Fear of personal liability if a bank or thrift fails has driven some directors to quit and some candidates to decline directorships, a survey by a directors trade group says.
The survey by the American Association of Bank Directors shows that fear of being sued or otherwise penalized by regulators "continues to plague the industry."
"Even as the banking industry has recovered from the losses suffered several years ago, banks still face the loss of qualified directors because of fear of personal liability," association president Keith Dalrymple, president and chief executive of Dauphin (Pa.) National Bank, said in a statement.
"I'm not surprised. I think it continues to be an issue," said David E. A. Carson, president and chief executive of People's Bank in Bridgeport, Conn.
The survey, sent to about 2,000 institutions nationwide, elicited 128 responses.
It found that directors had resigned within the last five years at 47% of the banks, due largely to the risk of liability.
Board candidates refused nominations at 19% of the banks, not just for personal reasons but also for fear of being held responsible if problems should occur at the bank.
The survey also found that 31% of the institutions do not cover their directors against lawsuits brought by state and federal regulators - even if the institutions provide other forms of director and officer insurance, and even though such special protection is available.
Directors are far more likely to be covered by D&O insurance if their institution has more than $100 million in assets, even though the majority of institutions whose directors were sued by the Resolution Trust Corp. were at smaller banks.
"Many banks and savings institutions have not taken all steps necessary to protect their boards of directors from personal liability," Mr. Dalrymple said.
Mr. Carson said new directors have accepted positions at People's in the last few years, but he noted that they expressed concerns about liability. People's provides its directors with regulatory insurance coverage as part of its D&O offerings.
Other banks, however, reported that liability hasn't been a concern for their directors. Some executives said the problem was more severe in the past than it is now.
Kenneth T. Neilson, president and chief executive of Hubco Inc., Mahwah, N.J., speculated that such concerns might still be a problem for institutions with lagging performance or regulatory problems.
"It was something that occurred during the '80s and early '90s," said Lawrence Connell, president and chief executive of Atlantic Bancorp in Portland, Maine. "It's less now that things have calmed down in terms of lawsuits and banks having financial troubles."
The survey was scheduled for release next week but was obtained in advance by American Banker. It covers a range of board issues, including their structure and composition, policies, and compensation.
Average total pay for directors varied by asset size, ranging from about $3,478 for banks with less than $50 million in assets to $23,000 for those with between $1 billion and $5 billion in assets.
A whopping 93% of the banks and thrifts that responded don't base their director compensation on the company's performance, even though 81% want the directors to develop new business opportunities.
Fewer than 10% offer stock options to directors; fewer than 15% allow directors to defer their compensation. And slightly more than half of the institutions don't have their boards of directors review the performance of their chief executives annually.