Current through Register Vol. 35, No. 18, September 24, 2024
A. In the exercise of its authority under
Sections
7-27-5.2 [repealed], and
including but not limited to, Sections
6-10-10,
6-10-16,
6-10-17,
6-10-18,
6-10-20,
6-10-24.1,
6-10-29
and
6-10-35
NMSA 1978, the state investment council (the "council") desires to minimize
potential risks to existing and future bank deposits of severance tax permanent
funds under its authority. As a first step towards achieving this objective, it
hereby directs the state investment officer to conduct a risk assessment of
banks holding deposits of severance tax permanent fund monies under the
council's authority. The risk-assessment will include a determination of each
bank's primary capital to asset ratio, its net operating income/total average
assets and its non-performing loans/primary capital. If a bank's primary
capital to asset ratio is 6 percent or greater, its net operating income/total
average asset is .61 percent or greater and its non-performing loans/primary
capital is 34.9 percent or less, then the bank shall be required to maintain
collateral at the minimum level set forth in Section
7-27-5.2 [repealed] or
6-10-17
NMSA 1978, as applicable. If a bank does not meet these three qualifications
for a minimum level of collateral under Section
7-27-5.2 [repealed] or
6-10-17,
the state investment officer is hereby directed to cease making any additional
deposits of public money into the bank and to withdraw deposits as provided
herein, unless the bank provides increased levels of collateral in accordance
with the schedule set forth below.
B. The investment officer shall request
increased collateral from any bank which holds a deposit of public money within
the council's authority and does not meet the qualifications set forth above
for a minimum level of collateral under Section
7-27-5.2 [repealed] or
6-10-17
in accordance with the following schedule:
(1)
If a bank's primary capital to asset ratio (as defined by the FDIC) is:
(a) 5 percent to 6 percent...... a bank shall
be required to maintain collateral in the form of securities with an aggregate
market value equal to 75 percent of the amount of the deposit, or mortgages
with an aggregate market value equal to 90 percent of the amount of the
deposit;
(b) less than 5
percent..... a bank shall be required to maintain collateral in the form of
securities with an aggregate market value equal to 100 percent of the amount of
the deposit, or mortgages with an aggregate market value equal to 110 percent
of the amount of the deposit.
(2) If the ratio of a bank's net operating
income (annualized after taxes) to its total average assets is:
(a) . 6 percent - .51 percent..... a bank
shall be required to maintain collateral in the form of securities with an
aggregate market value equal to 75 percent of the amount of the deposit, or
mortgages with an aggregate market value equal to 90 percent of the amount of
the deposit.
(b) Less than .51
percent..... a bank shall be required to maintain collateral in the form of
securities with an aggregate market value equal to 100 percent of the amount of
the deposit, or mortgages with an aggregate market value equal to 110 percent
of the amount of the deposit.
(c)
Provided, however, a newly chartered bank shall be exempt from the requirements
of this subsection for the first year of its operations, and in its second year
of operation, the bank shall annualize its net operating income beginning with
the first quarter of the second year for the purpose of calculating the ratio
pursuant to this subsection.
(3) If the ratio of a bank's non-performing
loans (defined as loans which are at least 90 days past due and accruing or
non-accruing) to the bank's primary capital is:
(a) 35 percent - 49.9 percent..... a bank
shall be required to maintain collateral in the form of securities with an
aggregate market value equal to 75 percent of the amount of the deposit, or
mortgages with an aggregate market value equal to 90 percent of the amount of
the deposit.
(b) above 49.9
percent..... a bank shall be required to maintain collateral in the form of
securities with an aggregate market value equal to 100 percent of the amount of
the deposit, or mortgages with an aggregate market value equal to 110 percent
of the amount of the deposit.
(4) Should the risk assessment ratios under
Sections (a) (b) and (c) [now Paragraphs (1), (2) and (3) of Subsection B of
2.60.29.8 NMAC] result in different levels of collateral for a bank (i.e., 50
percent, 75 percent, 90 percent, 100 percent and 110 percent), the state
investment officer shall request the highest collateral level required under
the three sections.
