November 2005 Legal Briefs

Processing through Dallas Fed Affects Availability Schedule

FDIC Guidance on Establishing a Bank Ethics Program

1. Written Bank Policies
2. Specific Provisions

• a. Safeguarding Customer Information
• b. Integrity of Bank Records
• c. Strong Internal Controls  
• d. Speaking Candidly with Examiners
• e. Accepting Gifts and Favors  
• f. Avoiding Self-Dealing  
• g. Observing Other Laws  
• h. Other Matters

Processing through Dallas Fed Affects Availability Schedule

Beginning December 10, 2005, check processing for banks and savings associations in Oklahoma will be handled through the Federal Reserve Bank of Dallas, instead of through the Fed’s Oklahoma City branch office.  This shift will increase the number of checks that Oklahoma banks must treat as “local” for funds availability purposes.  

All banks whose four-digit routing prefixes are handled through the same Fed check processing office are considered “local” to one another.  Beginning December 10, checks drawn on all banks in Oklahoma and all banks that already were in the Dallas Fed’s check processing region will be considered “local” to each other.

Until now, checks with six specific four-digit routing prefixes have been processed through the Oklahoma City branch office.  These prefixes are 1030, 1031, 1039, 3030, 3031, and 3039.  Beginning December 10, banks whose routing numbers start with any of these six prefixes will have their checks processed through Dallas.

However, banks whose routing numbers begin with 24 other four-digit routing prefixes already have their checks processed through Dallas.  As a result, the following routing number prefixes (in addition to the existing six prefixes for Oklahoma) will all be considered “local” to banks in Oklahoma, beginning December 10:  1110, 1111, 1113, 1119, 1120, 1122, 1123, 1130, 1131, 1140, 1149, 1163, 3110, 3111, 3113, 3119, 3120, 3122, 3123, 3130, 3131, 3140, 3149, and 3163.  

The “new” Dallas check processing region (as of December 10) will include all of Texas, the northern part of Louisiana, the southern half of New Mexico—and all of Oklahoma.   (The revised list of routing number prefixes that will be considered “local” for Oklahoma banks is provided in amended Appendix A to Federal Reserve Regulation CC.)

The main impact is that banks in Oklahoma must give faster availability for checks drawn on banks located throughout the Dallas Fed’s check processing region.  (Under Section 229.12(b) of Regulation CC, a bank generally must make funds available for any “local” check by the second business day following the banking day on which it is deposited.  By contrast, under Section 229.12(c), funds generally must be made available for a “nonlocal” check by the fifth business day following the banking day on which it was deposited.

The good news is that, by becoming part of the Dallas Fed’s check processing region, banks in Oklahoma will receive check returns much faster from banks throughout the Dallas Fed’s previously existing check processing region—so the shorter funds availability hold will be reasonable.

In some cases, a bank’s existing funds availability schedule may refer to and define “local check” in a way so specific to Oklahoma that the disclosure will no longer be accurate.

FDIC Guidance on Establishing a Bank Ethics Program

On October 21 the FDIC issued FIL-105-2005, which emphasizes that financial institutions should have an effective corporate code of conduct or written ethics policy.  

The FDIC is asking for a document such as you might expect to find as one of the chapters in a corporation’s employee policy manual that also covers such issues as employee benefits, vacation, sick leave, dress code, and personal phone calls.  However, the FDIC-required ethics policy includes regulations and criminal statutes that are specific to the banking industry, where money, privileged information and ability to influence actions can lead to a variety of problems if clear standards and disciplinary penalties are not emphasized.

The FDIC expects all of the bank’s employees, officers, directors and agents to sign a written acknowledgment that they have received a copy of the bank’s ethics policy.  They must sign another acknowledgment if major changes in the policy occur later.

The ethics policy must apply to all subsidiaries of a bank, in addition to the bank itself.  It should relate to everyone connected to the bank’s activities (including directors)–not just persons who are technically “employees” of the bank. It must also apply to agents (such as attorneys, collection agencies, repossession specialists, and information technology personnel).  A bank may choose to carry out certain tasks either internally or by contracting with third parties, but either way the same ethical standards should apply to how any individual interacts with bank customers, attempts to obtain special benefits for himself, makes use of privileged information, etc.

