The American Association of Bank Directors has requested the Inspectors General of the FDIC, Treasury and Board of Governors of the Federal Reserve System to consider adoption of AABD’s recommendations to improve the accuracy of the Material Loss Reviews that they conduct for closed banks. AABD advised the IGs that it welcomes their comments and has promised to attach their comments to AABD’s report on MLRs.

AABD has provided copies of its report on the banking agency Inspector General Material Loss Reviews to House and Senate banking committee leaders and advised them of AABD’s finding that the MLRs are so flawed that they should not be relied upon.

In reviewing a representative sample of Material Loss Reviews of failed banks conducted by the Office of Inspectors General of the FDIC, Federal Reserve Board, and the Department of Treasury (“MLRS”), the American Association of Bank Directors (“AABD”) has concluded that there is at least one constant – the bank failure was always the fault of the board of directors of the failed bank. Can that really be true? AABD is not in a position to make that judgment. But a reading of the sampled MLRs suggests that they are a flawed record of what actually happened and, therefore, should not be relied on to conclude that a bank failed because of its board of directors.

Do keep an open mind on the idea of board evaluations.

Remarks by Thomas J. Curry Comptroller of the Currency Before The Clearing House New York, New York November 15, 2012

In light of the volume of comments received and the wide range of views expressed during the comment period, the agencies do not expect that any of the proposed rules would become effective on January 1, 2013.

This New Guidance places an additional burden on the institutions board of directors.

ABA urged federal agencies to stop using disparate impact analysis in fair lending cases as its use is based on unsupported legal theory, yet carries real consequences for banks and consumers that detract from legitimate fair lending efforts.

RED FLAGS FOR FAIR LENDING RISK HOW TO IDENTIFY AND RESOLVE THEM

The OCC is providing guidance to COMMUNITY BANKS (assets of $10 billion or less) on using stress testing to assess risk in their loan portfolios.

The Conference of State Bank Supervisors (CSBS) submitted two comment letters on federal proposed rules implementing the Basel III capital accords and a standardized approach for risk-weighted assets.

Bank directors can choose one of three basic routes to navigate today’s ever-increasing regulatory burden: resign, play “check the box” or face the challenge. This article offers a few suggestions to those board members who elect to face the challenge.

The recent announcement by the IRS that it is paying Bradley Birkenfeld, a former financial advisor to UBS, for reporting a tax evasion conspiracy, $104 million has attracted a lot of attention in the media. Also perhaps among your employees and officers.

Updates on New Payouts Authorized by the Dodd-Frank Act and Seven Steps to Incentivizing Internal Reporting

The federal banking regulatory agencies have created regulatory capital estimation tools to help community banking organizations and other interested parties evaluate recently announced published regulatory capital proposals.

The FDIC's Division of Depositor and Consumer Protection has revised the classification system for citing violations identified during compliance examinations to better communicate to institutions the severity of violations and to provide more consistency in the classification of violations cited in Reports of Examination. This Financial Institution Letter applies to all FDIC-supervised financial institutions.

The AABD has prepared this following memo outlining board duties in regard to capital requirements:

WHAT WORKS, WHAT DOESN’T, AND HOW TO GO ABOUT IT

A summary of recent CFPB Bank Director Guidance, CFPB Reports and consumer complaints

The federal banking regulators announced August 8th that they have extended the comment period until October 22, 2012, on three notices of proposed rulemaking (NPRs) that would revise and replace the agencies' current capital rules.

On June 20, 2012, the SEC finalized its regulations regarding compensation committee independence requirements under Section 952 of Dodd-Frank. The final rules require national securities exchanges (i.e., New York Stock Exchange and Nasdaq) to establish minimum listing standards regarding the independence of compensation committee members, the authority and responsibilities of the compensation committee, and the process to be followed when selecting compensation consultants and other advisors

The Office of the Comptroller of the Currency discussed risks to banks and the banking system in its new report, the Semiannual Risk Perspective for spring 2012.

"For those of you that are at the top of your organizations or for those of you that are on the Board of your firm or bank these recent events should raise red flags about how business is conducted at your firm": Mark Grant

The AABD will be publishing a full report on all the FDIC complaints filed to date that analyzes the common themes of the litigation. The report will offer guidance regarding steps bank directors can take to avoid the elements frequently cited by the FDIC as negligent.

