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Financial Services Law Insights and Observations

FDIC seeks comments on proposed and stricter governance guidelines for regional banks

Bank Regulatory Federal Issues FDIC FDI Act

On October 11, the FDIC published a request for comment on proposed corporate governance and risk management guidelines that would apply to all insured state nonmember banks, state-licensed insured branches of foreign banks, and insured state savings associations that are subject to Section 39 of the Federal Deposit Insurance Act (FDI Act), with total consolidated assets of $10 billion or more on or after the effective date of the final guidelines.

The proposed guidelines cover board of director’s obligations, composition, duties, and committee structure that must be met to meet the standard of good corporate governance. The proposed guidelines state that the board will ultimately be responsible for the affairs of the covered institution and each individual member must abide by certain legal duties. Under the proposed guidelines, the board of directors must, among other things: (i) evaluate and approve a strategic plan covering at least a three-year period; (ii) establish policies and procedures by which the covered institution operates; (iii) establish a code of ethics covering legal requirements, such as insider information, disclosure, and self-dealing; (iv) provide active oversight of management; (v) exercise independent judgement; and (vi) select and appoint qualified executive officers. Additionally, the board will be required to maintain a majority of independent directors on the board and should consider diversity of demographic representation, opinion, experience, and ownership level when choosing its board members. The proposed guidelines would also require that the board have an audit committee, a compensation committee, a trust committee (if the covered institution has trust powers), and a risk committee.

Comments must be received by the FDIC by December 11, 2023.