Office of Thrift Supervision

Department of the Treasury

Directors’

Responsibilities

Guide

April 2008
Office of Thrift Supervision 1

Directors’ Responsibilities

Guide

Directors’

Responsibilities Guide

Introduction

As the financial services industry continues to evolve, the role of directors

remains critical. While financial headlines may change, the Office of Thrift

Supervision’s (OTS’s) principles of corporate

governance remain consistent. OTS has long

endorsed the need for sound governance

practices as well as the importance of strong,

independent boards of directors.

Scope

This guide is an overview of your core

responsibilities as a fiduciary with the public

trust of federally insured deposits, not a complete set of guidelines for savings association
2 Department of the Treasury

Directors’ Responsibilities

Guide

directors. A complex framework of federal

and state laws and regulations governs you in

your role as a director. This guide does not

modify the legal framework in any way, nor

does it cover every conceivable situation that

you may confront. Rather, it offers general

guidance for you to meet your responsibilities

in a changing business environment.

You face special challenges because insured

banks and savings associations differ from

other corporations. Federal deposit insurance

subjects a depository institution to special

scrutiny and control because of the nature of

the business risks involved and the importance

of a safe and sound banking system to the

nation’s economy.

Requirements

Directors do not require extensive training,

but they should receive some form of orientation and continuing education to assure they

achieve and maintain a necessary level of

expertise. The board may seek appropriate

advice from independent consultants or outside counsel at the expense of the association,

if necessary to direct the association appropriately.
Office of Thrift Supervision 3

Directors’ Responsibilities

Guide

Other Guidance

To help you make informed decisions, OTS

has additional guidance available for directors:

Q Directors’ Guide to Management Reports. This

guide discusses accurate and timely information you need about your association’s

performance and its compliance with regulatory requirements.

Q Examination Handbook Section 310, Oversight

by the Board of Directors. This handbook section outlines your responsibilities as a

director.

Q Examination Handbook Section 1100,

Compliance Oversight Examination Program.

This handbook section provides the means

for Senior Management and the board to

gauge compliance performance.

We also list some helpful resources at the end

of this guide as well as a chart to clarify the

applicability of selected Sarbanes-Oxley Act

requirements. We encourage you to contact

OTS regional office staff if you have questions concerning your duties or responsibilities.
4 Department of the Treasury

Directors’ Responsibilities

Guide

Responsibilities

The directors and management have separate

roles. Board members should avoid crossing

the line into management activities and vice

versa.

The savings association board of directors is

ultimately responsible for overseeing the

affairs of the association. Specifically, the

board has the following responsibilities:

Q Establish the association’s overall objectives and strategy.

Q Endorse the importance of regulatory

compliance as an inherent part of business

operations.

Q Select and retain competent management.

Q Monitor and assess operations.

Q Conduct affairs ethically and avoid the

appearance of conflicts of interest.

Q Ensure that the association is meeting the

needs of its community.
Office of Thrift Supervision 5

Directors’ Responsibilities

Guide

Management, in turn, has the following

responsibilities:

Q Run day-to-day operations.

Q Implement board policies.

Q Report on performance.

Q Recommend improvements when possible.

Management knowledge and skills are among

the association’s most valuable assets.

However, the board must not follow management’s recommendations unless it thoroughly

discusses, independently evaluates, and fully

understands significant issues and events.

In order to stay well informed you should:

Q Prepare in advance and attend all board

meetings.

Q Be proactive and independent.

Q Require a complete and consistent board

information package in advance of meetings.

Q Require complete and accurate minutes of

all board meetings.
6 Department of the Treasury

Directors’ Responsibilities

Guide

Q Be aware of news about the association,

the financial services industry, and the general business climate of the association’s

communities.

Q Review and heed regulatory examination

reports and all supervisory correspondence.

Q Discuss key issues with senior management both in and out of board meetings.

Q Review and respond to reports from internal and external auditors and board committees.

Generally information flows to the board

from a wealth of sources, but formal sources

include:

Q Management reports.

Q Internal audit reports.

Q External audit reports.

Q Examination reports.

