Robert P. Ross
Attorney of Corporate, Securities & Banking Law
Executive Director of the BCBA
The recent spate of bank regulatory agency actions of increasingly rigorous penalties should be an indication to bank Boards of Directors of the agencies expectations of those Boards. Those agencies’ actions, including the recent Cease and Desist Order against Wells Fargo, evidence the intention to hold Boards of Directors responsible for lack of oversight. That lack of oversight by the Wells Fargo Board resulted in a prohibition of growth, until such time as the agencies determine the problems have been addressed and resolved.
Kentucky community banks may wonder whether the Wells Fargo Order, being applicable to a mega bank, has any relevance to them. But the fact is that the Wells Fargo Order is consistent with agencies’ pronouncements on the responsibilities of Boards of Directors of banks of all sizes to exercise oversight of their financial institutions, regardless of size.
The Wells Fargo Order requires that the Bank establish clear, strategic priorities and clear risk tolerances, allocate resources to achieve those tolerances and priorities and, importantly, to establish a procedure for overseeing senior management to assure that the Board is regularly informed of the progress on these matters.
The establishment of priorities should be set forth in a written document, as should the risk tolerances determined to be acceptable in achieving those priorities. This written document can be the Strategic Plan of the Bank or another written document that simply addresses these matters. The Minutes of the Meetings of Committees and the Board, should fully detail the considerations of these matters by those panels.
Community banks should expect that if future examinations of their institution determine that a problem exists that would not have occurred if the Board of Directors had exercised reasonable oversight and planning, the examining agency will not hesitate to find the Board of Directors responsible and issue such Orders and strictures as it deems appropriate. Community banks should take notice of this trend.