WASHINGTON - The American Association of Bank Directors still opposes a provision in the regulatory relief bill that would give regulators more power over bank boards, even after federal banking agencies wrote a letter meant to ease concerns about the issue.
Though the two-paragraph letter appeared largely to satisfy concerns of the banking trade groups that had asked for clarification in the first place, the directors' group said regulators still have not explained how and when they might use their new powers.
The directors group also is reiterating its claim that banks would have trouble filling board seats if the provision were included in the final version of the bill.
At issue is legislative language that would give regulators more authority to compel bank directors to use their own assets to bail their banks out of trouble. Currently, regulators must demonstrate that a director was unjustly enriched or showed "reckless disregard" for banking laws before they can enforce restitutions or other financial guarantees in an order or written agreement.
The provision was included in regulatory relief bills passed by the House and the Senate this year.
Directors have argued that if they had to risk their personal assets, they might be less inclined to serve on bank boards.
Banking trade groups had similar concerns after a story on the little-known provision appeared in American Banker in May. They sent a letter to three regulatory agencies June 2 requesting clarification. The Office of the Comptroller of the Currency, the Federal Deposit Insurance Corp., and the Office of Thrift Supervision responded to the trade groups' request with a letter dated July 6.
In that letter, addressed to the Independent Community Bankers of America, America's Community Bankers, and the American Bankers Association, the regulators defended the measure as a way to protect the FDIC's Deposit Insurance Fund. Moreover, the letter makes it clear that regulators could force directors to pony up their personal assets only if they had already signed a written agreement to do so.
"We have no intent to deter qualified individuals from service as directors and officials of insured institutions," the regulators' letter said.
Wayne Abernathy, the ABA's executive director for regulatory affairs, said that trade groups initially were concerned that the provision would give regulators "license to put your hands in my pockets for things I never agreed to."
The fact that regulators could hold directors financially responsible for their banks only if a written agreement were in place "should provide some reassurance to bank directors who might be concerned about what they might be getting into."
Karen Thomas, the ICBA's director of government relations, agreed with that assessment but said she was somewhat concerned that the letter "did not directly answer the circumstances in which they might use this."
David Baris, the executive director of the bank directors group, said he was unsatisfied with the regulators' response. He remains concerned that regulators could make their approval of a charter application conditional upon a written agreement with bank organizers requiring directors to guarantee they would use their own assets to recapitalize the bank if the capital fell below a certain level.
"There may be circumstances where the directors may feel forced to sign it," Mr. Baris said.
He also questions why the regulators feel they need to change the regulation in the first place, especially at a time when the industry is so healthy. It has been more than two years since the last bank failure.
"They haven't expressed why they need the change other than referencing a very general concept of protecting the Deposit Insurance Fund," Mr. Baris said.