The AABD has learned that Treasury plans to pool about $2 billion of outstanding TARP securities for about 200 smaller community banks for a series of auctions.

David Baris, Executive Director of AABD, and Charles Thayer, AABD Chairman met with Senate and House Committee Staff the week of May 21 to discuss the Bank Director Regulatory Burden Report and other AABD initiatives on behalf of bank directors

Mark Grant, Managing Director of Southwest Securities, was the Keynote Speaker at the 2012 AABD Bank Director Workshop in Florida.His views on investment risk oversight are important considerations for board members of every financial institution – including smaller community banks.

The House Financial Services Committee, Subcommittee on Financial Institutions and Consumer Credit held a hearing on May 9, 2012 entitled “Rising Regulatory Compliance Costs and Their Impact on the Health of Small Financial Institutions.”

AABD Report Identifies 800+ Legislative & Regulatory Provisions Impacting Bank Director Responsibilities

Bank Director Workshop Presentation by David Baris

American Banker Magazine highlights the AABD position regarding insurance coverage for civil money penalties.

ABA Bank Directors Briefing describes why bank directors have a "heckuva lot more to worry about today".

New "Guidelines" erode bank directors' right to access records for their defense

Bank CEOs and Board Members should be aware that the CFPB has initiated public feedback on checking account overdraft practices.

AABD Executive Director Baris testified in support of the independent review of examination findings. AABD submitted testimony for the February 1 Congressional hearing on H.R. 3461, which creates an independent Ombudsman and independent fact finder.

AABD takes the position that Part 359 does not bar directors from paying for insurance to cover the risk of a civil money penalty or judgment emanating from a federal banking agency action

The Consumer Financial Protection Bureau (CFPB) has announced several ways that whistleblowers can annonomously access a "direct line of communication" to the Bureau to report potential violations of federal consumer financial laws.

OCC Issues Proposed Rule to Replace Credit Rating References with Alternative Creditworthiness Standards. On November 29, the Office of Comptroller of Currency (OCC) issued a proposed rule to implement Section 939A of the Dodd-Frank Act, which required the replacement of the use of credit ratings with alternative standards of creditworthiness. The AABD will monitor potential compliance risk for bank directors.

TESTIMONY OF DAVID BARIS EXECUTIVE DIRECTOR, AMERICAN ASSOCIATION OF BANK DIRECTORS HEARING BEFORE US SENATE COMMITTEE ON SMALL BUSINESS WASHINGTON, D.C.

The AABD is posting a list and links to the lawsuits brought by the FDIC against officers and directors as receiver for failed banks.

The American Association of Bank Directors urging the White House to work with Treasury so that many banks and bank holding companies that have applied for SBLF funding and have been recommended by their primary bank regulator to participate in the program will be able to participate and will not be barred from participating solely because the regulator requires its prior approval before dividends are paid to Treasury.

TESTIMONY OF DAVID BARIS EXECUTIVE DIRECTOR, AMERICAN ASSOCIATION OF BANK DIRECTORS BEFORE THE US HOUSE SUBCOMMITTEE ON FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

Letter received by AABD from the FDIC in response to AABD position on loan approvals by bank boards

Bank directors and officers are invited to report any bank examination matter on a confidential basis to AABD.

AABD Letter submitted to GAO

View PDF of AABD Letter

AABD has established the following aggressive bank director advocacy agenda for 2012.

The American Banker published an article written by David Baris, AABD Executive Director, describing the risks related to the approval of loans by bank directors. The article was based on a letter sent to the FDIC by the AABD.

Current Policy Positions Agency Use Of Powers Why Too Much Power Is Bad What Needs To Be Changed Other Legislative Proposals Agency Limitations Beginning in 1966, the U.S. Congress expanded the enforcement powers of the federal banking agencies based on the belief that they lacked sufficient authority to force banks and related parties to take corrective action to prevent unsafe and unsound banking practices where moral suasion was ineffective. Since that time, the Congress has continued to add to the enforcement arsenal of the agencies, particularly in the period 1989-1993. In 2006, Congress is poised to pass legislation that will repeal existing law that protects bank directors against the agencies enforcing written agreements and written conditions to applications, notices, and requests that would compel bank directors and others to provide personal financial guarantees such as achievement and maintenance of capital ratios....

