[Federal Register Volume 60, Number 60 (Wednesday, March 29, 1995)]
[Proposed Rules]
[Pages 16069-16082]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-7603]
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FEDERAL DEPOSIT INSURANCE CORPORATION
12 CFR Parts 303 and 359
RIN 3064-AB11
Regulation of Golden Parachutes and Other Benefits Which May Be
Subject to Misuse
AGENCY: Federal Deposit Insurance Corporation (FDIC or Corporation).
ACTION: Notice of proposed rulemaking.
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SUMMARY: The FDIC is proposing a rule limiting golden parachute and
indemnification payments to institution-affiliated parties by insured
depository institutions and depository institution holding companies.
The purpose of this rule is to prevent the improper disposition of
institution assets and to protect the financial soundness of insured
depository institutions, depository institution holding companies, and
the federal deposit insurance funds.
DATES: Comments must be received by May 30, 1995.
ADDRESSES: Send comments to Robert E. Feldman, Acting Executive
Secretary, Federal Deposit Insurance Corporation, 550 17th Street,
N.W., Washington, D.C. 20429. Comments may be hand-delivered to room
400, 1776 F Street, N.W., Washington, D.C. 20429, on business days
between 8:30 a.m. and 5:00 p.m. [FAX number: (202) 898-3838.]
FOR FURTHER INFORMATION CONTACT: Robert F. Miailovich, Associate
Director, Division of Supervision, (202) 898-6918, 550 17th Street,
N.W., Washington, D.C.; Michael D. Jenkins, Examination Specialist,
Division of Supervision, (202) 898-6896, 1776 F Street, N.W.,
Washington, D.C. 20429; Jeffrey M. Kopchik, Counsel, Legal Division,
(202) 898-3872; Federal Deposit Insurance Corporation, 550 17th Street,
N.W., Washington, D.C. 20429.
SUPPLEMENTARY INFORMATION:
Paperwork Reduction Act
No collection of information pursuant to section 3504(h) of the
Paperwork Reduction Act (44 U.S.C. 3501 et seq.) is contained in the
proposed rule. Consequently, no information was submitted to the Office
of Management and Budget for review.
Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act (Pub.
L. 96-354, 5 U.S.C. 601 et seq.), it is certified that the proposed
rule will not have a significant impact on a substantial number of
small entities.
Background
Section 2523 of the Comprehensive Thrift and Bank Fraud Prosecution
and Taxpayer Recovery Act of 19901 (Fraud Act) amended the Federal
Deposit Insurance Act (FDI Act) by adding a new section 18(k). Pub. L.
No. 101-647, Sec. 2523 (1990). This section 18(k)(1) provides that
``[t]he Corporation may prohibit or limit, by regulation or order, any
golden parachute payment or indemnification payment''. 12 U.S.C.
1828(k)(1). The terms ``golden parachute payment'' and
``indemnification payment'' are defined in sections 18(k)(4) and (5)(A)
of the FDI Act, respectively. Id. at 1828(k) (4) and (5)(A). The
statute's proscriptions are applicable to insured depository
institutions and depository institution holding companies. Id.
\1\ The Comprehensive Thrift and Bank Fraud Prosecution and
Taxpayer Recovery Act of 1990 is title XXV of the Crime Control Act
of 1990, S. 3266, which was passed by Congress on October 27, 1990
and signed by the President on November 29, 1990.
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On October 7, 1991, the FDIC published a notice of proposed
rulemaking entitled ``Regulation of Golden Parachutes and Other
Benefits Which Are Subject to Misuse'' to implement this provision of
the Fraud Act. 56 FR 50529 (1991) (to be codified at 12 CFR Part 359).
By the end of the sixty day comment period, the FDIC received 186
letters commenting on the proposed regulation. The majority of these
comment letters suggested that the FDIC revise the proposed rule in
order to strike a more equitable balance between the protection of the
deposit insurance funds and the needs of depository institutions and
depository institution holding companies to attract and retain
qualified directors and management. Many of the comment letters also
suggested certain technical amendments to the proposed rule to make it
reflect more accurately the FDIC's intentions as stated in the
preamble. A few comment letters requested that no regulation be
promulgated. These letters expressed the opinion that abuses should be
dealt with on a case-by-case basis through the use of enforcement
proceedings. It should be noted that the FDIC was gratified to observe
the exceptionally high level of preparation and thought which went into
many of the comment letters.
Due to the significant amount of time which has passed since the
publication of the first proposed rule (the First Proposal), the FDIC
has decided to publish a second proposal for public comment (the Second
Proposal). The Second Proposal incorporates many of the suggestions
which were made by the commenters to the First Proposal.
Summary of the Second Proposal
The golden parachute portion of the Second Proposal affects insured
depository institutions seeking to make the golden parachute
payments2 only if the institution is in a ``troubled''
condition.3 The proposed regulation would apply to affiliated
depository institution holding companies either if the holding company
itself is troubled or if it seeks to make a golden parachute payment to
an institution-affiliated party (IAP) of a troubled subsidiary insured
depository institution. The indemnification portion of the Second
Proposal is applicable to all insured depository institutions and their
holding companies regardless of their financial condition.
\2\ The terms ``golden parachute payment'' and ``golden
parachute'' are used interchangeably throughout this discussion.
\3\ The use of the term ``troubled'' in this preamble shall
refer to an institution or holding company which meets any of the
criteria set forth in Secs. 359.1(f)(1)(ii) (A) through (E) of the
Second Proposal.
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Generally, the Second Proposal prohibits institutions which are
insolvent, in conservatorship or receivership, rated ``4'' or ``5'', in
a troubled condition as defined in the regulations of the appropriate
federal banking agency, or which are subject to a proceeding to
terminate deposit insurance from making any payment to an institution-
affiliated party which is contingent on the termination of that
person's affiliation with the institution, except payments of death or
disability benefits, payments pursuant to qualified retirement plans
and employee welfare [[Page 16070]] benefit plans and two other
exceptions which are described in more detail below. The Second
Proposal also prohibits institutions from paying or reimbursing an
institution-affiliated party's legal and other professional expenses
incurred in administrative or civil proceedings instituted by any
federal banking agency unless certain criteria are satisfied. Under no
circumstances does the Second Proposal allow the reimbursement or
payment of fines or penalties assessed against an institution-
affiliated party as a result of such a proceeding.
The Second Proposal recognizes several ``exceptions'' to the
prohibition against golden parachute payments.4 First,
Sec. 359.4(b) of the Second Proposal allows an insured depository
institution or its depository institution holding company to make a
golden parachute payment to an institution-affiliated party who is
hired by an institution or holding company with the written consent of
the appropriate federal banking agency at a time when the institution
or holding company satisfies or is expected to satisfy any of the
criteria set forth in Sec. 359.1(f)(1)(ii) of the Second
Proposal,5 and whose golden parachute agreement is approved by the
FDIC in its corporate capacity as the regulator of operating state
nonmember banks. These criteria are taken from section 18(k) of the FDI
Act. (12 U.S.C 1828(k)(4)(A)(ii)).
