The owners of a bank are its shareholders. They hire qualified business and financial people to be members of the bank's board of directors. The directors manage the bank, but you probably won't see them when you're there to make a deposit or ask about your account. They hire the officers and other employees who handle the day-to-day business. The directors also make sure that the bank follows the rules and is the place consumers and businesses will go to for their banking needs. In the case of smaller banks, some of the shareholders may also be directors.
Directors establish the bank's policies on making loans and investing in securities. They see that the bank creates and maintains a credit manual for the guidance of loan officers and credit committees. The manual must comply with banking regulations and the bank's credit policy. Similarly, the board sets the bank's investment policy and makes sure that staff members are up to date on policies that affect their work. Internal auditors examine credit and investment activities and report to the board. In the case of smaller banks, the board of directors may also function as the credit committee for approving larger loans.
Banks of all sizes are examined from time to time by state or federal bank regulators. The directors are responsible for ensuring that the bank is always in line with banking laws and regulations. Any deficiencies found by examiners should be corrected right away. In such situations, a director would lead a committee to coordinate with the appropriate department of the bank to make the necessary corrections. When the corrections are made, the director reports this to the board.
Each bank director has a fiduciary duty -- an ethical relationship of trust -- to the bank's shareholders. The traditional descriptions are fiduciary duties of care, good faith and loyalty. Directors have an obligation to monitor bank management and employees to detect and prevent any legal violations. Directors' contracts normally give them rights of indemnification and immunity from money damages in cases of lawsuits. In addition, regular management reports to the board, prepared by outside experts, can assure directors that they have satisfied the obligations that come from their fiduciary duties.
Oversight of Bank Officers
Directors should try to employ banking professionals with years of expertise, particularly in certain specialties such as lending, marketing, accounting and general administration. They should ensure that officers and supervisors can carry out the board's policies in the various departments of the bank. The board normally evaluates the performance of the chief executive officer and other senior officers. They monitor reports on the performance of junior officers, staff turnover rates and the conduct of human resources activity.
Charles Crawford, a former commercial banker, has been a business writer in New York since 1990. He has produced marketing materials for an executive outplacement firm, written the quarterly newsletter of a medical nonprofit organization and created financing proposals/business plans. Crawford holds a Bachelor of Arts in English and a Master of Science in international affairs from Florida State University.