April 10, 2013
AABD 2013 Agenda Aggressively Tackles the Issues Facing Bank Directors
- 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 only sue former directors who 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 It also will recommend that the FDIC Board of Directors revise FDIC’s outdated and flawed Policy Statement on which it bases its decisions whether to sue directors of failed banks.
- Study of burdens on bank directors from legislation, regulation and bank agency “guidance.”
This report, issued in 2012, 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 – more than 800 provisions altogether. AABD will update the report in 2013 to reflect additions to the burdens faced by bank directors and will urge the banking committees of the US House of Representatives and US Senate to conduct oversight hearings.
- 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 for the FDIC to create a safe harbor. In 2013, AABD will again urge the FDIC’s Board of Directors to define and adopt a safe harbor so that bank boards and their committees will be protected against civil actions against them so long as they acted in good faith and without a conflict of interest in approving loans.
- AABD Study reporting on deficiencies in the Material Loss Reviews prepared by the Inspectors General of the FDIC, Treasury and Fed.
This study, issued in early 2013, 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. AABD is evaluating the responses of the FDIC, Treasury and Fed Inspectors General. Once AABD’s evaluation is complete, it will issue an addendum to the study reflecting the comments from the IGs and meet with members of the House and Senate banking committees to report its findings.
- 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. AABD will continue to urge Congress to repeal the bounty provisions and is sponsoring a webinar on May 6 that will help banks and bank holding companies mitigate the risk from insider whistleblowers.
- 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.
- Appointment of additional members to the Board of Advisors.
In 2013, AABD has added two highly qualified individuals to serve on its Board of Advisors – Neil Milner, the former head of the Conference of State Bank Supervisors, and Bert Ely, a national voice for many years on deposit insurance, banking structure and monetary policy issues. It is anticipated that additional members of the Board of Advisors will be announced in 2013 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 2013 Annual Conference.
AABD’s 2013 Annual Fall Conference with Western Independent Bankers will be held on October 31-November 2, 2013 in San Diego, California.
- Establishment of a Bank Director Liability Resource Center.
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 reviews 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.
- Board Assessments.
AABD conducts 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.
- 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 an August 16, 2011 hearing on bank examinations held by the same subcommittee calling for a more objective and transparent examination process. 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. While recent experience of AABD’s Executive Director representing banks suggests that the Ombudsmen do act fairly and will police any evidence of retribution. AABD remains in support of legislation that would provide additional mechanisms by which banks can be assured that a thorough independent review by an independent Ombudsman in which they have confidence is available to them.
- 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 over the federal banking agencies has been less than robust. This Congress and the previous Congress have 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 banking and economic events of the past four years have caused AABD to reevaluate its Mission Statement and Policy Statement. Revised Statements will be adopted in 2013.
- 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 still-depressed economy in many markets. 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 a June 2011 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. 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.
- Activation of the AABD Sponsorship Program.
AABD has begun to accept sponsorships from interested companies to help support AABD’s mission.
- 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, 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, regardless of where they may reside or work, to serve on their boards with specialized backgrounds that can fill a void on their boards.
- AABD opposes the FDIC efforts to deprive bank directors of insurance to cover civil money penalty risks.
In 2011, the FDIC legal staff determined that bank directors cannot obtain insurance to cover the amount of a civil money penalty if it is a part or endorsement of an insurance policy in the name of their bank, even if the directors were to pay for the insurance. This overturned sixteen years of FDIC acquiescence to that type of insurance. AABD advised the FDIC of its opposition to its new interpretation and believes that the FDIC’s position is contrary to law and its own regulations. The FDIC General Counsel advised AABD in 2012 that the provisions of Part 359 of the FDIC rules prohibit such insurance. AABD disagrees and will continue to advocate a change in FDIC’s position.