CB1.20Decision 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.
CB101.42Loans [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 (B)(6) and (7) of this Rule), and land sales contracts.B. Other1. 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 that are: (1) Insured under the provisions of the National Housing Act, 12 USC 1701 et seq., administered by the Secretary of Housing and Urban Development;(2) Insured under the provisions of the Bankhead-Jones Farm Tenant Act, 7 USC 1000 et seq., administered by the Secretary of Agriculture, or under the Housing Act of August 28, 1937, 42 USC 1401 et seq., administered by the Department of Housing and Urban Development, or Title V of the Housing Act of 1949, 42 USC 1441 et seq., administered by the Department of Housing and Urban Development;(3) Guaranteed by the Secretary of Housing and Urban Development, for the payment of obligations of which the full faith and credit of the United States is pledged;(4) Fully guaranteed or insured by a state, any agency or instrumentality of a state, or by a state authority for the payment of obligations of which the full faith and credit of the state is pledged, if under the terms of the guaranty or insurance agreement the bank will be assured of repayment in accordance with the terms of the loan;(5) At least 20 percent guaranteed or insured under the provisions of the Servicemen's Readjustment Act, 38 USC 1801 et seq., administered by the Administrator of Veterans Affairs;(6) Guaranteed under section 802 of the Housing and Community Development Act, 42 USC 5301 et seq., administered by the Secretary of Housing and Urban Development;(7) Subject to a firm commitment to insure by a Government insuring agency. A firm commitment is a commitment in which a specific mortgagor is named; and(8) Loans in which the Small Business Administration cooperates through agreements to participate on an immediate or deferred or guaranteed basis under the Small Business Act, 15 USC 631 et seq., administered by the Small Business Administration.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 lien 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.C. 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 Colorado State Banking Board at 1560 Broadway, Suite 1175, Denver, Colorado 80202, 303 894-7584.
CB101.49Scope 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, at 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; and7. 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 the report, the engagement letter, and any management letter or similar letter of recommendation 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 371c, 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 Colorado State Banking Board at 1560 Broadway, Suite 975, Denver, CO 80202, 303-894-7575.
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 that 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 loan;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: (1) An identification or grouping of loans that warrant the special attention of management;(2) For each loan identified, a statement or indication of the reason(s) why the particular loan merits special attention; and(3) A mechanism for reporting periodically to the board on the status of each loan identified and the action(s) taken by management.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.); ands. 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; ande. Who is responsible to collect the note in the event of default9. 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 institution 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: (1) Determining the stated interest rate and appropriate treatment of origination fees and costs;(2) Testing receipt of payments and correctness of entries to applicable general ledger accounts;(3) Calculating accrued interest and comparing it to the trial balance; and(4) Reviewing recorded book value for appropriate accretion of discount (net origination fees) and amortization of premium (net origination costs); andf. Performing an analytical review of yields on each major category of loans for reasonableness.B. Allowance for Credit 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 credit 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; andh. 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 the 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;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; andj. 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: d. Par value, or number of shares;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 that 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 the 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:(1) Determining the stated interest rate and most recent interest payment date of coupon instruments by reference to sources of such information that are independent of the institution;(2) Testing timely receipt of interest payments and correctness of entries to applicable general ledger accounts;(3) Calculating accrued interest and comparing it to the trial balance; and(4) Reviewing recorded book value for appropriate accretion of discount and amortization of premium; andf. 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; ande. Determining that the sales 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 a 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 verify 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; andd. 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; andc. 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:b. Determining whether items are followed up on and appropriately resolved on a timely basis; andc. 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 Controls1. 