As community bankers we have a fiduciary responsibility to our customers and communities as well as our shareholders. While it may not always be an explicit legal duty, it’s inherent to the community bank relationship business model and serves a key role in our success—after all, community banks only succeed when their customers and communities do the same. That’s why, when I read a recent speech given by Federal Reserve Governor Daniel Tarullo during the Association of American Law School’s 2014 Midyear Meeting in Washington, D.C., which hovered on the possibility of broadening directors’ fiduciary duties, I was taken aback.

In his speech, Gov. Tarullo alludes to whether the fiduciary duties of the boards of regulated financial firms should be modified to reflect what he has characterized as regulatory objectives. He says, “Doing so might make the boards of financial firms responsive to the broader interests implicated by their risk-taking decisions even where regulatory and supervisory measures had not anticipated or addressed a particular issue. And, of course, the courts would thereby be available as another route for managing the divergence between private and social interests in risk-taking.”

As a former community banker, and one that now represents the premier association for the community bank industry, I’ve seen a lot. And that’s why this struck such a nerve. While I realize that a change of this nature, and magnitude, would require statutory changes, it nevertheless is a slippery slope. Combine this with the fact that community bank boards have been subject to a broad fiduciary duty for decades, and you have a very volatile and dangerous situation. 

Community bank directors should not be subject to a broader legal fiduciary duty. It’s one that could lead to more emphasis being put on the community bank system than the megabank system. We already see this happen when a small bank director gets sued by a regulator. The problem is that you never see the same situation play out with a megabank director being caught behind the lines. Doesn’t it seem as though the small guys are always low hanging fruit for the regulators? Why is that? Are they just easier to spot? I guess you could say that small banks don’t have nearly as many layers of leaves to hide behind as those at the megabanks do.

That’s why if the possibility of broadening directors’ fiduciary responsibility to include risk management is ever put on the table, it should absolutely apply to the systemically important financial institutions or SIFIs. The forest is way too dense in those tall skyscrapers on Wall Street anyway, and that’s exactly why regulators need to hold the megabank board directors to the same standards that they already hold community bank board directors to. 

The bottom line is that no bank should be more camouflaged than the other when it comes to fiduciary responsibility—no one. We all need to wear the same fatigues on this one.