Should your board approve loans?
Bank Director’s “2023 Governance Best Practices Survey” found that a majority of banks approve individual loans at the board level, though the practice appears to be declining. According to the survey, 64% of respondents said that their board (or a board-level committee) approves individual loans, and 36% said the board approves loan policies or limits. Four years earlier, Bank Director’s “2019 Risk Survey” reported that 77% of respondents said their board approved individual loans.
But should directors be approving individual loans? There’s no one right answer to this question. Some bankers believe that additional oversight by experienced directors provides significant benefits, especially for larger loans. On the other hand, board involvement in individual loan approvals may raise potential directors’ liability concerns. Plus, taking loan approvals off directors’ plates can free them up to focus on strategic planning, risk management and other “big picture” activities.
SEC’s new climate disclosure rules
The Securities and Exchange Commission’s controversial climate disclosure rule has been placed on hold as a result of harsh criticism and multiple legal challenges. The SEC adopted the rule earlier this year in an effort to enhance and standardize climate-related disclosures by public companies and in public offerings. Among other things, the rule requires companies to disclose material climate-related risks, efforts to mitigate those risks, board oversight of climate-related risks, and costs associated with severe weather events and other natural conditions. Although the rule mainly affects large companies, smaller companies could experience a trickle-down effect if, for example, large companies ask their vendors, suppliers or other business partners to collect and share climate-related information.
If the rule survives legal scrutiny, it will have a significant impact on many companies’ financial statements. However, as of this writing, the rule’s future is highly uncertain.
Third-party risk management: An instruction manual
In 2023, the federal banking agencies published Interagency Guidance on Third-Party Relationships: Risk Management. It outlines sound risk-management principles for banks when contemplating relationships with fintech companies and other providers.
In May 2024, the agencies published Third Party Risk Management: A Guide for Community Banks. Although the guide isn’t a substitute for the interagency guidance, it provides community banks with valuable tips for managing third-party relationships. The 30-page guide offers potential considerations and examples in connection with risk management, the third-party relationship life cycle, and governance related to third-party risk. It also includes an appendix that lists various government resources community banks can use in their third-party risk management efforts.
© 2024