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:(1) A contingency plan for continuation of operations and recovery when power outages, natural disasters, or other threats could cause disruption and/or major damage to the institution's data processing support, including compatibility of servicer's plan with that of the institution;(2) Requirements for EDP-related insurance coverage that include the following provisions: (a) Extended blanket bond fidelity coverage to employees of the institution or servicer;(b) Insurance on documents in transit, including cash letters; and(c) Verification of the insurance coverage of the institution or service bureau and the courier service;(3) Review of exception reports and adjusting entries approved by supervisors and/or officers;(4) Controls for input preparation and control and output verification and distribution;(5) "Back-up" of all systems, including off-premises rotation of files and programs;(6) Security to ensure integrity of data and system modifications; and(7) Necessary detail to ensure an audit trail.b. When an outside service center is employed, the policies and procedures should address the following additional items:(1) The requirement for a written contract for each automated application detailing ownership and confidentiality of files and programs, fee structure, termination agreement, and liability for documents in transit;(2) Review of each contract by legal counsel; and(3) Review of each third party review of the service bureau, if any.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:(1) Off-premises storage of master disks and PC disks;(2) Security of the data center and the institution's PCs; and(3) Use and periodic changing of passwords.3. With respect to EDP applications controls, inquire about and observe:a. The controls over:(1) Input submitted for processing;(2) Processing transactions;(4) Applications on PCs; and(5) Telecommunications both between and within institution offices.b. The security over unissued or blank supplies of potentially negotiable items; andc. The control procedures on wire transfers including:(1) Authorizations and agreements with customers, including who may initiate transactions;(2) Limits on transactions; and(3) Call back procedures.G. Trust Function1. 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 that sufficient guidelines are established to meet fiduciary responsibilities and to comply with applicable laws. Policies should include:(2) Closed account review;(5) Discretionary distributions;(6) Conflicts of interest; and(7) Other as needed for scope of fiduciary activities.c. Ascertain the qualifications of the staff and of 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 separately 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:(5) Each type of investment, such as stock, bonds, real estate loans and real estate; and(6) Investments by issuer.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. (1) Stock, obligations, repurchase agreements, or deposit accounts with the institution, its affiliates or other related organizations in which there exists such an interest that might affect the best judgment of the institution.(2) Obligations of directors, officers and employees of the institution, its holding company or affiliates or other entities with whom there exists a connection that might affect the exercise of the best judgment of the institution.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. Verify and review 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:(1) Determine that the original or authenticated copy of the governing instrument is on file;(2) Determine that synoptic and history records are current, reliable and comprehensive;(3) Determine that accounts are administered and invested in conformance with management policies, governing instruments, laws, regulations and sound fiduciary principles;(4) Determine that the minutes of the board of directors and committee meetings document the review of trust company activities; significant practices for the board of directors' review include the acceptance of new accounts, the closing of accounts and the review of discretionary payments of principal or income; and(5) Test the accuracy of account statements submitted to beneficiaries.CB101.52Capital Standards [Section 11-103-201, C.R.S.]A. Incorporation by Reference Code of Federal Regulations Title 12 - Banks and Banking Chapter II - Federal Reserve System Subchapter A - Board of Governors of the Federal Reserve System Part 217 Capital Adequacy of Bank Holding Companies, Savings and Loan Holding Companies, and State Member Banks (Regulation Q) ("12 CFR 217 FRB"), as effective on April 10, 2023 is hereby incorporated by reference. No later amendment or edition of 12 CFR 217 FRB is incorporated into this Section CB101.52. All referenced laws and regulation shall be available for copying or public inspection during regular business hours from the Division of Banking, Department of Regulatory Agencies, 1560 Broadway, Suite 975, Denver, CO 80202. The Division of Banking will provide a certified copy of the material incorporated at cost or will provide the requester with information on how to obtain a certified copy. 12 CFR 217 FRB is also available at: https://banking.colorado.gov/banking-home/rules-statutes.
Code of Federal Regulations Title 12 - Banks and Banking Chapter II - Federal Reserve System Subchapter A - Board of Governors of the Federal Reserve System Part 208-Membership of State Banking Institutions in the Federal Reserve System (Regulation H) ("Prompt Corrective Action-FRB") as effective on April 10, 2023 is hereby incorporated by reference. No later amendment or edition of Prompt Corrective Action-FRB is incorporated into this Section CB101.52. All referenced laws and regulation shall be available for copying or public inspection during regular business hours from the Division of Banking, Department of Regulatory Agencies, 1560 Broadway, Suite 975, Denver, CO 80202. The Division of Banking will provide a certified copy of the material incorporated at cost or will provide the requester with information on how to obtain a certified copy. 12 CFR 217 FRB is also available at: https://banking.colorado.gov/banking-home/rules-statutes.