The FIL also requires management to provide periodic training of directors, officers, employees, etc., concerning the contents of the bank’s ethics policy.  (A policy can’t serve the intended purpose unless the bank actually “drills down” to get the stated principles into the thought process and the actions of the persons who are expected to follow the policy.)

The FIL lists a number of topics to be included in a bank’s ethics policy, including privacy, internal controls, background checks in hiring, conflicts of interest, and criminal statutes of various kinds that apply to bank officers and employees.  I will outline these later.

1.  Written Bank Policies

Every written bank policy, including a policy covering ethics, should be appropriate to the particular bank’s situation.  It’s a bad idea to adopt another bank’s “model” policy of any type without studying it first, considering possible revisions, and asking, “Is this really what would work for us?”

More so than with most “compliance” policies, a bank’s management and board probably should be very actively involved in debating the contents of the ethics policy, to include the precise principles and ethical issues that the bank cares strongly enough about to enforce strictly.  (Details that the FIL clearly requires cannot be omitted, but each bank will have a variety of choices concerning other issues to cover, how much detail to include, and what would be the appropriate disciplinary action or penalty for various infractions.)   

An ethics policy is a “personnel” policy, and directly affects people’s work environment and activities in ways that the average “compliance” policy does not.   It would be unwise to adopt an ethics policy that employees (and even directors) will try to resist and avoid, and that no one will want to enforce.  The ideal ethics policy or code of conduct would one that bank employees can live by and respect.

Regardless of how strict or flexible the bank’s ethics policy is, the bank should hold meetings to explain the need for the policy and the goals to be achieved, instead of just dropping it on employees with no warning or opportunity for comment.  For some of the optional provisions, a bank might give its officers and employees, as well as its directors, an opportunity to have input in advance.  Even though many things cannot be changed, the process of allowing people to participate can be useful.  Sometimes it’s the unnecessarily “picky” details that will irritate people the most, not the larger issues.

The FDIC’s requirement to adopt an ethics policy could be an opportunity to formalize some issues that the bank has wanted to tighten for some time.  However, some banks may want to use a gradual approach, introducing changes in stages, if the specific points go beyond the FDIC’s requirements.  

Whatever the bank adopts, it’s important to get the directors and officers “on board” with the new policy, so that they’re willing to support enforcement of the policy, up and down the line, even for board members.

Both voluntary compliance and consistent enforcement are needed to make a policy work.  A bank should try to avoid adopting a written policy of any kind if it will not be followed and probably cannot or will not be enforced.  

In litigation it’s easy for an opposing attorney to make the bank look foolish, or careless, or negligent, when the lawsuit relates to a subject on which the bank has ignored its own policy.  

A jury may not understand the purpose for a particular written policy, but certainly can understand that there is a policy that the bank has obviously ignored.  It’s hard to avoid the appearance of wrongdoing or sloppiness when the jury (or judge) concludes that “the bank didn’t follow its own rules!”

Similarly, in an examination, management can get hammered pretty badly if the bank has a clear policy on any subject and does not follow it.  

Every written policy (not just an ethics policy) should be tailored as much as possible to the way that the particular bank actually plans to operate.  (Some banks are small and don’t need a lot of personnel rules, or complicated rules, to manage things comfortably from day to day.  Someone in authority is always there to arbitrate and decide on issues that come up.  By contrast, other banks have many locations and several layers of authority, and definitely need detailed rules in order to treat everyone fairly and keep everyone operating on the same standard from one location to the next.)  

It’s always “easier” simply to copy another bank’s policy on any subject, but it’s usually more workable in the long run to lay out something that will mesh well with the particular bank’s own culture and operational style. An overly detailed, overly restrictive policy will do more harm than good if the extra provisions are not needed and, in practice, the bank’s employees are not going to be asked to follow them.

