Joining a bank board? Get radically objective: bank board composition tends to be long on street savvy but short on requisite regulatory acumen ... and, leadership matters!

• Author: Kipp, Mike

Some 15 years ago, I accepted an invitation to the board of American Home Bank (AHB). As an organizer, I joined a small group making a modest investment in an idea that became the employer of more than 300 people with 1,200 dependents in service of 10,000 customers enjoying nearly a billion dollars in loans. Chartered one month before 9/11, we navigated the sea-state changes in the industry for nearly a decade. With accelerated capital requirements, our growth stalled. After months of wrestling with alternative scenarios, we elected to sell to a larger bank-holding company.

More recently, I was asked to join the bank of a "troubled institution." The formal agreement required Atlas Bank to elect an outside director with experience in the industry. As the proverbial 'one-eyed man,' I won the raffle. Far from having engaged in risky business, Atlas's troubles stemmed from its commitment to an ethnic, working class population in Brooklyn. Having served its neighbors well for nearly a century as an association, a credit union, state chartered bank, and an S&L, it couldn't meet the more exacting standards of Dodd-Frank and the Office of the Comptroller of the Currency (OCC). Top-quartile operating ratios, strong capitalization, and a consistently performing loan portfolio proved insufficient to avoid a costly and painful program of remediation and the resulting hit to earnings. As with AHB, the painful but prudent course was to sell to a larger player who would sustain the commitment to the community, the depositors, and most of the employees.

There are many lessons to be drawn from such experiences. Four, though, seem especially relevant for those who've been asked to join a bank board:

1. You are being invited to govern in a greatly consolidating industry. We've gone from 18,000 to just over 5,000 banks since the early 1990s. Some observers say we could get down below 1,000. At one bank for each 50,000 Americans, we're five times the banks-per-capita as the U.K. and more than ten times that of our other economic peers around the globe. So forget the rescue fantasy; get radically objective. The right side to be on is the one that preserves value for investors, security for employees, and safety for and soundness for depositors.

2. Bank board composition tends to be long on street savvy but short on requisite acumen in the credit instruments that...