January/February 2011

January/February 2011
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OFFICIAL JOURNAL OF THE COLOR ADO BANKERS ASSOCIATION
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January • February 2011
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November 2010 marked a shift in the political makeup that is sure to have a large impact on banking. The anticipated GOP surge played out even larger than most pundits’ expectations on the national level, and we saw significant
changes in State politics as well. Banking benefited from voters’ actions both federally and in the Statehouse, as both
split control of the legislative chambers.
Overall, CBA was pleased with the results, as a split government has historically brought upon political gridlock, forced compromise, and protection from fringe proposals. This new dynamic will be especially
interesting if Congress must further weigh in or revisit aspects of the Dodd Frank “Wall Street” Reform Act
in the near future.
However, with the elections, ballot campaigns and legislative battle of Dodd/Frank in the rear view mirror,
your CBA has been focusing on three major components moving forward:
1. Educating legislators so that constructive changes to the 2300 page bill can be implemented before negative
effects on customers or our economy surface. Your CBA will once again be making an early January trip back to
Washington D.C. to visit with Colorado’s two freshman Representatives, Rep.-elect Corey Gardner (R-Dist.4), and
Rep.-elect Scott Tipton (R-Dist. 3). We will familiarize them with our most pressing issues, and establish a strong
trusting relationship right from the beginning.
2. Facilitating communication with regulatory bodies to ensure that the onslaught of new rules which get
implemented provide a constructive balance between customers’ access to capital and banking services, safety
of the industry, and consumer safety. CBA has established a regulatory compliance task force of skilled volunteer
bankers who are examining proposed rules, organizing responses, and suggesting/creating tools that will assist with
future compliance. A special thank you to those bankers is in order for their commitment and time given. Their work
will provide huge value for all of us.
3. Providing helpful resources to bankers that will assist bankers’ transitions into the post Dodd/Frank era. CBA
has created numerous resources since the passage of Dodd/Frank to assist us. The most recent of which was a 45
page planning and budgeting resource that summarized the Act’s functions line by line. This tool has already been
mimicked or redistributed by other banking associations in over 40 states; and is just one more example of the
assistance, education and support CBA is able to provide our industry.
Finally, we must not forget the importance of CBA’s PAC and I encourage everyone to help strengthen it. The
PAC provides financial support to those candidates for state and federal offices who have demonstrated an interest in the welfare and constructive development of the Colorado banking industry. Q
D. Edward Sauer
CBA Chairman
President and CEO, The Bank at Broadmoor
January • February 2011
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Adoption of the Dodd-Frank act brings no relief for anyone in financial services. Bankers are dealing with a harsh
economy, tough examiners, and now an unparalleled level
of Dodd-Frank regulatory requirements with which banks
must comply in the near future. A key step for bankers is to
understand the scope of Dodd-Frank. That’s why CBA produced the recent 45 page schedule of budgeting and planning
considerations for 2011 on the Dodd-Frank act. This was so
popular it was utilized extensively throughout the U.S.
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CBA now undertakes setting priorities among the 243
proposed Dodd-Frank rules coming at you and us, focusing
on the higher priority ones, assisting you in commenting on
proposed regulations, and then providing assistance for your
compliance work. To do that we have organized a CBA DoddFrank Rules and Compliance Task Force of bankers which
will guide our work on these topics. We expect it will be in
existence for two years.
Despite favorable election results which produced
Colorado leaders with whom CBA has a strong positive
relationship, in the 2011 Colorado Legislature we will see
a f lurry of new issues. While it appears that credit unions
have opted not to attack us in 2011 (it’s still not certain), we
believe that they will seek the ability to hold public deposits
in the 2012 session.
Among the newer issues we believe will be in the 2011
legislature where we must protect banking’s interests are:
• Foreclosure issues
• Original evidence of debt requirement – doesn’t
change outcome but increases hassle & cost for
lender
• Tenant protection – delays lender’s ability to deal
with property
• Actions intended to promote banks’ small business lending
(often accompanied with unacceptable requirements) –
oppose unworkable or burdensome programs
• UCC Article 9 amendments (secured transactions) –
protect banks’ security interests
• Prompt payment of subcontractors (prohibiting retainage)
– oppose
• Colorado government as a competitor in providing “green
lending” for both residential and commercial properties –
oppose unfair competition
• Real estate lean priority by local governments for
nonpayment of use taxes – protect lender’s priority
• Compensation for trust departments acting as
conservators – keep workable system
• Number of claims in small claims courts – expand to limit
collection costs
• Many more…
The public and some public officials still have hostility against banking despite CBA’s major educational efforts
directed at helping them understand the pressure cooker in
which you work. That hostility and misunderstanding translates into topics like the above and many others.
