Matters to be Addressed by Board of Directors Pursuant to Statute or Regulation
Title 12, United States Code
Conversion of state charter to national banking association charter; execution of organization certificate and articles of association and other documents necessary to convert. 12 U.S.C. 35.
Issuance of preferred stock. 12 U.S.C. 51a.
Sale of a shareholder’s stock at public auction to enforce payment of a deficiency assessment imposed on the shareholder. 12 U.S.C. 55.
Declaration of a dividend. 12 U.S.C. 60. 12 U.S.C. 626 (foreign banking).
Appointment of a director to fill a vacancy in the board. 12 U.S.C. 74.
Designation of day to elect directors when regularly scheduled election is not held for some reason. 12 U.S.C. 75.
Designation of a director other than the bank president to be chairman of the board. 12 U.S.C. 76.
Surrender Trust Powers. 12 U.S.C. 92a.
Designation of bank officer to sign certification of accuracy of the bank’s call report. 12 U.S.C. 161.
Supervision of liquidator of the bank. 12 U.S.C. 181.
Notice to public and OCC that a vote has been taken for bank to go into liquidation. 12 U.S.C. 182.
OCC may appoint a conservator of the bank upon vote of the bank’s board. 12 U.S.C. 203.
Various matters related to bank mergers, conversions and dissenting shareholders. 12 U.S.C. 214a, 215, 215a, 215a-1, 215a-3, 629.
Reorganization so as to become a subsidiary of a bank holding company or of a company that will, upon consummation of such reorganization, become a bank holding company. 12 U.S.C. 215a-2.
Authorization of the purchase or acquisition of securities even though a principal underwriter of the securities is an affiliate of the bank; this can be done only if the purchase has been approved, before such securities are initially offered for sale to the public, by a majority of the bank’s board based on a determination that the purchase is a sound investment irrespective of the fact that an affiliate of the bank is a principal underwriter of the securities. 12 U.S.C. 371c-1 (section 23B of the Federal Reserve Act).
Authorization of the bank to contract for or purchase from any of its directors (or any firm of which any of the directors is a member) any securities or other property when the purchase is made in the regular course of business upon terms not less favorable to the bank than those offered to others. Authorize the bank to sell securities or other property to a director, or to a firm of which a director is a member, in the regular course of business on terms not more favorable to such director or firm than those offered to others. 12 U.S.C. 375.
Receipt of reports of certain loans to executive officers of the bank. 12 U.S.C. 375a.
Authorization of loan to executive that cause a statutorily-imposed aggregate credit limit to such executive to be exceeded, subject to certain conditions. Establish credit limits for executive officers more stringent that those set forth in statute. 12 U.S.C. 375b.
Each insured depository institutions shall have an independent audit committee entirely made up of outside directors who are independent of management of the institution, except as otherwise provided in statute. 12 U.S.C. 1831m.
The signatures declaring that a call report is accurate must be attested by at least two directors; their attestation must state that the report has been examined by them and to the best of their knowledge and belief is true and correct. 12 U.S.C. 1871(c)(3). 12 U.S.C. 161 requires three directors’ signatures.
Title 12, Code of Federal Regulations – OCC Regulations
Approve transfer of “surplus surplus” from capital surplus to undivided profits and thus made available to dividends, subject to certain limits. 12 C.F.R. 5.64.
Declaration of cash dividends and property dividends. 12 C.F.R. 5.66.
Reorganize as subsidiary of a bank holding company. 12 C.F.R. 5.32.
Increase the number of the bank’s directors, subject to certain limits. 12 C.F.R. 7.2007.
Determine the amount of adequate fidelity bond coverage. 12 C.F.R. 7.2013.
Assign some or all of the duties previously performed by the bank’s cashier to its president, chief executive officer, or any other officer. 12 C.F.R. 7.2015.
Fix a record date for determining the shareholders entitled to notice of, and to vote at, any meeting of shareholders. 12 C.F.R. 7.2016.
Review and schedule the bank’s banking hours. 12 C.F.R. 7.3000.
Thoroughly review the OCC’s exam report of the bank. 12 C.F.R. 7.4000.
Directly, or through a designee, assign functions to fiduciary officers and employees. 12 C.F.R. 9.2.
A national bank’s fiduciary activities shall be managed by or under the direction of its board of directors. The board, in discharging this duty, may assign any function related to the exercise of fiduciary powers to any director, officer, employee or committee thereof. 12 C.F.R. 9.4.
