(a) The concept of
an unsafe or unsound practice is one of general application which touches upon
the entire field of operations of an institution.
An unsafe or unsound practice encompasses any action or lack
of action, which is contrary to generally accepted standards of prudent
operation, the possible consequences of which, if continued, would result in
abnormal risk of loss or damage to an institution, its depositors, or its
shareholders. An activity not necessarily unsafe or unsound in every instance
may be so in a particular instance when considered in light of all relevant
facts pertaining to that situation.
(b) An unsafe or unsound practice can result
from either action or inaction by management. Although the law does not define
the term unsafe or unsound practice, the division has established examples of
such practices, some of which are listed below.
(c) Inaction by management which is deemed an
unsafe or unsound practice includes, but is not limited to:
(1) Failure to provide adequate supervision
and direction over officers of the institution;
(2) Failure to make provision for an adequate
reserve for possible loan losses;
(3) Failure to post the general ledger
promptly;
(4) Failure to keep
accurate books and records;
(5)
Failure to enforce programs for repayment of loans;
(6) Failure to obtain or maintain on the
premises evidence of priority of liens on loans secured by real estate;
or
(7) Failure to account properly
for transactions.
(d)
Action by management which is deemed an unsafe or unsound practice includes,
but is not limited to:
(1) Operating with an
inadequate level of capital for the kind and quality of assets held;
(2) Engaging in hazardous lending or lax
collection practices such as: extending credit which is inadequately secured,
extending credit without first obtaining complete and current financial
information, extending credit in the form of overdrafts without adequate
controls, and extending credit with inadequate diversification of
risk;
(3) Operating without
adequate liquidity, in light of the institution's asset and liability
mix;
(4) Operating without adequate
internal controls such as: failing to maintain controls on official checks and
unissued certificates of deposit, failing to segregate duties of institution
personnel, and failing to reconcile differences in correspondent bank
accounts;
(5) Engaging in
speculative or hazardous investment policies; or
(6) Paying excessive dividends in relation to
the institution's capital position, earnings capacity, and asset
quality.
Notes
Haw. Code R.
§
16-27-9
[Eff 8/13/87; am and
comp 1/27/01] (Auth: HRS §§
412:2-100,
412:2-107,
412:2-300,
412:2-301,
412:12-109,
412:13-224)
(Imp: HRS §§
412:2-100,
412:2-300,
412:2-301,
412:2-302,
412:2-306,
412:2-308,
412:2-311,
412:2-314,
412:2-315,
412:2-400,
412:12-109,
412:13-224,
412:13-228,
412:13-229,
412:13-230)