You have a lot of work to do in your bank dealing with
this economy, tough regulators, and implementation of DoddFrank, and CBA has a lot to do on the Dodd-Frank rules,
helping with your compliance, and a bevy of new issues in
the state legislature.
We wish this wasn’t banking’s reality, but it is. The
“normal” we knew several years ago will never return. CBA
is doing all it can to assist banks in reaching a lucrative
new normal. Q
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January • February 2011
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What’s A Community
Bank to Do?
A
s the realities of the post-financial crisis set
in for community banks, many are taking
stock of how to move forward in the new
regulatory and economic environment.
In addition to the anticipated increased
costs of implementing new regulations and
uncertainty regarding the final authority of
the Consumer Financial Protection Bureau
(CFPB), there are on-going concerns about the
effects of low interest rates, depressed loan
volumes and the potential loss of interchange
fee revenue going into the New Year.
And while community banks continue to
strive for healthy performance, forecasts re-
leased by the FDIC in November 2010 projecting
the unemployment rate to remain above eight
percent through 2012, along with a slower than
previously expected economic recovery could
put exceptional performance out of reach for
many institutions. When you take a step back
and begin to look at the scenario that many
institutions find themselves in today, it appears
that there is an all-out assault on bank income.
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New Capital For
Community Banks
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O
n September 27, 2010, President Obama
signed into law the Small Business Jobs Act
of 2010 (Act), which, among other things,
created the Small Business Lending Fund
Program (Program) to facilitate up to a $30 billion capital investment in community banks. This
article is intended to briefly describe the eligibility
criteria, the application process, and a bank’s obligations if it wants to participate in the Program.
application, are ineligible to participate in the Program. Eligible institutions may use the Program
to refinance an existing TARP investment as long
as the institution has not missed more than one
TARP dividend payment.
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Under the Program, the U.S. Treasury may invest in preferred stock and other debt instruments
issued by financial institutions. To be eligible, a
bank or, if the bank is controlled by a bank holding company, the bank holding company, must
have total assets of $10 billion or less. The U.S.
Treasury must consult with the bank’s regulators
to determine if banks should receive the investment. Institutions on the FDIC’s problem-bank
list as of, or within 90 days prior to, the date of the
Investments in banks having assets of $1
billion or less are limited to an amount equal
to 5% of the bank’s risk-weighted assets. Investments in banks having assets exceeding $1
billion but less than $10 billion are limited to an
amount equal to 3% of the bank’s risk-weighted
assets. All investments under the Program will
be reduced by the amount of the existing TARP
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January • February 2011
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To stay viable going forward, it is imperative to maximize your
revenue.
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With the implementation of Regulation E’s opt-in requirement for paying overdrafts on ATM and one-time debit card
transactions, many institutions began to discount overdraft programs as a viable source of non-interest income – anticipating a
decline in the number of customers who might be interested in
signing up for the service. However, in spite of the early projections, consumer actions indicate quite the opposite.
According to an industry survey, opt-in consent for all
consumers has varied between about half and 80 percent.
Ninety percent of frequent overdraft users have opted in so
far. Additionally, the majority of consumers who have paid an
overdraft fee in the past year reported that they were glad the
transaction was covered.
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No doubt, in the current regulatory environment, you need
to be certain that your overdraft policies are fair and easy for
the account holder to understand. This is especially true for
programs that are undisclosed and by their very nature have the
appearance of being deceptive or unfair. But a fully-disclosed
overdraft program that gives account holders the ability to make
informed decisions about their finances can be just the answer
for your bank and your customers.
And while it will take some time and effort to make sure
your program meets regulatory standards, an experienced
business partner can simplify the process for your staff
and give you the results you want. Consider the benefits of
becoming a valuable partner for your customers who need a
little assistance managing their finances. Plus, you can earn
much needed income to balance the costs of doing business
in today’s challenging economy without adding or increasing
service charges and fees.
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Like many institutions that have decided to take a wait and
see stance, you can choose to do nothing and either lose out on a
compliant source of revenue or risk regulators taking disciplinary action on your existing undisclosed overdraft solution. Or,
you can embrace a business partner with the regulatory experience and compliance knowledge to provide all the resources
necessary to help you implement and manage a compliant
overdraft program. The reward will be an overdraft solution
that operates in the best interest of your customers and provides
peak returns for your bank. Q
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investment, if any, made in such institution (unless the Program funds are used to refinance the TARP investment). As
of the date of the writing of this article, it is unclear whether
the investment will constitute Tier 1 capital.
