To Avoid Immersing Directors in ‘Granular Duties,’ ABA Urges Fed to Fix Board Guidance

While welcoming the Federal Reserve’s move toward a principles-based approach to assessing bank boards of directors, the American Bankers Association today raised several concerns about specific details of the Fed’s August 2017 proposal to streamline its supervisory expectations. ABA emphasized that achieving the Fed’s goals will require “a broad reduction in the granular duties imposed in recent years on directors.”

As a result, ABA specifically urged the Fed to avoid being overly prescriptive in how boards are composed, self-assessed and given information. ABA also urged the Fed to remove requirements that conflict with other regulations and corporate governance laws and ensure frontline examiners are adequately trained on the new expectations. The association recommended that all banking agencies adopt an enforcement approach consistent with the Fed’s proposed guidance.

For banks with more than $50 billion in assets, the Fed proposed five “key attributes” by which it will assess board performance: 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. For more information, contact ABA’s Hu Benton.