Unsound Banking Practice Law & Legal Definition


The term Unsound means not sound; unhealthy; not well founded or valid; fallacious.

Alabama Banking Statutes do not define the term "unsafe or unsound practices". Unsafe or unsound practices" can result from either action or lack of action by management of the Bank. Unsound banking practice can include conducting business in an unauthorized manner, failure to keep accurate books of account, engaging in hazardous and speculative investment policies and the like.

Code of Ala. § 5-8A-20 says about Unlawful, improper, or unsound conduct by banks. It reads as follows:

Whenever it shall appear to the superintendent that any bank has violated its charter or any law of the state, or is conducting business in any unauthorized manner, or if its capital is impaired and not made good under the requirement of the superintendent within the required time, or if any such bank or an affiliate of such bank as defined in Section 5-3A-1 shall refuse to submit its papers, books and concerns to the inspection of the superintendent or any examiner, or if any officer thereof shall refuse to be examined on oath touching the conducting of any such bank, or if any such bank shall suspend payment of its obligations, or if from any examination the superintendent shall have reason to conclude that such bank is in an unsound or unsafe condition to transact the business for which it was organized, or that it is unsafe for it to continue business, or if any such bank shall neglect or refuse to observe any order of the superintendent directing or requiring the doing or cessation of any particular thing required to be done or not to be done by law, the superintendent may call a meeting of the Banking Board and submit to said board matters of default or misconduct in the affairs of the bank, of which the bank shall have notice and upon which the bank may be heard in person or by counsel, and if said board or a majority of said board so directs, the superintendent shall forthwith take possession of the property and business of such bank and retain such possession until such bank shall resume business or a receiver is appointed, as provided in this chapter.