Failed-Bank Compensation, Resolution
The Senate Banking Committee has overwhelmingly approved bipartisan legislation to reform executive compensation following larger insured-depository institution (IDI) failures, with parent-company executive compensation also at risk in some circumstances. Unlike previous bipartisan claw-back legislation, this measure is targeted to incentive compensation, not salary, expressly exempts “white knights,” institution-affiliated persons and directors, and gives the FDIC discretion also to allow senior officers to retain affected compensation in certain other circumstances. Also unlike the prior bill, this measure would make it more difficult for the FDIC to resolve a failing IDI as it did for First Republic via an assisted acquisition by JPMorgan despite the overall prohibition on any U.S. institution holding more than ten percent of national deposits. The Senate bill also mandates that IDIs and parent companies adopt governance standards that give the firm power to claw back compensation in the event of weak condition or poor management practice.