At least once each year, a national bank’s fiduciary audit committee must arrange for a suitable audit of all significant fiduciary activities, under the audit committee’s direction. Alternatively, the bank may adopt a continuous audit system under which the bank arranges for a discrete audit (by internal or external auditors) of each significant audit activity, under the direction of its fiduciary audit committee. The bank shall note the results of the audit in the minutes of the board of directors. A bank’s fiduciary audit committee must consist of a committee of the bank’s directors or an audit committee of an affiliate of the bank; however in either case, the committee: (a) must not include any officers of the bank or an affiliate who participate significantly in the administration of the bank’s fiduciary activities; and (b) must consist of a majority of members who are not also members of any committee to which the board of directors of the bank has delegated power to manage and control the fiduciary activities of the bank. 12 C.F.R. 9.9.
The board of directors must appoint not fewer than two of the bank’s fiduciary officers or employees in whose joint custody or control the bank shall place assets of fiduciary accounts. 12 C.F.R. 9.13.
A national bank may not permit any officer or employee to retain any compensation for action as a co-fiduciary with the bank in the administration of a fiduciary account, except with the specific approval of the bank’s board of directors. 12 C.F.R. 9.15.
A bank seeking to surrender its fiduciary powers must do so pursuant to a resolution of the board of directors. 12 C.F.R. 9.17.
The bank shall establish and administer each collective investment fund pursuant to a written plan approved by the board of directors. 12 C.F.R. 9.18.
At least once each 12-month period, the bank administering a collective investment fund shall arrange for an audit of the fund by auditors responsible only to the board of directors. Id.
The bank’s board of directors must comply with the OCC regulation on minimum security devices and procedures, and ensure that a security program which meets the requirements of the regulation is developed and implemented by the bank for its main office and branches. 12 C.F.R. 21.1.
The bank’s board of directors shall appoint a security officer, who shall have the authority, subject to the approval of the board of directors, to develop and administer a written security program. 12 C.F.R. 21.2.
The bank’s security officer shall report at least annually to the bank’s board of directors on the effectiveness of the security program. 12 C.F.R. 21.4.
Whenever a bank files a suspicious activity report, the bank’s management shall promptly notify the board of directors, or a committee of the directors or executive officers designated by the board to receive the notice. 12 C.F.R. 21.11.
The board of directors must approve the bank’s Bank Secrecy Act written compliance program. 12 C.F.R. 21.21.
According to12 C.F.R. Part 30, Appendix A — Interagency Guidelines Establishing Standards for Safety and Soundness, a bank should:
- Have an internal audit system that, among other things, provides for review by the bank’s audit committee or board of directors;
- Establish and maintain prudent credit underwriting practices that, among other things, includes a system of independent, ongoing credit review and appropriate communication to management and the board of directors;
- Provide for periodic reporting to management and the board of directors regarding interest rate risk with adequate information for management and the board of directors to assess the level of risk; and
- Provide periodic earnings reports with adequate information for management and the board of director to assess earnings performance.
According to 12 C.F.R. Part 30, Appendix B — Interagency Guidelines Establishing Standards for Safeguarding Customer Information, the board of directors or an appropriate committee of the board of each bank shall (a) approve the bank’s written information security program, and (b) oversee the development, implementation, and maintenance of the bank’s information security program, including assigning specific responsibility for its implementation and reviewing reports from management.
The bank’s real estate lending policies (including, among other things, the bank’s real estate appraisal and evaluation program) must be reviewed and approved by the board of directors at least annually. 12 C.F.R. 34.62.
According to 12 C.F.R. Part 34 Appendix A to Subpart D — Interagency Guidelines for Real Estate Lending:
- Bank management must monitor the bank’s real estate loan portfolio and provide timely and adequate reports to its board of directors.
- The aggregate amount of loans in excess of supervisory loan-to-value limits should be reported at least quarterly to the bank’s board of directors.
- The board of directors is responsible for establishing standards for the review and approval of exception loans (as defined in the Interagency Guidelines for Real Estate Lending).
- The bank must individually report exception loans of a significant size to its board of directors.
After holding OREO for a year, the bank shall state, by resolution of the board of directors or an appropriately authorized bank official or subcommittee of the board, definite plans for its use. 12 C.F.R. 34.84.
Pursuant to 12 CFR 5.30(j), national banks must comply with 12 U.S.C. 1831r-1 which requires, among other things, that each depository institution adopt a policy on branch closings. While the statute does not expressly state that the board of directors must adopt or approve such a policy, Mellon’s practice has evidently been to obtain such approval.
