Protecting the Special Relationship: Managing Bank Fraud Risks

Welcome to the February 2026 edition of our newsletter!  In this issue, we’ll examine why it’s important for bankers to know their customer, and for customers to know their banker.

Delegating Authority and Assuming Risks: Why You Need to Know Your Banker

As the world grew increasingly globalized over the past 40 years, banking relationships both became more complex and grew in importance.  Banks were often the most trusted representatives of a company, especially one doing business outside its home jurisdiction.  Copious regulations have been put in place to mandate that banks know their customer, including due diligence requirements including verification of an individual customer’s identity; any presence they may have on global and national sanction lists; and reviewing past activity for suspicious transactions.

Yet it is also important for a customer to know their bank and banker.  The viability of a bank is one concern, and the so-called “Texas ratio” of available capital to non-performing assets, like bad loans, can be a measure of the bank’s ability to go forward, with a ratio under 50 percent considered risky.

Because banking is largely a relationship-driven business, knowing an individual banker’s reputation matters greatly.  Regulatory records, including any sanctions; asset profiles including property ownership, UCC filings and liens against assets; as well as court records and outside activities like companies formed for purposes outside of the bank’s activities can all paint a picture of an individual’s reputation risk.   Over the years, bankers have been found guilty of aiding money laundering by organized crime outfits, knowingly preparing false loan documents, and other abuses.  Given how high the stakes are in terms of protecting your company’s assets and its reputation, the more you know about those you trust with those assets, the better the outcome.