Guidelines to govern the responsibilities and duties of the board of directors of banks and quasi-banks

CIRCULAR NO. 130 Series of 1997

To ensure prudent and efficient administration of banks and quasi-banks, the Monetary Board, in its Resolution No. 585 dated 21 May 1997 approved the following guidelines to govern the responsibilities and duties of the board of directors of banks and quasi-banks.

The following are the basic responsibilities and duties of the board of directors of a bank/quasi-bank:

1) To select and appoint officers who are qualified to administer the bank's/quasi-bank's affairs effectively and soundly — It is the primary responsibility of the board of directors to ensure the competence of the management team at all times. integrity, technical expertise and experience in the institution's businesses, either current or planned, should be the key considerations in the selection process. And because mutual trust and a close working relationship are important, the board's choice should share the board's general operating philosophy and vision for the institution.

2) To provide a clear framework of objectives and policies within which management must operate — The board should determine what the objectives are of the institution in terms of stockholders, the depositors, the creditors and the community it serves. Based on the set objectives, the board should adopt policies and procedures that direct management on how to make choices between risks and rewards. All major business activities, e.g., investments, loans, asset and liability management, profit planning and budgeting, capital planning and personnel matters must be covered by policies.

3) To effectively supervise the bank's/quasi-bank's affairs to ensure that the bank/quasi-bank is soundly managed — As banks/quasi-banks are entrusted with the handling and investment of public funds, the supervision required from the board involves a higher degree of wisdom, prudence, good business judgment and competence than that of directors of ordinary companies. Although judgment may delegate certain authority to senior officers, it is their responsibility to supervise and be responsible for the institution's sound management, as well as its problems.

4) To establish an audit and examination Committee of Directors comprising of non-executive directors — The board should designate a committee to evaluate the board's performance based on policies instituted and actions taken.

FOR THE MONETARY BOARD

GABRIEL C. SINGSON Governor