Title 12, Code of Federal Regulations – FDIC Regulations
Undercapitalized insured depository institutions must submit applications to the FDIC to engage in certain activities; such applications must be authorized by the board of directors. 12 C.F.R. 303.201.
Board of directors must approve application to resume FDIC insured status if status had been previously terminated. 12 C.F.R. 303.248.
Board of directors approval is one requirement that must be met for insured depository institution to release examination report to a majority shareholder. 12 C.F.R. 309.6.
Board of directors of insured depository institutions must take certain action with respect to indemnification payments to institution-affiliated parties. 12 C.F.R. 359.0; 12 C.F.R. 359.5.
Each insured depository institution shall establish an independent audit committee of its board of directors, the members of which shall be outside directors who are independent of management of the institution; duties shall include reviewing with management and the independent public accountant the basis for the reports issued under 12 C.F.R. Part 363. The audit committee of any insured depository institution that has total assets of more than $ 3 billion shall include members with banking or related financial management expertise, have access to its own outside counsel, and not include any large customers of the institution. If a large institution is a subsidiary of a holding company and relies on the audit committee of the holding company to comply with this rule, the holding company audit committee shall not include any members who are large customers of the subsidiary institution. 12 C.F.R. 363.5.
Appendix A to 12 C.F.R. Part 363 provides further guidance on audit committees:
- Multi-tiered holding companies may satisfy all requirements of Part 363 at any level.
- The independent public accountant who audits an institution’s financial statements should meet with the institution’s audit committee to review the accountant’s reports required by this part before they are filed. It also may be appropriate for the accountant to review its findings with the institution’s board of directors and management. (Id.)
- The insured depository institution’s audit committee shall review with management and the independent public accountant who audits the bank the basis for (a) the internal control reports required by section 36 of the FDI Act; (b) the independent auditor’s reports on the institution’s internal control reports; and (c) the independent audit required by section 36. The internal control reports the audit committee must review are:
- a report signed by the chief executive officer and the chief accounting officer or financial officer of the institution which contains:
- a statement of the management’s responsibilities for (i) preparing financial statements, (ii) establishing and maintaining an adequate internal control structure and procedures for financial reporting; and (iii) complying with the laws and regulations relating to safety and soundness which are designated by the FDIC and appropriate federal banking agency; and
- an assessment, as of the end of the institution’s most recent fiscal year, of (i) the effectiveness of such internal control structure and procedures; and (ii) the institution’s compliance with the laws and regulations relating to safety and soundness which are designated by the FDIC and the appropriate federal banking agency.
- The board of directors may appoint other responsibilities to the audit committee.
Title 12, Code of Federal Regulations – Federal Reserve Board Regulations
A bank may rely on another party to assess the financial condition of or select a correspondent, provided the bank’s board of directors has reviewed and approved the general assessment or selection criteria used by the other party. 12 C.F.R. 206.3.
A bank’s written policies and procedures to prevent excessive exposure to any individual correspondent shall be reviewed and approved by the bank’s board of directors at least annually. (Id.)
Various matters must be reported to or acted upon by a bank’s board of directors under Federal Reserve Board Regulation O. 12 C.F.R. Part 215.
Each executive officer or director of a bank holding company the shares of which are not publicly traded shall report annually to the board of directors of the bank holding company the outstanding amount of any credit that was extended to the executive officer or director and that is secured by shares of the bank holding company. 12 C.F.R. 225.4.
Notice procedure for the establishment of a one-bank holding company requires a certification of certain matters by the notificant’s board of directors. 12 C.F.R. 225. 17.
If a bank holding company or nonbank subsidiary that engages in futures, forward and option contracts on U.S. Government and agency securities and money market instruments is taking or intends to take positions in financial contracts, the company’s board of directors must approve prudent written policies and establish appropriate limitations to insure that financial contract activities are performed in a safe and sound manner with level of activity reasonably related to the organization’s business needs and capacity to fulfill obligations. 12 C.F.R. 225.142.
The board of directors or an appropriate committee of the board of each bank holding company shall approve the bank holding company’s written information security program and oversee the development, implementation and maintenance of the bank holding company’s program and review reports from management. Each bank holding company shall report at least annually to its board or an appropriate committee of the board with respect to the security program. Appendix F to 12 C.F.R. Part 225 – – Interagency Guidelines Establishing Standards for Safeguarding Customer Information.
A member bank’s ability to rely on certain exemptions from the requirements of Sections 23A or 23B of the Federal Reserve Act are predicated on, among other things, approval by the bank’s board of directors. 12 C.F.R. 223.15(b), 223.41, 223.53.