Mitigation of Bank Director Personal Liability Consistent with Safe and Sound Banking: Task Force Begins Its Work
For 30 years, AABD has identified laws, regulations, and bank regulatory guidance and practices that hold bank directors legally responsible for matters outside their control or that have been properly delegated to management. We believe these laws, regulations, and regulatory practices have actually had a negative impact on the safety and soundness of the banking system and individual banks.
Out of fear of personal liability, qualified persons sometimes will not accept bank board positions. Directors will resign when they are needed most. Others won’t serve on board loan committees. In reaction to the fear of personal liability, board decision-making can be distorted in a way that can negatively affect the board’s efforts to serve the best interests of the institution and meet its fiduciary duties.
This is an opportune time for a Task Force consisting of independent qualified individuals to evaluate these issues.
COVID-19 continues to spread but with hope that vaccines will help to end the pandemic. Forbearance cannot last forever. Once forbearance ends, many banks may face additional losses. When a bank’s financial condition deteriorates, we know from history that federal banking agencies will often blame the directors for the deterioration and impose stringent and publicly disclosed enforcement actions on their institutions and even individual directors.
During and after the Great Recession, federal banking agencies imposed thousands of public enforcement actions. The FDIC sued bank directors or other institution-affiliated parties in 41 percent of the banks that failed.
AABD is making available its concerns to the Task Force. The Task Force and its members may consider AABD’s past positions and evaluate matters that AABD has not identified. Its members will act as a sounding board to assist AABD to revisit these issues but is not responsible for AABD’s past positions or how AABD may ultimately decide what reform measures it may urge the banking agencies to adopt.
The Task Force members will also review and advise AABD on steps that bank boards and directors may take to mitigate their risk of personal liability.
These members have diverse backgrounds that will assist them in contributing to the review. The members include former banking agency executives and examiners, current and former bank directors, bank CEOs, and bank counsel.
A list of the 30+ initial members of the Task Force and a brief summary of their backgrounds will be posted in the near future.
We welcome additional qualified members. Let us know your interest by emailing David Baris at [email protected].