These reports provide you with valuable information. You should watch for concerns, weaknesses, negative trends or other developments
Office of Thrift Supervision 7

Directors’ Responsibilities

Guide

noted in these reports and ensure they are

promptly corrected. Additionally you should

watch for significant inconsistencies among

these sources and obtain a satisfactory explanation for any major discrepancies.

Establish the Association’s

Objectives and Strategies

Business objectives are the overall priorities of

the association. The association must have

written objectives that are realistic.

Timeframes must be clear. Every association’s

business plan should include clear objectives

and measurable implementing strategies.

You must identify and understand the risks

presented by the association’s objectives and

strategies. OTS recognizes that associations

must assume certain risks to be profitable. The

board should carefully assess risks and calculate the impact of those risks prior to engaging in any material activity. The association

must establish an adequate system for identifying and managing risks to ensure they are

appropriate for the expertise, skills, and abilities of management, as well as the size and

complexity of operations. The board and
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Directors’ Responsibilities

Guide

management must work together to ensure

that they adequately identify, measure, monitor, and control risks. Risks of particular

importance to savings associations include

interest-rate risk, credit risk, concentration

risk, compliance risk, operational risk, technology risk, liquidity risk, and reputation risk.

The board must oversee and approve policies

and procedures — guiding principles and

broad courses of action — that will help the

association attain its objectives. Specific operating policies and procedures are necessary to

govern key business activities. At a minimum

your association’s policies should address:

Q Lending.

Q Investments.

Q Liquidity.

Q Capital planning.

Q Internal controls.

Q Valuation allowances.

Q Asset quality and credit risk management.

Q Asset/liability and interest-rate risk management.
Office of Thrift Supervision 9

Directors’ Responsibilities

Guide

Q Off-balance-sheet activities.

Q BSA/AML Compliance.

Q Management Succession Planning.

Q Training of Key Personnel.

Q Human resources and benefits.

Q Business planning and budgeting.

Q Internal and external audit programs.

Q A code of ethics to reduce conflicts of

interest.

Q Compliance with safety and soundness,

consumer protection, and other public policy, statutes and regulations (including the

Community Reinvestment Act).

Q Business continuity, disaster recovery and

contingency planning, including employee

safety and security.

Q Indentity theft prevention.

Q Information and physical security.

Q The privacy and accuracy of customers’

personal information.

The board should review the policies and procedures at least once a year to consider appropriate changes.
10 Department of the Treasury

Directors’ Responsibilities

Guide

Select and Retain Competent

Management

The most important factor in the success of

an association is the quality of its management. The board must select and retain management who will follow the board-approved

strategies and objectives of the association.

It is rare that the cause of a serious problem

or the failure of a savings association is other

than mismanagement. Most association failures are the result of inattentive, inadequate,

or dishonest managers. You must stay keenly

aware of management’s activities. Your early

detection of managerial problems can mean

the difference between success and failure of

the association.

Meeting periodically, the board makes major

decisions about the association’s business

goals, policies, and procedures. Management,

in turn, translates the board decisions into

day-to-day business activities. You and your

fellow directors can fulfill your responsibilities

only with the help of a skilled and trustworthy

management team.
Office of Thrift Supervision 11

Directors’ Responsibilities

Guide

Monitor and Assess Operations

Once objectives, strategies, policies, and procedures are in place, the board should establish an ongoing review of the association’s

performance. This review should include

management reports to the board.

Periodically, management and the board

should carefully review the makeup of the

board management reports to ensure that the

information is concise, complete, accurate,

timely, useful, and transparent.

Transparency relies on the accessibility of

comprehensible, rational, relevant, and reliable

information about publicly traded firms such

as:

Q periodic performance

Q financial position

Q investment opportunities

Q governance

Q value

Q risk
Director’s Responsibilities

Guide

12 Department of the Treasury

Corporate transparency is desirable because it

enhances the quality of information provided

in financial statements, audit opinions, credit

ratings, and analyst reports.

A lack of transparency can impose unexpected, significant, and costly exposure to unwanted and unnecessary risks. All directors should

strive for providing higher quality information

to depositors, borrowers, investors, and other

stakeholders so that they are able to make better decisions.

