MINIMUM POLICY COMPONENTS I PURPOSE A The Policy Is

minimum policy components i. purpose a. the policy is intended to assist bank management in monitoring

MINIMUM POLICY COMPONENTS
I.
PURPOSE
A.
The policy is intended to assist bank management in monitoring
and controlling risks associated with issuing indexed CDs
(ICDs).
B.
The policy directs bank staff to develop and follow procedures
to ensure the bank operates in a safe and sound manner.
II.
DIRECTIVES
==========
A.
Bank management will limit exposure to a rising index by
investing in a derivative contract.
B.
Bank management will acquire or develop a predictive model for
the value of its equity in the derivative contract and the
liability owed to ICD customers. The model should evaluate
risk based on annual increases of 5%, 10%, and 15% (or higher
depending on market performance during the term of the
product) in the equity index used for the term of the ICDs
issued.
C.
At least quarterly, bank management will provide reports to
the Board of Directors describing the values of all bank
assets and liabilities associated with issuing ICDs.
D.
At least annually, bank management will provide the Board of
Directors with an evaluation of the creditworthiness of all
counter-parties involved in interest rate risk management of
ICDs issued by the bank.
E.
Bank management will require its outside auditors to include
ICDs and their related transactions in the bank’s annual
Director’s Examination or opinion audit.
F.
Bank management will request Board of Director approval for
investment in each derivative transaction.
G.
Bank management will forward copies of the proposed derivative
contract, Board of Director approval, and forecast of values
from its predictive model to the Iowa Division of Banking with
the bank’s request for approval to invest in the derivative
contract.
H.
Bank management will provide training to all staff members who
issue or process ICDs to ensure a thorough understanding of
the product as well as the ability to communicate its
features, benefits, and potential drawbacks to customers.
I.
Bank management will develop and implement procedures to
ensure compliance with this policy and applicable state and
federal rules and regulations.
J.
An officer of the bank will need to be designated to oversee
the bank’s ICDs offerings.
K.
Bank management will involve legal counsel in reviewing or
developing documents and disclosures for use with bank’s ICDs
product.
III.
Authentication
==============
A.
Signatures of presiding officer of the Board of Directors and
Board Secretary.
B.
Date