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ADVOCACY

1. Regulatory expectations for board responsibilities and corporate governance

There continues to be a wide gap between bank regulatory expectations for bank boards and their legal responsibilities.  AABD will continue to identify and define regulatory expectations and urge the banking agencies to change and clarify their rules and guidance to conform to legal responsibilities.

2. Study of burdens on bank directors from legislation, regulation and bank agency “guidance”

The second edition of this report, issued in 2014, details the overwhelming burdens facing bank directors as a result of legislation, regulation and bank regulatory guidance that detracts from their fundamental duties to their bank and its shareholders – more than 800 provisions altogether.  AABD will continue to urge the banking committees of the US House of Representatives and US Senate to conduct oversight hearings and the banking agencies to review these 800 plus provisions as part of their federally mandated decennial review (EGRPRA) of burdensome regulations.  AABD also will continue to urge the banking agencies to undertake a review of their guidance, whether part of or independent of the EGRPRA process.

3. Support for the FDIC and other federal banking agencies to create a “safe harbor” for directors who approve individual loans recommended by bank management

AABD believes that bank directors, as members of the board of directors or a board loan committee, should not approve individual loans until the FDIC and the other federal banking agencies create a “safe harbor” for bank directors to do so.  The FDIC previously rejected AABD’s recommendation to create a safe harbor.  AABD will again urge the FDIC’s Board of Directors, the Federal Reserve Board and the Comptroller of the Currency to define and adopt a safe harbor so that bank boards and their committees will be protected against civil and administrative actions against them so long as they acted in good faith and without a conflict of interest in approving loans.

4. Support for changes in state law to protect bank directors from undue personal liability

FDIC suits against directors of failed banks have aggressively challenged long-held assumptions by many law practitioners that the director standard of care in the relevant state was gross, not simple negligence.  AABD will support the efforts of banks, bank directors and state banking trade associations to request the appropriate state legislatures to amend the relevant statutes to assure that a court of law will know that gross negligence is the standard of care.

5. AABD Study reporting on deficiencies in the Material Loss Reviews prepared by the Inspectors General of the FDIC, Treasury and Federal Reserve

This study, issued in 2013, urges the Inspectors General to adopt a new methodology in conducting Material Loss Reviews and to abandon what AABD believes are biases against directors and management of failed banks so that Material Loss Reviews will more accurately determine why a bank failed.  AABD will update of this study.

6. Support for repeal of the whistleblowing provisions of Dodd-Frank

AABD President David Baris previously testified before a Subcommittee of the House Financial Services Committee in support of the repeal of the whistleblowing provisions of Dodd-Frank, which allow for the payment of bounties to whistleblowers who are insiders even where a bank has in place a robust and effective system of reporting securities law violations and other improprieties and where the whistleblowers have not reported the issues to the bank or have not allowed the internal review process to resolve the issues.  AABD will continue to urge Congress to repeal the bounty provisions and urge the SEC to amend its regulations that continue to allow awards to individuals who bypass good faith processes that banks have adopted to address legitimate concerns raised by whistleblowers.

7. Support for actions that will help assure the objectivity of bank examinations

David Baris submitted a statement for a January 2012 hearing before the Financial Institutions Subcommittee of the House Financial Services Committee supporting H.R. 3461, which would have created an Ombudsman’s office at the FFIEC and an independent fact-finding process that banks that appeal examination findings would trigger.  He also testified at an August 16, 2011 hearing on bank examinations held by the same subcommittee calling for a more objective and transparent examination process.  Since that time, legislation has been introduced in the House to establish an independent Ombudsman’s office at FFIEC but has never been passed by the Congress.

Bank management and bank boards remain reluctant to utilize the current Ombudsman system for fear that the review will not be even-handed and will make the bank susceptible to retribution.  AABD remains in support of legislation that would provide additional mechanisms by which banks can be assured of a thorough independent review by an independent Ombudsman at the FFIEC with authority to conduct fact finding hearings and issue binding decisions.

8. Support for an increased oversight role for the Congressional banking committees over the federal banking agencies

For many years, the oversight role played by the House Financial Services Committee and the Senate Banking Committee over the federal banking agencies has been less than robust.  This is changing on the House side.  The House Financial Services Committee has become more aggressive in holding oversight hearings on bank examinations and related matters.  AABD has encouraged this development and is prepared to provide more testimony at future hearings.

9. Enforcement action standards for CFPB and FinCEN

Unlike the federal banking agencies, neither CFPB nor FinCEN have adopted a civil money penalty matrix that applies standards to their exceedingly broad statutory powers to impose penalties on banks and related parties, including directors.  AABD will urge them to do so.  They also lack any publicly available enforcement policies; they have not clearly stated the factors that are considered in evaluating whether to initiate an enforcement action or the nature of the action.

10. Amendments to FDIC Policy Statement on responsibilities of bank directors

This 1992 Policy Statement is outdated and legally infirm but the FDIC continues to apply it, including in decisions whether to sue directors of failed banks.  AABD is urging the FDIC to amend the Policy Statement so that it accurately reflects the law and is consistent with the public interest.

11. Report on FDIC suits against outside directors of failed banks

This is a report to be finalized by AABD recommending reforms and clarifications for the FDIC’s program to sue directors of failed banks and savings institutions.  The report will recommend that the FDIC not sue former directors unless they engaged in intentional misconduct, acted in bad faith, or acted with reckless disregard for the consequences.  It also will recommend that the FDIC Board of Directors revise FDIC’s outdated and flawed Policy Statement on which it bases its decisions whether to sue directors of failed banks.

INFORMATION RESOURCES

12. Report on corporate governance for nonpublic banks and bank holding companies

This report will provide directors of nonpublic banks and bank holding companies with guidance on what corporate governance processes are appropriate in absence of specific statutory and regulatory requirements.

