In 2007 the markets shook When no bank trusted another’s book The downdraft whirlpool then ensnared Parties that were unprepared

It is amazing how varied the response of community bank directors has been to the recent spate of corporate fiascoes involving Fortune 500 companies. In meetings with bank boards throughout the United States, I have observed the sublime to the ridiculous. For many bank boards, the corporate scandals have had no impact whatsoever. Not even a mention in the board minutes. It is as if the tumultuous events of the past year never happened. The attitude seems to be, "That could never happen to us."

On April 3, 2001, the U.S. House of Representatives passes H.R. 974, known as the Small Business Interest Checking Act of 2001. It repeals the prohibition on paying interest on business checking accounts, effective two years following enactment. Upon enactment, it permits business customers to transfer funds from interest-bearing accounts to business checking accounts at least 24 times a month. It also permits the Federal Reserve to pay banks and savings institutions interest on the reserves they keep with the Fed.

To community banks, functional regulation and the opportunities presented by the Gramm-Leach-Bliley Act represent a strategic issue – whether and how to offer a new banking or financial product. Functional regulation also means that community banks must prepare themselves for multi-agency supervision, including agencies regulating the securities and insurance industry.

Federal legislation to authorize Interest on Business Checking Accounts is just around the corner. First, acknowledge that it's coming. Second, do the math so your bank can budget for the eventual loss of interest income and third, find ways to generate new sources of income to offset the income that will be lost. Your bank may already be using some sort of sweep account to pay interest on business checking accounts but; when the new law takes effect, you'll probably have to pay market rates on most, if not eventually, all of your depositors' corporate checking accounts.

Late last year, the Securities and Exchange Commission, Nasdaq, and the exchanges adopted new rules for audit committees. The rules become effective this year (2000). In general, they require public companies to have independent audit committees of at least three members, establish new independence rules for directors on the committee, specify the contents of audit charters, require audit charters to be published in proxy statements, and include special requirements for quarterly financial statements. Some of the new rules overlap with the audit and audit committee rules that have applied to banks and bank holding companies for years.

A bank director learns at a Board of Directors meeting that First National Bank is interested in acquiring his bank. The Board votes to hold a special meeting the following week, with its investment bankers present, to discuss a possible sale or merger. The director purchases the stock of his bank the day following the Board meeting. Two months later, his bank publicly announces that it is being acquired by First National Bank. Upon the announcement, the bank director makes a profit of $175,085 on his stock purchase.

Federal prosecutors wanted to make an example of a powerful state legislator for the way he ran his small-town bank. Instead, their case was ripped away and the government penalized for the first time by a law to curb runaway prosecutions.

The Guidelines address some of the inherent risks of high loan-to-value (LTV) residential real estate lending. A high LTV residential real estate loan is defined as any loan, line of credit, or combination of credits secured by liens on or interests in owner-occupied 1- to 4-family residential property that equals or exceeds 90 percent of the real estate's appraised value, unless the loan has appropriate credit support.

Bank directors who have the desire and stamina are welcome to delve through the intricacies of the new, 400+ page Financial Services Modernization Act.

As bank boards of directors begin to decide who will be nominated for Board seats next year, what thought is being put into the idea of an advisory board?

The prognosis on the economy is mixed. Some bank regulators continue to issue warnings about weakening credit underwriting standards, weak risk management systems, and Year 2000 compliance risks, sometimes accompanied by threats of enforcement action.

On December 3, the American Association of Bank Directors participated in the first of three summit meetings of the Financial Institutions Sector Group of the President’s Council on Year 2000 Conversion. The one-day meeting focused primarily on the millennium (Y2K) bug’s implications for the telecommunications and energy industries. This Special Report to financial services industry boards of directors summarizes the high points of the meeting and comments on several key issues.

Recent warnings by the Acting Comptroller of the Currency of deteriorating loan underwriting standards in national banks have put national bank directors and others on notice of potentially serious consequences if appropriate action is not taken.

April 3, 1996 was a landmark in the annals of management succession events. On that date, an airplane carrying Commerce Secretary Ron Brown crashed on a mountain side in Bosnia. Secretary Brown was accompanied by 12 CEOs of companies of various sizes, industries, and ownership structures. In that one instant, a major government department and 12 U.S. companies lost their leaders, and for the directors and managers of those organizations, succession moved from theory to reality.

It’s time to introduce balance into the Year 2000 dialogue. We’ve all got it, the Y2K bug, and the cure is costly but not necessarily fatal in itself. It helps, as with any disease, to learn as much about it as possible, but the constant focus on the mortality rate obscures a set of positives and one major opportunity that bank directors should not overlook.