Fed Proposes Guidance Distinguishing Roles of Bank Boards, Management

The Federal Reserve today issued a proposal to streamline its supervisory expectations for bank boards of directors. The proposal clarifies the distinction between the roles of bank boards and senior management teams.

For large banks with more than $50 billion in assets, the Fed proposed new criteria by which it will assess bank boards. These five “key attributes” include setting clear, consistent strategic direction and risk tolerance; actively managing information flow and board discussions; holding senior management accountable; supporting independent risk management and internal audit functions; and maintaining a capable board composition and governance structure.

The Fed proposed additional changes that would apply to banks of all sizes, including revising or rescinding supervisory expectations for boards that do not relate to their core responsibilities, starting with specific revisions to existing supervision and regulation letters, with revisions to board regulations and interagency guidance to follow. It also clarified that in most cases, matters requiring attention should be directed to the bank’s senior management team, not to the board.

The American Bankers Association has long urged regulators to restore the balance between bank boards and senior management teams to allow directors to focus on their core responsibilities of determining the bank’s strategic direction and risk tolerance. The association will carefully review the proposal and provide feedback to the Fed. Comments on the proposal are due 60 days after the notice is published in the Federal Register.  For more information, contact ABA’s Hu Benton.