(5) If a bank
is unable to meet the increased collateral level required by sections (a) (b)
and (c) [now Paragraphs (1), (2) and (3) of Subsection B of 2.60.29.8 NMAC],
above, the state investment officer shall cease to make deposits and shall make
withdrawals of deposits in the order in which they would otherwise mature down
to an amount which can be collateralized at an appropriate level, as above
specified. The collateral levels required by sections (a), (b), and (c), above
[now Paragraphs (1), (2) and (3) of Subsection B of 2.60.29.8 NMAC], shall be
required until the ratios of the bank as determined by the risk-assessment,
return to a level which allows collateral to be kept at a lower level under
sections (a) (b) and (c) [now Paragraphs (1), (2) and (3) of Subsection B of
2.60.29.8 NMAC], or at the statutory minimum level, as appropriate.
(6) For the purpose of this policy
"securities" shall be defined as those securities eligible as collateral for
severance tax permanent funds under Section
6-10-16
and
7-27-5.2 [repealed], as
amended and effective May 21, 1986, Art IV, Sec. 23, N.M.
Constitution.
(7) For the purposes
of this policy, "mortgages", shall be defined as eligible mortgage collateral
under Section
7-27-5.2 NMSA 1978
[repealed] and the council's guidelines promulgated under section
7-27-5.2 [repealed], as
those guidelines may be amended from time to time by the council. The "market
value" of such mortgages, as referred to in this policy, shall be determined by
reference to the value of the mortgage collateral if sold in the secondary
market and not the appraised value of the realty pledged by the
mortgages.
(8) The withdrawal of
deposits shall not be subject to the assessment of a penalty for early
withdrawal, except to the extent required to be imposed by federal law and in
that event only the minimum penalty required to be imposed shall be imposed by
the bank.
(9) The figures to be
used by the investment officer in the risk-assessment shall be calculated by
each bank from the quarterly call statements and shall be furnished to the
investment officer no later than on the tenth day of the second month following
that quarter, provided however, if the tenth day falls on a weekend or legal
holiday, the figures shall be submitted on the next business day. The figures
provided to the state investment officer by the bank shall be certified in
writing by the president of the bank, an executive officer of the bank, or a
person authorized by corporate resolution of the bank to certify the
information. The investment officer shall, at any time between quarterly
reporting periods, request additional certified information from the bank, as
needed, to assess the risk level of any bank. If a bank fails to provide the
requested information, it shall be required to maintain collateral in the form
of securities or mortgages, as appropriate, with an aggregate market value
equal to 100 percent or 110 percent of the amount of the deposit, as
applicable.
(10) Any qualifying
bank or savings and loan association that fails to maintain the pledge of
qualifying collateral or other security for deposits or fails to substitute or
provide additional qualifying collateral or security when requested by the
council or state investment officer is subject to a penalty by the director of
the financial institutionsdivision of up to one hundred dollars ($100) a day
for each two hundred and fifty thousand dollars ($250,000) deposited for each
day the violation continues.
(11)
The investment officer is also directed to require each bank which has had a
final administrative enforcement action imposed upon it to advise the
investment officer of such action. If the investment officer believes such
action indicates a high level of risk in maintaining public deposits in that
bank, he shall report to the council, who shall decide whether additional
collateral will be required.
(12)
Notwithstanding any of the above provisions, the state investment officer may
make an emergency withdrawal of state deposits prior to maturity when such
action is necessary in his judgement in the exercise of reasonable care to
protect state funds.
(13) If a bank
believes that exceptional circumstances exist which indicate that it would not
be appropriate for the investment officer to take any of the actions listed
above, the bank shall appear before the next meeting of the state investment
council and present its position. The investment council shall at that time
vote on whether an exception to the policy will be allowed.
(14) The investment officer is further
directed to incorporate the terms of this policy into any future depository and
collateral agreements and to take immediate and prudent steps to initiate this
policy. In no event shall the investment office fail to have this policy in
effect with respect to all banks later than January 1, 1986.
(15) Nothing herein shall restrict the state
treasurer, state investment officer, or, the state investment council from the
lawful exercise of rights and duties conferred upon them by law.