13. Report on bank regulatory expectations of bank directors and how bank directors may adopt processes to manage and meet those expectations

Bank regulatory expectations for bank directors far exceed the standard of care duties of a director required by state law.  AABD will define what those expectations are and provide guidance on how bank directors and boards may manage and meet those expectations.

14. Establishment of a Bank Director Liability Resource Center

AABD is establishing a Liability Resource Center for directors of open banks and former directors of failed banks.  The Resource Center will provide information and insight on lawsuits filed against directors of failed banks by the FDIC and enforcement actions by federal banking agencies against directors of both open and closed banks.  The Resource Center provides guidance to directors of open banks on how to minimize the risk of personal liability, and collects reports, studies, and correspondence prepared by AABD relating to director liability and AABD’s efforts to assure that the federal banking agencies and other federal agencies such as FinCEN and CFPB will not use their powers in a manner that will second-guess the good faith business judgments of bank boards of directors or impose unnecessary burdens on bank directors in performing their responsibilities to their banks and shareholders.

15. Continuation of the Bank Examination Watchdog Forum

AABD will continue to manage and refine the Bank Examination Watchdog Forum to allow bank directors and bankers to report what they believe to be examples of both positive and negative bank examination experiences.  These should be reported in a manner to maintain the confidentiality of examination matters and consistent with privacy laws and regulations.  These reports will allow AABD to identify issues that it can address in a systematic way with the banking agencies and the U.S. Congress and the banking committees.

16. Establishment of the Task Force on the Role of Bank Directors in the Loan Approval Process

As a result of a June 2011 American Banker article written by David Baris, AABD’s then Executive Director of AABD (now President) and correspondence with the FDIC, the issue of whether bank boards of directors or board committees should be approving individual loans and, if so, how, is being discussed by bank boards of directors and bank supervisory agencies throughout the U.S.  AABD has decided that a Task Force to study the role of bank directors in the loan approval process is timely and necessary.  Members of the Task Force will be announced in the near future.

17. Strategic Planning Task Force

This Task Force, headed by the new Risk-Reward Committee, will focus on strategic planning issues for community and regional banks, including innovative products and services being introduced by those banks.

AABD ORGANIZATIONAL MATTERS

18. Appointment of additional members to the Board of Advisors

In 2014, AABD appointed Rich Whiting as Executive Director and David Baris, former Executive Director, as President.  In 2015, it appointed Christopher Nicholson as the Co-Chair to the Audit Committee for AABD members, Jewell Hoover to the AABD Board of Advisors, and Gregory Wilson to the AABD Board of Advisors.  It is anticipated that additional members of the Board of Advisors will be announced in 2016, as well as appointments to the Board of Advisors of the Institute for Bank Director Education.

19. Revision of AABD Mission and Policy Statements

The banking developments and economic events of the past seven years have caused AABD to reevaluate its Mission Statement and Policy Statement.  A revised Mission Statement was adopted in 2015, and a revised Policy Statement will be completed in 2016.

20. Activation of the AABD Sponsorship Program

In 2014, AABD began to accept sponsorships from interested companies to help support AABD’s mission.  This sponsorship program will continue and expand in 2016.

21. AABD Committees

AABD will be forming several new committees in 2016.  One has been announced – the General Counsel and Corporate Secretary Committee, which will focus on how they will enhance and support their boards’ supervisory efforts and participate in AABD’s advocacy on behalf of bank directors.  Other Committees planned for 2016 include:

  • A CEO Committee which will focus on the working relationship between CEOs and their boards of directors
  • A Risk-Reward Committee, which will combine enterprise risk management issues with strategic planning initiatives

EDUCATION/EVENTS

22. Planning for AABD’s 2016 Bank Director Summits

AABD is planning to host or co-sponsor Bank Director Summits and other programs designed for bank directors.  Its Spring 2015 Summit in Washington, DC with SNL Financial was very well received.

MEMBER SERVICES

23. Board Liability Avoidance Studies

AABD will continue to offer reviews of the policies, procedures and practices of individual bank boards of directors and their committees to identify any red flags that might provide grounds for potential personal liability and to recommend changes that will minimize the risk of personal liability and assure adequate D&O insurance coverage.

24. Board Assessments

AABD will continue to conduct assessments for boards of directors.  These assessments entail a detailed review of board structure; board reports and minutes; board committee reports and minutes; bank policies, procedures and controls; and interviews of each member of the board of directors and senior management.  The objective is to make recommendations on how the Board can strengthen its governance.  It is not to evaluate individual members of the Board unless otherwise requested.

25. Enhancement of AABD Core Course

AABD is enhancing its Core Course, an intensive six-hour individualized program for bank boards of directors, to address recent developments in banking statutes and regulations, attitudinal changes in the banking agencies (including CFPB and FinCEN), and the increasing strategic challenges faced by banks of all sizes.  As in the past, AABD will request all of the federal and state banking agencies and the Conference of State Bank Supervisors to make suggestions on the content of the Core Course.

The Core Course remains a requirement for bank directors to take before AABD will issue a Certificate of Completion. AmTrust, a national D&O insurer and an AABD Sponsor, offers up to a 15% credit on D&O insurance for banks whose directors participate in the AABD Bank Director Certification Program.

26. AABD bank director search program

AABD has initiated a bank director search program available to its members.  Individuals with strong banking and related skills such as audit, compensation, technology, cyber security and risk management have advised AABD of their interest in serving as bank directors.

Many community banks have traditionally relied for service on their boards of directors almost exclusively on persons who live or work in the community where the bank is located, but there is an increasing need for community and other banks to attract persons with specialized backgrounds, regardless of where they may reside or work, to fill a void on their boards.