\4\ More precisely, only two of these are actual exceptions to
the prohibition in that they permit a payment or agreement which is
covered by the statutory language. The others are definitions of
statutory terms which have been developed or refined by the
Corporation.
\5\ These criteria are that the institution or holding company
is insolvent, in conservatorship of receivership, troubled, rated
``4'' or ``5'', or subject to a proceeding to terminate deposit
insurance.
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Second, Sec. 359.4(c) of the Second Proposal permits a golden
parachute payment, not to exceed twelve months salary, to an
institution-affiliated party in the event of an unassisted change in
control, with the prior consent of the appropriate federal banking
agency.
The third ``exception'' is contained in Sec. 359.1(f) of the Second
Proposal, which defines a ``golden parachute payment''. The FDIC
recognizes that one important tool in restoring an institution to
financial health may be institutional downsizing through personnel
reductions in force. In such situations, institutions may choose to
employ an existing severance pay plan or adopt a new plan to assist
employees whose employment is terminated. In addition, many
corporations (in various industries) maintain severance pay plans which
pay benefits to employees who lose their jobs through no fault of their
own, for reasons such as an overall reduction in force. Thus,
Sec. 359.1(f)(2)(v) of the Second Proposal provides that the term
``golden parachute payment'' does not include any payment made pursuant
to a nondiscriminatory severance plan or arrangement which provides for
the payment of severance benefits to all eligible employees upon
involuntary termination for other than cause, or early retirement, in
conjunction with a reduction in force. However, the Second Proposal
limits the maximum severance benefit that any employee may receive
pursuant to such a plan to twelve months' base salary, although an
institution may request consent to make larger payments. In the event
that any senior executive officer, as defined in Sec. 303.14(a)(3) of
these regulations, is eligible for such severance benefits, the
depository institution or holding company must provide 30 days prior
written notice to its primary regulator and the FDIC before making such
a payment to those individuals.
The fourth ``exception'' to the golden parachute payment
prohibition is contained in Sec. 359.1(d) of the Second Proposal which
defines ``bona fide deferred compensation plan or arrangement''.
Section 18(k) of the FDI Act explicitly authorizes the FDIC to define,
by regulation or order, permissible bona fide deferred compensation
plan[s] or arrangement[s]. (12 U.S.C. 1828(k)(4)(C)(ii)).
The definition of ``golden parachute payment'' contained in
Sec. 359.1(f) of the Second Proposal also sets forth several other
straightforward exceptions which do not require further discussion
here.
Section 18(k)(2) of the FDI Act provides that the FDIC ``shall
prescribe, by regulation, the factors to be considered by the
Corporation in taking any action pursuant to paragraph (1) [its
authority to prohibit or limit golden parachute payments and
indemnification payments]''. The section also sets forth a number of
illustrative factors that should be considered. The Corporation has
carefully considered these factors in arriving at the conclusion that
golden parachute payments generally should be prohibited, except in the
narrow circumstances delineated in Sec. 359.4 of the Second Proposal.
Section 359.4 of the Second Proposal also sets forth a procedure to
allow an institution or institution-affiliated party which desires to
make a payment or enter into an agreement which it determines should
not be prohibited, but which is not clearly covered by any of the
express ``exceptions'' to the prohibition, to solicit appropriate
regulatory approvals. In so doing, the institution or institution-
affiliated party will be required to address certain of the factors
enumerated in section 18(k) of the FDI Act, and the appropriate federal
banking agency and the Corporation may consider the remaining factors
and any other circumstances which bear on the issue of whether the
proposed payment would be contrary to the intent of the prohibition.
Section 18(k) of the FDI Act also authorizes the FDIC to prohibit
or limit indemnification payments. (12 U.S.C. 1828(k)(5).) A
``prohibited indemnification payment'' is defined in the Second
Proposal as payment by an insured depository institution or its
depository institution holding company for the benefit of an IAP in
order to pay or reimburse such person for any liability or legal
expense sustained with regard to an administrative or civil enforcement
action which results in a final order or settlement pursuant to which
the IAP is assessed a civil money penalty, removed from office,
prohibited from participating in the conduct of the affairs of an
insured depository institution or required to cease and desist from or
take any affirmative action described in section 8(b) of the FDI Act.
The legislative history of the Fraud Act, which added section 18(k) to
the FDI Act, makes it clear that this section is intended (i) to
preserve the deterrent effects of administrative enforcement or civil
actions by insuring that institution-affiliated parties who are found
to have violated the law, engaged in unsafe or unsound banking
practices or breached any fiduciary duty to the institution, pay any
civil money penalties and associated legal expenses out of their own
pockets without reimbursement from the institution or its holding
company and (ii) to safeguard the assets of financial institutions by
prohibiting the expenditure of funds to defend, pay penalties imposed
on or reimburse institution-affiliated parties who have been found to
have violated the law. 136 Cong. Rec. E3687 (daily ed. November 2,
1990) (statement of Rep. Schumer).
The FDIC is of the opinion that it would be inconsistent with the
intent of the Fraud Act categorically to prohibit insured depository
institutions and holding companies from advancing funds to pay or
reimburse IAP's for reasonable legal or other professional expenses
incurred in defending against an administrative or civil action brought
by a federal banking agency prior to the entry of a final order.
Therefore, Sec. 359.5 of the Second Proposal sets forth the
circumstances under which such indemnification payments may be
[[Page 16071]] made. The FDIC is of the opinion that five criteria must
be satisfied in order to permit an institution to make or agree to make
any indemnification payment to or for the benefit of any IAP prior to
the entry of a final order in the IAP's favor. However, an institution
or its holding company may purchase commercial insurance policies or
fidelity bonds, at a reasonable cost, which may pay the cost of
defending an administrative proceeding or civil action. Such insurance
cannot pay any penalty or judgement. However, it may pay restitution to
the insured depository institution, depository institution holding
company or the receiver.
Issues Raised By Commentators--Golden Parachutes
The FDIC has carefully reviewed and analyzed the substantial number
of comment letters which it received in response to the First Proposal.
With regard to the golden parachute portion of the First Proposal, the
most significant issues raised by the comment letters are discussed
below.
