In 1653, Isaac Walton wrote “The Compleat Angler” a book that is still read by avid fishermen desiring to learn all they can about the sport. One might ask today what makes a complete bank lawyer. The answer is usually not understood by bank senior management. They often fail to differentiate between legal and compliance. Both functions are critically important and they must work together as a team; however, while the lawyer should be a resource to compliance officers in helping them interpret complex or ambiguous regulations, it is not the lawyer’s responsibility to make sure they are followed by bank personnel. This is the role of compliance. Why is it important for senior management to be aware of the differences between the two functions and the scope of their respective responsibilities? Because these are key functions and, as in the case of other key functions, they should know what they do, and the knowledge and experience required of the individuals they hire to fill these key positions.
To become a complete bank lawyer, it is necessary to have both curiosity to learn new things and to have been presented, over time, with the opportunity to provide counsel to all areas within a bank as well as a bank’s board and senior management. Unfortunately, in this age of specialization, young lawyers are not afforded the opportunity to gain this broad based experience. This is why banking generalists are a dying breed. Large banking organizations can afford to hire specialists who concentrate on specific areas of the bank’s operations. Small banks cannot. One solution for them may be to hire a semi-retired generalist on a part-time basis. If this is not possible, outside counsel with experience in the various areas discussed herein, whether found within a single firm or in multiple firms, should be engaged.
It is important for all banks, large and small alike, to have a lawyer present at all board meetings, and not in the capacity of a director. This does not mean just any lawyer, but one that has some expertise in banking law. Some lawyers claim to be bank lawyers because they represent banks in connection with loan transactions, but this, alone, is not enough to qualify one as a bank lawyer. That individual need not be knowledgeable about the full range of legal issues that may be encountered by a bank, but should be conversant with laws such as the following: Bank Merger and Change in Control Acts; Bank Holding Company Act; laws and regulations governing financial subsidiaries, operations subsidiaries and other permissible investments; dividends; management interlocks between banks and public utilities; securities law restrictions regarding insider trading; and banking laws and regulations regarding restrictions on transactions with affiliates and insiders. The individual must also be knowledgeable about laws relating to corporate governance. In addition to their general oversight responsibilities, directors are required to review or approve of specified policies and procedures. The lawyer should know what specific reviews or approvals are required and ensure that each director receives an adequate executive summary of the underlying law or regulation.
Here are some things with which a bank lawyer, or the bank’s lawyers, collectively, should be familiar. To begin with, obviously, they should have a thorough knowledge of banking laws and regulations. They should also be aware of the interplay among them. For example, state member bank dividends are subject to restrictions applicable to national banks under the National Bank Act, and certain provisions of the FDIC Act apply to all banks, regardless of who their federal regulator is. A thorough knowledge of Articles 3, 4, 8, and 9 of the Uniform Commercial Code is also required. Collectively, these Articles apply to the core bank functions of receiving deposits and making loans. If the client issues letters of credit, knowledge of Article 5 is also required. In addition, since Article 5 expressly provides that an issuer’s liability can be governed by the Uniform Customs and Practices for Documentary Credit if the letter of credit so provides, it is important to be familiar with this document as well. The Uniform Customs is published and updated periodically by the International Chamber of Commerce.
If the client issues stock that is sold to the public, it is necessary to have at least a rudimentary knowledge of securities law in order to know when to call for the assistance of experts in this area. Even if the client does not sell securities to the public, securities law questions can arise. For example, SEC Rule 141 could impose restrictions on the sale of publicly traded stock offered as collateral by prospective borrowers, who might be subject to the Rule’s conditions.
These days banks, like all businesses, often face employment law issues, and so a general familiarity with this area of the law is important. However, it is essential that they be knowledgeable about legal limitations on executive compensation under laws and regulations addressing safety and soundness. They should also be familiar with limitations on life insurance taken out on the lives of senior executives, commonly known as “BOLIs’”, a short hand reference to bank owned life insurance.
In the ordinary course of business, contracts will have to be drafted or reviewed, so the lawyer should be acquainted with the fundamental principles of contract law. The same is true with respect to real estate law, not only because of real estate lending activity, but also because the bank itself may be a buyer or seller of real estate. With regard to the former, they should be aware of the legal and regulatory limitations and conditions applicable to bank ownership of real estate.