Code of Federal Regulations Title 12 - Banks and Banking Chapter III - Federal Deposit Insurance Corporation Subchapter B - Regulations and Statements of General Policy Part 324 Capital Adequacy of FDIC-Supervised Institutions, which includes Subpart H Prompt Corrective Action ("12 CFR 324 FDIC") as effective on April 10, 2023 is hereby incorporated by reference. No later amendment or edition of 12 CFR 324 FDIC is incorporated into this Section CB101.52. All referenced laws and regulation shall be available for copying or public inspection during regular business hours from the Division of Banking, Department of Regulatory Agencies, 1560 Broadway, Suite 975, Denver, CO 80202. The Division of Banking will provide a certified copy of the material incorporated at cost or will provide the requester with information on how to obtain a certified copy. 12 CFR 324 FDIC is also available at: https://banking.colorado.gov/banking-home/rules-statutes.
APPENDIX A
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: (1) Ten percent of more of total assets as reported in the most recent Call Report; or(2) One billon dollars or more. 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. Asset-backed commercial paper liquidity facilities, in form or in substance, in an institution's trading account are excluded from covered positions, and instead, are subject to the risk-based capital requirements as provided in this Rule. (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 or remain 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 pursuant to Paragraph (D) of this Appendix.C. Adjustments to the Risk-Based Capital Ratio Calculations1. 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. (1) Covered positions. Calculate adjusted risk-weighted assets, which equals risk-weighted assets (as calculated pursuant to this Rule), excluding the risk-weighted amounts of all covered positions (except foreign exchange positions outside the trading account and over-the-counter derivative positions). (Foreign exchange positions outside the trading account and all over-the-counter derivative positions, whether or not in the trading account, must be included in adjusted risk-weighted assets).(2) Securities borrowing transactions. In calculating adjusted risk-weighted assets, an institution also may exclude a receivable that results from the institution's posting of cash collateral in a securities borrowing transaction to the extent that the receivable is collateralized by the market value of the borrowed securities and is subject to the following conditions:(a) The borrowed securities must be includable in the trading account and must be liquid and readily marketable;(b) The borrowed securities must be marked to market daily;(c) The receivable must be subject to a daily margining requirement; and(d) The securities borrowing transaction must be a securities contract for purposes of section 555 of the Bankruptcy Code, a qualified financial contract for purposes of section 11(e)(8) of the Federal Deposit Insurance Act, or a netting contract between or among financial institutions, for purposes of section 401-407 of the Federal Deposit Insurance Corporation Improvement Act of 1991 or Regulation EE.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). (1) VAR-based capital charge. The VAR-based capital charge equals the higher of: (a) The previous day's VAR measure; or(b) The average of the daily VAR measures for each of the preceding sixty (60) business days multiplied by three, except as provided in Paragraph (D)(5) of this Appendix;(2) Specific risk add-on. The specific risk add-on is calculated pursuant to Paragraph (E) of this Appendix; and(3) Capital charge for de minimus exposure. The capital charge for de minimus exposure is calculated pursuant to Paragraph (D)(1) of this Appendix.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. (1) The sum of Tier 2 capital (both allocated and excess) and Tier 3 capital (allocated in Paragraph (C)(2)(b) of this Appendix) may not exceed 100 percent of Tier 1 capital (both allocated and excess). (Excess Tier 1 capital means Tier 1 capital that has not been allocated in Paragraphs (C)(2)(a) and (b) of this Appendix. Excess Tier 2 capital means Tier 2 capital that has not been allocated in Paragraphs (C)(2)(a) and (b) of this Appendix, subject to the restrictions in Paragraph (C)(2)(c) of this Appendix.)
(2) Term subordinated debt (and intermediate-term preferred stock and related surplus) included in Tier 2 capital (both allocated and excess) may not exceed 50 percent of Tier 1 capital (both allocated and excess).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)(b) of this Appendix). The resulting sum is the institution's risk-based capital ratio numerator.D. Internal Models1. General. For risk-based capital purposes, an institution subject to this Appendix must use its internal model to measure its daily VAR, pursuant to 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. (Stress tests provide information about the impact of adverse market events on an institution's covered positions. Backtests provide information about the accuracy of an internal model by comparing an institution's daily VAR measures to its corresponding daily trading profits and losses.)