1. Bona Fide Deferred Compensation Plans
A substantial number of commenters raised the issue of whether the
requirement that bona fide deferred compensation plans be ``funded'' in
order to be excluded from the regulation's proscriptions is
appropriate. Section 359.1(d)(2) of the First Proposal established a
requirement that a nonqualified6 deferred compensation plan be
``funded'' in order to be considered a ``bona fide deferred
compensation plan or arrangement'' which is excluded from the
definition of golden parachute payment. The term funded was defined as
meaning that ``specific assets are segregated or otherwise set aside so
that such assets are not available to the institution or holding
company for any purpose other than distribution to the participating
employee(s) and are not available to satisfy claims of the
institution's or holding company's creditors''. First Proposal
Sec. 359.1(d)(2). The vast majority of comment letters which the FDIC
received raised the issue of the appropriate definition of bona fide
deferred compensation plan and virtually every letter which raised this
issue disagreed with the Corporation's imposition of the funding
requirement. The predominant argument against such a requirement is
that when Congress drafted section 18(k)(4)(C)(ii) of the FDI Act to
exclude bona fide deferred compensation plans from the definition of
golden parachute, it was aware and approved of the established industry
practice of utilizing unfunded, nonqualified deferred compensation
plans (commonly referred to as elective, excess or supplemental plans)
to supplement the traditional tax qualified defined benefit or defined
contribution retirement plan. Many of the comment letters also pointed
out that the Internal Revenue Code (26 U.S.C. 1 et seq.) (the ``Code'')
recognizes these types of nonqualified deferred compensation plans and
urged the FDIC to look to the Code as being dispositive. Almost all of
the relevant comment letters expressed grave concerns that the FDIC's
imposition of the funding requirement would upset established deferred
compensation plans and prompt depository institutions and holding
companies to incur significant unwanted expenses by terminating these
plans and making cash payments to the beneficiaries. Nonetheless,
Congress chose not to define the term ``bona fide deferred compensation
plan'', but explicitly left that task to the FDIC.
\6\ The term ``nonqualified'' refers to a benefit plan which is
not qualified (or is not intended within a reasonable period of time
to be qualified) under section 401 of the Internal Revenue Code of
1986 (26 U.S.C. 401).
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First, it should be pointed out that the FDIC is not bound by the
provisions of the Internal Revenue Code, or any other federal statute,
in defining the term bona fide deferred compensation plan or
arrangement. While the Code's explanation and treatment of such plans
may be instructive, it is not binding on the Corporation in the context
of this rulemaking. Similarly, the fact that the industry has utilized
unfunded, non-qualified plans for a period of time and would be
inconvenienced by the implementation of the proposed regulation is
insufficient to compel the change that the majority of comments
advocate. The FDIC's responsibility is to ascertain the proper meaning
of the term bona fide deferred compensation plan, while ensuring that
such definition does not permit depository institutions, holding
companies or institution-affiliated parties to circumvent the intent of
the statute by exploiting an imprecisely drafted definition. On the
other hand, if the Corporation can accomplish its purposes in a manner
that is less disruptive but just as effective as the scheme set forth
in the First Proposal, such an alternative bears close scrutiny.
The FDIC has been persuaded by the many comments it received with
regard to the definition of bona fide deferred compensation plan that
the funding requirement which was contained in Sec. 359.1(d)(2) of the
First Proposal is not necessary and should be deleted. Thus, the
definition of bona fide deferred compensation plan or arrangement,
which appears in Sec. 359.1(d) of the Second Proposal, does not contain
such a requirement. This provision of the Second Proposal permits
unfunded, nonqualified deferred compensation plans provided the
institution or holding company utilizes either a rabbi or a secular
trust (which are properly accounted for) or the benefits or payments
are expensed as an accrued liability according to generally accepted
accounting principles (GAAP). Second Proposal Sec. 359.1(d). It is the
FDIC's judgment that these requirements will permit depository
institutions and holding companies to utilize deferred compensation
plans for legitimate purposes, while ensuring that such plans can not
be used as a vehicle to make what would otherwise be considered a
prohibited golden parachute payment.
2. Severance Pay Plans
All the comment letters which raised the issue expressed support
for the FDIC's decision to except traditional severance pay plans which
cover reductions in force from the definition of golden parachute
payment. However, a substantial percentage of these letters urged the
Corporation to increase the allowable amount of severance pay from six
to twelve months salary and to expand the exception to include payments
pursuant to voluntary resignations or early retirements which occur in
conjunction with a reduction in force instituted by a depository
institution or holding company. After careful consideration, the
Corporation has elected to increase the permissible amount of severance
pay from six to twelve months' salary. In addition, the regulation has
been amended to permit institutions to request consent to pay greater
severance benefits. Second Proposal Sec. 359.1(f)(2)(v). The FDIC
requests public comment on this new alternative. The inclusion in the
exception of voluntary resignations and early retirements in
conjunction with a reduction in force provides depository institutions
and holding companies with more flexibility in achieving an optimum
workforce size and cost savings. Second Proposal Sec. 359.1(f)(2)(v).
The FDIC has also decided to include a definition of the term
``nondiscriminatory'' in Sec. 359.1(j) of the Second Proposal in an
effort to make it clear how this term should be applied in the context
of this regulation. The Corporation emphasizes that this exception is
only applicable to institution-affiliated parties who are
[[Page 16072]] terminated, resign or retire due to a reduction in force
and receive severance benefits pursuant to a existing nondiscriminatory
severance pay plan.
3. White Knight Exception
Section 359.4 of the First Proposal sets forth what is commonly
referred to as the ``white knight'' exception to the golden parachute
prohibition. This provision permits a troubled depository institution
or holding company to hire an individual and agree to pay him/her a
golden parachute payment upon termination of employment, provided that
the amount and terms of the golden parachute payment receive the prior
written consent of the appropriate federal banking agency and the FDIC.
As we stated in the preamble to the First Proposal:
The purpose of this exception is to permit a troubled
institution or holding company to attempt to reverse its slide
toward economic failure by attracting competent, new management
which enjoys the confidence of that institution's primary federal
regulator and the FDIC. . . . [T]he FDIC is aware that individuals
who possess the experience and expertise which qualify them for such
a position are highly sought after business persons who, in most
circumstances, already have established successful careers with
other financial institutions. In order to induce such an individual
to leave an established, stable career for a job in a troubled
institution which may not survive regardless of that individual's
efforts, it is generally necessary to agree to pay that individual
some sort of severance payment in the event that the efforts of the
individual for the institution are not successful. It is the FDIC's
view that . . . such agreements reflect good business judgment,
recognize the realities of the marketplace and may benefit both the
institution and the deposit insurance funds.
(56 FR 50531, October 7, 1991). While every comment letter which
addressed this exception supported it, a significant percentage of
those letters urged the FDIC to broaden the exception in certain
respects. First, it was recommended that the Corporation revise
Sec. 359.4 of the First Proposal to automatically grandfather
institution-affiliated parties who were hired to assist troubled
depository institutions and holding companies prior to the effective
date of the final regulation. The FDIC has carefully considered this
suggestion and is of the opinion that such an across-the-board
grandfathering would not be prudent. Section 359.4 is structured so
that the appropriate federal banking agency and the FDIC have an
opportunity to review the amount and terms of any proposed severance
arrangement prior to it being entered into. To grandfather all such
existing severance agreements would deny the appropriate federal
banking agency and the FDIC the opportunity to conduct this review.