There is always some debate in drafting any policy as to whether it should be as simple and as general as possible, or whether it should contain a number of examples and details so that people cannot misinterpret or ignore them.  (A statement such as the following is virtually worthless: “It is the bank’s policy that its directors, officers, employees and agents shall act in an ethical manner at all times.”  It tells me nothing useful, but might work as an opening statement to be followed with a lot of specific points.)

Some people will never be made honest and ethical because of a policy–but at least a bank will have a clearly stated basis for firing them if they fail to comply with reasonable, required standards of conduct that were provided in advance and that they acknowledged in writing.  Other individuals will be influenced to some extent to act more appropriately as a result of a stated policy (because of greater attention focused on the subject, or peer pressure, or the threat of disciplinary action).  Still other persons would probably act as honestly and ethically even if there were no bank policy on the subject.  Many factors such as this should be considered in deciding how much detail to put into an ethics policy.   But generally I lean toward the idea that “the simpler the final product can be, while still getting the job done, the better it is.”

2. Specific Provisions

Following are some specific issues that the FDIC would like to see addressed in a corporate code of conduct or ethics policy.  I have added my own comments and examples:

a. Safeguarding Customer Information.  By now it’s already well known that customers’ personal, non-public information must be protected by banks. This includes protecting the information from improper disclosure to third parties, but also involves restricting personnel within the bank from having access to customer information, except for proper bank purposes.

Customer information generally cannot be disclosed to third parties except at the customer’s request, or as otherwise necessary or permitted or required by law under various exceptions contained in the Federal Reserve’s privacy regulation, or as allowed under state and federal financial privacy laws.  Maybe it’s enough to state in the ethics policy that employees are expected to comply fully with the bank’s privacy policy.

But going further, regarding any bank-related person’s access to customer information, the bank might state that any unnecessary access to customer information (without a legitimate bank-related purpose tied to specific responsibilities) is out of line—regardless of whether that unauthorized access was to satisfy some impermissible personal purpose, or was without any purpose.  

b. Integrity of Bank Records.  Regardless of intent, motive, etc., any falsification of a bank entry record should be treated as an extremely serious infraction.  (This is a criminal violation under federal law—18 U.S.C. Section 1005–as well as under state law—6 O.S. Section 1410.)  A bank must be able to rely on the accuracy, reliability and integrity of all its records.  This approach protects customers, shareholders, and the FDIC insurance fund.  

c. Strong Internal Controls.  All officers and directors should view compliance with the bank’s internal control procedures as an extremely important issue, and not a nuisance.  Internal control procedures help to safeguard assets, including deposits, safe deposit box contents, or cash.  Dual controls and oversight of various functions will help to limit any opportunity for internal fraud, and/or will help the bank to discover more quickly any fraud that actually does occur.

As one example, the regulations of the State Banking Board, at Rule 85: 10-5-3(1) require (as part of an internal control program) that every officer and employee of a state-chartered bank must be gone from the bank for at least five consecutive days each calendar year (vacation or other absence), unless specifically excepted from that requirement by the bank’s board of directors.  

Sometimes a bank is short-handed and thinks it cannot easily afford to have a particular person gone during a previously scheduled vacation, because of unexpected job vacancies, illnesses, backlog of work, etc.  Maybe there is no one who can completely cover the employee’s job while that person is absent, and it’s also not going to be convenient to reschedule that person’s vacation during what remains of the calendar year.   

A bank president might say, “I’m so busy that I just can’t be away from the bank for five consecutive business days right now.  I have to go down to the bank at night and on the weekend during my required vacation, just to get my work done.”  This may sound like a strong sense of duty (and may accurately reflect the individual’s work load), but it still disregards the important purpose behind the internal control procedure that requires a week’s consecutive absence.  (Whenever a replacement employee “subs” for the vacationing employee for a week, some types of irregularities may come to light.  If this principle is good for lower-level employees, then it should also be respected and followed by higher-level officers as well.)  

