Insight

What Are Bank Directors so Worried About?

Five action areas that should be on the board's agenda now.

Bank Directors Worried
TB

Trace Blankenship

December 23, 2016 12:00 AM

One of the great lines in Steven Spielberg’s recent movie about the Cold War era, “Bridge of Spies,” occurred in a tense courtroom when Tom Hanks’ character leaned over to his controversial client and asked, “Do you never worry?”

The client responded unemotionally, “Would it help?”

In the changing and uncertain landscape for bank directors, which has been made even more interesting following the 2016 presidential election, many may be wondering whether worrying really helps at all. Maybe the answer for these effective bank directors is to do so “in moderation” and “about the right things.”

One guidepost for effective governance is looking at what motivates FDIC litigation against bank officers and directors when it steps in as receiver of a failed institution. Generally, there are three broad categories of board conduct that trigger FDIC action:

  • Dishonest conduct and approving/condoning abusive insider transactions (Regulation O violations are common allegations made against former officers and directors);
  • Safety and soundness violations, including the bank’s failure to comply with applicable laws, regulations, internal policies, and agreements already in place with regulators; and
  • Either not establishing or not following proper underwriting policies.

Insider Transactions

How do we effectively monitor the bank’s compliance with Regulation O? Are we attuned to any other conflicts of interest among directors, as well as independence issues, and can we trust that directors will not use the information they learn in the boardroom to advantage themselves or their families and friends unethically or illegally? Do we insist on the confidentiality of all matters discussed there?

Record of Meetings

Do the minutes of our meetings accurately reflect the board’s discussions and actions? Are they distributed to members prior to the next meeting with enough time for review? Minutes may be reviewed by a court and jury if the bank or its directors are sued, and well-drafted minutes will reflect the process used by the directors to inform themselves and follow their legal duties (information-gathering, deliberation, and decision-making), but will probably not reflect the minutiae of their discussions or will simply be a script of who-said-what.

Board Composition

Is our board comprised of active, engaged participants? Do we understand what our primary regulator expects of us as directors? Do our directors broadly understand the bank’s regulatory landscape and how the bank effectively manages risk? Do we have an expectation for complete, accurate, and competent management presentations to the board? Is anyone on the board asking harder questions until an issue is made fully understandable and any problem areas are addressed to the director’s satisfaction? Are the majority of our directors independent and recruited for their relevant business, industry, or financial expertise? Have we established a suitable committee structure, consistent with the bank’s size and operational complexity, including a robust independent audit function reporting directly to the board?

Leadership

Are we vigilant about the “tone at the top” to ensure that the chief executive and senior management lead with (and insist on) integrity, high ethical standards, transparency, professionalism, and legal compliance? Is senior management open to challenging discussions about strategy and execution, or does management bristle when asked hard questions? Do we have an updated management succession plan?

Director Liability Protection

Do the bank’s charter and bylaws indemnify our directors to the fullest extent allowed by law? Is there a separate indemnification agreement for directors? Is the directors’ and officers’ liability insurance coverage adequate?

And ultimately, it’s not just all about the board of directors, because the bank’s overall culture needs to attract and retain great people, board members, executive management, and employees alike. The bank’s board should always keep front and center what Warren Buffett famously said: “In looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if they don’t have the first, the other two will kill you.”

Related Articles

Basel III and New Challenges for Lending to Commercial Developments


by Mark K. Googins and Douglas F. Britton

Basel III

Too Good to Fail


by Best Lawyers

Sandro Abegglen discusses new regulations after financial crises, corruption, and more.

An Interview With Niederer Kraft Frey

The Great Reckoning


by John Ettorre

Eight years after the financial crisis, aftereffects continue to ripple through the financial sector.

The Great Reckoning

Fluctuations within Fraud, White-Collar Sentencing


by Evelina Burnett

White-Collar Sentencing

Trending Articles

Announcing the 2023 The Best Lawyers in America Honorees


by Best Lawyers

Only the top 5.3% of all practicing lawyers in the U.S. were selected by their peers for inclusion in the 29th edition of The Best Lawyers in America®.

Gold strings and dots connecting to form US map

Best Lawyers: Ones to Watch in America for 2023


by Best Lawyers

The third edition of Best Lawyers: Ones to Watch in America™ highlights the legal talent of lawyers who have been in practice less than 10 years.

Three arrows made of lines and dots on blue background

The Best Lawyers in South Africa™ 2023


by Best Lawyers

Best Lawyers proudly announces lawyers recognized in South Africa for 2023.

South African flag

Could Reign Supreme End with the Queen?


by Sara Collin

Canada is revisiting the notion of abolishing the monarchy after Queen Elizabeth II’s passing, but many Canadians and lawmakers are questioning if Canada could, should and would follow through.

Teacup on saucer over image of Queen's eye

Famous Songs Unprotected by Copyright Could Mean Royalties for Some


by Michael B. Fein

A guide to navigating copyright claims on famous songs.

Can I Sing "Happy Birthday" in Public?

IN PARTNERSHIP

2022: Another Banner Year


by John Fields

Block O’Toole & Murphy continues to secure some of New York’s highest results for personal injury matters.

Three men in business suits standing in office

Announcing the 2023 The Best Lawyers in Canada Honorees


by Best Lawyers

The Best Lawyers in Canada™ is entering its 17th edition for 2023. We highlight the elite lawyers awarded this year.

Red map of Canada with white lines and dots

Wage and Overtime Laws for Truck Drivers


by Greg Mansell

For truck drivers nationwide, underpayment and overtime violations are just the beginning of a long list of problems. Below we explore the wages you are entitled to but may not be receiving.

Truck Driver Wage and Overtime Laws in the US

What the Courts Say About Recording in the Classroom


by Christina Henagen Peer and Peter Zawadski

Students and parents are increasingly asking to use audio devices to record what's being said in the classroom. But is it legal? A recent ruling offer gives the answer to a question confusing parents and administrators alike.

Is It Legal for Students to Record Teachers?

Thirteen Years of Excellence


by Best Lawyers

For the 13th consecutive year, “Best Law Firms” has awarded the most elite and talented law firms across the country through a thorough and trusted data review process.

Red, white and blue pipes and writing on black background

The Upcycle Conundrum


by Karen Kreider Gaunt

Laudable or litigious? What you need to know about potential copyright and trademark infringement when repurposing products.

Repurposed Products and Copyright Infringemen

Choosing a Title Company: What a Seller Should Expect


by Roy D. Oppenheim

When it comes to choosing a title company, how much power exactly does a seller have?

Choosing the Title Company As Seller

Caffeine Overload and DUI Tests


by Daniel Taylor

While it might come as a surprise, the over-consumption of caffeine could trigger a false positive on a breathalyzer test.

Can Caffeine Cause You to Fail DUI Test?

Announcing the 2022 Best Lawyers® in the United States


by Best Lawyers

The results include an elite field of top lawyers listed in the 28th Edition of The Best Lawyers in America® and in the 2nd Edition of Best Lawyers: Ones to Watch in America for 2022.

2022 Best Lawyers Listings for United States

Announcing The Best Lawyers in Australia™ 2023


by Best Lawyers

The results include an elite field of top lawyers and firms from Australia.

The Best Lawyers in Australia™ 2023

Announcing The Best Lawyers in Germany™ 2023


by Best Lawyers

The results include an elite field of top lawyers and firms from Germany.

Black, red and yellow stripes