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As part of the application, an applicant must submit
to its primary regulator a small business lending plan describing how the applicant intends to use the new capital to
address the needs of small businesses in the areas it serves.
Small business lending includes commercial and industrial
loans, owner-occupied non-farm, nonresidential real estate
loans, loans to finance agricultural production, and loans
secured by farmland, but excludes loans in excess of $10
million and loans made to any business that exceeds $50
million in annual revenues. The plan must also describe
how the applicant will “provide linguistically and culturally appropriate outreach and advertising” regarding the
availability and application process for new credits.
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Treasury’s investment must be repaid within 10 years.
While the investment is outstanding, the rate at which
dividends are payable varies between 1% and 7%, with an
initial rate of 5%, and is wholly dependent upon the amount
of increase in the bank’s small business lending following
Treasury’s capital investment. If Treasury’s investment is
not redeemed on or before 4 ! years following its investment, the dividend rate increases to 9%. While the capital
available to community banks pursuant to the Program is
indeed enticing, applicants should be aware that the rules
under the Program are subject to change at any time and
any recipient will be bound by those changes until the
investment is repaid. Q
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How to Save a
Customer Relationship
T
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here is a saying, “market delays are not
market denials.” This may be a nice keep
your chin up kind of platitude for those
lending money, yet hard to hear as a small
business owner who has just been turned down
for important capital dreamed of for growth.
But all is not lost. The new banking regulations actually provide us all with an opportunity
to recreate relationships in a different, deeper
way - as a facilitator, consultant and true adviser.
It’s all how you look at it.
The industr y has seen an increase in
small business lending year over year, and
the government capital thatwas injected into
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the industr y throughout 2008 and 2009
will net taxpayers a nice return. Although
public perception varies on whether banks
are lending, credit worthy borrowers are
securing loans.
In a speech I gave recently on Situational
Selling 2.0, I made the distinction between
people-pleasing a customer and truly serving the customer, two very different things.
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January • February 2011
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When we can spend our day serving---really, truly serving
others to the point where they receive value and we’ve made
a difference for them, that’s where long term customer
loyalty comes from. Successful banking leaders know that
the people before them are valuable because they have the
capacity to refer within their network. If my purpose is for
the customer to be so happy with the help I gave him that
he’ll gladly introduce me to at least two or more colleagues
before we finish (or do not finish) the transaction, then my
business grows.
Greg Atkinson from United Western Bank learned a
while ago that anyone who looked like they have “bubble
credit” (low bankability and probable declination), he tells
them right away. He then uses a two step process to advise
the business owner on what to do next. The first step is to
look at how to strengthen their position - including targets
for improvements, a business plan to include balance sheet
forecast, and a written justification for other potential finance sources to make a decision. The second step is to open
his network and advise on other banks or non-bank finance
sources for options and providers of capital.
Long term customer relationships come from creating
meaningful conversations throughout the year combined
with powerful service. How many people am I serving?
How well am I serving them? Truly innovative and effective service is the ultimate creative act. Fifty times a day
ask yourself: How can I serve? What changes would be
necessary to bring the operations and financial statements
of this client to an acceptable level, to meet the criteria
that would make a loan possible. Slowing conversations
down and advising clients without ever compromising
integrity, that is serving.
That way when people ask you how many customers you
have, you can answer, only one, the one I am with. Q
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financing the places where
people live and work
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Don’t Overlook Tax
Incentives When Hiring
A
s the economy slowly recovers from the
“Great Recession,” many businesses will
likely start hiring again. If your business is
considering adding new employees or has
done so in the past few months, certain tax
incentives may be available. This article will
examine the hiring tax incentives made available with passage of the Hiring Incentives to
Restore Employment Act (HIRE Act), as well
as other potential tax benefits.
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The HIRE Act was passed on March 18,
2010, to promote job growth and includes two
tax incentives for hiring qualifying employees:
Payroll tax holiday. The first incentive is an
exemption available to qualifying employers for
the 6.2 percent Social Security tax paid on the
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first $106,800 of wages paid to each qualifying employee from March 19, 2010 through
December 31, 2010. A qualifying employer is
any employer except for federal or state governments or any political subdivision except
for state colleges and universities. A qualifying
employee must meet the following criteria:
• Employee was hired after February 3,
2010, and before January 1, 2011.