A bank should enforce its internal controls program strictly, no matter what circumstances exist that might make it more convenient to cut away certain procedures in the particular case.  The bank’s bonding company usually will insist on strict compliance with internal controls, not allowing the board to grant exceptions.

d. Speaking Candidly with Examiners.  The FIL states, “All employees, officers and directors should be required to respond honestly and candidly when dealing with the bank’s independent and internal auditors, regulators and attorneys.”  This point is clear and obviously must go directly into the ethics policy.

During the 1980’s when many banks were failing, at least a small number of loan officers apparently felt tempted to “paper up” certain loan files in various ways to mask the weaknesses in those credits.  There were allegedly some “dummy” guarantees; there were memos to the file that weren’t fully accurate or complete; and new loans were sometimes made for a stated purpose, but the proceeds were actually applied to old loans to make them look like they were performing.  Some appraisals were inflated and the loan officers knew it, but they still preferred to let the loan files look as good as possible.  And sometimes debtors were asked not to file a bankruptcy, or not to formally request a loan workout, “until the bank’s upcoming examination is over.”

Disguising a problem does not really make it go away, and usually only postpones the day of reckoning (if not actually causing the situation to get worse through delay).  And when problems were finally uncovered, the deceptive actions reflected badly on officers who thought up such schemes—even if they believed they were “just trying to keep the bank open.”

Rather than viewing an examination as an adversarial process, bank officers should work closely with examiners and auditors to help them assess the bank’s condition accurately.  The examination process (or review by an internal or external auditor) should not involve an attitude of “them” versus “us,” nor is it a game of trying to hide the ball.

During the 1980’s, a number of bank officers permanently lost their right to work in the banking industry, at least partly because they were not forthright and cooperative with examiners concerning the condition of certain loans.  At the same time, there were other loan officers who impressed the examiners quite favorably, and preserved their careers in banking, by being extremely honest and cooperative, no matter how bad the situation might have been.

A bank officer in a supervisory position should never instruct a junior officer to be misleading or not to disclose certain things to auditors and examiners.  A situation like that would probably justify strong disciplinary action.

e. Accepting Gifts and Favors.  An ethics policy should make clear that all bank directors, officers, employees and agents are subject to guidelines that include the provisions of the Federal Bank Bribery law (18 U.S.C. Section 215)—and while we’re at it, a bank could also throw in the parallel state-law criminal provision in the Oklahoma Banking Code (6 O.S. Section 1405), which prohibits a bank-related party from soliciting or accepting any “unlawful gratuity or compensation” that is intended to influence the bank’s actions.  

The FIL states, “An institution’s corporate code of conduct or ethics policy should prohibit any employee, officer, director, agent or attorney of any bank from:

“(1) soliciting for themselves or for a third party (other than the bank itself) anything of value from anyone in return for any business, service, or confidential information of the bank, and

“(2) accepting anything of value (other than bona fide salary, wages and fees referred to in 18 U.S.C. 215(c)) from anyone in connection with the business of the bank, either before or after a transaction is discussed or consummated.”

Neither the Federal statute nor the state statute imposes any absolute prohibition on all gifts or favors that customers may offer to bank staff, but both provisions forbid gifts or favors that are sought or offered with an intent to influence bank action.  

Because not all gifts and favors are illegal, the category of small gifts and favors is certainly an area where bank employees may chafe quite a bit if the bank’s ethics policy is overly restrictive.  My usual starting point in approaching this subject is to suggest that bank directors, officers, employees and agents should be required to disclose to management any offered gifts or favors, and with that requirement very little improper influence is likely to result.  With disclosure, management can judge for itself at what point a situation would seem to be getting out of hand.

Some gifts offered in kindness will clearly pass the “smell” test when disclosed, and others will not.  Some will fall in between and will require further monitoring, or management may take the position that when it’s not clear whether something is O.K. or not, any gift that is apparently excessive in value should be gracefully returned.  But management cannot guard against undue influence unless it is first made aware that gifts and favors are occurring.    

