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Bank directors face many personal liability risks – much more than other corporate directors.

That is why it is essential that they obtain as much protection as possible against such risks.

One of the best is the “exculpatory clause.”

That is a provision in the Articles of Incorporation that excuses a director from personal liability as to the bank or its shareholders unless the director has committed certain egregious acts.

Some states also allow the clause to be in the Bylaws, which does not need shareholder approval.  Florida’s corporate statutes apply the essence of the exculpatory clause without corporate action.

AABD has learned that many banks do not have the exculpatory clause in their Articles or Bylaws. This is inexcusable.

If your bank does not have the exculpatory clause in its articles of incorporation (or Bylaws if permitted by state law) that should be on the agenda for your annual shareholder meeting this year.

If it weren’t for the exculpatory clause in the Articles of Incorporation of Cooperative Bank, Wilmington, North Carolina, the directors of that failed bank would still be in litigation in which the FDIC sued them personally. Unfortunately, North Carolina law does not authorize exculpatory clauses to cover officers, so the FDIC continues its suit against them.

David Baris
AABD President