Fifth edition helps board members reduce risk

Financial Institution Directors' Liabilities & Responsibilities

Austin Financial Services, Inc., has released the fifth edition of the Financial Institution Directors' Liabilities & Responsibilities (FIDLR).

The fifth edition complements the first four with the addition of two chapters and multiple sections on current statutory liabilities and common law practices that face bank and thrift directors today. The book provides practical advice to assist directors in avoiding problems with FIRREA, FDICIA, the Community Development Banking Act and the Riegle-Neal Interstate Banking Act.

Highlighted in the book are the increasing concerns of criminal liability by directors, insurance and indemnification so as to protect officers and directors, and newlygenerated interest in mitigating director conflicts of interest or acts of disloyalty. The passage of the Gramm-Leach-Bliley Financial Services Modernization Act and its impact upon bank and thrift directors is extensively detailed in the new fifth edition of FIDLR.

The fifth edition still attempts to make the discussion of "legal" duties of care and loyalty as English-written-oriented as possible, noted the book's preamble. The footnotes are in the back as endnotes and citations. This monograph has been designed to assist the average, reasonable and prudent financial institution director who is not a professional banker in understanding the liabilities and responsibilities of his or her job.

FIDLR is divided into three significant parts:

Part I stresses changes in common law and statutory liability. The authors emphasize that even though they have attempted to make this fifth edition as current as possible, changes in banking law concerning liabilities and responsibilities will continue to occur and new case law may be determined within days or weeks of the book's publication. It is essential for directors to refer to legal counsel for advice.

Part II emphasizes who's in charge of running the financial institution, general responsibilities of directors and specific responsibilities undertaken by directors to mitigate their liability. The authors note that if directors accomplish these parameters, liability probability will shrink significantly.

Part III was developed to assist directors in understanding significant issues that will make people better directors of their financial institutions. The authors point out that not all of these topics will be important to everyone. However, they add that, in general, directors will benefit from an analysis of the topics included within this section. Part III discusses such topics as the role of the spouse of a financial institution director and officer, as well as how to improve the efficiency of meetings. A chapter has been added to this section on how to increase knowledge as a financial institution director. Also added to this fifth edition is a chapter on how to improve the strategic planning process once the initial strategic plan has been implemented.

The authors stress that the best thing that directors can do for their board is to pass this booklet around to everyone so that everyone is up to speed on the latest information.

"One of the best defenses against liability is knowledge, and the more directors know about their duties and responsibilities, the less chance you have of becoming a victim of directors' liability," said the authors.

FIDLR is co-authored by Dr. Douglas V. Austin, president and CEO of Austin Financial Services, Inc., and Jeffrey E. Smith, a Columbus, Ohio, attorney. Austin is author of 17 books and more than 700 articles on financial institutions and allied topics. Austin is currently professor emeritus of the department of finance at the University of Toledo. Smith has extensive experience in financial institution legal and regulatory matters, including troubled institution matters, and has served as in-house counsel for holding companies ranging from $2.5 to $260 billion in consolidated assets. Smith writes and speaks on financial institution topics and is admitted to practice law in Ohio and Indiana.

The Financial Institution Directors' Liabilities & Responsibilities Fifth Edition is $10 per copy plus $5 shipping. To order, contact Austin Financial Services, Inc., at 419-5319559 or fax requests to 419-5319598.