American Association of Bank Directors
4701 Sangamore Road
Bethesda, MD 20878
March 12, 2003
By email email@example.com
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549-0609
Re: Request for Comments on Proposed Rules Concerning Standards Relating to Listed Company Audit Committees File No. S7-02-03
Dear Mr. Katz:
In addition to our letter to you dated March 4, 2003, the American Association of Bank Directors submits the following additional comments.
In recent days, several of our bank director members have asked us whether service on an audit committee of a listed company would be barred as a result of the person or his or her related interest obtaining an arms-length loan made in compliance with the Federal Reserve's Regulation O. In addition, if an extension of credit made to an audit committee member in conformity with Regulation O later becomes a "problem" loan, or if the bank, on a non-preferential basis, forgives a portion of the loan principal as a result of the workout of such problem credit, could that affect the "independence" of the person for purposes of Section 10A(m) of the Exchange Act and your implementing regulations?
I believe that the proposed definition of audit committee member "independence" would not preclude a member from serving on an audit committee for any of the reasons set forth above, nor do we believe that the definition of "independence" should be amended to bar the member from serving for these reasons. We recognize that the listing requirements of the national securities exchanges may address these issues, and we intend to comment on those proposals once they are published for comment.
It would be helpful to our members that in the final rule promulgated by the SEC, it clearly spell out in the prefatory material that lending relationships with the reporting company would not bar a director from serving as an audit committee member of a listed company.