Directors should be comfortable with the

accuracy and integrity of distributed information so that the public can assess and make

informed decisions.

Reports should present relevant information.

Too much detail, too little detail, or irrelevant

information can hide potential risks that are

visible in concise, thorough summaries.

Consistency in reporting improves the effectiveness of a report as an oversight tool.

Management can use frequent changes to

mask serious problems. You should review

reports in advance of board meetings to allow
Office of Thrift Supervision 13

Directors’ Responsibilities

Guide

for a meaningful discussion. You should compare current operating results against:

Q Business objectives.

Q Established performance targets.

Q Previous period results.

Q Recognized standards.

Q Peer group and industry performance.

Q Results of periodic reports by independent

auditors and regulators.

You must read and understand management

reports, ask questions to further your understanding, and in some cases obtain third party

validation that the reports are prepared under

acceptable policies and procedures.

Internal reports will generally include the following information:

Q Budget projections and comparisons.

Q Income and expenses.

Q Capital outlays and adequacy.

Q Loans and investments.
14 Department of the Treasury

Directors’ Responsibilities

Guide

Q Past due and renegotiated loans and investments.

Q Problem loans, their present status, and

workout programs.

Q Allowance for probable and estimable loan

losses.

Q Contigent liabilities.

Q Concentrations of credit.

Q Losses and recoveries on disposition of

assets.

Q Third party performance.

Q Potential BSA/AML compliance issues

including suspicious activity reports

(SARs) and violations.

Q Possible fraud and/or insder abuses.

Q Funding activities and the management of

interest rate risk.

Q Possible fair lending violations.

Q Performance in all of the above areas compared to past performance as well as to

peer group performance.
Office of Thrift Supervision 15

Directors’ Responsibilities

Guide

Q All insider transactions that benefit, directly or indirectly, controlling shareholders,

directors, officers, other employees, or

their related interests.

Q List of actions taken to ensure compliance

with applicable laws.

Q Any extraordinary development likely to

affect the integrity, safety, or profitability of

the savings association.

The board must ensure that the association

maintains an effective system of internal controls. The board should monitor compliance

through several means, including the following:

Q Board committees.

Q Internal audit reports.

Q Management reports.

Q Independent audit reports.

Q Management letters from the auditor.

Q Regulatory reports and correspondence.
16 Department of the Treasury

Directors’ Responsibilities

Guide

Conduct Your Affairs Ethically and

Avoid the Appearance of Conflicts

of Interest

Everything you do must comply with applicable laws. You have fiduciary duties of care,

loyalty, and candor to your association. If you

are a dual director, serving as a director for

both the holding company and the association, there may be times when the interest of

the holding company and the association conflict. Your duty to the association is paramount to your duty to the holding company or

other affiliate because of the public trust vested in you as a savings association director. You

must take whatever steps are necessary to

ensure that the association maintains a corporate existence that is separate from its holding

company, affiliates, and subsidiaries.

You should also avoid conflicts of interest or

even an appearance of conflict, especially

where a management interlock exists. (12 CFR

Part 563f) You must think independently and

act in the best interests of the association at all

times.
Office of Thrift Supervision 17

Directors’ Responsibilities

Guide

The association should not engage in preferential transactions with insiders. This includes

transactions with directors, executive officers,

principal shareholders, and related interests.

Transactions with insiders must be beyond

reproach. They must be in full compliance

with applicable laws, and you must document

the basis for such decisions to avoid personal

civil and criminal liability.

When acting in an official capacity, your personal financial or business interests and those

of your family and associates must be subordinate to the best interests of the association.

When deciding such matters, you should never

advance your own interest or those of your

family or associates at the expense of the association. If an issue comes before the board

that poses a potential conflict, you should:

Q Disclose to your fellow directors all material information relevant to the board’s

decision.

Q Refrain from participating in any board

discussion of the issue.

Q Abstain from voting on the issue.
18 Department of the Treasury

Directors’ Responsibilities

Guide

Association counsel owes a duty of loyalty to

the association, not to the directors, management, or owners. The association should

obtain separate counsel to negotiate employment agreements and director benefits. In

addition, you should not use the association’s

legal counsel for personal business. You

should retain your own counsel for personal

purposes.

