Regulatory guidance states that the board of directors has the ultimate responsibility for the risks undertaken by an institution – including interest rate risk (IRR) and liquidity management.
The board is typically made up of a diverse group of individuals from varying backgrounds and career paths. Unlike most positions within a financial institution, a board member does not necessarily come from a banking background. One board could easily include a local entrepreneur, a farmer, a financial planner, a retired financial institution CEO, and a local insurance agent; while another board could be comprised of almost all former bankers. It’s often the most differing group in a similar role across financial institutions – so, since one size does not fit all, how do you train directors for their position on the board?
First, it’s important to determine the primary risk areas that directors should be overseeing – that is, credit, liquidity, interest rate, compliance, strategic, transaction, and reputation risk. Moreover, directors must understand the internal control structures, including measurement systems and models, at the institution that are used to monitor these risks.
While it may be easy to define the key risk areas, the real challenge often is ensuring each director is properly trained on them.
A good place to start is with the resources regulators themselves provide. In fact, both the FDIC and NCUA offer detailed articles and complimentary videos on their websites that outline their expectations, as well as hours of guidance.
- FDIC Director Resources
- Review the duties and responsibilities of the Board of Directors.
- View the FDIC'S full library of director resources.
- Go straight to the FDIC's video selection for directors.
- NCUA Director Resources
- View the full set of duties of Federal Credit Union (FCU) Boards of Directors.
- Read an outline of required Credit Union training, including specifics regarding the Board.
- Review the NCUA's director training webinar series.
While this is a great place to start, many of our clients don’t have the time to wade through and disseminate the recommendations from these government sites. Many also find them too broad range and prefer to approach the board with something more personalized.
So, let’s examine other avenues available for training your board of directors.
- Do it yourself
Simply put, you can train the board yourselves. If you have the talent and the experience within your organization, those individuals can take it upon themselves to create, implement, and track a training program. As long as you’re willing to put the time and effort in, this is a possible option. The question remains, will it be up to par for examiners.
- Educational training videos
Video education has become an important part of modern technology. Like most topics, video training is available for financial institution board training.
State and other financial associations are a great place to check. If you’re a member at one of these types of organizations, they may even offer education included with your membership fee. Otherwise, there may be premium options available from these organizations, or others. For example, at Plansmith, we have several affordable options for premium liquidity and interest rate risk training. Or, if you use a different risk partner, they may have their own options as well.
The reality is, on-demand education exists and it is not as expensive or difficult to find as you may think. Again, the question remains, will this be enough to properly edify each director and satisfy regulators.
- Outsourced board training
The other option for educating your board is a fully outsourced board training process. This would be the most all-encompassing, and as such, varies in cost by the organization performing the service. At Plansmith, we offer personalized liquidity and interest rate risk board training. This includes a review of your risk measurement model(s) and a customized board training session led by a former FDIC or NCUA examiner. It also includes the assurance that you can show examiners that you’ve taken action to provide the board with the training regulators expect. If peace of mind is what you’re looking for, this may be the option for you.
Training can be a big undertaking, and educating your board of directors is certainly complex. However, if your directors are properly trained to thoroughly understand the above topics, examiners should be satisfied. The key is to start this process immediately if there is any doubt concerning your board’s current education levels so you can be confident and ready for your next exam.
If you have any questions, or would like more information on board training with Plansmith, click here to send us an email.