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Board Oversight of the Compliance Function: Coaching Fundamentals

January 7, 2013

Authors

Bryan Cave

Board Oversight of the Compliance Function: Coaching Fundamentals

January 7, 2013

by: Bryan Cave

Despite all that has been made of Dodd-Frank, the new Consumer Financial Protection Bureau, and the increased focus on consumer compliance throughout the banking industry, we think that the fundamental formula for effective board oversight of the compliance function has not materially changed. We encourage directors to take stock to make sure their bank’s program is adequate. In this season of great contests on the gridiron, we would emphasize that blocking and tackling—and defense generally—remain the keys to success in this area. Be a good coach and make sure that these fundamentals are practiced at your bank.

Bank Regulatory Expectations

We start with the black-letter guidance and then read between the lines based on our experience and judgment. Each of the prudential bank regulators has outlined its expectations for board oversight of the compliance function. Although it’s stated

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FDIC Files Second D&O Lawsuit in Florida

December 4, 2012

Authors

Bard Brockman

FDIC Files Second D&O Lawsuit in Florida

December 4, 2012

by: Bard Brockman

Despite having more than its fair share of failed banks, Florida has not been a hotbed of D&O litigation. On November 9th, the FDIC filed only its second lawsuit against former directors of a failed banking institution. The defendants here are former directors of Century Bank, FSB (Sarasota, FL), which was placed into receivership in mid-November 2009.  A copy of the FDIC’s complaint is available here.

 The FDIC’s complaint is consistent with most of its prior D&O lawsuits, with typical allegations of negligent overconcentration in ADC and CRE, as well as various failures to follow the Bank’s loan policy or to exercise safe and sound banking practices. What makes this complaint a little different is that it focuses on ten specific loan transactions which were approved after it was apparent that the Bank was in “dire financial condition” and not meeting regulatory capital requirements. 

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Strategic Planning for Bank Boards: Proactive Governance in the New Regulatory Environment

October 31, 2012

Authors

Jim McAlpin and Walt Moeling

Strategic Planning for Bank Boards: Proactive Governance in the New Regulatory Environment

October 31, 2012

by: Jim McAlpin and Walt Moeling

Sweeping new regulations and unprecedented scrutiny of the banking industry have combined to place a greater emphasis on the role of boards of directors in the leadership of banks. Although the board’s primary responsibilities have not changed – to maximize shareholder value and to hire, compensate and supervise qualified management – there is now a greater need to address these responsibilities within the context of a well-considered strategic plan. Many bank boards primarily employ a month-to-month approach to the oversight of their institutions, which can result in heavy reliance on bank management to chart the strategic course of the bank. It is valuable for a board occasionally to set time aside to take stock of the bank’s strengths, weaknesses and opportunities, and then proactively engage in a process of determining the strategic goals and direction for the bank. This gives the board a frame of reference within which

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Revisions to North Carolina Banking Code Affect Board Responsibility for Loan Approvals

July 24, 2012

Authors

Michael Shumaker

Revisions to North Carolina Banking Code Affect Board Responsibility for Loan Approvals

July 24, 2012

by: Michael Shumaker

The board of directors and its loan committee play critical roles in formulating and supervising a bank’s risk management policies, particularly with regard to a bank’s lending function. However, as we have recently noted, while all bank directors must be involved in the loan approval process and take seriously their significant responsibilities as bank directors, there continues to be debate regarding the role of bank directors in the review and approval of loans.

Until the revision of the North Carolina Banking Code (previously codified at Chapter 53 of the General Statutes of North Carolina), which was signed into law on June 21, 2012, Section 53-78 required the board’s loan committee, or other designated committee, to “approve or disapprove all such loans and investments as may be required…” Although this statute provided a “black and white” interpretation of the responsibility of the board of directors in

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Best Practices for Bank Boards – Part 4

July 23, 2012

Authors

Jim McAlpin

Best Practices for Bank Boards – Part 4

July 23, 2012

by: Jim McAlpin

(A PDF version will all of the Best Practices for Bank Boards has been added to our White Papers.)

