The Federal Reserve has offered guidance in the past to new bank directors – professionals who are asked to serve on boards and often come from other business sectors – but today it has launched a website for the first time that provides bank basics and urges new overseers to be vigilant and active.
The new site, http://bankdirectorsdesktop.org/, is primarily for new directors of community banks and includes online training and other resources “to help directors better understand the issues and challenges.”
“Fulfilling this role will not be easy,” says one of the site’s guides. “Studies of failed banks reveal that many were supervised by directors who received insufficient or untimely information or were inattentive to the bank’s affairs. This impaired their ability to judge bank operations and to identify and correct problems.”
Bank failures so far this year continue at a fast pace. In January, there were 15 bank failures, ahead of the 2009 pace that resulted in 140 failures. The Federal Deposit Insurance Corp. in December approved a $4 billion budget for 2010 – a 55 percent increase from 2009 – to safeguard against “an even larger number of bank failures.”
One of the publications offered on the Fed’s website for new directors is the fifth edition of “Basics for Bank Directors,” a guide to their new role and responsibilities.
“Ladies and Gentlemen, This is a Bank” is the title of the first chapter. The guide covers regulatory frameworks of banks, risk management, capital requirements and other topics.
The impetus for guiding new directors came out of the 1980s “when are financial system experienced severe banking problems and numerous bank closures,” said Thomas Hoenig, president, Federal Reserve Bank of Kansas City, in the foreword to the Basics guide.
The savings and loan crisis of the 1980s saw hundreds of bank failures annually. But the cost per bank failure to the FDIC is now nearly ten times greater than it was in the 1980s.
“Many people who are asked to serve on bank boards have little training or experience to prepare them for their new roles,” said Patrick M. Parkinson, director of the Federal Reserve Board’s Division of Banking Supervision and Regulation. “This website has been developed with new directors in mind, but there is plenty of useful information for those who have already spent time on bank boards.”
