Topic: Board of Directors (BOD)
-
Are we required to notify the IDFPR or the Federal Reserve Board regarding new directors or changes in key management positions? What notices are required to change our corporate headquarters?
—
by
In general, you do not need to notify your state or federal regulator regarding a new director or a change in key management personnel. However, there are some instances when prior notice is required, such as when the new director or manager is obtaining control of the bank, your bank is not in compliance with…
-
What are best practices when a key executive officer or member of management resigns? Are there conflict of interest issues or security options?
—
by
Your primary federal regulator, the FDIC, has released helpful guidance on succession planning and filling vacancies for both management and directors, and we link to those resources below. In addition, the OCC has issued guidance on succession planning, and the FFIEC’s IT examination handbook includes an appendix on business continuity and succession planning. If the…
-
Our bank’s board secretary has requested a medical leave of absence for several months. Should the board appoint an acting secretary who can sign board minutes and any other documents during her absence?
—
by
Yes, we believe it would be prudent to appoint an acting secretary to serve during the secretary’s absence. Under Illinois law (and probably your corporate bylaws) the secretary to a bank’s board of directors is required to sign many important documents, including board resolutions and board minutes, which should not be left unsigned during the…
-
One of our directors owns two businesses that have outstanding loans with our bank. Can we extend a loan to the director’s adult son, who also is a partial owner of both businesses? The son will use the loan proceeds to purchase additional shares in one of the businesses from his father.
—
by
Yes, assuming that the loans to the director’s son will not be made on preferential terms, will not involve an abnormal risk of repayment, and will meet Regulation O’s “bona fide transaction” test. From what you have told us, the director’s son should not be treated as an insider of the bank, meaning that the…
-
We have a candidate in mind for the chairman of our board. The candidate has an outstanding loan of $XXX,XXX, so we are concerned about Regulation O. However, the chairman would not make any individual policy decisions for the bank. Does Regulation O apply?
—
by
It is possible that the loan can be grandfathered, provided that it did not violate Regulation O at the time it was made. If you are concerned about whether the loan originally complied with Regulation O, you should confirm that it was not made on preferential terms and did not exceed the applicable Regulation O…
-
Is there a required number or percentage of outside directors for Illinois state-chartered banks and bank holding companies owning a state-chartered bank?
—
by
We are not aware of any Illinois laws requiring a certain number or percentage of directors to be “outside directors” (directors who are not employees or officers of the bank or its affiliates). The Illinois Banking Act requires a particular number of directors — five to twenty-five — without specifying whether any of those directors…
-
One of our directors is gifting a mortgage down payment to his son, who will take the mortgage loan with our bank. Would this be considered an “extension of credit” by the bank to the director?
—
by
It is unlikely that a director’s payment of his son’s down payment would cause the son’s mortgage loan to be considered an “extension of credit” to a bank insider. Regulation O generally covers “extensions of credit” made to bank “insiders,” including the board of directors. However, the term “insider” does not include family members of…
-
Our FDIC examiners have cited us for having a rider on our Directors and Officers (D&O) insurance policy to cover any civil money penalties (CMPs) that are assessed against a director personally. But our insurance provider thinks that the CMP rider is permissible, as the directors pay for the riders individually. What do you think?
—
by
Since last year, the FDIC has begun citing banks in exams for maintaining D&O policy endorsements that indemnify directors for CMPs, even when the directors pay for this coverage. The American Association of Bank Directors (AABD) wrote to the FDIC earlier this year questioning these citations and the FDIC’s interpretation of the law on which…
-
What training is required for the Board of Directors?
—
by
This is not an area where a black-and-white answer is available, but the federal banking regulators have issued a lot of helpful guidance on their expectations for board training and involvement. There are several bank regulations (and one guidance) that specifically require training (when relevant) for bank employees, who may include but are not limited…
-
Can a bank change its bylaws so that directors can attend meetings telephonically and take actions informally?
—
by
Section 43 of the Illinois Banking Act authorizes boards to take informal action by written consent, and IDFPR Interpretive Letter 2002-08 (June 12, 2002) authorizes meetings by electronic means. 205 ILCS 5/43. Further, Section 5 of the Illinois Banking Act allows Illinois banks “[t]o make, alter, amend, and repeal bylaws, not inconsistent with its charter…