If you have recently been appointed to a bank board, chances are you’re like most new directors in that you came from outside the industry and have little knowledge of banking other than what you might have learned as a customer. If, for example, you’re the owner of a local business that relies heavily on its banking relationships to keep the enterprise going (as most small businesses do), you will certainly have an opinion about what constitutes good customer service. And also you bring your own judgment and life experience outside of banking to the task, which will no doubt be very valuable to the board. But to be an effective bank director, you’re going to have broaden your knowledge base considerably when it comes to banking. Good judgment isn’t enough. There are certain things that you will need to know.
Learning is a life-long exercise, and for as long as you serve on a bank board there will always be new things to learn. But here are four areas that I think new directors should give extra attention to:
Learn About Regulation.
Banking is a complicated and highly regulated industry, and banks can pay a steep price for their compliance sins. Take the time to understand the industry’s regulatory structure and the expectations of your bank’s primary regulators, which will vary depending on the size of your institution and whether it has a state or national charter. Also, zero in on the regulations that can have the greatest impact on your bank (for example, the Bank Secrecy Act and the various consumer protection rules). The regulators will hold your board accountable for any serious compliance violations, so it’s not a responsibility to be taken lightly.
Learn How Your Bank Works.
Banking is very different from most other businesses like, say, manufacturing and retailing, or professional services like accounting and lawyering. Yours is a governance rather than an operating role, but you should still learn how your bank works inside and out so you can engage fruitfully with management. Learn how your bank makes most of its money and where its greatest risks lie. Service on the board’s audit committee would provide a very powerful introduction to the workings of your bank, because there’s very little that the audit committee doesn’t get involved in.
Learn About Technology and Try to Embrace It.
Technology tends to be a black hole for most boards. Most people in their 60s and 70s, which fits the profile of many directors who serve on bank boards, don’t understand or use technology as comfortably as those who are 20 or 30 years younger. The problem is that banking is undergoing a technological revolution that goes well beyond mobile (which gets most of the attention these days) and touches almost every area of the bank. Directors need to understand how these trends are likely to impact their institution. Some banks try to recruit at least one tech-savvy director to their board, but these people are hard to find—and even if you find one, you can’t delegate the responsibility to understand technology to that person. Regular board-level briefings from your bank’s chief technology officer, attendance at industry conferences and a commitment to read up on the topic can all help educate you. Also, experiment with some of the consumer technology that has come into financial services in recent years. If you have an iPhone, activate its wallet feature. Open a Venmo account and use it. And if you don’t use your own bank’s mobile banking app, shame on you!
Learn About Cybersecurity.
As banks become more digital, their cyber risk profile will increase ipso facto. Trying to lessen the risk by resisting the push toward digital banking isn’t a rational strategy because your institution will be left behind. The U.S. economy and our national culture are all being profoundly impacted by the digital phenomenon, and it’s a game that all banks simply have to play. Your role as a director is to make sure your bank has a good cybersecurity program and team in place, that the program conforms to the latest industry standards and regulatory expectations, and that the board is being briefed regularly.
These are not the only critical areas that new directors need to understand, of course, but they would be on my short list of things to go to school on if I had just joined a bank board. Congratulations and good luck!