Ensure that the Association is

Meeting the Needs of its

Community

Under the Community Reinvestment Act, you

are responsible for ensuring that your association meets the credit needs of the communities where it operates, including low- and

moderate-income areas and borrowers. In

doing so, you will be supporting the community that supports the association. Adherence

to fair lending laws is a factor in your

Community Reinvestment Act evaluation. An

association that engages in illegal discrimination cannot effectively serve the community.

You must ensure that appropriate fair lending

policies, procedures, and controls are in place

at your association.
Office of Thrift Supervision 19

Directors’ Responsibilities

Guide

Committees

You may find it useful to establish board

committees with special expertise to understand and interpret specialized areas. You

may delegate assignments, but you must

never delegate your responsibilities as a

director.

Each committee should establish in writing

the committee’s functions, responsibilities,

and membership qualifications. Depending on

its function a committee may include a mixture of inside directors, outside directors, and

management. Committee members should

have appropriate expertise and independence

based on the objective of the committee.

Committees should report regularly to the full

board. The proceedings of each committee

meeting must be documented.

Some common committees are the Executive,

Strategic Planning, Loan, Audit, Examination,

Nominating, Corporate Governance, Investment, Asset/Liability, Interest Rate Risk,

Information Technology, Compensation and

Personnel, Compliance, Community

Reinvestment Act (CRA) and Fair Lending
20 Department of the Treasury

Directors’ Responsibilities

Guide

committees. The board may also establish ad

hoc committees to deal with particularly significant issues. We describe the four most

important and common committees below:

The executive committee generally acts with

authorization in the board’s absence between

board meetings, with actions subject to board

ratification or prior blanket approval. The

executive committee can perform reviews of

information and operations that are more

detailed and coordinate the work of the other

committees.

The strategic planning committee considers

the environment in which the association operates, including the law, the economy, and competition. It decides how best to address these

external factors by carefully selecting and

achieving long-range goals. The committee

recommends a plan to the board with benchmarks for measuring progress.

The loan committee approves loans, reviews

lending policies, and monitors management

compliance with these policies. The loan committee reviews the adequacy of the allowances

for loan and lease losses.
Office of Thrift Supervision 21

Directors’ Responsibilities

Guide

The audit committee monitors management

and staff compliance with board policies, laws,

and regulations. The audit committee supervises the internal and external audit functions.

An audit committee should include members

with savings association or related financial

experience. Members must be independent of

management and free from any relationship

that would interfere with the exercise of independent judgment. Members must also be

independent of operating personnel who

audit procedures, systems, or records. An

association with significant transactions with

affiliates needs to ensure that its audit committee membership also is independent from

its affiliates.
22 Department of the Treasury

Directors’ Responsibilities

Guide

Statutory and Regulatory

Liability

Directors are responsible for ensuring that

the association complies with all applicable

laws. A director who violates any banking law

or regulation, engages in an unsafe or

unsound banking practice, breaches a fiduciary duty, or knowingly allows another to do

so, may be held personally liable or subjected

to monetary penalties or other sanctions.

Listed below are some key statutes and related regulations that establish specific terms

for the conduct and activities of directors

and their association. The following chart is

not intended to be all inclusive, nor is it

intended to be an authoritative restatement of

the law and regulations, particularly since

statutory and regulatory changes might take

place after publication of this guide.

Directors and management are responsible

for consulting the current version of the specific statute or regulation Q
Office of Thrift Supervision A I-1

APPENDIX I

Director’s Responsibility (DR) — Two or more members of the

board must attest to the report.

DR — Directors must review and approve the association’s interbank liability policies and procedures.

DR — Directors must control the risks of participation in the systems by establishing caps and reviewing policy compliance.

DR — If the association has total assets of $500 million or more,

the board must establish an independent audit committee.

DR — Directors must, at least annually, review and approve lending policies for extensions of credit secured by real estate. Such

lending policies should reflect risk levels that are acceptable to

the board and provide clear and measurable underwriting standards.