However, institution-affiliated parties, insured depository
institutions and holding companies are of course free to request review
and approval of existing agreements for institution-affiliated parties
who were hired at a time when the depository institution or holding
company already met any of the criteria listed in Sec. 359.1(f)(1)(ii)
of the Second Proposal.
Second, a significant number of commentators also suggested that
the white knight exception be broadened to encompass individuals who
are hired ``in contemplation of'' the depository institution or holding
company becoming troubled. These letters urged this revision as a way
to allow depository institutions to address their problems sooner and,
thus, more effectively. The FDIC concurs in this line of reasoning. It
makes good sense that the value of this exception can be enhanced by
not restricting its coverage to institutions which are already
categorized as troubled. If existing management or a board of directors
is of the reasoned opinion that the institution in question is sliding
toward becoming troubled and that new management is needed to arrest
that slide, then prudent business practice would suggest that it is
better to hire such new management sooner rather than later. Therefore,
the exception has been expanded to allow applicants to apply for an
exemption prior to becoming troubled when they are of the opinion that
they are approaching a troubled condition and new management is needed.
Second Proposal Sec. 359.4(b).
Third, several comment letters suggested that the FDIC broaden the
Sec. 359.4 exception of the First Proposal to include current officers
and employees of a depository institution who are promoted to executive
positions at a time when the institution is troubled. While the FDIC
agrees that ``it is not axiomatic that competent new management can
only be found outside of an institution'', the underlying reason for
allowing what would otherwise be a prohibited golden parachute payment
is not present in the case of a current employee who is promoted to an
executive position. As we stated earlier, this type of severance
payment will be approved in limited circumstances as a way to entice
competent management to sever established ties with their current
employer and take a calculated risk that they can assist in bringing a
troubled institution back to financial health. This rationale does not
apply to the case of a current employee of a troubled institution since
he/she does not need to be enticed to give up an established, stable
career with another employer.
The FDIC's experience since the publication of the First Proposal
has made it clear that some confusion exists concerning the proper
procedure to request and the effect of obtaining prior written consent
for a white knight exception. Interested parties are referred to new
Sec. 359.6 of the Second Proposal, ``Filing Instructions''. In terms of
effect, the FDIC would like to clarify that approval of a white knight
exception does not improve the white knight's position in the event of
the insolvency of the institution as the FDIC (in its corporate
capacity) can neither bind a receiver nor affect the provability of
receivership claims. In the event that the insured depository
institution is placed into receivership or conservatorship, the FDIC
(in its corporate capacity) would not be obligated to pay the promised
severance benefit and the white knight would be accorded no
preferential treatment on the basis of such prior approval.
4. Permissible Golden Parachutes in Changes in Control
Several comment letters noted that the First Proposal does not
provide an exception to the prohibition against golden parachute
payments in the case of a change in control where the depository
institution to be acquired is troubled. These letters raised the
arguments which were briefly mentioned in the preamble to the First
Proposal (56 FR 50529, October 7, 1991) concerning the benefits of
protecting executive officers of companies which are the subject of
hostile takeovers so that their business decisions concerning what is
best for their company are not influenced by the acquisition's ultimate
effect on their employment. While the FDIC agrees that golden parachute
payments can serve a useful purpose in such circumstances, expanding
the exceptions permitted pursuant to Sec. 359.4 of the First Proposal
to include golden parachute payments made in the context of changes in
control would open the door to the possibility of payments being made
to institution-affiliated parties who are substantially responsible for
the depository institution's troubled condition. After balancing the
relative advantages and disadvantages of expanding Sec. 359.4 to
include this exception, the FDIC is of the opinion that the safety of
the deposit insurance funds and the soundness of the banking system in
general is best served by permitting limited golden parachute payments
with prior regulatory approval in the context of
[[Page 16073]] unassisted changes in control.\7\ While this decision
does not adopt completely the position advocated by the majority of
comment letters, the FDIC is concerned that a more open-ended exception
would have the unfortunate result of allowing institution-affiliated
parties who are substantially responsible for the troubled condition of
their depository institutions to receive golden parachute payments.
\7\Obviously, this analysis does not apply to situations where
the Corporation is assisting in the acquisition of a troubled
insured depository institution pursuant to section 13 of the FDI
Act.
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5. Definition of Golden Parachute Payment
A significant number of comment letters pointed out that a literal
reading of the definition of golden parachute payment contained in
Sec. 359.1(g) of the First Proposal would include certain forms of
retirement payments being made to former institution-affiliated parties
who retired and began collecting such payments at a time when the
depository institution or its holding company did not satisfy any of
the circumstances delineated in Secs. 359.1(g)(1)(ii) (A) through (E)
of the First Proposal, but which institution or holding company
subsequently became troubled. It was also brought to our attention that
a literal reading of the definition seemed to provide that even when a
troubled depository institution or its holding company ceased
satisfying any of the criteria delineated in Secs. 359.1(g)(1)(ii) (A)
through (E) of the First Proposal, golden parachute payments to
institution-affiliated parties who leave the institution subsequent to
its return to financial health would continue to be prohibited. It is
not the FDIC's intent that the regulation produce either of these
results. Institution-affiliated parties who retire from an insured
depository institution or holding company at a time when it is not
troubled and begin collecting periodic retirement payments should not
have to worry that the subsequent deterioration of the institution or
holding company will jeopardize their continuing to receive such
payments, at least as far as this regulation is concerned.\8\
Similarly, if a depository institution or holding company recovers from
its troubled condition, then it is no longer covered under the scope of
the regulation with respect to its existing institution-affiliated
parties, and what might have been considered prohibited golden
parachute payments would no longer be unlawful and could be paid to an
institution-affiliated party whose employment is terminated once the
institution or holding company is no longer troubled.\9\ It is our
opinion that the revised definition of bona fide deferred compensation
plan or arrangement contained in Sec. 359.1(d) of the Second Proposal
should alleviate these concerns since the revised definition recognizes
and includes well-established forms of deferred compensation. However,
the FDIC has also chosen to revise the definition of golden parachute
payment, which is contained in Sec. 359.1(f) of the Second Proposal, to
make it clear that to be a golden parachute, an institution-affiliated
party's employment by or affiliation with an insured depository
institution or holding company must terminate at a time when the
institution or holding company is troubled or in contemplation of it
becoming troubled. Second Proposal Sec. 359.1(f)(1)(iii). If an
institution-affiliated party's employment is terminated at a time when
the depository institution or holding company is troubled, the payment
of prohibited golden parachute payments to that individual will
continue to be prohibited even after the institution or holding company
ceases to be troubled.
\8\Obviously, the financial deterioration of the institution or
holding company may adversely affect the institution's or holding
company's ability to make the payments regardless of the regulation.
\9\This payment could include benefits which continued to accrue
during the tenure of the institution's or holding company's troubled
condition.