Banks are frequently both plaintiffs and defendants in lawsuits. Litigation experience is invaluable. It not only enables the lawyer to understand the litigation process and to assess the quality of the bank’s litigation counsel, but also is it is helpful when drafting documents to have a sense of how they may be perceived if introduced in court someday. The lawyer should also follow case law involving banking industry wide issues such as, for example, the ability of banks to charge a fee for cashing checks of non-customers and how it handles the order of posting checks. Legal questions can also arise in connection with proposed new products or services. Services such as Remote Deposit Capture and ATMs initially raised the question of whether they would be considered as tantamount to a branch, and subject to branching restrictions under federal law. Those issues were subsequently resolved (the issue would be moot today because Dodd-Frank removed these restrictions). Branch personnel often call for advice about how to handle legal processes served on the bank and other claims and demands by prosecutors, private attorneys and customers that the bank take or refrain from taking certain actions respecting customer accounts. It is important to know how to distinguish the efficacy of those coming from out of state tribunals or officials from those issued by state courts and officials and restrictions on release of customer information requested by federal government officials under the Financial Right To Privacy Act as well as other conditions and limitations respecting disclosure of customer information to third parties.
The variety of legal questions that might be presented by branch personnel typically involve a broad range of issues and are impossible to catalogue. Some common questions are: The lessee or joint lessee of a safety deposit box dies, what action should I take; What do we do when a depositor declares bankruptcy?; What documents should we receive to verify the authenticity and signing authorities of business entities (there are typically 6 types of business entities recognized under state law, corporations, LLCs, general partnerships, limited partnerships, limited liability partnerships, and limited liability limited partnerships); How should we handle custodial accounts under the Uniform Transfer to Minors or the Uniform Gifts to Minors Acts and how are they distinguishable; What are Totten Trusts and how should deposit accounts established by the trustees be handled; How should we respond to a dispute among stockholders or members of non-corporate entities, each demanding information about or access to accounts in the name of these entities; Or when do we need to file a suspicious activity report? Although Bank Secrecy Act (BSA) compliance falls within the domain of the compliance department, since it is so critically important, bank lawyers should be familiar with it and implementing regulations of the US Treasury Department and the banking agencies.
Ideally, the bank lawyer should review the Federal Register every day to look for proposed or final rules and regulations of the banking agencies. Hardly a week goes by when none appear. The Federal Register is available on line. The web sites of the federal banking agencies should also be reviewed regularly. They often set forth Guidance and Policy Statements applicable to various bank activities. The bank lawyer should also be familiar with Examination Guides and Handbooks issued by the Federal banking agencies.
If the bank client has trust powers or if it is a non-deposit trust company, the lawyer should be familiar with basic principles of trust law and also the fiduciary regulations of the OCC. Even if the client is not a national bank, these regulations are important because they have been given deference by the other banking agencies. The Federal Reserve has characterized them as being the industry standard. Because of the importance of tax law in estate planning, typically a bank will have separate trust counsel with expertise in tax issues, typically lawyers who have earned a Masters Degree in Taxation.
Finally, the bank lawyer should also be able to handle unanticipated matters, which can make the position even more interesting. I once heard a great example of this from well-known banking attorney who experienced this while he was serving as the head of a bank’s legal department. Because the bank’s directors preferred to travel to board meetings via helicopter, he was asked to take all steps necessary to authorize a heliport on bank property. This entailed contact with the FAA and state and local authorities and learning about all applicable legal requirements.
As you can see, there are a great many banking attorneys in the United States, however, a complete banking attorney is much harder to find. GLI/Grimes Legal, Inc. A Global Legal Recruiting Network, has partnered with some of the top banking lawyers in the country in order to locate and qualify top banking attorneys who bring the whole package to today’s banks, organizations and law firms. Our seasoned experts know exactly what it takes to be a truly complete bank lawyer because they have walked the halls of some of the most prestigious banks and firms in the country and they are ready, able and willing to assist your organization in locating the best banking talent in your area. To further discuss your needs, we welcome you to call. Together, we will find the complete banking lawyer for you.