Interesting reading on this OCC site. The OCC is one of a few regulatory agencies for Citizens bank. This is the Comptroller’s Handbook booklet on Insider Activities. It delineates what the OCC considers a problem. I just found this booklet, but I think it backs up what we have all been saying. It isn’t just us Mr. and Ms. Director, it is the OCC too, that believes these tenets. Following is a brief excerpt:
Reputation Risk The board and management must act at all times in a manner that maintains the bank’s reputation for honesty and integrity. Real or perceived insider abuse can severely affect a bank’s ability to continue to do business in a profitable manner. When a bank is closely associated with an insider or a company owned by an insider (even if they do not transact business together), the bank may suffer loss of business or other harm if the insider or the insider’s business experiences financial difficulties or receives adverse publicity. Any damage to a bank’s reputation, or any implication of insider abuse or fraud, may dramatically affect the opinion of the bank’s shareholders, customers, suppliers, and financial partners, and may result in a loss of confidence in the bank. In turn, the bank’s customer base could erode, materially affecting the bank’s earnings and capital. Credit Risk Bank insiders are allowed, with certain restrictions, to borrow from the bank. However, the bank must ensure that lending to insiders is at “arm’s length,” i.e., on terms and conditions no less stringent than those offered to the general public. The one exception to this general “arm’s length” requirement is set forth in Regulation O, which provides that insiders (as defined for Regulation O purposes) may take advantage of benefit and compensation programs widely available to bank employees, as long as any loans made pursuant to such a program are not on terms any less stringent than loans to employees who are not insiders. Loans to insiders could create added credit risk to the bank when inadequate or lax enforcement of insider policies allows for special treatment of insiders who might not otherwise qualify for credit. In addition, pressure from insiders to relax credit standards for their related interests or for their friends’ interests can also cause problems. Lending to non-creditworthy insiders, offering inappropriate terms to insiders, or otherwise allowing an environment conducive to insider abuse increases the possibility of loss and violations of law and regulation to the bank. Liquidity Risk Any speculation questioning the honesty or integrity of the bank or its insiders, however unfounded, can affect the bank’s ability to continue to attract funds from the public, institutional suppliers, and correspondent banks. Even the appearance of insider impropriety could fuel a “run” on the bank and could force the bank to dispose of assets at unacceptable losses in order to maintain liquidity. Compliance Risk A bank’s board and management are responsible for ensuring that the bank complies with laws, regulations, prescribed practices, and ethical standards. Noncompliance with these requirements or safety and soundness standards can expose the bank and its insiders to serious consequences, including enforcement action. An insider who, knowingly or unknowingly, violates any banking law or regulation, engages in an unsafe or unsound banking practice, or breaches a fiduciary duty may be subject to civil money penalties and removal from banking, and may be held personally liable for any loss incurred by the bank due to such activity.