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6. Definition of Depository Institution Holding Company
Section 359.1(f) of the First Proposal, the definition of
``depository institution holding company'', includes any bank holding
company, savings and loan holding company and any direct or indirect
subsidiary thereof, other than an insured depository institution. A
number of comment letters raised the concern that the definition in the
First Proposal is not consistent with the definition of depository
institution holding company contained in section 3(w)(1) of the FDI
Act. A number of comment letters also argued that the broader
definition used in the First Proposal would improperly include non-
financial services affiliates that are not involved with the business
conducted by the insured depository institution within the purview of
the regulation. Pursuant to the First Proposal, golden parachute
payments by a non-financial services company to one of its executives
would be restricted simply because that company was ultimately owned by
a holding company which also owned an insured depository institution.
After considering this point, the FDIC agrees that the definition of
depository institution holding company in the Second Proposal should
mirror the definition contained in section 3(w)(1) of the FDI Act.
Second Proposal Sec. 359.1(b).
7. Scope of Rule
Section 359.1(j) of the First Proposal contains the definition of
institution-affiliated party. A number of comment letters raised the
issue that the regulatory definition proposed by the FDIC goes beyond
the statutory definition contained in section 3(u) of the FDI Act by
including persons who have a certain relationship with a depository
institution holding company. However, in carefully reviewing the
language of section 18(k)(4)(A) of the FDI Act, the FDIC is of the
opinion that Congress intended to include within the statute's scope
individuals who are institution-affiliated parties of depository
institution holding companies.
The term ``golden parachute payment'' means any payment * * * by
any insured depository institution or depository institution holding
company for the benefit of any institution-affiliated party pursuant
to an obligation of such institution or holding company that * * *
is contingent on the termination of such party's affiliation with
the institution or holding company * * * [Emphasis added].
12 U.S.C. 1828(k)(4)(A). This interpretation is consistent with section
8(b)(3) of the FDI Act which provides that the Act's enforcement
provisions are equally applicable to bank holding companies. Our
consultations with the Federal Reserve Board staff have established
that the Federal Reserve Board's established position is that it has
the authority to take enforcement action against institution-affiliated
parties of bank holding companies pursuant to section 8(b)(3) of the
FDI Act.
The FDIC is also of the opinion that to interpret section 18(k) to
not apply to institution-affiliated parties of holding companies would
subvert the statute's intent by leaving a significant gap in its
coverage. Federal Reserve staff has advised the Corporation that some
of the most abusive golden parachute payments which were made prior to
the enactment of the statute and were known to Congress at the time
involved IAPs of holding companies. Thus, the FDIC has decided not to
revise the definition of IAP contained in the First Proposal, except
for a minor technical change. [[Page 16074]]
8. Limitation to Executive Officers and Directors
Several comment letters suggested that the scope of the regulation
should be limited to cover only executive officers and directors of
insured depository institutions and depository institution holding
companies, as opposed to institution-affiliated parties of institutions
and holding companies. On the other hand, section 18(k)(4) of the FDI
Act explicitly refers to ``institution-affiliated party''.
While potential golden parachute abuses could theoretically involve
non-executive officers and non-directors, it has been the FDIC's
experience that such instances are extremely rare. It is not the FDIC's
intent to place unfair and inappropriate limits on payments to a bank
or holding company's non-official or non-managerial staff. This is
evidenced, for example, by the severance pay exception which is
contained in Sec. 359.1(f)(2)(v) of the Second Proposal. In the
Corporation's view, it is very unlikely that a bank teller (or other
non-executive/non-director) would come within the scope of this rule
since bank tellers generally do not get paid golden parachutes. That
being the case, and in view of the fact that the statute uses the term
``institution-affiliated party'', the FDIC has chosen not to explicitly
exclude employees who are not senior executive officers or directors
from the Second Proposal's scope. It should also be pointed out that
any such employee who feels that he/she is being unfairly affected by
the rule could apply for permission to receive a payment pursuant to
Sec. 359.4 of the Second Proposal.
9. Golden Parachute Agreements Entered Into Prior to Effective Date of
Final Regulation
The First Proposal took the position that the regulation could
limit or prohibit golden parachute and/or indemnification payments
which are sought to be made pursuant to contracts and agreements which
were entered into prior to the effective date of the final regulation,
i.e., as of the effective date of the statute. A number of comment
letters briefly asserted that the regulation could not lawfully affect
such agreements since to do so would be ``unconstitutional''. However,
the vast majority of comment letters which raised this issue did not
explain in any detail the basis for this alleged unconstitutionality.
The FDIC has examined this issue in greater depth and while we
remain convinced that ample precedent exists to support the position
which was taken in the First Proposal, no compelling need exists to
apply the regulation in this fashion. However, the FDIC views the
Second Proposal as putting institutions and IAPs on notice of the
Corporation's views with regard to these types of agreements and the
FDIC will look unfavorably upon any golden parachute agreement which is
entered into after the date of this proposal but before the effective
date of the final regulation as an attempt to circumvent the
regulation.
10. Prior Approval of Otherwise Prohibited Golden Parachutes
Section 359.2(b) of the First Proposal permits the payment of a
golden parachute provided that such payment is approved by the
institution's appropriate federal banking agency, with the written
concurrence of the FDIC. Several comment letters pointed out, however,
that this subsection afforded only depository institutions and holding
companies the right to request such an exception. In the interest of
fairness, the FDIC has revised this subsection to permit institution-
affiliated parties to also request permission to receive such a
payment.10
\10\ Such a request should be in letter form to the FDIC's
Regional Director (DOS) for the region in which the depository
institution or holding company is headquartered.
---------------------------------------------------------------------------
Section 359.2(b) of the First Proposal also requires that
applicants requesting permission to make or receive an otherwise
prohibited golden parachute payment shall provide the appropriate
federal banking agency and the FDIC with certain information. First
Proposal Secs. 359.2(b) (1) through (4). A significant number of
commentators asserted that this section of the First Proposal
improperly reverses the burden of proof as delineated in section
18(k)(2) of the FDI Act to compel the applicant to demonstrate that the
applicant has no reasonable basis to believe that the institution-
affiliated party to whom the payment is to be made has committed any
fraudulent act, is substantially responsible for the insolvency of the
institution or holding company, has materially violated any banking law
or regulation or has violated certain specific federal criminal laws.
These comment letters also asserted that the structure of the proposed
regulation requires the applicant to ``prove a negative'', an
impossible task.
The FDIC is of the opinion that the arguments advanced in the
comment letters concerning an inappropriate reversal of the burden of
proof are misplaced. First, a careful reading of section 18(k)(2) of
the FDI Act reveals that it does not establish a burden of proof, in
the traditional legal sense, at all. What this subsection does is to
delineate certain factors which Congress suggests that the FDIC
consider in evaluating a request to pay or receive an otherwise
prohibited golden parachute payment. This list of factors is not
mandatory, nor is it exclusive. The only mandatory language in section
18(k)(2) requires the FDIC to prescribe whatever factors it ultimately
decides to consider in any regulation it promulgates. The statute does
not address the question of which party bears the burden of producing
evidence or the burden of proof. What the FDIC has chosen to do in the
First Proposal is to place the burden of production of evidence where
it most reasonably belongs, with the party that possesses or has the
most complete access to the information which is necessary for the
Corporation to make an informed and equitable judgment. The FDIC is not
requiring that a party seeking to make or receive a golden parachute
payment ``prove his or her innocence''.