Statute/Regulation Policy Authority

Report of Condition 12 USC § 1817(a)(3)

TFR Instructions

Interbank Liabilities 12 CFR § 206.3

Payment Systems Risk 12 CFR § 210.25

Annual Independent Audits and

Reporting Requirements 12 CFR Part 363

Real Estate Lending Standards 12 CFR § 560.101
A I-2 Department of the Treasury

APPENDIX I

DR — The board of directors must approve the BSA compliance

program that establishes and maintains procedures reasonably

designed to assure and monitor compliance with BSA requirements.

DR — Directors should ensure that management evaluates and

classifies the association’s assets on a regular basis in a manner consistent with or reconcilable to OTS’s asset classification

system.

DR — Directors must ensure that the composition of the board

is within the guidelines of § 563.33(a).

DR — The board must annually review and approve all employment contracts and compensation arrangements for senior officials and directors. 

DR — The board is responsible for effective oversight of financial derivative activities and must establish written policies and

procedures governing such activities.

BSA Compliance 12 CFR § 563.177(b)

Classification of Assets 12 CFR § 560.160

Board of Directors - General

Requirements 12 CFR § 563.33(a)

Executive Compensation and

Employment Contract Oversight 12 CFR § 563.39

Financial Derivatives 12 CFR § 563.172

Statute/Regulation Policy Authority
Office of Thrift Supervision A I-3

APPENDIX I

DR — The board of directors must review the association’s interest rate risk exposure and devise and adopt policies for the management of interest rate risk. The board must review the results of

operations at least quarterly and make appropriate adjustments

as necessary.

DR — The board must formally approve and annually review and

assess the association’s standard and supplemental bond coverage.

DR — The board must review each director’s business and personal interests to ensure that the director does not advance his or

her interests, or those of others with whom he or she has a personal or business relationship, at the expense of the association.

DR — Directors should develop, implement, and maintain

appraisal policies to ensure that appraisals reflect professional

competence and reliable market value of the collateral.

Statute/Regulation Policy Authority

Interest Rate Risk Management

Procedures 12 CFR § 563.176

Bond Coverage for Directors,

Officers, Employees, and Agents 12 CFR § 563.190

Conflicts of Interest 12 CFR § 563.200

Appraisal Policies and Practices

of Savings Associations and

Subordinate Organizations

12 CFR § 564.8,

TB 55a 11/1/94
APPENDIX I

DR — The board must ensure that the association has a written

security program for the main and branch offices. The board must

designate a security officer to report at least annually on the

implementation, administration, and effectiveness of the security

program.

DR — Directors and senior management must ensure that the

association has a system of internal controls that operate effectively as well as an internal audit function that is appropriate to its

size, nature, and scope of activities.

DR — The board must approve the association’s written information security program and oversee the program’s development,

implementation, and maintenance.

Written Security Program 12 CFR Part 568

Safety and Soundness Standards 12 CFR Part 570,

Appendix A

Information Security Standards 12 CFR Part 570,

Appendix B

Statute/Regulation Policy Authority

A I-4 Department of the Treasury

DR — The board of directors must approve the initial, writtten

Identity Theft Prevention Program that establishes and maintains

policies and procedures reasonably designed to monitor, detect,

and mitigate identity theft.

Identity Theft Prevention Program 12 CFR Part 571
Office of Thrift Supervision A I-5

APPENDIX I

DR — Directors must approve major policies for conducting

investment activities including the establishment of risk limits.

Supervisory Policy Statement on

Investment Securities and EndUser Derivatives Activity

Interagency Policy

Statement

DR — If the association permits the sale of nondeposit investment products on its premises, the board must ensure that customers receive disclosures about the nature and risk associated

with such products. The board must also adopt and periodically

update a written statement that addresses the risks associated

with the association’s sales program.

DR — The board and senior management are responsible for

having an effective system of internal control and an effective

internal audit function in place at their institution.

DR — Directors and management must effectively manage risks

that arise from all types of third party arrangements.