I believe a bank policy against gifts and favors should have an “obvious other purpose/reasonable value” exception.  For example, if the bank employee’s mother is a bank customer and wants to buy the employee’s lunch, the bank will have a lot of hacked-off employees if it says that is not permissible.  Anyway, if the bank already knows that an employee and another person are related, it is automatically alerted to a possible close relationship that under some circumstances might lead to undue influence.  Potentially more dangerous are the secret gifts from someone who is unrelated, where the bank may not be alerted to any risk of undue influence.

A bank could never get away with a policy so strict that it even prohibits bank employees from receiving gifts from relatives on regular occasions such as birthdays, anniversaries, Christmas, etc.  But gifts above a certain dollar value (such as $100) still might be required to be reported, even from relatives.

Generally a bank employee’s relative has an innocent motive in buying dinner, giving some unused sports tickets, loaning the weekend use of a vacation property or a time-share condo, etc.  Considering the relationship, these things are explained as normal, but perhaps above a certain value they should still be disclosed, without being prohibited.

If a teller’s parents (who are bank customers) pay for her wedding and honeymoon, this is a large sum of money but still isn’t strange under the circumstances.  However, if the loan officer’s brother-in-law who is in the appliance business has a pending loan application and offers to give his wife’s husband (the bank officer) a $3,500 flat-screen wall-mounted TV, the “smell test” is probably violated.     

There are occasional circumstances in which ordinary bank customers (unrelated to the employee) will want to make a gift to a bank employee, without any “undue influence” motive.  This might involve, for example, a bank employee’s wedding, to which the customer and many other acquaintances are invited.  Or possibly the bank employee and the customer have casually known each other for a long time, and gifts are given when certain “milestone” events occur, such as the employee’s child having a graduation, or a birthday party for the employee’s child to which the customer’s child is invited.  (But “normal” still does not include any overly lavish gift.)

In some cases, bank employees have regular close friends—maybe they live next door to each other or have known each other since grade school.  Two ladies like to run around with each other, and they take turns buying each other lunch; or two guys who are buddies occasionally buy each other drinks at the sports bar, or throw TV football game parties and invite each other, or they give each other unused sports tickets when some conflicting activity comes up.  If this is within the bounds of what the bank would expect based on the known relationship, the activity shouldn’t automatically raise any flags that someone is attempting to bribe or unduly influence a bank officer.  The bank might risk making both the employee and the customer mad by trying to halt what is just part of their normal, non-coercive way of doing things.

There are other situations where bank customers want to make “incidental” gifts to bank employees at certain times of the year.  Some people bake cookies or fudge at Christmas and give some to the bank tellers.  Offering small gestures of kindness of this sort makes the customers happy, and cutting if off would make them unhappy.  It may be some individuals’ custom to show appreciation at Christmas by giving small token gifts to everyone who has regularly helped them during the year. So they buy scented candles or Christmas ornaments, or they make some lace-work book markers, and they give one to the hairdresser, and to the checker at the grocery store—and to the teller at the bank.  In a metro area this may not be a custom, but in a small town it’s more common. The bank’s policy should be flexible enough to accommodate the local customs and customers’ innocent goodwill gestures.

But when a loan customer who is not close to a bank employee starts showering that employee with favors, there is probably no ready explanation other than a possible attempt to influence the employee’s banking-related decisions.  

Sometimes the bank employee starts by seeing only an innocent, well-intentioned gift, but it can turn into an escalating stream of favors, flattery, and kindness, and eventually may influence an employee’s attitude toward the customer’s proposed transactions with the bank.  For example, a merchant might do some act of kindness, then ask a teller a bit later to “do me a special favor” by cashing a check that is payable to his business instead of depositing it (the bank’s standard policy), or cashing a check drawn on another bank, or looking to see whether his wife has made a deposit or a withdrawal to her account this week (although he is not a signer or owner on her account).  

