FDIC Provides Commentary on Responsibilities and Duties of Banks’ Boards of Directors

On April 5, the FDIC issued a special Corporate Governance Edition of its Supervisory Insights publication titled, “21st Century Reflections on the FDIC Pocket Guide for Directors.” The new edition provides guidance to community bank boards of directors as well as an expanded, community bank-focused commentary on the FDIC Pocket Guide for Directors, which was issued in 1988. It covers a range of topics, such as the proper roles of directors and officers, as well as objectives for the development of policies and procedures for risk management and strategic planning. While the existing version of the Pocket Guide remains unchanged, this edition of Supervisory Insights incorporates more recent guidance and resources that the FDIC has provided since 1988. For example, the FDIC emphasizes that, “[i]n addition to covering areas outlined in the Pocket Guide and Safety and Soundness Standards, community bank directors should ensure that senior management has established appropriate risk management policies and procedures in Bank Secrecy Act (BSA)/Anti-Money Laundering (AML) compliance, information technology and cyber risk, and compliance with Community Reinvestment Act and consumer protection laws and regulations.”

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OCC Announces Workshop for Bank Directors

On May 2 through May 4, the OCC will host a workshop in Wilmington, Delaware for directors of national community banks and federal savings associations. With a focus on directors’ duties and core responsibilities, the workshop will discuss major laws and regulations and is intended to increase familiarity with the examination process. The OCC is limiting the workshop’s capacity to the first 35 registrants.

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CFPB Adopts Procedural Rule Establishing Application Process for the Designation of Rural Areas

On March 3, the CFPB adopted a procedural rule to establish an application process for identifying an area as rural or underserved that the CFPB, pursuant its authority under the Dodd-Frank Act, had not yet designated as rural. In December 2015, Congress passed the FAST Act, which contained several provisions intended to provide regulatory relief to community banks, including implementing a process under which banks and other stakeholders could petition the CFPB for rural or underserved designations in certain areas for the purposes of Federal consumer financial law. The CFPB’s recently issued procedural rule establishes such an application process. Under the process, banks must submit an application—by mail, email or hand delivery—to the CFPB Rural Application Coordinator containing, among other things, the following: (i) identifying information for the proposed designated rural area; (ii) justification for the proposed designation, providing supporting information from the U.S. Census Bureau, the Office of Management and Budget, the Department of Agriculture, and the State Bank Supervisor; and (iii) the area’s population density, including comparative information regarding “the population density of any nearby area with a greater population density that has been designated by the Bureau as a rural area.” The CFPB will begin accepting applications on March 31, 2016.

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OCC to Host Credit and Compliance Risks Workshops

On March 22, the OCC will host a Credit Risk workshop for directors of national community banks and federal savings associations. The workshop will focus on credit risk within the loan portfolio, including identifying trends and recognizing problems. In addition, the workshop will address (i) the board and management’s roles; (ii) how to stay informed of changes in credit risk; and (iii) how to effect change. On March 23, the OCC will host a separate Compliance Risk workshop that will include lectures, discussions, and exercises on key elements of a robust compliance risk management system. Topic discussions will include the BSA, Community Reinvestment Act, and the TRID rule. Both workshops will take place in Santa Ana, California; capacity is limited to the first 35 registrants.

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FDIC Issues Quarterly Banking Profile for Third Quarter 2015

The FDIC published its most recent Quarterly Banking Profile, summarizing the latest financial results for the banking industry. According to the FDIC’s findings, community banks reported net income of $5.2 billion in the third quarter of 2015, up 7.5% from the previous year. The Profile’s featured article – Financial Performance and Management Structure of Small, Closely Held Banks – indicates that closely held banks are outperforming widely held banks in operational efficiency and financial performance. The FDIC’s research suggests that management structures in which a bank’s managers are members of the ownership group or ownership insiders prove beneficial in that principal-agent problems are minimized because the “manager can be expected to act in the interests of the owners because the manager is an owner.” Although the Profile comments on the disadvantages of the organizational form of closely held banks, including succession issues and difficulty in raising capital, the researchers conclude that the “favorable comparisons between closely held and widely held community banks suggest that the closely held organizational form is by no means an impediment to performance, and may well be one of the keys to the success of closely held banks.”

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