d. The institution must conduct independent reviews 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 1
MULTIPLICATION FACTOR BASED ON RESULTS OF BACKTESTING
Number of Exceptions | Multiplication Factor |
4 or Fewer | 3.00 |
5 | 3.40 |
6 | 3.50 |
7 | 3.65 |
8 | 3.75 |
9 | 3.85 |
10 or More | 4.00 |
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 specific risk surcharge as follows:a. Internal models that incorporate specific risk. (1) No specific risk surcharge required for qualifying internal models. An institution that incorporates specific risk in its internal model has no specific risk surcharge for purposes of Paragraph (C)(1)(b)(2) of this Appendix if the institution demonstrates to the Banking Board that its internal model adequately measures all aspects of specific risk, including default and event risk, of covered debt and equity positions. In evaluating an institution's internal model, the Banking Board will take into account the extent to which the internal model: (a) Explains the historical price variation in the trading portfolio; and(b) Captures concentrations.(2) Specific risk surcharge for modeled specific risk that fails to adequately measure default or event risk. An institution that incorporates specific risk in its internal model but fails to demonstrate that its internal model adequately measures all aspects of specific risk, including default and event risk, as provided by Paragraph (E)(1)(a) of this Appendix, must calculate its specific risk surcharge pursuant to one of the following methods:(a) If the institution's internal model separates the VAR measure into a specific risk portion and a general market risk portion, then the specific risk surcharge equals the previous day's specific risk portion.(b) If the institution's internal model does not separate the VAR measure into a specific risk portion and a general market risk portion, then the specific risk surcharge equals the sum of the previous day's VAR measure for subport folios of covered debt and equity positions.b. Specific risk surcharge for specific risk not modeled. If an institution does not model specific risk pursuant to Paragraph (E)(1)(a) of this Appendix, then the institution shall calculate its specific risk surcharge using the standard specific risk capital charge pursuant to 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 (1) For the purposes of Paragraph (E) of this Appendix, covered debt positions means fixed-rate or floating-rate debt instruments located in the trading account and instruments located in the trading account with values that react primarily to changes in interest rates, including certain non-convertible preferred stock, convertible bonds, and instruments subject to repurchase and lending agreements. Also included are derivatives (including written and purchased options) for which the underlying instrument is a covered debt instrument that is subject to a non-zero specific risk capital charge.(a) For covered debt positions that are derivatives, an institution must risk-weight (as described in Paragraph (E)(3)(a)(3) of this Appendix) the market value of the effective notional amount of the underlying debt instrument or index portfolio. Swaps must be included as the notional position in the underlying debt instrument or index portfolio, with a receiving side treated as a long position and a paying side treated as a short position; and(b) For covered debt positions that are options, whether long or short, an institution must risk-weight (as described in Paragraph (E)(3)(a)(3) of this Appendix) the market value of the effective notional amount of the underlying debt instrument or index multiplied by the option's delta.(2) An institution may net long and short covered debt positions (including derivatives) in identical debt issues or indices.(3) An institution must multiply the absolute value of the current market value of each net long or short covered debt position by the appropriate specific risk weighting factor indicated in Table 2 of this Appendix. The specific risk capital charge component for covered debt positions is the sum of the weighted values.: TABLE 2
SPECIFIC RISK WEIGHTING FACTORS FOR COVERED DEBT POSITIONS
Category | Remaining Maturity (Contractual) | Weighting Factor (In Percent) |
Government1 | N/A | 0.00 |
Qualifying2 | 6 Months or Less | 0.25 |
Over 6 Months to 24 Months | 1.00 |
Over 24 Months | 1.60 |
Other3 | N/A | 8.00 |
1 The "government" category includes all debt instruments of central governments of OECD countries (as defined in Paragraph (B)(24) of this Rule) including bonds, Treasury bills, and other short-term instruments, as well as local currency instruments of non-OECD central governments to the extent the institution has liabilities booked in that currency.2 The "qualifying" category includes debt instruments of United States Government-sponsored agencies (as defined in Paragraph (B)(36) of this Rule), general obligation debt instruments issued by states and other political subdivisions of OECD countries, multilateral development banks, and debt instruments issued by United States depository institutions or OECD-banks that do not qualify as capital of the issuing institution. This category also includes other debt instruments, including corporate debt and revenue instruments issued by states and other political subdivisions of OECD countries that are:a. Rated investment grade by at least two nationally recognized credit rating services;b. Rated investment grade by one nationally recognized credit rating agency and not rated less than investment-grade by any other credit rating agency; orc. Unrated, but deemed to be of comparable investment quality by the reporting institution and the issuer has instruments listed on a recognized stock exchange, subject to review by the Banking Board.3 The "other" category includes debt instruments that are not included in the government or qualifying categories.b. Covered equity positions (1) For the purposes of this Paragraph (E) of this Appendix, covered equity positions means equity instruments located in the trading account and instruments located in the trading account with values that react primarily to changes in equity prices, including voting or non-voting common stock, certain convertible bonds, and commitments to buy or sell equity instruments. Also included are derivatives (including written and purchased options) for which the underlying is a covered equity position. (a) For covered equity positions that are derivatives, an institution must risk weight (as described in Paragraph (E)(3)(b)(3) of this Appendix) the market value of the effective notional amount of the underlying equity instrument or equity portfolio. Swaps must be included as the notional position in the underlying equity instrument or index portfolio, with a receiving side treated as a long position and a paying side treated as a short position; and(b) For covered equity positions that are options, whether long or short, an institution must risk weight (as described in Paragraph (E)(3)(b)(3) of this Appendix) the market value of the effective notional amount of the underlying equity instrument or index multiplied by the option's delta.(2) An institution may net long and short covered equity positions (including derivatives) in identical equity issues or equity indices in the same market. (An institution may also net positions in depository receipts against an opposite position in the underlying equity or identical equity in different markets, provided that the institution includes the costs of conversion.)
