November 19, 2009

STATE BANKING BOARD
RULE PDP5
PERTAINING TO TITLE 11, ARTICLE 10.5, SECTION 107
COLORADO REVISED STATUTES

STATEMENT OF BASIS, PURPOSE AND SPECIFIC AUTHORITY

Statutory Basis

The amendment of Banking Board Rule PDP5 is necessary to ensure conformance of the Rule to Section 11-10.5-107, C.R.S. The passage of House Bill 09-1053 amended Section 11-10.5-107, C.R.S., which necessitates the amending of existing Banking Board Rule PDP5, to require the Banking Board to (1) establish criteria and procedures for reducing or removing any uninsured public funds deposited in an eligible public depository that fails to comply with established capital or safety and soundness standards; and, (2) to incorporate safety and soundness requirements into Banking Board Rule PDP5, which will require an eligible public depository that fails to comply with the established capital or safety and soundness standards to secure any uninsured public funds with adequate collateral to fully protect the public funds. 

Specific Purpose of this Rulemaking

1.	Under the current rule, the minimum amount of collateral that must be pledged to secure public funds that are not insured by the Federal Deposit Insurance Corporation is tied solely to the risk-weighted asset capital ratio of the public depository.  Capital ratios are often a lagging indicator.

2.	In the current economic environment, a public depository may have a high capital ratio and serious liquidity or other safety and soundness issues that threatens its viability.

3.	State and federal bank regulators periodically conduct safety and soundness examinations of depositories and, using a uniform rating system, assign a composite CAMELS rating that reflects their assessment of the overall condition of the depository.

4.	The revised PDP5 requires higher levels of collateral as the safety and soundness rating or composite CAMELS rating deteriorates and the risk of failure increases.  For the depositories with the lowest rating, the revised PDP5 requires orderly divestiture.

5.	Changes to PDP5 are necessary to reduce the risk that the FDIC is appointed receiver of a public depository and that there is not enough collateral pledged to protect the public funds.

Rulemaking Authority

The amendment to PDP5 is adopted pursuant to the following statutory provision:

Section 11-102-104, C.R.S., which states:

(1) The banking board is the policy-making and rule-making authority for the division of banking and has the power to: 
(a) Make, modify, reverse, and vacate rules for the proper enforcement and administration of this code and the "Public Deposit Protection Act", article 10.5 of this title;

Section 11-10.5-107 which states:

(4) (a) The banking board shall by rule establish criteria and procedures for reducing or removing any uninsured public funds deposited in an eligible public depository if said depository fails to comply with the capital or safety and soundness standards established by the banking board.
(b) The banking board shall require an eligible public depository to increase, substitute, add to, or modify the amount or type of eligible collateral held to secure any uninsured public funds so that the collateral is adequate to fully protect the public funds if the capital or financial condition of the eligible public depository fails to comply with the capital or safety and soundness standards established by the banking board.