Wednesday, December 9, 2009

Directors of Banks

Ropes and Gray have pointed out in a recent Client Alert that the directors of banks face special liabilities that the directors of other businesses
do not.

This includes a greater risk of personal liability and enforcement actions by the federal bank regulators. Further, federal regulations restrict the degree to which banks may indemnify their directors in the event of such enforcement actions. You might ask: why should bank directors be at a disadvantage vis-a-vis other directors? The best short answer is that it is an artefact of history. Banking has always been different.

Heck, I recently became the owner -- half inadvertently -- of two recent books about notorious bank robbers of the 1930s. One concerns the Barrow gang -- Clyde Barrow, Bonnie Parker, and their shifting cast of associates. The other treats of John Dillinger, who was following the same pursuit at the same time though with a range somewhat to their north. One common theme from both books is that there was a certain degree of popular Robin-Hoodish delight in the tales of these outlaws and their derring-do. An audience watching the newsreels before a movie might think, "Well, the banks have been stealing from me, I can hardly feel sympathy for them when someone steals from them."

Banks have been different since long before that. The Medici will forever be remembered as bankers. Heck, they are sometimes misremembered as if they invented banking, and double entry bookkeeping into the bargain.

And surely amongst the many people with their homes "underwater" nowadays, owning more than the house in total is worth, there will be few who will consider bank board directors, even given their extra layers of liability as described by the folks from Ropes & Gray, as especially plausible objects of sympathy.

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