In recent years no question affecting banking affairs has been more widely discussed than that of the duties and responsibilities of directors. The legal duties and responsibilities are clearly defined and to-day, it may be said, are performed with reasonable care and fidelity. But in the banking business there is a great range of duties other than those prescribed by law, and it is here that bad judgment, dishonesty or ignorance may work lasting harm to the bank. Some years ago, Comptroller Ridgely said in a public address: "When a bank does fail, it is the fault of the board of directors." Now, it is clear that directors cannot have personal knowledge of all the varied details of the bank's business. To do so would require them to give almost as much time and attention to the bank as they do to their own business. Few men would be willing to serve under such onerous conditions. Moreover, this detailed work is what the president, cashier and clerks are employed to do. It would seem that directors have discharged their duty when they exercise care in selecting the officers of the bank, attend directors' meetings with a fair degree of regularity, and keep careful watch upon the loans of the bank. The courts have held, however, that "the duty of the board of directors is not discharged by merely selecting officers of good reputation for ability and integrity, and then leaving the affairs of the bank in their hands without any other supervision or examination than mere inquiry of such officers, and relying upon their statement until some cause for suspicion attracts their attention. The board is bound to maintain a supervision of the bank's affairs, to have a general knowledge of the character of the business and the manner in which it is conducted, and to know at least on what security its large lines of credit are given." 1
One of the earliest cases decided by the United States Supreme Court in relation to the liabilities of national bank directors was that of Briggs v. Spaulding. This case is the more famous because Spaulding, one of the defendants, was chairman of the Ways and Means Committee that framed the national bank law. He was a director in the First National Bank of Buffalo which was ruined by its president. The creditors brought suit against the directors for neglecting their duties. It was shown that the directors failed to attend the meetings or to examine into the management of the bank's affairs, but left the executive officers to manage the bank without supervision. Mr. Spaulding was an old, infirm man and it was difficult for him to attend the meetings, and another director had been in Europe for some time. Most of the directors, however, had no good reason for non-attendance. In this case the court said: "Directors of a national bank must exercise ordinary care and prudence in the administration of the affairs of a bank, and this includes something more than officiating as figureheads. They are entitled under the law to commit the banking business as defined, to their duly authorized officers; but this does not absolve them from the duty of reasonable supervision, nor ought they to be permitted to be shielded from liability because of want of knowledge of wrong-doing, if that ignorance is the result of gross inattention."1
1 Gibbons v. Anderson, 80 Fed. Rep., 345.
According to ex-Comptroller Ridgely, the most frequent cause of bank failures is the granting of excessive credit to the officers or to a single concern or group of allied concerns in which generally the officers or directors of the bank are interested. Since the national bank law has been amended so as to limit the loans made to any one person or corporation to one-tenth of the capital and surplus, instead of one-tenth of the capital, little excuse remains for not adhering strictly to the law.