HAR §16-27-9. Unsafe or unsound practice

(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; 27-4 §16-27-10 (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. [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)