Application Of Business Judgement Rule In Bank Directors Under American Law

Business judgement rule(collectively BJR hereinafter)is a principle generated from American common law system.If a director without interest conflict made a business decision on a fully informed basis and in good faith and rationally believing that the business judgement is in the best interest of the corporation,the director will not be personally liable even such decision turned out to be mistake later.BJR requires the plaintiff to prove that the director break his fiduciary duty.The failure of burden of prove will allow the director to be protect by BJR.Court is reluctant to hold second-guess to the business judgement for two main reasons.First the court is not sufficiently qualified with professional knowledge and experience.Second,imposing personal liability will decrease director's intention to high risk high interest filed,which not fit for the purpose of maximization of cooperate assets and shareholder profits.American court hold the positive attitude when directors use BJR to protect themselves.A common practice way of BJR is,as long as the judgment procedure abide by association of cooperation,presenting the diligence,prudence and good face,court will assume such decision is made by good faith and refuse to take a substantive review of it.Directors will not near personal liability even if the decision provewrong.Contract to the unwilling to intervene into the business judgement of common cooperation,the court presents a strong intention to review the decision made by directors of bank.Court had many cases holding the decision contributes to negligence and impose personal liability into directors.The rationally standard in the early time work through the path of conflict between gross negligence and ordinary negligence,arriving at the destination of FIRREA.FIRREA established a federal standard of gross negligence standard but also allow the ordinary or simple negligence standard under common law to apply.FDIC sues the directors in different version,as inside directors regulated by FIRREA's standard and outside directors regulated by gross negligence.Directors who hold officer positions within the company have a high degree of duty of care because they are more familiar with the day-to-day operations of the company.Judicial practice point of view,the court gradually develops from the early loose position toward the current cautious position.State courts in determining whether the business decision-making constitutes a breach of duty of care uses a more stringent censorship standard.Some cases exclude the officers from the BJR protection based on state common law have appeared.The strict application of business judgment rules and inter-bank directors have their profound business logic.Banks utilize their credit and high leverage which can employ several times or even ten times higher than their own funds for commercial activities.At the same time,the banking industry is a natural risk aggregate,in order to maintain profitability,banks must maintain a certain degree of risk exposure to support the business.The construction of shareholder limited liability and financial safety net makes bank shareholders and internal managers who are collectors of surplus value have a strong risk-taking tendency.The opaque and asymmetric information of bank assets has tremendously reduced the possibility of the majority of creditors monitoring banks,the external regulation has been weakened in the banking industry too.Bank risk has a wide range of externalities,the banking crisis can affect various socio-economic sectors throughcredit,shareholding,payment and other means.Nowadays,with the development of the globalization,the volatility of the banking industry can even bring global panic.Based on the development of application to directors among banks under American law,the business feature of bank enforce court take more measures on depositors' protection and bank supervision.The transformed attitude of court requires bank directors to take higher duty of care and prudence when making business decision in order to avoid unreasonable risk.Risk arising from bank,however,is not a pure risk which could be controlled and endured by banks.The reality is such risk establishing closer relationship with whole social economic system.Court imposes a requirement that directors shall operate with safer and more stable strategy,considering and protecting interested third party including creditors.