Unknown regulatory impact, slow economic recovery and increased risk of liability have created a tough environment for even the most skilled director of a financial institution to navigate. This year’s Bank Chairman/CEO Peer Exchange hosted by Bank Director in Chicago this past week provided an opportunity for today’s banking leaders to gather for candid discussions on topics ranging from risk oversight to managing the CEO-board relationship.
Over the course of a day and a half attendees representing banks of all asset sizes from across the country met in small peer groups to challenge and support each other on the top issues keeping them up at night. The results of those sessions formulated a theme throughout the event that reflected the need for more skilled management, risk management processes, and a solid strategic plan.
Strong Management & Stronger Boards
During his industry overview presentation, John Duffy, Chairman & CEO of Keefe, Bruyette & Woods Inc., reminded the audience that the cause of many bank failures could be traced back to a dominant CEO and a compliant board, a correlation not lost on the majority of attendees as they shared their desires to cultivate a strong leadership team and board of directors.
With so many new regulations, directors fear that their management team doesn’t have the right skills, talent or vision to take their institutions through the fire. Where there is a lack of strong leadership, board members are struggling to find the discipline to ask the tough questions. As a fundamental role of the board, attendees expressed the need for processes and shared best practices for dealing with these sensitive personnel issues.
The Risks of Risk Management
In a peer exchange summary session, Paul Aguggia, partner of Kilpatrick Townsend & Stockton LLP, noted that many bank leaders are not insensitive to the importance of risk management. They have embraced the need to implement processes and procedures to better manage their institutions’ risks; however several have expressed frustration with the lack of industry standard ERM best practices and instead have found themselves slaves to ratios and quantitative driven requirements. Boards are looking for direction from the government and finding none that emphasize process rather than a list of common risks.
In addition, bank executives are trying to determine the role of a risk manager, what qualities they should look for in a candidate and whom that person reports to in the organization. With the regulatory and fraud risk top of mind for today’s directors, many community bankers are still worried that they won’t be able to compete in a marketplace impacted from this latest round of rigorous regulations.
Prove You Planned It
Financial institutions are not going to be as profitable as they once were, and as a result, their approach to business is going to have to change, noted Jim McAlpin, partner for Bryan Cave. A solid strategic plan is not only something today’s bank boards are reevaluating; regulators are, too. Today’s examiners are spending more time looking at strategic planning to determine what that institution will be doing over the next five years. Bert Otto, deputy comptroller, central district for the Office of the Comptroller of the Currency asked the group to look at their strengths, focus on what they do best, perform the proper due diligence, and document that plan thoroughly.