I frequently speak to groups of bank CEOs and directors at state and national conferences. One of my favorite topics is “best practices for bank boards.” The audience reaction always confirms my belief that bank boards of directors all face the same fundamental challenges, regardless of the size or geographic location of the bank and the shareholder base which they serve. Boards of directors are groups of people, and every group of people develops its own set of shared expectations and priorities. It can be helpful for a bank board to occasionally take the time to reflect on its approach to self governance and decision making, especially when this is done by examining the experience and success of other boards of directors in the

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Best Practices for Bank Boards – Part 3

March 19, 2012

Authors

Jim McAlpin

Best Practices for Bank Boards – Part 3

March 19, 2012

by: Jim McAlpin

Over the past several years we have seen the regulatory agencies become much more focused on board oversight and performance. This is a natural point of focus for regulators in a time of crisis in the banking industry. The fiduciary and oversight obligations of members of boards of directors are well established, and there is a road map in the corporate records for following the actions and deliberations of a board. I would suggest, however, that a board of directors could receive a gold star for the quality of its minute records and its adherence to the established principles of corporate governance, and yet fall well short of being an effective working group.

This is the third in a series of articles of best practices for bank boards.   (Parts 1 and 2 can be found here and here, respectively.)   Over the past several decades my

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Treasury Updates TARP Missed Dividend Report

March 12, 2012

Authors

Robert Klingler

Treasury Updates TARP Missed Dividend Report

March 12, 2012

by: Robert Klingler

On March 12, 2012, Treasury released its February 2012 Dividends and Interest Report providing an updated look at the status of TARP CPP funds, including the first update following the February 2012 dividend due date under the terms of the TARP CPP investments.  As of February 29, 2012, there were 163 TARP recipients that had missed at least one dividend payment (excluding any TARP recipients that have filed bankruptcy or who have been placed into receivership).

As a result of the missed dividends, Treasury has appointed a total of 13 directors to eight different institutions.  In addition, the Treasury has appointed observers to an additional 39 institutions.

Although the Treasury has the right, under the terms of the TARP investments, to appoint two directors once a TARP recipient misses six dividend payments, Treasury has focused its efforts on the largest recipients.  This likely partially reflects that it is not

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A Director’s Guide to Corporate Governance 101

March 8, 2012

Authors

Jonathan Hightower and Walt Moeling

A Director’s Guide to Corporate Governance 101

March 8, 2012

by: Jonathan Hightower and Walt Moeling

The day when the board’s focus was limited to approving loans and marketing the bank in the community is long past. Today’s boards face a wide array of complex tasks, and, accordingly, the composition, structure and organization of the board must all be geared to facilitate the board’s performing its duties and functioning properly. This process today is lumped under the heading of “corporate governance.”

(For a printer-friendly version of this post, including a sample Director Self Assessment form, please click here.)

The concept of functioning properly, of course, is in the mind of the beholder, but it clearly includes the board’s performing its primary duties of enhancing shareholder value, selecting, compensating and overseeing management and implementing risk management policies.

Boards of publicly traded banks are now fairly well acclimated to the issues comprising corporate governance, and bank regulators are now bringing many of these issues into the community

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What Bank Directors Need to Know About Bank Secrecy Act Compliance

February 24, 2012

Authors

Bryan Cave

What Bank Directors Need to Know About Bank Secrecy Act Compliance

February 24, 2012

by: Bryan Cave

Ten years ago, Bank Secrecy Act (BSA)/anti-money laundering (AML) compliance was one of the biggest areas of concern for banks and their regulators.  Following September 11 and the heightened regulatory focus on BSA matters, most banks found it necessary to expend significant resources to enhance or even rebuild their BSA/AML programs.

In the past few years, bank regulators have had to focus on other matters, including residential and commercial loan concentrations, adequate capitalization, and even bank failures.  Banks also wisely have focused on these matters during these difficult economic times.

It is important, however, that these other matters do not push BSA/AML compliance aside.  This article summarizes some of the top BSA-related issues that the Board of Directors of every bank should keep in mind.

Best Practices for the Board

It is easy in difficult financial times for the Board and management to push aside compliance matters, including BSA/AML compliance. 

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Best Practices for Bank Boards – Part 2

February 1, 2012

Authors

Jim McAlpin

Best Practices for Bank Boards – Part 2

February 1, 2012

by: Jim McAlpin

Over the past several years I have attended dozens of meetings of boards of directors of banks in troubled condition.  The vast majority of these boards were well functioning and had dedicated and hard working directors.  Geographic location has been the predominant factor in determining winners and losers among banks in this challenging economy.  However, there have been several situations in which it appeared to me that the composition of a board, and the interpersonal dynamics among its members, had magnified the impact of the economic downturn.  A bank board is like any other working group in that the direction and decisions of a board can be heavily influenced by members who dominate the conversation, or by members who actively discourage discussion or dissent.

This is the second in a series of articles on best practices for bank boards.  (Part 1 can be found here.) During the past several

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