July 13, 2024

F.D.I.C. Rule Puts at Risk 2 Years of Executives’ Pay

The provision is part of a broader Federal Deposit Insurance Corporation rule laying out the order in which creditors will be paid during a government liquidation of a large, failing financial firm.

The Dodd-Frank financial oversight law gives financial agencies the power to recoup executives’ pay, but bankers were complaining that regulators were taking it too far.

The F.D.I.C.’s final rule provided some relief by clarifying “negligence” as the standard. The agency was careful to point out that it was not using the more narrow standard of “gross negligence.”

John Walsh, the acting comptroller of the currency, who had raised concerns about the standard being too broad, said he was pleased with the changes.

“I was concerned that it seemed to focus more on job titles than the actual actions that people had taken,” he said.

The liquidation authority is a major part of the Dodd-Frank law. The idea is to preserve economic stability by unwinding troubled firms, but in a way that is less politically explosive than taxpayer-financed bailouts and less traumatic to the markets than bankruptcies like the Lehman Brothers collapse of 2008.

At the top of the list of what will be paid off first under the new resolution system are any debts the F.D.I.C. or receiver took on as part of the cost of seizing a firm, administrative expenses, money owed to the Treasury and money owed to employees for things like retirement benefits.

Further down the list are general creditors.

Banks and financial services companies have complained that the framework gives the F.D.I.C. too much latitude to treat some creditors differently. F.D.I.C. leaders played down these concerns again on Wednesday, saying their rules were based as much as possible on the bankruptcy code.

Article source: http://feeds.nytimes.com/click.phdo?i=11c474ca70194a37537615435547033f

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