A federal barking official yesterday called on the nation's financial institutions to appoint boards of directors "made up of men or women who, like Cassius, are dangerous, because they think too much."
Quoting Shakespeare's Caesar, who observed that "yon Cassius has a lean and hungry look," Federal Deposit Insurance director George a. LeMastre told a meeting of bank directors here that they occupy a common ground with federal officials performing what is essentially a regulatory function.
"In most, if not all recent large bank failures an acquiescent board served to rubber stamp the self-serving and/or unsound policies of a dominant individual or group," LeMastre said in an address to directors of banks owned by First Virginia Bank-shares Corp., a Falls Church holding company.
He said the "rubber stamp board, has been evident in failure cases that resulted from abusive internal financial relations. He said the most "dramatic example of the harm that can result from such self-dealing" was the 1973 failure U.S. National Bank in San Diego.
"The financial web which C. Arnholt Smith spun around his bank constituted themost massive and arrogant abuse of . . . responsibility in American banking history," LeMastre stated, a situation never challenged by his board.
As a result, the FDIC had to establish a reserve of $150 million for losses to the deposit insurance fund.
Had the San Diego bank been the only indication of problems involving internal fiancial relationships it could be dismissed as an aberration, the FDIC official said. However, in more than half of all bank failures since 1960 there were similar situations.
In some areas bank board member-ships are viewed strictly as an honorary position, directors are chosen solely for the business which they can bring a bank and bank directorships are seen as a means for obtaining preferential treatment or inside information. LeMadtre continued.
Last May 1, the FDIC established new regulations which require directors to supervise internal fiancial transactions. For example, a record of dissenting votes cast by members of bank boards of directors,must be kept available to bank examiners.
"In assessing a transaction between a bank and an insider, each director should satisfy himself that the transaction is a fair one and that the insider has not derived benefit at the bank's expense by virtue of his relationship with the bank," LeMastre told the Virginia bankers.
LeMastre said he is supporting a proposals iunder which examiners will meet often with bank boards. He also noted that in two regions of the country, the FDIC has begun notifying bank directors when their institution is designated a "problem bank." In the past, directors have not been given such information by federal regulators.
In another development yesterday, the FDIC and the state of Delaware amended the terms under which the Farmer's Bank of the State of Delaware was rescued from insolvency last year.
Under the new terms, the state will give to the FDIC $2 million of the $20 million worth of preferred stock in the bank that the state purchased last year.
Delaware also agreed to maintain at least $75 million of non-interest bearing deposits in the bank through 1980. Under the original agreement, the states' deposits would have dropped gradually to $50 million in 1978.
Last year's bailout involved the FDIC purchase of $40 million of problem loans from the bank for $32 million. The 169-year-old bank has been the sole depository of state funds but ran into diffculties with traditional commercial transactions.