AABD Members Only Resource

On May 11, 2011, David Baris, Executive Director of AABD, submitted a statement for a hearing held by the Capital Markets Subcommittee of the House Financial Services Committee calling for the repeal of the whistleblowing provisions of Dodd-Frank. The statement pointed out that when Congress passed the Dodd-Frank Act, it did not adequately consider the ramifications of the whistleblowing provisions on the internal reporting systems set up by public companies under the Sarbanes-Oxley Act. The law undermines the authority of boards of directors of banks and other companies to rely on loyal employees who have a fiduciary duty to report possible securities and other violations or improprieties to their companies, and should be repealed as soon as possible.

Good afternoon Chairman Garrett, Ranking Member Waters and members of the Subcommittee. Thank you for the opportunity to submit this statement in connection with today’s hearings on the whistleblowing provisions of Section 21F of the Securities Exchange Act, as enacted by the Dodd-Frank Act.

The AABD has filed an amicus brief opposing the FDIC's position in its suit against Bryan Cave that bank directors have no right to access or possess bank records for use in their defense of possible lawsuits by the FDIC and others following the closing of their banks. The brief argues that bank directors have a right to copy bank records while the bank is open in order to preserve such documents and to use the documents, following the closing of their banks, in their defense.

AABD has requested FDIC Chairman Bair to permit bank directors to copy or have access to bank documents they need to defend themselves against suits by the FDIC as receiver of their institutions. The FDIC recently asserted in a lawsuit against a law firm that had been retained by the board of directors of a bank that ultimately failed that the directors had no right to such documents and demanded that the firm return all fees paid by the bank to assist the board members in preparing for a possible suit against them.

The attached letter and analysis was provided to the FDIC by Chartwell Capital Ltd.

On January 25, 2011, Michael Krimminger, FDIC's General Counsel, responded to AABD regarding a letter to FDIC Chairman Bair requesting that bank directors be permitted to copy or have access to bank documents they need to defend themselves against suits by the FDIC as receiver of their institutions.

AABD has requested FDIC Chairman Bair to permit bank directors to copy or have access to bank documents they need to defend themselves against suits by the FDIC as receiver of their institutions. The FDIC recently asserted in a lawsuit against a law firm that had been retained by the board of directors of a bank that ultimately failed that the directors had no right to such documents and demanded that the firm return all fees paid by the bank to assist the board members in preparing for a possible suit against them.

On December 17, 2010, AABD submitted comments on the SEC's proposed whistleblowing regulations. AABD concluded that while the SEC has made good faith efforts to reconcile support for internal corporate compliance systems with the offering of a bounty to corporate employees to circumvent those systems, the conflict is irreconcialable. Therefore AABD urged the SEC to recommend to the new Congress to repeal the statutory provisions on whistleblowing in Dodd Frank.

Download letter as PDF

A key element of any robust compliance system is reliance on employees who suspect or discover improper behavior to report it to the Audit Committee or other reporting bodies within the company so that prompt review and necessary corrective action is taken on a timely basis. Yet, Section 21F tempts employees to bypass the corporate compliance processes by offering them significant bounties.

On November 1, 2010, the FDIC sued the directors of Heritage Community Bank for $20 million. The bank was closed in 2009. AABD is opposed to suits filed against directors where the actions taken by the directors were in good faith. A special report on this case will be posted on the site shortly.

The Small Business Jobs and Credit Act of 2010 was passed and signed into law on September 27, 2010. AABD supported a House amendment to the bill (Section 113) which would have allowed banks to amortize real estate loan and OREO losses for up to ten years for regulatory capital calculation purposes. The House approved the amendment in June, but the Senate version omitted the provision.

The Small Business Jobs and Credit Act of 2010 was signed into law on September 27, 2010. The memorandum below from Noel Gruber of BuckleySandler summarizes the provisions of the Act. There is much to commend in the Act—it gives banks with CAMELS ratings of 1, 2, or 3 an opportunity to raise capital through a Department of Treasury investment. However, it does not help those banks with CAMELS ratings of 4 or 5.