• Employee certifies by signed affidavit
that he or she has not been employed for
more than 40 hours during the 60-day
period prior to employment. The IRS has
developed Form W-11 to document this
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Registering Your Bank on
Social Networks
I
n the 1990s, we learned about the value of
Internet real estate. Many banks, not foreseeing the significance of an Internet presence, did not register their domain names in
time to secure an ideal one. The effects of
this are still with us today. While it is debatable whether social networking sites such as
Facebook or Twitter will have business value to
banks, the popularity of these sites is growing
at a much quicker rate than the Internet did a
couple of decades ago, and social networking domains are being reserved at an staggering rate.
To ensure your bank secures the most ideal
“domain name”, you should consider registering
your bank on various social networking sites. Here
are some steps to assist with that process for a few
of the most popular social networking sites:
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Before you can register a Facebook domain,
you must first create the business’s Facebook
page and have at least 25 “fans.” To register a
domain on Facebook, (for example, facebook.
com/bankname), go to facebook.com/username. You must be an administrator of the page
to register the name. The name can contain only
alphanumeric characters (A-Z, 0-9) or a period.
Be careful when selecting a username as they
are not transferable and cannot be changed.
It is usually wise to use a period where there
would normally be a space when creating your
username. For example, a good username for
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First State Bank is “First.State.Bank.” In this case, both facebook.com/FirstStateBank and facebook.com/First.State.Bank
would work. Many banks choose to use their Internet domain
name as their username.
Information Security Risk: Phishing and pharming attacks are increasing on social networking sites. How will
the bank protect customers and employees from these new
sophisticated threats?
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Footprinting and Information Gathering: If you create and
maintain a business social networking page for your bank, you
will likely have your employees and customers “follow,” “like” or
become “fans” of the page, thereby potentially providing a list
of your customers and employees to everyone on the Internet.
How will the bank prevent cybercriminals from harvests and
using this information maliciously?
To register a Twitter domain (for example, twitter.com/
bankname), go to twitter.com/signup. Whatever you enter in
the “username” field will become the “handle” or domain name
for Twitter. Note: Twitter does not allow name squatting, so if
your bank name has already been registered by an illegitimate
party, you can contact Twitter to get it released.
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Most banks already have company pages on LinkedIn. To
determine if your bank is on LinkedIn or to add your bank, go
to linkedin.com/companies. To edit or create a company page,
you must login using a valid bank e-mail address.
Reputation Risk: Who is going to manage and monitor
the social networking site, and what policies need to be in place
to define controls?
Strategic Risk: How does social networking fit in with the
bank’s strategic plan?
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Due diligence and appropriate risk management must be
considered as a part of a bank’s overall Social Network strategic
plan. Before you register your bank on these social networking
sites, consider these threats in your risk assessment process:
Compliance Risk: Who will monitor compliance with
bank policies and regulatory guidance?
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'"
Power comes from
being understood .
SM
Yeah. You’re a little
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Is 6 enough?
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any strategic approach. And when you trust the advice
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Assurance Tax Consulting
z
Team McGladrey Golfer Zach Johnson and his caddie, Damon Green.
z
McGladrey is the brand under which RSM McGladrey, Inc. and McGladrey & Pullen, LLP serve clients’
business needs. The two firms operate as separate legal entities in an alternative practice structure.
January • February 2011
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'-("-$'?"[email protected] B 5 = < 5 6 3 C
certification. Signed certification must be received by the
time the employer files an employment tax return applying
the payroll exemption for the employee.
• The individual was not hired to replace another employee,
unless the other employee separated from employment
voluntarily or for cause.
• The employee is not related to the employer or any
individual who owns more than 50 percent of the
employer.
• The payroll tax exemption is claimed by not remitting
the 6.2 percent Social Security tax for the qualifying
employee at the time the tax is otherwise due. This only
applies to the employer portion. The employee portion
of Social Security tax must still be deposited with the
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In addition to the HIRE Act incentives, employers should
also keep in mind other federal income tax incentives available
for hiring, including the following:
Work Opportunity Credit. The Work Opportunity Tax
Credit (WOTC) is an income tax credit available for hiring individuals belonging to certain “targeted groups,” such as food
stamp recipients, ex-felons, veterans and disconnected youth.
The credit can be as much as $2,400 for each new hire ($4,800
for certain veterans and $9,000 for certain aid recipients).