Statute/Regulation Policy Authority

Networking Arrangements

Examination Handbook

Section 710, 1/1/04;

CEO Memo Number

178, 7/11/03

Internal Audit Function and its

Outsourcing

TB 81

3/17/03

Third Party Arrangements TB 82a

9/01/04
APPENDIX I

DR — Directors are responsible for overseeing management’s

significant judgments and estimates pertaining to determination of

appropriate ALLL.

DR — The board must adopt and maintain a comprehensive compliance management program predicated on systems, real-time

monitoring, periodic self-assessment, organizational accountability, responsiveness to needed improvements, and effective training

(OTS’s SMAART Compliance Program Components).

DR — Directors and senior management must establish policies

and procedures to ensure that comprehensive corporate business

resumption, contingency planning, and testing takes place.

Allowance for Loan and Lease

Losses Methodologies and

Documentation

CEO Memo

Number 250, 12/13/06

Compliance Management

Program - SMAART

Self Assessment Guide

12/29/02

Business Continuity Planning CEO Memo

Number 269, 3/19/08

Statute/Regulation Policy Authority

A I-6 Department of the Treasury

DR — The board is encouraged to closely review all provisions in

audit engagement letters and should not enter into agreements

that incorporate limitation of liablility provisions with respect to

audits.

Limitation of Liability Provisions in

External Audit Engagement

Letters 

CEO Memo

Number 235, 2/10/06

A II-1 Department of the Treasury

APPENDIX II

APPLICABILITY OF SELECTED SARBANES-OXLEY

Note: Institutions that meet more than one audit category should default

to the first listed category (highest category in the hierarchy established in

this chart). For example, a public company that is also subject to Federal

Deposit Insurance Corporation Improvement Act (FDICIA) would be

required to comply with all titles in Sarbanes-Oxley and default to the public company category. 

Institution’s Audit

Category

Title II - Auditor

Independence1

Public companies2 Required1

FDICIA required audits3 Institutions are required to comply with

Sections 201, 202, 203, and 206.

Section 204 does not apply under the

existing audit standards, but the FDIC

may amend Part 363 to encompass

standards that mirror Section 204.4, 5

2-Page
Office of Thrift Supervision A II-2

APPENDIX II

ACT REQUIREMENTS TO FINANCIAL INSTITUTIONS

Title III - Corporate

Responsibility

Title IV - Enhanced

Financial Disclosure1

Required1 Required1

Section 404 has been finalized.

The banking agencies worked

with the SEC to establish an

option for institutions to prepare

one report to meet both Section

404 and FDICIA requirements.

Institutions may choose to prepare separate reports for the

FDIC and SEC.

Institutions are not required to

comply with Section 301; however, they must have an audit committee that is independent of

management. Institutions are not

required to comply with Section

302. Institutions are not required

to comply with Section 303 but it

is an unsafe and unsound practice to exercise improper influence on the conduct of an audit.5

Institutions are not required to

comply with Sections 401, 402,

404, and 406. However, the

FDIC may amend Part 363 to

require compliance with those

sections.

Institutions are not required to

comply with 407; however, institutions with more than $3 billion

in assets are required to have at

least one member of the audit

committee with banking or related financial management expertise. The audit committee must

have access to its own outside

counsel. Spread 5
A II-3 Department of the Treasury

APPENDIX II

Institution’s Audit

Category

Title II - Auditor

Independence1

OTS required audits6 Independent public accountants are

required to meet the independence

requirements and interpretations of the

SEC and its staff.6

All other audits8 - supervised by OTS, FRB, or

OCC.

An institution may be required by another law or regulation, an order, or another supervisory action to have its

financial statements audited by an independent public accountant. If warranted

for safety and soundness reasons, the

institution’s primary federal regulator

may require that the institution and its

independent public accountant comply

with the auditor independence requirements of Section 201.4

APPLICABILITY OF SELECTED SARBANES-OXLEY

— continued

2-Page
Office of Thrift Supervision A II-4

APPENDIX II

Title III - Corporate

Responsibility

Title IV - Enhanced

Financial Disclosure1

Institutions are encouraged to

periodically review their policies

and procedures relating to corporate governance and auditing

matters. This review should

ensure that such policies and

procedures are consistent with

applicable law, regulations, and

supervisory guidance and remain

appropriate in light of the institution’s size, operations, and

resources.7

Institutions are encouraged to

periodically review their policies

and procedures relating to corporate governance and auditing

matters. This review should

ensure that such policies and

procedures are consistent with

applicable law, regulations, and

supervisory guidance and remain

appropriate in light of the institution’s size, operations, and

resources.7

Compliance may be required. If

not required, institutions are

encouraged to periodically

review their policies and procedures relating to corporate governance and auditing matters.