In response to the comment letters, the FDIC has revised
Sec. 359.2(b) of the First Proposal in an effort to clarify how this
section will function. These revisions make it clear that the
depository institution, holding company or institution-affiliated party
seeking a determination that an otherwise prohibited golden parachute
payment is permissible is required to inform the appropriate federal
banking agency and the FDIC of any information of which it is aware
that would indicate that there is a reasonable basis to believe that
the institution-affiliated party in question satisfies any of the
criteria set forth in Secs. 359.4(d) (1) through (4) of the Second
Proposal. If the applicant is not aware of any such information, it
shall so certify.
11. Condition of Institution at Time of Termination of Employment Is
Crucial
Previously in this preamble, we clarified that the Second Proposal
should not be construed to cut off the payment of retirement benefits
to former institution-affiliated employees who retired and began
receiving retirement payments at a time when the depository institution
or its holding company was not troubled, in the event that such
institution or holding company subsequently becomes troubled. This same
question arises in the case of non-retirement benefits. For example,
while most golden parachute payments are lump sum, the Corporation is
aware of instances where such payments are made in periodic
installments. The [[Page 16075]] FDIC is of the opinion that as long as
the institution-affiliated party did not terminate his/her employment
in contemplation of the depository institution or holding company
becoming troubled in an effort to circumvent the regulation's
proscriptions, such payments should be allowed to continue because the
nexus between the institution-affiliated party and the institution's or
holding company's troubled condition would not be present. However,
this is not meant to suggest that such retirement benefits or
permissible golden parachute payments will be continued in the event
that the institution is placed into conservatorship or receivership.
12. Other Golden Parachute Issues
A number of comment letters took issue with the fact that the First
Proposal prohibits the payment of a golden parachute by both an insured
depository institution and its holding company when either of those
entities is troubled. These letters suggested that the First Proposal
should be revised to provide that only the troubled entity be
prohibited from making a golden parachute payment. The FDIC has
carefully considered this suggestion and has decided to scale back its
original proposal and to adopt a modified version of the commenters'
suggestion. Thus, a troubled insured depository institution may not
make a golden parachute payment to any of its IAPs, excluding any of
the exceptions described previously. In addition, a depository
institution holding company may not make a golden parachute payment to
any of its IAPs if it is troubled and may not pay a golden parachute to
an IAP of an affiliated insured depository institution if that
institution is troubled.
The FDIC received several comment letters which suggested that the
Corporation make an exception to the golden parachute prohibition for
depository institutions with a composite rating of ``4'', but which
exceed all applicable regulatory capital requirements. The FDIC has
decided not to incorporate this exception into the Second Proposal
since an institution's capital level is only one indication of its
overall financial health.
A significant number of comment letters expressed concern that the
criteria delineated in Sec. 359.1(g)(1)(ii)(C) of the First Proposal
(that the depository institution or holding company be designated
troubled by its primary federal regulator) is overly broad since it
would include any institution or holding company which is subject to a
written supervisory agreement even if that institution or holding
company is not experiencing significant financial difficulties. Since
the nature of written supervisory agreements vary and that the facts of
each case are so individual, the FDIC prefers not to make a blanket
exception to the rule in this case. Rather, the Corporation will
consider exceptions on a case by case basis pursuant to Sec. 359.4(d)
of the Second Proposal.
Issues Raised By Commentators--Indemnification Payments
The FDIC has carefully reviewed and analyzed the comment letters
with regard to the indemnification portion of the First Proposal.
1. Criteria for Making Indemnification Payments
Section 359.5 of the First Proposal delineates the circumstances
under which an insured depository institution or depository institution
holding company may make or agree to make indemnification payments to
institution-affiliated parties. The comment letters made it clear that
this section of the First Proposal is viewed as being just as
significant as the sections dealing with golden parachute payments. The
overwhelming majority of comment letters expressed the opinion that the
prohibitions contained in this section of the First Proposal would make
it unreasonably difficult for depository institutions and holding
companies to attract and retain competent officers, directors and
employees.
Section 359.5(a) of the First Proposal sets forth six criteria
which must be met in order for a depository institution or holding
company to make or agree to make indemnification payments to an
institution-affiliated party. The majority of comment letters which
raised indemnification issues focused on Sec. 359.5(a)(1) of the First
Proposal. This subsection provides that in order to indemnify an
institution-affiliated party, the institution's or holding company's
board of directors, in good faith, must determine in writing that the
institution-affiliated party has a ``substantial likelihood of
prevailing on the merits''. The consensus of commentators' opinions was
that this standard is so difficult to meet that a board of directors
very rarely, if ever, would be able to authorize indemnification. Many
comment letters pointed out that requests for indemnification are
customarily made at the commencement of an administrative action or
civil proceeding when the institution-affiliated party and his/her
counsel are just beginning to assemble their case. Thus, many of the
facts and circumstances surrounding the conduct in question are not yet
known. This being the case, the commentators argued that it would be
very difficult for a board of directors to find that an institution-
affiliated party had a substantial likelihood of prevailing on the
merits. Too many unanswered questions would be present for such a
finding to be realistically made. The commentators recommended a
variety of lesser standards, most notably that the institution-
affiliated party ``acted in good faith and in a manner he/she believed
to be in the best interests of the institution'', that there is a
``reasonable likelihood of prevailing on the merits'' or that the FDIC
defer to the applicable state law standard.
After considerable review, the FDIC agrees with the position
expressed by the majority of commentators that the standard contained
in Sec. 359.5(a)(1) of the First Proposal imposes too significant an
obstacle to reasonable and fair indemnification payments. However, the
Corporation does not agree with the commentators who suggested that it
should defer to the applicable state law standard. In enacting section
18(k) of the FDI Act, Congress made it quite clear that there was to be
one uniform federal standard to govern the making of indemnification
payments by insured depository institutions and depository institution
holding companies. In an effort to balance the need of depository
institutions to attract and retain qualified directors and management
with the protection of the deposit insurance funds, the FDIC has
decided to revise Sec. 359.5(a)(1) of the First Proposal to utilize a
somewhat less stringent standard. Therefore, Sec. 359.5 of the Second
Proposal requires that the depository institution's or holding
company's board of directors determines in writing that the
institution-affiliated party requesting indemnification ``acted in good
faith and in a manner which he/she believed to be in the best interests
of the institution''. Of course, the FDIC expects that an institution's
board of directors will make such a finding only after due
investigation.