Management should be informed whenever an employee feels that some bank customer may be trying to “work him over” to obtain something—by offering gifts and favors, or by flattery, or by other psychological means. Management will have greater objectivity and can provide a useful second opinion as to what looks harmless or is harmful, and whether things are starting to get out of hand. In some cases, a different bank officer may need to be assigned to the “overly generous” customer’s banking relationship.  

And “undue influence” can also happen in reverse. Sometimes a bank employee may attempt to extract favors from a customer by exploiting the person’s circumstances.

A cute young teller could learn by handling account transactions that an elderly man is wealthy, his wife is deceased, and he has no relatives.  He’s lonely and appreciates someone who will talk to him, give him some attention, and treat him kindly.  Maybe the young teller jokes with him a bit whenever he comes into the bank, and takes extra time to help him.  As he gets to know her a bit better, one of them may invite the other one to meet elsewhere for some purpose.   

In one such relationship (although apparently completely platonic), a young teller got into a pattern of regularly meeting the customer to talk, sometimes in the bank parking lot.  Eventually she was given a new car.   When the bank became suspicious and confronted them, both of them apparently insisted that everything about their friendship was completely voluntary.  But with the wrong facts, such a situation could border on “elder abuse.” No bank wants this kind of “financial benefit” existing between a bank employee and a customer.  It looks like manipulation. Ethically, it’s way over the line.
 
The bank could become liable if a bank officer hints that bank business could be facilitated if favors were given.  Maybe the loan officer speaks of expediting the customer’s application, or states that the loan could be viewed more favorably if the officer were to put in some extra effort to help rework the customer’s application.  In return, the customer might be asked to help the loan officer with some little situation. It’s bad if the customer feels compelled to provide a “gratuity” to get his loan approved, and even worse if the customer alleges that his loan was denied because he wouldn’t provide a special favor that the bank officer requested.  This example is extremely flagrant, and is grounds for termination.

I have given a lot of space here to “gifts and favors.” It can be a very thorny area to get right in an ethics policy—being neither too strict nor too loose.  The final policy might be simple, but the thought behind it should be detailed. Until now a bank may have had no need to develop a written policy on gifts, but with the FDIC’s new requirement, a bank finally has to formalize the bank’s policy on this subject, deciding what to prohibit or allow.

f. Avoiding Self-Dealing.  What is self-dealing?  It involves taking advantage of the work situation in some way, to benefit oneself when instead one should be furthering the business of the employer.  The FDIC says an ethics policy must prohibit self-dealing, and employees need to understand what that means.  

For example, a bank repossesses a vehicle and advertises it for sale.  Someone comes in to look at the vehicle in response to the ad, but the bank officer says, “You know, I have a nicer car (or a cheaper car) than that one for sale myself.  You might like it better. Could you meet me after work to check it out?”  The motive is to get the bank’s good prospect to buy a car from the loan officer instead of from the bank.  When everything is happening on the bank’s premises, an applicant or inquiring person belongs to the bank, and the bank employee’s duty is to try to arrange a transaction for the bank, not for himself.  

Although a bank officer’s used car may really be better, it’s not an issue of truth.  It’s inappropriate for the bank officer to say such things while on duty (and certainly not proper to give an extended sales pitch for the bank officer’s own car).  A situation like this may surprise the customer and make him uncomfortable.  The officer’s overzealous personal sales pitch may violate the customer’s expectation of greater professionalism from the bank, and may even make that customer less willing to come into the bank in the future.  In technical terms the bank officer is “usurping a corporate opportunity”–trying to take the bank’s opportunity and turn it into a benefit for himself instead.  

As another example, when an existing loan customer comes into the bank to obtain another loan, what if the loan officer says instead, “I could make you that loan personally.  Why don’t we just handle it that way?”  This puts the customer in a very uncomfortable situation.  If he needs the loan, he doesn’t want to do anything to offend the loan officer, who might deny a loan application if he does not cooperate. Still, he would prefer not to borrow from the loan officer personally, so he’s in a bind.  A bank should never knowingly allow situations like this to exist—assuming that the customer is eligible for a loan from the bank.  
   