On July 21, 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 612 of this Act restricts the ability of banks to choose their charters if they are under an enforcement order, agreement or Memorandum of Understanding with their current regulator.

After doubling and redoubling its professional liability division staff over the past several years, the FDIC is now actively pursuing directors of failed banks that it believes are legally responsible for causing the banks to fail. AABD is taking steps to help assure that directors will be treated fairly and responsibly. The attached article from US Banker's July 2010 issue highlights the use of demand letters by the FDIC in pursuing its claims against directors.

HILDA SOLIS, Secretary of Labor, — v. — TENNESSEE COMMERCE BANCORP, INC., - - - ON APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE MIDDLE DISTRICT OF TENNESSEE

On June 21, 2010, the federal banking agencies adopted a final rule on incentive compensation that will add to the responsibilities of bank directors in overseeing compensation paid by their respective banks.

There is a sleeper provision in section 612 of the Wall Street Reform and Consumer Protection Act currently being worked on by a House-Senate Conference Committee that unnecessarily erodes the dual banking system that has been in place for almost 150 years.

AABD is opposed to rules that unnecessarily restrict the authority of a bank's board of directors and its compensation committee to decide how to use compensation to attract, retain, and motivate officers and other employees. The Fed's proposed "guidance" is much more than that, and can lead to enforcement actions in which the Fed can direct its member banks and bank holding companies to adopt policies and procedures and structure incentive compensation plans that the Fed believes are necessary to prevent excessive risks to the institution.

The American Association of Bank Directors ("AABD") today announced its opposition to certain provisions in The Student Loan Sunshine Act (H.R. 890) that may jeopardize bank directors' service on college boards of trustees. The House of Representatives passed the measure on May 9, 2007, and on August 1, 2007, the Senate Banking Committee reported out a similar measure. AABD believes that there may be hundreds if not thousands of bank directors who also serve on the board of trustees of colleges throughout the United States.

From its inception, AABD has striven to help assure that bank directors are given reasonable protections against personal liability and the tools with which to meet their duties and responsibilities. The Cardinal Bankshares Corporation case pending in the Fourth Circuit Federal Court of Appeals and at the Department of Labor has the potential of eroding these protections and therefore the AABD has filed amicus briefs in the case.

From its inception, AABD has striven to help assure that bank directors are given reasonable protections against personal liability and the tools with which to meet their duties and responsibilities.

Just as the U.S. Congress takes final legislative action whose objective is to provide regulatory relief (but see AABD's position on Section 405 of HR 3505), there is little relief for bank directors. In fact, as the attached documents reflect, the regulatory burdens on bank directors are high and, we believe, are getting higher.

A fundamental legal principle underlying the development of the modern American corporation has been the ability of the directors to reasonably delegate duties to subordinate officers and employees without the fear of personal liability. This principle is reflected in state statutes and case law as well as the Model Business Corporation Act.

On October 13, 2006, the Financial Services Regulatory Relief Act was signed into law as P.L. 109-351. Undoubtedly there are provisions in the Act that are very favorable to the banking industry. AABD was never opposed to those provisions. AABD's only opposition related to Section 702, which is part of the new law.

WASHINGTON: A provision in regulatory-relief legislation could hold directors responsible for bailing out troubled banks. The provision would give federal regulators more authority to force directors to reach into their own pockets to recapitalize their banks if their capital fell below specific levels.

It has been almost fifteen years since the S&L debacle passed into history. But one of the more frightening pieces of that history may be resurrected in the form of a provision in the Financial Services Regulatory Relief Act (HR 3505), which the House of Representatives passed on March 8, 2006. The Senate Committee on Banking, Housing, and Urban Affairs reported out of committee a streamed-down version on May 4, 2006, and the Senate passed that version on May 25, 2006.

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...

The American Association of Bank Directors ("AABD") announced today that its AABD Task Force on Asset Freezes has issued the "Report on the Use of Federal Financial Institution Asset Freeze Authority."

For those directors of banks that are in formation or have been formed within the past five years, recent studies performed by the staffs of the Federal Reserve Banks of Chicago, Atlanta and San Francisco should be of interest.