2. Continual Monitoring by Board of Directors Not Required
A significant number of comment letters also took issue with the
FDIC's requirement, contained in Sec. 359.5(a)(3) of the First
Proposal, that the institution's or holding company's board of
directors continually monitor actions against institution-affiliated
parties so that it can reassess its [[Page 16076]] decision to permit
indemnification. These commentators expressed the opinion that such a
requirement places an unfair and undue burden on both the board of
directors and the institution-affiliated party seeking indemnification.
The proposed standard would mean that a board's decision would never be
``final'', regardless of the amount of time, effort and painstaking
review that went into it. It would also mean that an institution-
affiliated party could never depend on indemnification since a prior
decision to approve indemnification could be revoked at any time. The
FDIC agrees that there is value in encouraging an amount of certainty
in such cases. Thus, this requirement has been deleted from the Second
Proposal.
3. Permissible Indemnification Payments
Section 359.5(a)(4) of the First Proposal prohibits the use of
indemnification payments to pay or reimburse an institution-affiliated
party for the amount of, or any cost incurred in connection with, any
settlement of an administrative proceeding or civil action instituted
by any federal banking agency or any judgment or penalty imposed with
respect to any such matter where the IAP is assessed a civil money
penalty, removed from office or made subject to a cease and desist
order. The FDIC received a substantial number of comment letters which
addressed this particular restriction. Interestingly, however, while
the proscription of the use of indemnification to pay for settlements
was criticized, the arguments against it were often diametrically
opposed. For example, a number of comment letters made the argument
that to prohibit the use of indemnification to pay for costs associated
with settlements would force institution-affiliated parties to litigate
every action to its ultimate conclusion in the hope of earning the
right to be indemnified. On the other hand, an approximately equal
number of comment letters argued just as vociferously that this
requirement would compel institution-affiliated parties to settle
actions immediately before costs became prohibitively high, thereby
denying them an opportunity to defend themselves. Other comment letters
pointed out that negotiated settlements benefit all parties involved
and that a settlement where the institution-affiliated party does not
admit to wrongdoing should not come within the definition of
indemnification payment contained in section 18(k)(5)(A) of the FDI Act
because the settlement agreement would not contain any penalty or
require any affirmative action that would, if embodied in a final
order, preclude indemnification under FDI Act section 18(k)(5)(A) and
Sec. 359.5(a)(5) of the First Proposal.
After considerable review, the FDIC has chosen not to permit
indemnification of settlement costs by the depository institution or
holding company where the IAP is assessed a civil money penalty,
removed from office or prohibited from participating in the conduct of
the affairs of the insured depository institution or required to cease
and desist from or take any affirmative action described in section
8(b) of the Act.11 However, insured depository institutions and
depository institution holding companies may purchase commercial
insurance policies or fidelity bonds, at a reasonable cost, which may
pay all costs incurred in an action or proceeding which is settled,
except civil money penalties and judgements. As we noted earlier, it is
also permissible for insurance policies and bonds to pay restitution to
the depository institution, holding company or receiver.
\11\If indemnification was authorized and paid by the depository
institution or holding company pursuant to section 359.5 of this
part, the IAP is obligated to reimburse the institution or holding
company, respectively.
---------------------------------------------------------------------------
4. Involvement by Majority or All of Board of Directors
A significant number of comment letters pointed out that
Sec. 359.5(b) of the First Proposal, which prohibits an institution-
affiliated party who is requesting indemnification from participating
in any way in the board's discussion and approval of such payments,
does not take into account situations where the majority or all the
members of the board of directors are the subject of an enforcement
action or civil proceeding. Thus, consistent with several
recommendations we received, the FDIC has added new Secs. 359.5 (c) and
(d) to the Second Proposal. Section 359.5(c) provides that if a
majority of the members of an institution's or holding company's board
of directors are named as respondents in an administrative proceeding
or civil action commenced by any federal banking agency the remaining
board member(s) may either make an independent decision concerning
authorization of indemnification payments or retain independent legal
counsel to provide an opinion as to whether the conditions contained in
Sec. 359.5(a) of the Second Proposal have been met. If the entire board
of directors is subject to the administrative action or civil
proceeding, Sec. 359.5(d) of the Second Proposal requires the board to
retain independent legal counsel to opine as to whether the conditions
set forth in Sec. 359.5(a) have been met. If independent legal counsel
is of the opinion that these conditions have been met, the board may
rely on such an opinion in authorizing the requested
indemnification.12 The FDIC would regard legal counsel as being
``independent'' (for purposes of this regulation) if the attorney(s) is
not a member of the depository institution's or holding company's in-
house legal staff, does not have an ongoing relationship with the
depository institution or holding company and no other conflict of
interest is present. The FDIC is of the opinion that these procedures
effectively address the difficulties inherent in situations where the
majority of or the entire board of directors of an institution or
holding company are the subjects of an enforcement proceeding. The use
of independent legal counsel ensures an unbiased review of the five
criteria necessary to approve indemnification and does not impose any
undue hardship upon the depository institution or holding company in
question.
\12\Of course, the board of directors could decline to approve
the indemnification request despite counsel's favorable opinion.
---------------------------------------------------------------------------
5. Definition of Indemnification Payment
Section 359.1(h) of the First Proposal contained the definition of
``indemnification payment''. A number of comment letters expressed
concern that even if an institution or holding company could qualify to
purchase a commercial insurance policy or fidelity bond which would
cover the costs of defending and/or settling an administrative action
or civil proceeding commenced by a federal banking agency, the proposed
regulation prohibited an institution or holding company from purchasing
such coverage. First Proposal Sec. 359.1(h)(2). Upon further
consideration, as we noted earlier herein, the FDIC is of the opinion
that if a depository institution or holding company can purchase, at
reasonable rates, a commercial insurance policy or fidelity bond which
will pay the costs of defending and/or settling an administrative
action or civil proceeding commenced by a federal banking agency,
neither the statute nor any consideration of safe and sound banking
practice require the Corporation to interfere with such an arrangement.
Section 359.1(l)(2) of the Second Proposal reflects this change. This
revision should address the concerns [[Page 16077]] raised by numerous
comment letters that the proposed regulation's restriction would impair
the ability of depository institutions and holding companies to attract
and retain competent management and directors. It is important to
emphasize that the Second Proposal would prohibit such an insurance
policy or bond from being used to pay or reimburse an institution-
affiliated party for the amount of any judgment or civil money penalty
assessed against him/her.
6. Fees Incurred During Investigations
The First Proposal did not address the question of whether
indemnification for counsel fees incurred during the investigative
stage of a potential administrative enforcement action should be
permitted. In view of the definition of indemnification payment
contained in section 18(k)(5)(A) of the FDI Act and its specific
reference to ``any administrative proceeding or civil action instituted
by the appropriate Federal banking agency'', the FDIC is of the opinion
that indemnification of such expenses incurred prior to the
commencement of a formal action should not be prohibited.
