FinCriAdvisor has an excellent article containing a list of eight ways to protect your bank when vendors are failing. In sum, the eight strategies outlined in the article are as follows:
- Audit the vendor’s financial statements regularly.
- Require interim financial statements.
- Review contracts for notice and orderly transition clauses.
- Ask for status reports.
- Visit the vendor periodically.
- Review the vendor’s certificate for D&O and errors and omissions insurance.
- Scrutinize the loan documentation.
- Establish risk abatement protocols.
As stated in the article, post-Taylor Bean many community banks learned this lesson the hard way. As with many governance and oversight issues, these suggestions may seem like common sense. Common sense strategies, however, are often the first victims of inattention and unstable assumptions. It is important to have policies and protocol in place regarding the continuing review of third-party vendor relations.
If you have questions, please contact Jeff Andersen at 515-246-4503 or jandersen@dickinsonlaw.com.