Qualifying individuals must be certified, either in advance or
immediately after employment, by the designated state agency.
If an employee qualifies for both the payroll tax exemption
and the WOTC, the employer cannot receive both benefits. If
the potential benefit of claiming the WOTC is greater than the
When making hiring decisions, it is important to factor
potential federal and state tax incentives into your cost/
benefit analysis.
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IRS when normally due. The IRS has revised Form 941,
Employer’s Quarterly Federal Tax Return, to provide
lines for the employer to report the amount of exempt
wages paid.
Retained worker credit. The other hiring incentive included
in the HIRE Act is an income tax credit of up to $1,000 for each
qualifying employee. To qualify for the credit, the following
conditions must be met:
• The employee is a qualifying employee for purposes of the
payroll tax exemption.
• The employee is employed by the employer for at least 52
consecutive weeks.
• The employee is paid wages during the second half of the
52-week period equal to at least 80 percent of wages paid
during the first 26 weeks.
• The credit is equal to the lesser of $1,000 or 6.2 percent
of wages paid to the employee during the 52-week period.
There is no limit on the number of retained workers on
which an employer can claim the credit, as long as the
retained workers meet the above criteria.
• The credit only may be claimed during the tax year the retained
worker satisfies the 52-consecutive-week requirement. Since the
retained worker must have been hired after February 3, 2010,
to qualify, the tax credit will not be available until the 2011 tax
return for calendar year taxpayers.
Additional information on hiring incentives in the HIRE Act,
including forms and answers to frequently asked questions, can
be found on the IRS website.
payroll tax exemption, the employer should make an election
to forgo the payroll tax forgiveness on those wages.
Indian Employment Credit. The Indian employment credit
is an income tax credit available for employers of qualified
American Indian employees. The credit is equal to 20 percent
of Indian employment wages and health insurance costs paid
during the year in excess of the amount paid in 1993. Only the
first $20,000 of wages and health insurance costs paid to each
qualifying employee is counted. To qualify, the employee must
be an enrolled member or the spouse of an enrolled member of
an Indian tribe, paid less than $45,000, perform substantially
all his or her services within an Indian reservation and have
his or her principal residence on or near the reservation where
the employee works. The credit has expired as of December 31,
2009, but a proposed one-year extension of the credit is included
in a tax bill currently being debated in Congress.
Empowerment Zone and Renewal Community Employment Credit. The Empowerment Zone and Renewal
Community Employment Credit is an income tax credit
available for employers paying wages to qualifying employees who work and live within an empowerment or renewal
community zone. Empowerment and renewal community
zones are typically areas of the country with high poverty
rates, low population or other economically depressed
factors. Maps of designated areas are available on the
Department of Housing and Urban Development website.
The empowerment zone credit is equal to 20 percent of the
first $15,000 of wages paid to a qualifying employee per
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year. The renewal community credit is equal to 15 percent
of the first $10,000 of wages paid to a qualifying employee
per year. Both credits are limited to the extent the WOTC
is claimed for the same employee.
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Privacy Risk: How will the bank maintain privacy in
a “social” environment?
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In addition to federal hiring incentives, many states provide
similar incentives for hiring employees. Incentives include state
income tax credits for increasing employment, hiring in certain
areas and hiring individuals belonging to designated groups. Many
states also provide grants or credits related to training costs.
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The decision to hire additional employees can be challenging.
When making hiring decisions, it is important to factor potential
federal and state tax incentives into your cost/benefit analysis.
For more information on the various incentives available for
hiring new employees or for help assessing potential benefits,
contact your accountant. Q
,9669!<$1'9&!%6!$!"<5!R%8#[email protected]:V;!WW<;!-(9!-?!8#9!($8%-(S6!\H!1$&F968!"<5!
$(3!$3E%6-&2!?%&'6/!"-(8$78!8#9!$A8#-&!$8!UC$1'9&LDB3/7-'/
In summary, whether you choose to register one or more
social networking “domain names” today or not, you must
not ignore the opportunity and risk associated with these
popular sites. At a minimum, all banks should:
1. Get educated on the benefits of social networking sites;
2. Conduct a formal risk assessment on the risks of social
networking sites;
3. Make a plan that, at a minimum, includes monitoring;
4. Create policies to define the bank’s stance on the use of
social networking sites; and
5. Repeat this cycle, at least quarterly, since social
networking sites change often. Q
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303.623.9000 · www.rothgerber.com
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June 2010
January • February 2011
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'%
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