What if the bank employee is also an independent distributor for Mary Kay products, or for a brand of health supplements, or for Amway?  Should the bank totally prohibit its employee from selling these products while at work, during bank hours?  Does the bank want persons to come into the bank to take delivery of products from the employee, with the employee making change out of his billfold (or her purse) while at work?

What if the customers for this employee’s “side business” regularly call the employee at the bank to place orders for products, or to arrange when their products can be picked up or delivered? How much phone calling is an employee allowed to do for personal purposes while at work, under the bank’s general policies?  Should the bank’s policy tolerate personal/family telephone calls to some extent, but exclude all business-purpose calls while at work, if not bank-related?

My grandfather had a store and used to tell his employees, “No man can serve two masters.”  Either they wanted to work for him, or they could run their side business, but he wasn’t going to allow them to do both at once.  While he was paying them to work, he wanted them attending to his store, not talking to customers about buying legal plans, or vacuum cleaners, or brushes.

Apart from the fact that an employee is not focused on the bank’s best interests (if distracted by collecting money or taking orders for cosmetics or soap products), it’s detrimental to the bank if customers think some employee will be poised like a vulture, ready to pounce to obtain vitamin reorders (or whatever it may be).  A customer should be able to carry on simple bank transactions in a relaxed atmosphere, without being arm-twisted to do anything that’s not the bank’s own business.

In other cases, a bank officer might use his knowledge of bank customers, or of their financial situation, to solicit them by mail (or by phone outside business hours) with respect to a side business operated by the officer’s spouse or another relative or friend.  This is just another “self-serving” attempt to piggy-back on the relationships that the bank has built up with customers.  

(Some banks require all new employees to sign a confidentiality and nondisclosure agreement, stating that bank customer lists are trade secrets and proprietary information, which an employee must agree not to disclose to anyone else, nor to use or exploit for any other purpose, including after he/she leaves the bank’s employment.  The ethical concept is that “mining” the bank’s customers for any purpose are like stealing part of the value of an important asset belonging to the bank.)

What if the bank’s customers are being asked instead to buy candy bars or magazines or Christmas wrapping paper, that an employee is trying to sell to assist a son or daughter’s fundraising for the high school band?  The purpose may sound better, but the issues are roughly the same: (1) the employee is still not focused solely on his/her job, although being paid to be there, and (2) the customers who are trying to carry out normal banking transactions are being solicited for non-bank purposes instead of being left in peace.   

Different banks may come to widely varying conclusions about what activities they will allow as fund-raisers in the bank, when carried on by a bank employee who is on duty. Regardless, employees should clearly understand (1) that they have no automatic right to be doing this on bank time, and (2) if any such activity is allowed (although in conflict with the employee’s basic duty to work), such activity must be done with prior approval of management, and only in the manner and to the extent that management approves.

g. Observing Other Laws.  The FDIC wants a bank to include a list of other specific federal regulations and statutes as part of its ethics policy.  These provisions all relate in one way or another to the individual’s personal activities and relationship to the bank and to customers.  Violation of the provisions may involve regulatory fines and, in some cases, criminal sentencing.  

The FDIC emphasizes that bank management must be cognizant of all applicable laws and regulations, including those relating to personal conduct.  It’s hard to avoid violations of a required ethics policy, including federal statutes and regulations, unless all employees, directors, etc., are made aware of the provisions.  A bank’s training programs might also review banking-related criminal provisions in state law, which begin at Section 1401 in the Oklahoma Banking Code.  

h. Other Matters. The FDIC expects a bank to do pre-employment background checks on persons whose positions and responsibilities would involve higher risk if wrongdoing should occur. A bank’s internal auditor should review self-serving practices and conflicts of interest under the ethics policy.  There should be a specific person to whom all violations of the ethics policy can be reported—not just “the employee’s supervisor,” who might be less concerned with the policy, or could even be part of the problem.  Employees must have assurance that their “tips” concerning violations will be taken seriously.  Finally, the ethics policy should include specific, appropriate and enforceable sanctions to deter wrongdoing and promote accountability.