The Bank Director's Handbook: The Board Member's Guide to Banking & Bank Management (Bankline Publication) PDF
Preview The Bank Director's Handbook: The Board Member's Guide to Banking & Bank Management (Bankline Publication)
The Bank Director's Handbook The Board Member's Guide to Banking & Bank Management Benton E. Gup, Ph.D. The University of Alabama Tuscaloosa, Alabama A BankLine Publication IRWIN Professional Publishing® Chicago London Singapore The Bank Director's Handbook : The Board title: Member's Guide to Banking and Bank Management Bankline Publication author: Gup, Benton E. publisher: Irwin Professional Publishing isbn10 | asin: 1557387923 print isbn13: 9781557387929 ebook isbn13: 9780071388474 language: English subject Bank management--Handbooks, manuals, etc, Banks and banking--United States--Handbooks, manuals, etc. publication date: 1996 lcc: HG1615.G868 1996eb ddc: 332.1/068 Bank management--Handbooks, manuals, etc, subject: Banks and banking--United States--Handbooks, manuals, etc. A BankLine Publication IRWIN Professional Publishing® ¢ Richard D. Irwin, a Times Mirror Higher Education Group, Inc. company, 1996 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or other- wise, without the prior written permission of the publisher. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that neither the author or the publisher is engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers. Irwin Professional Book Team Publisher: Wayne McGuirt Acquisitions editor: Mark Butler Marketing manager: Brian Hayes Managing editor: Kevin Thornton Project editor: Lynne Basler Production supervisor: Laurie Kersch/Carol Klein Assistant manager, desktop services: Jon Christopher Compositor: Precision Graphic Services, Inc. Jacket designer: Palmer Design Inc. Typeface: 11/13 Times Roman Printer: Buxton Skinner Printing Company Times Mirror Higher Education Group Library of Congress Cataloging-in-Publication Data Gup, Benton E. The bank director's handbook : the board member's guide to banking and bank management / Benton E. Gup. p. cm. Includes index. ISBN 1-55738-792-3 1. Bank managementHandbooks, manuals, etc. 2. Banks and bankingUnited StatesHandbooks, manuals, etc. I. Title. HG1615.G868 1996 332.1'068dc20 95-45384 Printed in the United States of America 1 2 3 4 5 6 7 8 9 0 BS 2 1 0 9 8 7 6 5 The Bank Director's Handbook The Board Member's Guide to Banking & Bank Management To Jean, Lincoln, Andrew, Jeremy, and Carol Page vii Preface Most bank directors are successful people. They have excelled in their own fields, such as business, law, medicine, sports, or public service. They have dealt with banks as borrowers and lenders. However, they may not understand banking to the degree that is required of them as bank directors. Banking is a dynamic, complex, and regulated industry. Banking is dynamic because banks are consolidating through mergers, acquisitions, and failures. The number of commercial banks in the United States declined from 14,147 in 1985 to about 10,000 banks in 1995. Some experts predict the number of banks will decline to about 3,000 or fewer in the years to come. Banking is dynamic because banks are offering new products to complete with nonbanking firms that offer financial services. Mutual funds, cash management services, and derivative products such as caps, collars, and floors are a few examples of new products. Banking is dynamic because of changes in technology. They are just beginning to do retail business on the internetthe worldwide communications network. Banking is complex for a number of reasons: much technical knowledge is required to understand financial instruments such as collateralized mortgage obligations, swaps, futures, and forwards. Banking is complex because of the securitization of loans. Securitized home mortgage loans, for example, have lower risk-based capital requirements than other home mortgage loans. It is complex because of lender liability. Banks are being sued by borrowers who claim that banks loaned them too much money and by others who claim that the banks lent them too little. Finally, banks are regulated by federal and state banking authorities. Many bankers would argue that they are overregulated. Moreover, compliance with the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Truth in Lending Act, the Right of Privacy Act, and dozens of other acts is excessively costly and counterproductive. Bank directors are expected to be familiar with all these issues and more. This book is designed to help fill that information gap. It provides Page viii an overview of selected topics that directors need to know in 11 chapters that deal with the following subjects: 1. Legal duties of directors. 2. Strategic planning. 3. Marketing strategies. 4. Analyzing banks' financial statements. 5. Bank capital. 6. Asset/liability management. 7. Managing derivatives risk. 8. Credit and lending. 9. Fraud and insider abuse. 10. Internal controls and auditing. 11. Mergers and acquisitions. Other features include special sections titled "Think about This" found in most of the chapters and appendixes concerning loan policies and the FDIC's Red Flags warning lists for fraud. Special thanks are due to J. Barry Mason and Gay Evans. Dr. J. Barry Mason, Dean of the College of Commerce and Business Administration, University of Alabama, wrote Chapter 3: Developing Bank Marketing Strategy. Dean Mason is the author of several leading marketing texts, and has published more than 100 articles on marketing. Gay Evans, Managing Director of Banker's Trust International, PLC (London), wrote Chapter 7: Managing Derivatives Risk. This chapter was first presented as a paper at the Federal Reserve Bank of Chicago's Bank Structure Conference in May 1995. Benton Gup Page ix Contents Chapter One BANK DIRECTORS' DUTIES 1 Accountability of Directors to Shareholders, 1 Strong Boards, Strong Banks; Weak Boards, Weak Banks, 3 The Responsibilities of Boards of Directors, 5 Duty of Care, 6 Business Judgment Rule, 7 Duty of Loyalty, 8 Typical Committees, 10 Executive Committee, 10 Audit Committee, 11 Asset/Liability Committee, 11 Investment Committee, 12 Loan Committee, 12 Trust Committee, 12 Personnel Committee, 13 Practices Deemed Unsafe or Unsound, 13 The SERVE Principle, 15 Conclusion, 16 Chapter Two STRATEGIC MANAGEMENT 17 What Is Strategic Management? 17 Strategic Management Defined, 17 What Strategic Management Is Not, 18
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