Academic journal article ABA Banking Journal

Create a Risk Committee? Debating Whether BHCs under $10 Billion Need One

Academic journal article ABA Banking Journal

Create a Risk Committee? Debating Whether BHCs under $10 Billion Need One

Article excerpt

Iowa's Bank Midwest has been beefing up corporate governance. As part of that, Chairman Mary Ellen Domeier and fellow directors reconsidered where "risk" resides.

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As Domeier explains, the $584 million-asset bank to date has not had a board-level Risk Committee, yet it clearly has had a risk approach in place. Audit oversees financial controls and compliance; ALCO oversees liquidity; and the Loan Committee oversees credit risk. Traditionally it all came together at the full board.

Question was, should the bank take a page out of the Dodd-Frank Act proactively? The law imposes a risk-committee requirement on public BHCs of $10 billion or more. It empowers the Federal Reserve to impose such requirements on other public BHCs. Debate is growing regarding doing so voluntarily. For some CEOs and board members, the thought isn't high on their list of "want to's."

Attorney Jeff Gerrish of Gerrish McCreary Smith, PC, has blogged his strong recommendation to adopt the structure on ababj.com. But he hasn't been getting much traction among clients. The costs of an additional committee as well as the added time burden on already busier board members raise eyebrows, he says.

Gerrish isn't the only proponent. Thinking this idea over "is a good exercise, and not a crazy idea," says David Baris, executive director of the American Association of Bank Directors.

"I think this is going to get into the examination process very quickly," says Walt Moeling of Bryan Cave LLP. Moeling happens to think the risk committee isn't necessary for small, simple community banks, and should be reserved for more complex organizations. However, he agrees with Baris, who says, "These things have a way of filtering down to smaller institutions. …

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