There is much to like in the recently released report of the Volcker Alliance. Unfortunately, however, there is little discussion of those banking institutions commonly referred to as community banks.
At roughly the same time last month, the Independent Community Bankers Association of America highlighted in a press release the importance of community banks in helping small businesses gain financial stability. The release said there are roughly:
6,000 community banks, including commercial banks, thrifts, stock and mutual savings institutions. Assets may range from less than $10 million to $10 billion or more. Across the nation, community banks operate 52,000 locations, employ 700,000 Americans and hold $3.6 trillion in assets, $2.9 trillion in deposits and $2.4 trillion in loans to consumers, small businesses and the agricultural community.
The relative unimportance of the community banking industry, notwithstanding employment of roughly 700,000 people, to those who prepared the Volcker Alliance report on regulatory reform suggests just how concentrated in large banking organizations the financial services industry has become following the Great Recession. The draftsmen just had bigger fish to fry.
Implementation of the Volcker Alliance report’s recommendations would benefit community banks in two main ways. First, the role of the Federal Reserve as the primary banking industry regulatory would be clarified and limited to monetary policy and the drafting of financial regulations. Second, and perhaps most significant, regulatory consolidation would result in one supervising regulatory agency referred to in the report as the PSA (Prudential Supervisory Agency). All of …
At a time of relative affluence in the farming industry, the FDIC has issued a warning on a need for monitoring agricultural credits. FIL-39-2014 (July 16, 2014) suggests that banking institutions of all sizes should carefully consider a recent, negative projection by the U.S. Department of Agriculture.
While current market conditions are good, the projection suggests there will be a slowdown in the growth of the farming and livestock sectors and that agriculture may be affected by adverse weather and declining land values, among other factors.
The guidance suggests that financial institutions should work carefully with agricultural borrowers when they experience financial difficulties. The guidance states that the FDIC’s supervisory expectations previously expressed in a 2010 financial institution letter continue (although the letter is rescinded in light of the current letter).
Cash flow analysis, secondary repayment sources and collateral support levels must be considered in order to properly analyze agricultural credits, according to the guidance.
The guidance notes that smaller farms and ranches rely on the personal wealth and resources of the owners, including off-farm wages. A universal review of the financial strength of the credit is required.
The guidance also notes workout strategies must be specifically tailored for agricultural credits in light of experience in the 1980’s with depreciating farm land values, among other factors. The guidance suggests that properly restructured loans to farming operations with a documented ability to repay under the modified terms will not be subject to adverse classification because the value of the underlying collateral …
Last April, a trade association for bank directors, the American Association of Bank Directors reported the results of a survey designed to measure the impact of concerns about personal liability on the decision of bank board members to resign and by individuals to turn down board seats on banking organizations.
One of the key concerns, the survey highlighted, is the possibility of an FDIC lawsuit against the directors if a bank failure occurs. The fear was bank directors would be liable for decisions made as directors notwithstanding what is commonly referred to as the business judgment rule. Generally, the business judgment rule shields corporate directors, including bank directors, from liability when board decisions result in losses to the corporation or to shareholders.
The AABD mentioned in particular a then pending lawsuit in Georgia arising out of FDIC claims related to the failure of Buckhead Bank. These claims against the directors sounded in simple negligence regarding the making of loans. And the directors had asserted the business judgment as a defense.
A few days ago the Georgia Supreme Court ruled on the matter and the decision is worth a review by bank directors and managers even though they don’t do business in Georgia. The Georgia Supreme Court decision elegantly summarizes the business judgment rule including its history and common law origins. So the opinion is a useful “read” for bankers everywhere because the development of local jurisprudence in most states is likely similar to the process described in the opinion.