(3)(a) An institution must multiply the absolute value of the current market value of each net long or short covered equity position by a risk weighting factor of 8.0 percent, or by 4.0 percent if the equity is held in a portfolio that is both liquid and well-diversified. For covered equity positions that are index contracts comprising a well-diversified portfolio of equity instruments, the net long or short position is multiplied by a risk weighting factor of 2.0 percent. (A portfolio is liquid and well-diversified if:
(1) It is characterized by a limited sensitivity to price changes of any single equity issue or closely related group of equity issues held in the portfolio;(2) The volatility of the portfolio's value is not dominated by the volatility of any individual equity issue or by equity issues from any single industry or economic sector;(3) It contains a large number of individual equity positions, with no single position representing a substantial portion of the portfolio's total market value; and(4) It consists mainly of issues traded on organized exchanges or in well-established over-the-counter markets.)(b) For covered equity positions from the following futures-related arbitrage strategies, an institution may apply a 2.0 percent risk weighting factor to one side (long or short) of each position with the opposite side exempt from charge: (i) Long and short positions in exactly the same index at different dates or in different market centers; or(ii) Long and short positions in index contracts at the same date in different but similar indices.(c) For futures contracts on broadly-based indices that are matched by offsetting positions in a basket of stocks comprising the index, an institution may apply a 2.0 percent risk weighting factor to the futures and stock basket positions (long and short), provided that such trades are deliberately entered into and separately controlled, and that the basket of stocks comprises at least 90 percent of the capitalization of the index.(4) The specific risk capital charge component for covered equity positions is the sum of the weighted values.F. The Banking Board reserves the authority to modify the application of any provisions in this Appendix to any institution, upon reasonable justification.
CB101.54Branching 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. Any bank, no matter the location of its principal place of business, upon thirty (30) days' prior written notice to the Banking Board or the Commissioner, may establish one or more de novo branches anywhere in this or any other state.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 Branch1. Definitions For purposes of this Rule, 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 Banking Board 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 for the 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 that 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; or3. Exercises a controlling influence over the management or policies thereof.CB101.55Contractual 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.CB101.65Marketing Nontraditional Mortgage Loans [Section 11-102-106, C.R.S.]A. Applicability This rule applies only to nontraditional mortgage loans, as defined in Section C.2 below, made to individual borrowers for the purchase or refinancing of residential property.
B. Purpose The Colorado State Banking Board finds that when promoting or describing nontraditional mortgage products, banks should provide consumers with information that is designed to help them make informed decisions when selecting and using these products.
