June 4, 2019
Authored by: Robert Klingler
Partners Jim McAlpin and Ken Achenbach joined me in the podcast studio to discuss the common community bank practice of having boards of directors approve particular loans.
While our initial approach was going to be to engage in a debate on the merits of this practice, none of us ultimately wanted to take the side of justifying the practice; for different reasons, many of which are expressed on the podcast, we all believe that it is a bad idea for bank directors to personally approve loans.
This spark that started this podcast was the recent BankDirector piece titled “77 Percent of Bank Boards Approve Loans. Is That a Mistake?” As I’ve written previously on BankBCLP.com, bank directors should not be approving individual loans, and banks should not be asking their directors to approve individual loans.
In addition to the podcast and the blog post, we also have a white paper titled Why Your Board Should Stop Approving Individual Loans. That white paper analyzes what the board’s role should be in overseeing the bank, and why approving individual loans threatens this oversight. If boards keep approving loans, we’re next going to have to look into how to address our concerns via Instagram, courrier pigeon, or smoke signals.
During the podcast, I also mention our efforts to make the FDIC “podcast” on the financial crisis more accessible.