Response-Ability

By Joe Wheeler, Plansmith

Call it what you want – TARP, bail-out, life-line. There can only be one result, more regulation.  Bloomberg.com recently posted an article stating, “The biggest U.S. banks may face the threat of lower profits or pressure to break up under greater regulation following the financial crisis. “ (Bank of America , Citigroup May Face Restrictions After Crisis – Scott Lanman, Jan 8, 2009)

Are we really to believe that only the “biggest” banks are staring at more regulation? Half of the TARP ($350B) monies have already been spent and the perception is still that borrowers cannot find anyone who will lend.  

The promise of the new presidential administration and congress? More oversight. Never mind that the people proposing more regulation are the exact same ones that cannot account for where, or to whom, TARP checks have been sent or what they are spending it on.

We can complain or we can be determine our “response- ability” and choose not to be acted upon. 

I have found visiting a few regulator websites very helpful, (FDIC, OCC, OTS). All post names of banks whose recent exams have resulted in the issuance of an Enforcement Action. Posted as public record, reading a couple of these instructions can provide you with specific questions and action items you can bring up at your bank and board meetings.

The banks listed are not the size of Bank of America or Citigroup. They are community institutions whose risk mitigation and management efforts have quite simply, fallen short. Most of these actions require board member signatures verifying acceptance and acknowledging full understanding of specific steps and requirements outlined. (“… the Board has the ultimate responsibility for proper and sound management of the Bank …”)

I’m probably telling you what you already know, but because there seems to be an increase in these postings, revisiting some of the most commonly listed items warrants some space here.

Here is a sampling:

Strategic Plan – Minimum three year period, mission statement, target markets, current and projected risks, specific goals and objectives, actions to improve earnings and specific timeframes, identification of those responsible for outcome, and succession planning.

Capital Plan – Consistent with strategy, specific tactics to maintain adequate capital, projections for growth and requirements, sources and timing of additional capital for future needs, primary sources of capital, contingency plans that identify alternative methods to strengthen capital and a dividend policy.

Management Competency Measurements – Written assessments of capabilities of bank officers, documented performance management process, at minimum – annual performance reviews of all bank officers.

Liquidity Management Plan – Documented program that assesses, on an ongoing basis, the bank’s current and future funding needs and insures necessary funds, or access to them, to meet any/all liquidity needs. Document sources and use of funds on a monthly basis.

Management Information Systems (MIS) – Reports that aggregate liability relationships, document systems and procedures to identify and track loan applications with missing or incomplete information, monthly reporting to the board on the performance of the loan portfolio identifying problem areas and actions to correct.

Internal Audits – Detect irregularities and weak practices, determine level of compliance with laws, rules and regulations, reports on effectiveness of policies, procedures, controls and management oversight, and have an adequately staffed department.

While this list is by no means exhaustive, you get the idea. 

Documenting that you’ve visited these sites, reviewed the problems others have encountered and are working to verify your bank avoids a repeat of those same issues can be a HUGE positive. 

Maybe  the news we get won’t always be positive, but our “response-ability” can be.

<back to February 2009 Directors Digest>