This review should ensure that

such policies and procedures are

consistent with applicable law,

regulations, and supervisory

guidance and remain appropriate

in light of the institution’s size,

operations, and resources.7

Institutions are encouraged to

periodically review their policies

and procedures relating to corporate governance and auditing

matters. This review should

ensure that such policies and

procedures are consistent with

applicable law, regulations, and

supervisory guidance and remain

appropriate in light of the institution’s size, operations, and

resources.7

ACT REQUIREMENTS TO FINANCIAL INSTITUTIONS

Spread
A II-5 Department of the Treasury

APPENDIX II

Institution’s Audit

Category

Title II - Auditor

Independence1

All other audits8 - supervised by FDIC.

Compliance not required. However,

institutions are encouraged to follow the

internal audit outsourcing prohibition in

Section 201, audit partner rotation and

“time out” periods similar to Section

203, institute auditor reporting practices

similar to Section 204, and to comply

with the conflicts of interest requirements in Section 206 given the institution’s size, complexity, and risk profile.5

Endnotes

1 Highlights of Selected Sarbanes-Oxley Act Requirements (Appendix

A).

2 Public companies: Banks, savings associations, and holding companies that have a class of securities registered with either the SEC

or the federal banking agencies (including OTS) under Section 12

of the Securities and Exchange Act of 1934 or are required to file

reports with the SEC under Section 15(d) of that Act (commonly

referred to as “public companies”), and are required to have an

external audit.

3 FDICIA required audits: Banks and savings associations with

assets of $500 million or more that are subject to the FDIC’s external audit and reporting requirements under 12 CFR Part 363.

4 Interagency Policy Statement on the Internal Audit Function and Its

Outsourcing (March 17, 2003).

5 FDIC Financial Institution Letter (FIL) - 17 - 2003, Corporate

Governance, Audits and Reporting Requirements (March 5, 2003).

6 OTS required audits: Savings associations and savings association

holding companies required by OTS to have an audit pursuant to 12

2-Page

APPLICABILITY OF SELECTED SARBANES-OXLEY

— continued
Office of Thrift Supervision A II-6

APPENDIX II

Title III - Corporate

Responsibility

Title IV - Enhanced

Financial Disclosure1

Compliance not required.

However, institutions are encouraged to establish an audit committee consisting entirely of

outside directors, similar to

Section 301, asked to consider

implementing Section 302, and

strongly encouraged to comply

with Section 303 (improper influence over external auditing

work).5

Institutions are encouraged to

implement to the extent feasible

given the institution’s size, complexity, and risk profile.

Institutions are encouraged to

implement Sections 401, 404,

and 406, and continue to comply

with Section 402 (Regulation

O).5

CFR 562. Includes audits of:

X Savings associations with composite CAMELS rating of 3, 4, or

5;

X Savings association holding companies that control a savings

association subsidiary(ies) with aggregate consolidated assets of

$500 million or more;

X De novo savings associations; and

X Other audits deemed necessary for safety and soundness reasons.

7 Joint Interagency (OTS, FRB, OCC) Statement on Application of

Recent Corporate Governance Initiatives to Non-Public Banking

Organizations, OTS CEO Letter No. 174 (May 5, 2003).

8 All other audits include: Banks, savings associations, and holding

companies that are (1) required to have an audit by another law or

regulation, an order, or another supervisory action, warranted for

safety and soundness reasons; and (2) not required to have an

external audit, but do so.