C. Definitions For the purpose of this Rule:
1. "Interest Only Mortgage Loan" means a nontraditional mortgage on which, for a specified number of years the borrower is required to pay only the interest due on the loan, during which time, the rate may fluctuate or may be fixed. After the interest-only period, the rate may be fixed or fluctuate, based on the prescribed index, and payments include both principal and interest.2. "Nontraditional Mortgage" means any residential mortgage loan product that allows the borrower to defer repayment of principal and/or interest. This includes, without limitation, all interest-only residential mortgage products, payment option adjustable rate mortgages, and negative amortization mortgages, with the exception of a reverse mortgage and home equity line of credit, other than a simultaneous second-lien loan. Nontraditional mortgages do not include temporary loans or construction loans.3. "Simultaneous Second-Lien Loan" means a lending arrangement where either a closed-end second-lien or a home equity line of credit is originated simultaneously with the first lien mortgage loan, typically in lieu of a higher down payment.4. "Payment Option ARM" means a nontraditional adjustable rate mortgage that allows the borrower to choose from a number of different payment options. For example, Payment Option ARMs include, without limitation, loans whereby, each month, the borrower may choose a minimum payment option based on a "start" or introductory interest rate, an interest-only payment option based on the fully indexed interest rate, or a fully amortizing principal and interest payment option based on a 15-year or 30-year loan term, plus any required escrow payments. The minimum payment option can be less than the interest accruing on the loan, resulting in negative amortization. The interest-only option avoids negative amortization but does not provide for principal amortization. After a specified number of years, or if the loan reaches a certain negative amortization cap, the required monthly payment amount is recast to require payments that will fully amortize the outstanding balance over the remaining loan term.5. "Reduced Documentation" means a loan feature that is commonly referred to as "low doc/no doc," "no income/no asset," "stated income," or "stated assets." For mortgage loans with this feature, however designated, an institution sets reduced or minimal documentation standards to substantiate the borrower's income and assets.D. Communications with Consumers 1. Promotional materials and other product descriptions must include information about the costs, terms, features, and risks of nontraditional mortgages that can assist consumers in their product selection decisions, including, as applicable, information on the following: a. Payment Shock - Banks should apprise consumers of potential increases in payment obligations for these products, including circumstances in which interest rates or negative amortization reach a contractual limit. For example, product descriptions shall, when appropriate, state the maximum monthly payment a consumer would be required to pay under a hypothetical loan example, after amortizing payments are required and the interest rate and negative amortization caps have been reached. Such information also should describe when structural payment changes will occur, and what the new payment amount would be, or how it would be calculated. If applicable, such descriptions shall indicate that a higher payment may be required at other points in time due to factors such as negative amortization or increases in the interest rate index.b. Negative Amortization - When negative amortization is possible under the terms of a nontraditional mortgage product, consumers shall be informed of the potential for increasing principal balances and decreasing home equity, as well as other potential adverse consequences of negative amortization. For example, product descriptions shall disclose the effect of negative amortization on loan balances and home equity, and describe the potential consequences to the consumer of making minimum payments that cause the loan to negatively amortize. (One possible consequence is that it could be more difficult to refinance the loan or to obtain cash upon sale of the home).c. Prepayment Penalties - If the loan documents allow a bank to impose a penalty in the event that the consumer prepays the mortgage, consumers shall be informed to this fact and that they may ask the lender about the amount of any such penalty.d. Cost of Reduced Documentation Loans - If a bank offers both reduced and full documentation loan programs, and there is a pricing premium attached to the reduced documentation program, consumers should be advised of the cost differential.2. Promotional materials and other product descriptions outlined under Paragraph (C)(1) of this Rule shall be designed to reasonably:a. Focus on information important to consumer decision making;b. Highlight key information so that it will be noticed;c. Employ a user-friendly and readily navigable format for presenting the information;d. Use plain language, with concrete and realistic examples.3. Banks shall provide consumers with information at a time and in a manner that will help consumers select products and choose among payment options. For example, institutions should offer clear and balanced product descriptions when a consumer is shopping for a mortgage - such as when the consumer makes an inquiry to the institution about a mortgage product and receives information about nontraditional mortgage products, or when marketing relating to nontraditional mortgage products is provided by the institution to the consumer - not just upon the submission of an application or at consummation.4. When advertising nontraditional mortgages through certain forms of media, such as radio, television, or billboards, banks shall provide clear and balanced information about the risks of these products, to the extent reasonably practical.E. Monthly Statements on Payment Option ARMs Monthly statements that are provided to consumers on payment option ARMs shall provide sufficient information to allow consumers to make informed payment choices, including an explanation of each payment option available and the impact of that choice on loan balances. For example, the monthly payment statement shall contain an explanation, as applicable, next to the minimum payment amount, that making this payment would result in an increase to the consumer's outstanding loan balance. Payment statements also shall provide the consumer's current loan balance, what portion of the consumer's previous payment was allocated to principal and to interest, and, if applicable, the amount by which the principal balance increased.
