Topic: Board of Directors (BOD)
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Should banks perform background and credit checks on prospective board members?
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Yes, we believe banks should perform criminal background checks on prospective board members, as both Illinois and federal law prohibit individuals who have been convicted of certain crimes from serving as directors or otherwise participating, “directly or indirectly, in the conduct of the affairs of any insured depository institution.” We are not aware of any…
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Are banking personnel required take off work for five consecutive days? We would like to remove this requirement from our HR handbook. Also, since our employees can access our system remotely, many sign in even when on vacation to check their email or look something up. How would this impact a requirement to take off work?
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We are not aware of any law or regulation requiring bank employees or officers to take vacation, but the federal banking agencies continue to recommend that bank employees take at least two consecutive weeks of vacation each year — along with several alternative recommendations, from rotating duties to having your board of directors review and…
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One of our directors is the President and CEO (but not an owner) of company that would like to borrow money from our bank. If the director has “control” of the company for purposes of Regulation O, we believe we will exceed our legal lending limit for this borrower. Are we correct that an individual can have “control” of a company without having an ownership interest in the company?
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Yes, we believe it is possible for a person to have “control” of a company, as defined in Regulation O, without having an ownership interest in the company. Under Regulation O, a person has control of a company if the person “owns, controls, or has the power to vote 25 percent or more of any…
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Does the Illinois Banking Act or any guidance require that bank officers or employees take vacation?
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No, we are not aware of any laws or regulations that require bank employees or officers to take vacation. The FDIC (your primary regulator) does expect that banks require its officers and employees “to be absent from their duties for an uninterrupted period of not less than two consecutive weeks . . . in the…
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Our bank holds board meetings every other month. An IDFPR examiner is now asking us to provide a letter on file from the IDFPR showing that we have been approved to have board meetings every other month instead of monthly. The request is based on Section 5/16(4) of the Illinois Banking Act, which states, “The board of directors shall hold regular meetings at least once each month, provided that, upon prior written approval by the Commissioner, the board of directors may hold regular meetings less frequently than once each month but at least once each calendar quarter.” I haven’t seen this request in the last 15+ years that I have been with the bank. Are we required to keep this letter on file for examination purposes?
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Yes, we believe that the prior written approval required under the Illinois Banking Act to hold board meetings less frequently than once each month is a relevant document that the IDFPR has authority to request during examinations. The Illinois Banking Act gives the IDFPR broad authority to require the production of any relevant books, papers,…
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What training is required for a bank’s Board of Directors?
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This is not an area where a black-and-white answer is available, but the federal banking regulators have issued some helpful guidance on their expectations for board training and involvement. Although the resources below are not necessarily from your primary regulator, they are good sources for best practices and advice. The OCC’s Guidelines Establishing Heightened Standards…
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The chairman of our board of directors owns 10% of one business and 12% of another. Would these businesses be eligible for a Paycheck Protection Program (PPP) loan from our bank? We believe this would be permissible under Regulation O, but we are unsure if it would be permissible under the SBA’s recent interim final rule. Would the chairman be considered a “key employee” of the bank if they are not employed by the bank?
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No, the chairman of your board would not be considered a “key employee” if they are not employed by your bank, and businesses in which they have an interest would be eligible for a PPP loan from your bank — provided all other eligibility criteria are met. The SBA’s interim final rule addressing PPP eligibility…
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Our trust department requires bank directors who serve on the trust committee to sign a form disclosing their securities purchased or sold during the previous quarter involving $10,000 or more. Should this requirement be limited to bank officers and employees, or are bank directors considered employees if their only function is as a director and they are not otherwise employed by the bank? Also, what is the timeframe for submitting the disclosures?
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The FDIC’s quarterly reporting requirements for certain officers and employees who purchase or sell securities aggregating more than $10,000 in a calendar quarter do not apply to bank directors. However, directors who also are officers are subject to these requirements. The FDIC’s Trust Examination Manual confirms that “bank directors are not covered by this provision”…
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We discovered that our treasurer added herself as the POD beneficiary on her uncle’s account at our bank shortly before he died. We immediately removed the treasurer from the account and did not distribute the account funds to her. We plan to fire the treasurer very soon and will file a suspicious activity report (SAR). Is there anything else we should do, such as notifying the IDFPR and our primary federal regulator, the FDIC?
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We do not believe that you are required to notify the FDIC or the IDFPR of the employee’s activity. The FDIC’s regulations require you to notify the FDIC regional office when filing a SAR for “violations requiring immediate attention, such as when a reportable violation is ongoing.” In this case, the violation is not ongoing,…
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Are there any restrictions preventing us from hiring one of our directors (a real estate attorney) to perform legal services for the bank? The attorney-director would be helping us with a business loan. Payment to the attorney-director would be bona fide and paid in the usual course of the bank’s business. Our internal policies do not have any restrictions in this area.
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We are not aware of any federal or state prohibitions against hiring a bank’s director to perform legal services for the bank — provided their fees are bona fide and paid in the usual course of business. Federal law prohibits financial institutions from “corruptly” giving “anything of value” to directors in connection with their business…