Financial Institutions Case Discussion Assignment
The failure of Superior Bank FSB can be attributed to irresponsible business practices of business owners, the directors of the company, and regulators. They failed to exercise their oversight authority when the firm started making a wrong turn. It is important to look at the roles that each of these three parties played in the failure of this bank.
Ownership Families and Management
Chicago’s Pritzker family, Alvin Dworman, and the management of the firm played a leading role in the downfall of this bank (Engen par. 4). When the firm started experiencing financial constraints, it was expected that the major investors, the two families, would come to its rescue by injecting more resources. These two families were wealthy enough to bail out the bank and save it at that critical moment. However, they did nothing to spare the company from an imminent fall. They colluded with the managers of the firm to ensure that their investments in the bank are secured at the expense of the customers. The government regulators also accused the two families and the managers of colluding with external auditors, especially the accounting officers from Ernst & Young, to give wrong statistics about the financial position of the bank. These unethical business practices played a significant role in the fall of Superior Bank FSB.
Board of Directors
The board of directors, which should have exercised an independent oversight of the bank’s business and capital requirements, also failed on this golden role leading to the fall of the firm. The first mistake was the directors’ decision to cede control to the company’s owners. Fundamental duties that were supposed to be done by the board of directors were delegated to a few people who represented two families owning the firm. It meant that the board could not exercise its oversight authority as it was expected. This hands-off management strategy of the directors may help explain a major blunder that mainly contributed to the fall of the bank.
The board approved a $ 188 million dividend payout to the bank’s owners despite the financial constraints the firm was experiencing (Engen par. 6). It demonstrates that the entire management structure’s only concern was to protect the interests of the two families, ignoring the need to protect the firm’s future. The directors did nothing to prevent the stealing from the company committed by the management and business owners. For instance, critics have questioned the inability of the directors to detect irregularities in the accounting system of the firm. The reports given by the auditors were not an accurate reflection of the financial position of the bank. The directors should have detected this early enough to save the firm.
Critics have also accused the regulators that they were not as aggressive as they were supposed to be in the process of monitoring and evaluating Superior Bank FSB. Savings Association Insurance Fund (SAIF) was expected to conduct an independent audit of the firm to ensure that its books reflected the actual financial position of the firm. SAIF failed in this responsibility. FDIC and OTS also gave misleading ratings of Superior Bank FSB at the time when it had started experiencing financial constraints. In 1999, FDIC and OTS gave the bank a top-drawer CAMEL 1 rating despite its financial problems (Engen par. 11). These ratings also played a role in the failure of the bank.
Engen, John. Blind Risk: The Failure of Superior Bank. 2011. Web.