F. Practices to Avoid 1. Banks shall not present information regarding nontraditional loans in a manner that obscures significant risks to the consumer. For example, if a bank advertises or promotes a nontraditional mortgage by emphasizing the comparatively lower initial payments permitted for these loans, the institution must also provide clear and equally prominent information alerting the consumer to the risks. Such information should explain, as relevant, that these payment amounts will increase, that a balloon payment may be due, and that the loan balance will not decrease and may even increase due to the deferral of interest and/or principal payments.2. Banks shall not advertise payment patterns that are structurally unlikely under the terms of a loan and shall avoid such practices as: giving consumers unwarranted assurances or predictions about the future direction of interest rates (and, consequently, the borrower's future obligations); making representations about the cash savings or expanded buying power to be realized from nontraditional mortgage products without stating the risks associated with nontraditional mortgages; suggesting that initial minimum payments in a payment option ARM will cover accrued interest (or principal and interest) charges; and making misleading claims that interest rates or payment obligations for these products are "fixed."3. Banks shall not recommend that ARM borrowers select a nonamortizing or negatively-amortizing payment (for example, through the format or content of monthly statements).G. Control Systems 1. Banks offering nontraditional mortgage products shall develop and use control systems reasonably designed to monitor whether actual practices are consistent with applicable policies and procedures. Such control systems shall address compliance and consumer information concerns as well as safety and soundness considerations. Lending personnel shall be trained so that they are able to convey information to consumers about product terms and risks in a timely, accurate, and balanced manner. As products evolve and new products are introduced, lending personnel shall receive additional training, as necessary, to continue to be able to convey information to consumers in this manner. Lending personnel shall be monitored to determine whether they are following these policies and procedures. Banks shall review consumer complaints to identify potential compliance, reputation, and other risks. Banks shall obtain legal review of nontraditional loan procedures as necessary. Banks shall not use compensation programs that compensate lending personnel for directing consumers to nontraditional mortgages.2. If a bank utilizes a third party, such as a mortgage broker, correspondent, or other intermediary, to originate, purchase, or service nontraditional mortgage loans, or if a bank serves as an agent for a third party mortgage lender, the bank shall implement appropriate measures to mitigate risks relating to compliance with this regulation, and all other applicable state and federal laws and regulations. Such measures shall include, but are not limited to: a. Conducting due diligence procedures for reviewing the knowledge and trustworthiness of the third party, and establishing criteria for entering into and maintaining relationships with such third parties;b. Establishing criteria for third-party compensation, which may not include origination incentives that are inconsistent with this Rule;c. Setting the terms for agreements with such third parties,d. Establishing procedures and systems to monitor compliance with applicable agreements, bank policies, and laws, ande. Implementing appropriate corrective actions in the event that the third party fails to comply with applicable agreements, bank policies, or laws.H. Illustrations In complying with the provisions of this Rule, banks may utilize the sample illustrations included in the "Illustrations of Consumer Information for Nontraditional Mortgage Products" issued by the Office of the Controller of the Currency, Treasury; Board of Governors of the Federal Reserve System; Federal Deposit Insurance Corporation; Office of Thrift Supervision, Treasury; and National Credit Union Administration on June 8, 2007, as such publication may be amended. Banks may provide information included in the sample illustrations, and expand, abbreviate, or otherwise tailor the material to the specific products offered by the bank, or provide the information required by this Rule in a format developed by the bank, or utilize other disclosures developed or published by the federal banking agencies for consumer use that contains similar information.
I. References 1. "Interagency Guidance on Nontraditional Mortgage Products Risks" refers to guidance issued by the Office of the Comptroller of the Currency, Treasury; Board of Governors of the Federal Reserve System; Federal Deposit Insurance Corporation; Office of Thrift Supervision, Treasury; and National Credit Union Administration. The interagency guidance was published in the Federal Register on October 4, 2006.2. "Illustrations of Consumer Information for Nontraditional Mortgage Products" refers to guidance illustrations issued by the above referenced agencies. The guidance illustrations were published in the Federal Register on June 8, 2007.3. Copies of the above referenced interagency guidance and illustrations may be examined at any State Publications Depository.4. For more detailed information pertaining to these provisions, please contact the Secretary to the Colorado State Banking Board at banking@dora.state.co.us or (303) 894-7584.