Spread

ACT REQUIREMENTS TO FINANCIAL INSTITUTIONS
A II-7 Department of the Treasury

APPENDIX II

Comments

Section 102 of Sarbanes-Oxley Act (Appendix A)

requires that “registered” accountants perform audits of public companies. This

requirement does not apply to non-public

companies. Auditors of non-public institutions must follow the AICPA independence

standards identified in the Code of

Professional Conduct.

Section 906 of Sarbanes-Oxley Act (Appendix A)

requires a signed certification by senior corporate officers that the financial statements and

the disclosures fairly present in all material

respects the operations and financial condition of the issuer. This is an amendment to

federal criminal law. The Section 906 certification is required for public companies in addition to the Section 302 certification.
Office of Thrift Supervision A III-1

APPENDIX III

References

AICPA Audit & Accounting Guide, Depository

and Lending Institutions, American Institute

of Certified Public Accountants, 2007. Phone:

(212) 596-6200, Internet: http://www.aicpa.org

Audit Committee Guide, Arthur H. Bill, Bowne &

Co. Inc., Third Edition, Phone: (202) 229-7337

FAX: (202) 229-3421, Internet:

http://www.bowne.com

The Audit Committee Handbook, 4th Edition,

America’s Community Bankers, Phone: (202)

857-3100 Fax: (202) 659-1134, Internet:

http://www.acbankers.org

Bank Board Member’s Manual, 12th Edition

America’s Community Bankers. Phone: (202)

857-3100 Fax: (202) 659-1134, Internet:

http://www.acbankers.org

Bank Directors Bible, ICBA Education

Department, Phone: (800) 422-7285, Internet:

http://www.icba.org

Community Bank Director, (video tape series),

ICBA Education Department, Phone: (800) 422-

7285, Internet: http://www.icba.org

Corporate Director’s Guidebook, 5th Edition,

American Bar Association, 2001. Phone: (312)

988-5000, Internet: http://www.abanet.org
A III-2 Department of the Treasury

APPENDIX III

The Director’s Book, Office of the Comptroller of

the Currency, U.S. Department of the Treasury,

1997. Phone: (202) 874-4700, Internet:

http://www.occ.treas.gov

Directors’ Guide to Management Reports, Office

of Thrift Supervision, U. S. Department of the

Treasury, 2008, Internet:

http://www.ots.treas.gov

Directors & Trustees Digest, (monthly), America’s

Community Bankers. Phone: (202) 857-3100 Fax:

(202) 659-1134, Internet:

http://www.acbankers.org

The Guidebook to Effective Board Committees,

America’s Community Bankers, Phone (202) 857-

3100, Internet: http://www.acbankers.org

Guidelines for Legal Advice to Financial

Institution Directors, FIL-15-98 Federal

Deposit Insurance Corporation, 1998. Phone

(877) 275-3342, Internet: http://www.fdic.gov

Information Technology Examination

Handbook, Federal Financial Institutions

Examination Council (FFIEC). Phone: (202)

872-7500, Internet: http://www.ffiec.gov

Pocket Guide for Directors, Federal Deposit

Insurance Corporation. Phone (877) 275-3342,

Internet: http://www.fdic.gov

Regulatory Bulletins (Series), Office of Thrift

Supervision, U. S. Department of the Treasury,

Internet: http://www.ots.treas.gov
Office of Thrift Supervision A III-3

APPENDIX III

Regulatory Handbooks, (Examination Handbook,

Holding Companies, Trust and Asset

Management), Office of Thrift Supervision, U. S.

Department of the Treasury, Phone: Internet:

http://www.ots.treas.gov

BSA/AML Examination Manual, FFIEC.

Phone: (202) 872-7500, Internet:

http://www.ffiec.gov

Thrift Bulletins (Series), Office of Thrift

Supervision, U. S. Department of the Treasury,

Internet: http://www.ots.treas.gov

CEO Letters (Series), Office of Thrift Supervision,

U. S. Department of the Treasury, Internet:

http://www.ots.treas.gov

X X X

Copies are available at the OTS website or contact Josephine Battle, OTS, 1700 G Street, N.W.,

Washington, D.C. 20249,

Josephine.battle@ots.treas.gov.