The Outside Directors’ Duties During an Examination Exit Meeting and Following

The examination exit meeting, which is the examination team’s opportunity to present the preliminary results of the examination to the bank’s directors and executive officers, is an important part of the examination process. This is particularly true when the results of the examination are less than stellar. It is not uncommon for outside directors to question their duties and responsibilities during and after the examination meeting. Outside directors often wonder whether it is expected that they attend the examination exit meeting, what they should say (or not say) during the meeting and what they should do following the examination meeting to fulfill their director duties.
There is no rule or regulation that requires outside directors to attend the examination exit meeting. However, an outside director’s attendance at the meeting is never hurtful, and is always well received by the examiners, as an outside director’s attendance evidences to the examiners that the outside directors are engaged in the examination process and are appropriately satisfying their charge for leadership of the bank and its business activities.
It is a best practice that each outside board member attends the examination exit meeting. This is particularly important when the examination has not gone as well as hoped. The examiners fully expect the directorate of a troubled organization to be completely engaged in the restoration of the bank to safety and soundness. Critical to this restoration process is the directorate’s understanding of the organization’s current problems and the examiners’ recommendations and directives for correcting those problems. If your bank’s examination has not gone as well as hoped, all outside directors should attend and be involved in the examination exit meeting.
During the examination exit meeting, outside directors should not shy away from engagement or discussion with the regulators. It is important that outside directors fully understand the examination process and the results of the examination. The bank’s outside directors should engage in discussion with the regulators to fully understand any regulatory criticisms and the examiners’ recommendations for remediation of the bank’s problems. If outside directors are unfamiliar with terms used during the exit meeting, the director should ask for those terms to be clarified. They should also ask the examination team to explain their recommendations if they are not fully understood. This level of engagement serves two purposes. First, it serves the practical purpose of ensuring the directors fully understand what is going on with the bank to allow the directors to make informed decisions regarding the institution. Second, it provides further evidence to the examination team that the directorate is involved in the management of the bank and is serious about operating the bank in a safe and sound manner. Finally, the outside directors should remember that the examination exit meeting is the bank’s opportunity to clarify any ambiguities or other misunderstandings the examination team may have, as well as present objections to any findings prior to their being put in the Report of Examination.
Following the exit meeting, the duties of outside directors are two-fold. First, the directors should be involved in the drafting and submission of the management response to the Report of Examination. It is not necessary that the outside directors actually take responsibility for drafting the response. Instead, the outside directors should allow management to draft the response, but should critically review and provide comments on the draft prior to its submission.
Following the submission of the management response to the Report of Examination, the directors should engage in appropriate follow-up to ensure all the bank’s obligations and representations to the examiners are satisfied. For example, if the management response to the Report of Examination indicates the bank will draft and adopt certain policies and procedures, the outside directors should ensure that happens. It is not enough to tell the examination team you are going to do something. The examiners will only give the bank credit for work once actually completed.
Overall, the outside directors should satisfy their duties as directors by being actively engaged throughout the entire examination process. This includes attendance at the examination exit meeting, particularly when the examination has not gone as well as hoped, and requires full involvement after the exit meeting to ensure the bank complies with its responsibilities as it relates to the examination. Only when this happens will the examiners have full confidence that the directorate is engaged and providing appropriate oversight to the bank and its business activities.