WASHINGTON - Banking regulators delivered a clear message to a group gathered this week for the first-ever conference of the American Association of Bank Directors: If banks falter as the economy weakens, board members will be held every bit as accountable as management.
Joseph Face, Virginia's commissioner of banking, told the more than 60 directors in attendance that the banking industry is much better positioned to weather the current economic malaise than it was the full-blown recession of the late 1980s. But "the buck does stop with you," he said. "We as regulators are going to hold you completely responsible for everything that goes on inside your bank, whether you knew about it or not."
In its first 12 years, the American Association of Bank Directors devoted most of its attention to lobbying legislators and regulators, but with a recession all but declared, the organization has shifted its focus to education and training. In a reflection of this shift, the Bethesda, Md.-based trade group held the inaugural of what is planned to become an annual convention Oct. 13 and 14 at the Willard Intercontinental Hotel in Washington.
David Baris, an attorney and the association's executive director, said the conference was an "experiment" intended to give bank directors a more solid grounding in operational issues such as asset-liability management, credit quality, executive compensation, and technology.
"We want directors who can strike a proper balance," he said. "We don't want boards that are simply rubber stamps, but we don't want micromanagers, either."
Mr. Baris said the attendance - 86 delegates representing 25 banks, along with a number of trade groups, vendors, and regulatory agencies - was more or less what planners had projected, though about 30 people canceled after the Sept. 11 terrorist attacks, Mr. Baris added.
"We thought long and hard about whether or not" to hold the event, he said.
In his keynote address, which was preceded by a moment of silence, Donald E. Powell, the chairman of the Federal Deposit Insurance Corp., urged directors to be "110% engaged" in the affairs of their banks.
"Read every bit of material," Mr. Powell said. "Be prepared to take a quiz. Don't fake it. CEOs know when directors don't know what's going on, and they'll take advantage of them."
Michael J. Zamorski, the FDIC's acting director of supervision, said a good way for directors to keep abreast of their banks' condition is to meet with examiners. They "can give you a good idea of how your bank stacks up against its peer groups," he said.
Unfortunately, fewer and fewer directors get the opportunity to meet face-to-face with regulators, he said.
The reason for this is that state examiners are not required to meet with bank boards after completing their reviews. Their federal counterparts are required to make such meetings but have grown lax about it, Mr. Zamorski admitted.
"While the good times lasted, things got a little loose," he said. "I don't think that's good. We've talked about meeting more with directors."
Mr. Face said Virginia examiners meet with directors when they're asked, but that such requests are not common.
The directors association's newfound enthusiasm for education and training does not mean it has abandoned its lobbying efforts. It recently assembled a task force to investigate whether federal regulators have exceeded their authority in freezing the assets of directors and insiders at troubled banks.
But Richard Spillenkothen, the Federal Reserve Board's director of supervision, said a strong board that does its job well would go a long way toward keeping its members and the bank out of difficulty.
"Outside directors who act with objectivity and independence are critical to the management of a bank's affairs," he said. "They are critical to profitability, and also to safety and soundness."
