calculate its lending limit at a more frequent interval, and the bank will thereafter calculate its lending limit at that interval until further notice.
H. Combination Rules Combining Loans to Separate Borrowers 1. General rule. Loans or extensions of credit to one borrower will be attributed to another person and each person will be deemed a borrower when:
a. The proceeds of the loan or extension of credit are to be used for the direct benefit of the other person, to the extent of the proceeds so used; or b. A common enterprise is deemed to exist between the persons.
2. Direct benefit. The proceeds of a loan or extension of credit to a borrower will be deemed to be used for the direct benefit of another person and will be attributed to the other person when the proceeds, or assets purchased with the proceeds, are transferred to another person, other than in a bona fide arm's length transaction where the proceeds are used to acquire property, goods, or services.
3. Common enterprise. A common enterprise will be deemed to exist and loans to separate borrowers will be aggregated when:
a. The expected source of repayment for each loan or extension of credit is the same for each borrower and neither borrower has another source of income from which the loan (together with the borrower's other obligations) may be fully repaid. An employer will not be treated as a source of repayment under this Paragraph because of wages and salaries paid to an employee, unless the standards of Paragraph (H)(3)(b) of this Rule are met.
b. Loans or extensions of credit are made:
c. Separate persons borrow from a bank to acquire a business enterprise of which those borrowers will own more than 50 percent of the voting securities or voting interests, in which case a common enterprise is deemed to exist between the borrowers for purposes of combining the acquisition loan.
d. The Banking Board determines, based upon an evaluation of the facts and circumstances of particular transactions, that a common enterprise exits.
4. Special rules for loans to a corporate group.
a. Loans or extensions of credit by a bank to a corporate group may not exceed 50 percent of the bank's capital and surplus. This limitation applies only to loans subject to the combined general limit. A corporate group includes a person and all of its subsidiaries. For purposes of this Paragraph, a corporation or limited liability company is a subsidiary of a person if the person owns or beneficially owns, directly or indirectly, more than 50 percent of the voting securities or voting interests of the corporation or company.
b. Except as provided in Paragraph. (H)(4)(a) of this Rule, loans or extensions of credit to a person and its subsidiary, or to different subsidiaries of a person, are not combined unless either the common enterprise or direct benefit test is met.
5. Special rules for loans to partnerships, joint ventures, and associations.
a. Partnership loans. Loans or extensions of credit to a partnership, joint venture, or association are deemed to be loans or extensions of credit to each member of the partnership, joint venture, or association. This Rule is not applicable to limited partners in limited partnerships or to members of joint ventures or associations if the partners or members, by the terms of the partnership or membership agreement, are not held generally liable for the debts or actions of the partnership, joint venture, or association, and those provisions are valid under applicable law.
b. Loans to partners.
6. Loans to foreign governments, their agencies, and instrumentalities.
a. Aggregation. Loans and extensions of credit to foreign governments, their agencies, and instrumentalities will be aggregated with one another only if the loans or .extension of credit fail to meet either the means test or the purpose test at the time the loan or extension of credit is made:
b. Documentation. In order to show that the means and purpose tests have been satisfied, a bank must, at a minimum, retain in its files the following items:
7. Restructured loans.
a. Non-combination rule. Notwithstanding Paragraphs (H)(1) through (5) of this Rule, when previously outstanding loans and other extensions of credit to a foreign government, its agencies, and instrumentalities (i.e., public-sector obligors) that qualified for a separate lending limit under Paragraph (H)(6)(a) of this Rule are consolidated under a central obligor in a qualifying restructuring, such loans will not be combined and attributed to the central obligor. This includes any substitution in named obligors, solely because of the restructuring. Such loans (other than loans originally attributed to the central obligor in their own right) will not be considered obligations of the central obligor and will continue to be attributed to the original public-sector obligor for the purposes of the lending limit.
b. Qualifying restructuring, loans and other extensions of credit to a foreign government, its agencies, and instrumentalities will qualify for the non-combination process under Paragraph (H)(7)(a) of this Rule only if they are restructured in a sovereign debt restructuring approved by the Banking Board, upon request by a bank, for application of the non-combination rule. The factors that the Banking Board will use in making this determination include, but are not limited to, the following:
c. Fifty percent aggregate limit. With respect to any case in which the non-combination process under Paragraph (H)(7)(a) of this Rule applies, a bank's loans and other extensions of credit to a foreign government, its agencies, and instrumentalities (including restructured debt), shall not exceed, in the aggregate, 50 percent of the bank's capital and surplus.
I. Nonconforming Loans.
1. A loan, within a bank's legal limit when made, will not be deemed a violation but will be treated as nonconforming if the loan is no longer in conformity with the bank's lending limit because:
a. The bank's capita! has declined, borrowers have subsequently merged or formed a common enterprise, lenders have merged, the lending limit or capital rules have changed; or b. Collateral securing the loan to satisfy the requirements of a lending limit exception has declined in value.
2. A bank must use reasonable efforts to bring a loan that is nonconforming as a result of Paragraph (l)(1)(a) of this Rule into conformity with the bank's lending limit, unless to do so would be inconsistent with safe and sound banking practices.
3. A bank must bring a loan that is nonconforming as a result of circumstances described in Paragraph (l)(1)(b) of this Rule into conformity with the bank's lending limit within thirty (30) calendar days, except when judicial proceedings, regulatory actions, or other extraordinary circumstances beyond the bank's control prevent the bank from taking action.
J. Separate Limitations for Investment Securities.
1. A bank may make loans or extensions of credit to one borrower up to the full amount permitted by this Rule and also hold eligible investment securities of the same obligor up to the full, amount permitted by Banking Board Rule CB101.59. In order for a security to be an “investment security” it must be eligible for investment by a bank in accordance with the standards set forth in Banking Board Rule CB101.59.
K. Approval by Banking Board.
1. Upon application by an institution to the Banking Board, the Banking Board may allow an institution to exceed the lending limit for a specific loan or extension of credit if the institution proves that the loan or extension of credit will not adversely impact the safe and sound operations of the institution or the protection of the depositors. In making its decision, the Banking Board shall consider the quality of the loan or extension of credit and the benefit to the community of the loan or extension of credit.
2. The Banking Board shall also have the authority to determine when a loan putatively made to a person shall, for purposes of Paragraph (L) of this Rule, be attributed to another person.
L. Reference Regulation U, also known as 12 U.S.C. 221, is a law enacted by the United States Congress and administered by the Board of Governors of the Federal Reserve System. This Rule does not include amendments to or editions of the referenced material later than the effective date of the Rule, July 30,1998.
12 U.S.C. 372 is a law enacted by the United States Congress and administered by the Board of Governors of the Federal Reserve System. This Rule does not include amendments to or editions of the referenced material later than the effective date of the Rule, July 30, 1998. 12 U.S.C. 373 is a law enacted by the United States Congress and administered by the Board of Governors of the Federal Reserve System. This Rule does not include amendments to or editions of the referenced material later than the effective date of the Rule, July 30,1998. 12 C.F.R. 1.3 is a regulation issued and administered by the Comptroller of the Currency under the general authority of the national banking laws, 12 U.S.C. 1 et seq. and under specific authority contained in paragraph Seventh of 12 U.S.C. 24. This Rule does not include amendments to or editions of the referenced material later than the effective date of the Rule, July 30,1998.
For more detailed information pertaining to these provisions, please contact the Secretary to the Colorado State Banking Board at 1560 Broadway, Suite 1175, Denver Colorado 80202, (303) 894-7584.