July 1, 2011
2012 AABD Advocacy Agenda
- Report on FDIC suits against outside directors of failed banks.
This is a report prepared by AABD recommending reforms and clarifications for the FDIC’s program to sue directors of failed banks and savings institutions. The report recommends that the FDIC only sue former directors who engaged in intentional misconduct, acted in bad faith, or acted with reckless disregard for the consequences.
- Study of burdens on bank directors from legislation, regulation and bank agency “guidance.”
This report details the incredible burdens faced by bank directors as a result of legislation, regulation and bank regulatory guidance that detracts from their fundamental duties to their bank and its shareholders.
- 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’s position is that bank directors (including the board as a whole 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.
- Study on deficiencies in the Material Loss Reviews prepared by the Inspectors General of the FDIC, Treasury and Fed.
This study urges the Inspectors General to adopt a new methodology in conducting Material Loss Reviews and to abandon biases against directors and management of failed banks so that Material Loss Reviews will more accurately determine why a bank failed.
- Support for repeal of the whistleblowing provisions of Dodd-Frank.
AABD has 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.
- 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.
- Finalization of new, interactive web site.
AABD’s new web site went live at the beginning of 2012.
- Appointment of additional members to the Board of Advisors.
In 2011, AABD added three highly qualified individuals to serve on its Board of Advisors – Maury Hartigan, Andy Sandler and John Courson. It is anticipated that additional members of the Board of Advisors will be announced in 2012 as well as individuals who will become Issues Advisors – specialists in particular fields relevant to bank directors who will act as a resource to AABD in their field of expertise.
- Planning for AABD’s 2012 Annual Conference.
AABD’s 2012 Annual Fall Conference will be held on November 8-10, 2012 at the Grand Hyatt Hotel San Francisco, 345 Stockton Street.
- Establishment of a Bank Director Liability Resource Center on AABD’s website.
AABD has established a Liability Resource Center for directors of open banks and former directors of failed banks. The Resource Center provides 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 all reports, studies, and correspondence prepared by AABD relating to director liability and AABD’s efforts to assure that the federal banking agencies 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.
- Board Liability Avoidance Studies
AABD is now offering to study the policies, procedures and practices of individual bank boards of directors 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. The study may be performed through a law firm retained by a bank board so that attorney-client privilege will protect the work product.
- Board Assessments
AABD has offered to conduct assessments for boards of directors over the past five years. 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. The assessment process is going through refinements in 2012 to reflect considerations of recent regulatory and legislative developments that place additional responsibilities on bank boards of directors.
- Support of the Perlmutter legislation allowing for amortization of losses for capital adequacy purposes.
Congressman Ed Perlmutter (D – Colorado) is the chief sponsor of a House bill (H.R. 1356) that allows banks to amortize real estate loan losses over seven years for capital adequacy and call report purposes. AABD supports this measure because it provides an opportunity for banks that are otherwise viable to avoid insolvency and continue to provide financial services to their communities.
- AABD support of an extension of the Small Business Lending Fund to allow all viable banks to participate.
AABD has submitted a statement for the record of a hearing before the Senate Small Business Committee urging Congress to extend the Small Business Lending Act and allow viable banks to participate even if they are required to obtain prior approval of their primary regulators to pay dividends. Treasury barred banks from participating in the original program if they were subject to prior approval for the payment of dividends.
- Book for bank directors.
David Baris, the Executive Director of AABD, is co-authoring a book with Marty Lowy on the essentials that bank directors need to know to perform their duties and responsibilities effectively. The book will be published in 2012.
- Support for actions that will help assure the objectivity of bank examinations?
David Baris, AABD Executive Director, submitted a statement for a January 2012 hearing before the Financial Institutions Subcommittee of the House Financial Services Committee supporting H.R. 3461, which creates an Ombudsman’s office at the FFIEC and an independent fact-finding process that banks that appeal examination findings may trigger. He also testified at a August 16, 2011 hearing on bank examinations held by the same subcommittee calling for a more objective and transparent examination process.
- Establishment of the Bank Examination Watchdog Forum
AABD has established 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.
- Support for an increased oversight role for the Congressional banking committees over the federal banking agencies
Historically, the oversight role played by the House Financial Services Committee and the Senate Banking Committee has been less than robust. This Congress has seen the House Financial Services Committee 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.
- Revision of AABD Mission and Policy Statements
The events of the past three years have caused AABD to reevaluate its Mission Statement and Policy Statement. Revised Statements will be adopted by mid-year 2012.
- Enhancement of Core Course
AABD’s Core Course, an intensive six-hour individualized program for bank boards of directors, is being enhanced to address recent developments in banking statutes and regulations, attitudinal changes in the banking agencies, and the stark reality of a depressed economy. 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 achieve before AABD will issue a certification of completion that may allow banks whose directors take the Core Course to obtain discounts and/or better coverage under their D&O liability insurance.
- Establishment of the Task Force on the Role of Bank Directors in the Loan Approval Process
As a result of an American Banker article written by David Baris, Executive Director of AABD and correspondence with the FDIC, the issue of whether bank boards of directors or board committees should be approving individual loans is being discussed by bank boards of directors and bank supervisory agencies throughout the U.S. As a result, AABD had 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.
- Reactivation of the AABD Committee system
AABD’s Committee system has been inactive in recent years. AABD has decided to reactivate the use of committees for AABD members to be able to participate and network with other members who have particular interest in the subject matter of the particular committee. AABD Issues Advisors will assist the relevant committee and its members in discussions of interest.
- Activation of the AABD Sponsorship Program
AABD has begun to accept sponsorships from interested companies to help support AABD’s mission.
- Prompt Corrective Action authority – is it working as well as it should?
AABD has had reservations on both the terms of the prompt corrective action authority and how it is being implemented. Is it resulting in the failure of banks that might survive if they were allowed to remain open? Dodd-Frank directed GAO to study the effectiveness of the prompt corrective action authority, and GAO issued a report during the summer of 2011. AABD is issuing its own evaluation of the GAO study, pointing to its deficiencies and asking the GAO to revisit its report.
- AABD is offering to refer candidates for bank director positions at banks who are in default under TARP.
AABD is writing to Treasury to offer its services to identify candidates to serve as directors of banks that are in default under the CPP program (under TARP). Most of the banks that are in default are community banks. Treasury has the right to appoint two directors to banks behind in their dividend payments. AABD is emphasizing to Treasury the importance of appointing directors who are appropriate based on their experience to serve as community bank directors and assuring that the appointees are shielded from liability except for intentional misconduct or malfeasance.
- AABD supports a coalition of community banks addressing capital raising challenges and laws, regulations and accounting principles that are interfering with capital formation for community banks.
Banks and bank holding companies that accepted investments from Treasury under TARP are facing the prospect of 9% dividends in the near future if they do not find a way to recapitalize their institutions. The economy and banks’ financial condition are factors in capital raising, but so are federal laws, regulations, bank regulatory guidance and accounting principles that can have a negative effect on capital raising by community banks. AABD is supporting a coalition of boards of community banks whose objectives are to remove unnecessary barriers to raising capital.