As more and more banks are being downgraded to a problem bank status in this difficult economic environment, they are facing the prospect of a regulatory enforcement action.
Selecting the appropriate expert is a very important issue and there have been many articles written about the subject. There have also been numerous articles written about mistakes that are made after an expert is hired. My expertise is in the area of banking. After spending over 34 years as a banker, starting and organizing two de novo community banks and heading up a work-out department for a regional bank. I have been involved in hundreds of loan and director committees, reviewed thousand of loans, attended over fifty regulatory exit reviews, and reviewed and drafted numerous policies and procedures. As a banker and especially my time heading up a work-out department, I have had more than my share of banking litigation, attorneys, depositions, and court appearances. In, the past year and a half I have been working as a Banking Expert Witness and have noticed some areas where banking experts are not optimized. Since my expertise is in banking, I will limit my discussion to that area. Banking and Financial Institutions are a heavily regulated industry with many different regulatory agencies overseeing the day-to-day operations. Some of these regulators, depending on the type of bank charter, include but are not limited to the following:
FDIC (Federal Deposit Insurance Corporation) Federal Reserve System OCC (Office of Comptroller of Currency) State Departments of Financial Institutions Office of Thrift Supervision US Department of the Treasury US Securities and Exchange Commission
In addition to the above, banks have external auditors, internal auditors, internal credit review, external credit review, compliance departments, and a host of other officer and board committees. The list of policies and procedures are staggering and are always being reviewed and updated to keep up with the current regulatory changes.
Selecting the right expert is important, but also optimizing their use is just as important. Following are areas that should be considered and explored. I will not elaborate on each item, as there are numerous articles written with great detail, but I highlight the areas I feel can be optimized.
1) The most obvious is, what did you find that was done wrong? 2) What wasn't found in the documents that should have been there? 3) What gives you concern (heart-burn) about the case after reviewing the documents?
Question number 2 is important because with the entire bank regulatory requirements, if the bank didn't perform certain tasks as required by regulation, these items will not show up in discovery. Question number 3 is important because it gives you a heads up as to potential problem areas with the case. It shouldn't matter who the expert represents, their opinions are determined by the facts of the case. If the expert discovers items that are detrimental to the client they represent, it is better to be aware of those in advance, and not be embarrassed or surprised at trial. If opposing council has done a good job in hiring their expert, assume the detrimental and questionable information will be discovered.
Other areas that are import that will not be address in this article include the following:
Limiting The Information Given To Your Expert Allowing Sufficient Time To Review Documents And Write A Report Explaining or Clarifying Industry Financial Terms such as; nonaccrual, impaired, classified, criticized, account grading, set-off, out-of-trust, or other such terms that may be confusing to a non-financially individual or jury.
Michael F. Richards, is a Banking Expert Witness and Consultant with more than 34 years of experience. His experience as a Founder, President, and Director of two De-Novo banks and the head of a work-out department for a regional bank give clients and attorneys a crucial behind-the-scene understanding of all aspects of banking.
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Strategic risk is currently a focus of regulatory scrutiny and the board of directors should understand what it is and how to manage it. Strategic risk is the risk to a bank's earnings and capital from making poor business decisions, from not implementing business decisions properly, or from failing to respond to industry changes.
By: Mark C. Riley
After over 34 years in bank management, including being Director, President and CEO of two banks, providing expert witness services to attorneys representing banks, bank customers, vendors and regulators has illuminated some fundamental certainties in U.S. financial services.