We are not aware of any federal or state laws or regulations that would prohibit your branch manager from serving on the board of a unit of local government when the unit also is a deposit and loan customer of the bank. Generally speaking, we believe this is a relatively common situation in Illinois and throughout the country.

Needless to say, there could be instances when a potential conflict of interest might arise in the course of either role of the employee. With respect to the bank, we recommend excluding the employee from making any substantive decisions regarding the local government’s accounts with the bank, and as a further precaution, obtaining approval from your board of directors of the employee’s arrangement. We also recommend reviewing your bank’s ethics policies and code of conduct to address situations like these, and if necessary, updating them to conform to your bank’s expectations. 

As to the unit of local government, the employee’s participation in discussions and decisions regarding its relationship with the bank will be dictated by its own board’s policies after full disclosure by the bank employee.

For resources related to our guidance, please see:

• Savings Bank Act, 205 ILCS 205/4010(a) (“Directors and officers occupy a fiduciary relationship to the savings bank of which they are directors or officers, and a director or officer shall not engage or participate, directly or indirectly, in any business or transaction conducted on behalf of or involving the savings bank that would result in a conflict of their own personal interests with those of the savings bank which they serve, unless: (i) the business or transactions are conducted in good faith and are honest, fair, and reasonable to the savings bank; (ii) a full disclosure of the business or transaction and the nature of the director's or officer's interest is made to the board of directors; and (iii) the business or transaction is approved in good faith by the board of directors with any interested director abstaining.”)

• FDIC Financial Institution Letter, Corporate Codes of Conduct – Guidance on Implementing an Effective Ethics Program (October 21, 2005) (“The Federal Deposit Insurance Corporation (FDIC) is reminding financial institutions of the importance of written standards to promote honest and ethical conduct, compliance with applicable rules and regulations, and accountability in adhering to a corporate code of conduct or ethics policy. . . . An institution's board of directors should convey the message that integrity and ethical values of the highest standard should be maintained. The board should establish clear expectations on acceptable business practices and prohibited conflicts of interest by establishing policies on expected behavior.”)

• OCC Comptroller’s Handbook, Safety and Soundness: Insider Activities (November 2013) (“The board must adopt and enforce strong written insider policies governing the bank’s relationship to insiders and their related interests. The board and management must ensure that their business and personal relationships with the bank are always at arm’s length, do not bias decisions or otherwise harm the bank, and do not improperly take business opportunities away from the bank. In addition, the board and management must take reasonable action to prevent other employees from abusing their positions within the bank. In this regard, the board and management have a number of duties relating to insider activities: . . . Establishing appropriate insider policies, including a code of ethics and required disclosures of actual and potential conflicts of interest.”)