Technical Amendments
The comment letters also suggested a number of technical revisions
to the First Proposal to clarify certain provisions or avoid certain
anomalies. The definition of golden parachute payment contained in
section 18(k)(4)(A) of the FDI Act refers to ``any payment (or any
agreement to make any payment) in the nature of compensation * * *.''
The definition contained in section 359.1(g)(1) of the First Proposal
deleted the phrase ``in the nature of compensation''. Several comment
letters pointed out that the deletion of this phrase from the
regulatory definition could be construed to prohibit the customary
payment of certain accrued benefits upon termination of employment
(e.g., accrued vacation, sick leave, etc.). Since it is not the FDIC's
intent to prohibit depository institutions and holding companies, even
those that are troubled, from paying terminating employees for accrued
but unused benefits such as vacation or sick time, this phrase has been
added to the Second Proposal.13 Second Proposal Sec. 359.1(f)(1).
\13\ Claims for certain benefits may not be provable or
constitute ``actual direct compensatory damages'' under 12 U.S.C.
1821(e)(3) if the institution is placed into receivership. This
regulation does not provide otherwise.
---------------------------------------------------------------------------
Several comment letters also pointed out that the definition of
``bona fide deferred compensation plan or arrangement'' contained in
Sec. 359.1(d)(1) of the First Proposal did not allow for reasonable
earnings on elective deferred compensation. Section 359.1(d)(1) of the
Second Proposal makes it clear that a bona fide deferred compensation
plan includes the reasonable investment return on such elective
deferrals.
Section 18(k)(4)(C) of the FDI Act and Sec. 359.1(g)(2) of the
First Proposal delineate certain types of payments which are not
included within the definition of golden parachute. In describing such
payments, the words ``nondiscriminatory'' and ``benefit plan'' are
used. In view of the fact that the precise definition of these terms is
very important, the FDIC has added them to the list of definitions
contained in the Second Proposal. Second Proposal Secs. 359.1 (c) and
(j). In a similar vein, several comment letters suggested that the term
``indemnification payment'' contained in Sec. 359.1(h) of the First
Proposal be changed to ``prohibited indemnification payment'' in order
to avoid confusion with certain types of indemnification payments which
are permissible. The FDIC agrees with and has adopted this suggestion.
Second Proposal Sec. 359.1(l).
A significant number of comment letters pointed out that while the
definition of an excess deferred compensation plan contained in
Sec. 359.1(d)(2)(i) of the First Proposal correctly referenced the
limitations imposed by section 415 of the Internal Revenue Code of
1986, sections 401(a)(17) and 402(g) of the Code are also applicable,
but were not referenced. The FDIC has revised the Second Proposal to
include references to these two provisions of the Internal Revenue
Code, as well as any other applicable provisions. Second Proposal
Sec. 359.1(d)(2)(i).
A very small number of comment letters informed us that certain
states, particularly California, have statutes which require all
covered employers to pay severance benefits in certain circumstances.
These commentators were concerned that the definition of golden
parachute payment in the First Proposal would conflict with such state
statutes. In order to avoid such a conflict, the FDIC revised the
definition of golden parachute payment to explicitly exclude any
severance or similar payment which is required to be paid pursuant to
state law which applies to all employers, except those that are
exempted due to their small number of employees or other similar
criteria. Second Proposal Sec. 359.1(f)(2)(vi).
The FDIC has also chosen to clarify the definition of ``payment''
contained in Sec. 359.1(l) of the First Proposal by making it explicit
that the phrase ``the conferring of any benefit'' includes the granting
of stock options and stock appreciation rights. Second Proposal
Sec. 359.1(k)(3).
The FDIC has added a new subsection to the proposed regulation,
Sec. 359.6, entitled ``Filing Instructions''. This new subsection
contains instructions on where and how to file written requests for
prior approval to make certain payments which are otherwise not
permitted.
Closed Bank/Receivership Issues
The FDIC has added a new Sec. 359.7 to the proposed regulation to
make it clear that this regulation would not bind any receiver of a
failed insured depository institution. The fact that the FDIC or any
other federal banking agency consents to certain types of payments does
not imply that the approving agency or the receiver will be responsible
for making the payments in event of the insolvency of the institution
or that the recipient will receive some sort of preference over other
creditors from the receivership.
Other Enforcement Authority
The FDIC notes that its authority to regulate golden parachutes and
indemnification payments pursuant to section 18(k) of the FDI Act is in
addition to its safety and soundness enforcement authority pursuant to
section 8 of the FDI Act.
Delegations of Authority
The FDIC is also proposing to amend Sec. 303.7 of its regulations,
12 CFR 303.7, to add a new paragraph (g) which would delegate the
Board's authority to the Executive Director, Supervision and
Resolutions, Director of the Division of Supervision, and where
confirmed in writing by the Director, to an associate director, or to
the appropriate regional director or deputy regional director, to
approve or deny requests to make excess nondiscriminatory severance
plan payments as permitted by Sec. 359.1(f)(2)(v) and golden parachute
payments to ``white knights'', in change of control situations and
other golden parachute payments which are not covered under any of the
regulation's explicit exceptions, as permitted by Sec. 359.4.
Request for Public Comment
The FDIC hereby requests comment on all aspects of the Second
Proposal, including both legal and policy considerations. In
particular, the Corporation is especially interested in whether the
revisions to the First Proposal in response to the first set of
[[Page 16078]] public comment letters adequately address the concerns
which were raised. Of course, commenters should discuss any new issues
which have been raised as a result of these revisions by the FDIC.
Interested parties are invited to submit comments during a 60 day
comment period.
List of Subjects
12 CFR Part 303
Administrative practice and procedure, Authority delegations
(Government agencies), Bank deposit insurance, Banks, Banking,
Reporting and recordkeeping requirements, Savings associations.
12 CFR Part 359
Banks, Banking, Golden parachute payments, Indemnity payments.
For the reasons set out in the preamble, the FDIC Board of
Directors hereby proposes to amend 12 CFR part 303 and to add part 359
to title 12, chapter III, subchapter B, of the Code of Federal
Regulations as follows:
PART 303--APPLICATIONS, REQUESTS, SUBMITTALS, DELEGATIONS OF
AUTHORITY, AND NOTICES REQUIRED TO BE FILED BY STATUTE OR
REGULATION
1. The authority citation for part 303 continues to read as
follows:
Authority: 12 U.S.C. 378, 1813, 1815, 1816, 1817(a)(2)(b),
1817(j), 1818, 1819 (``Seventh'', ``Eighth'' and ``Tenth''), 1828,
1831e, 1831o, 1831p-1(a); 15 U.S.C. 1607.
2. In Sec. 303.7, the section heading is revised and a new
paragraph (g) is added to read as follows:
Sec. 303.7 Delegation of authority to the Executive Director for
Supervision and Resolutions, the Director of the Division of
Supervision and to the associate directors, regional directors and
deputy regional directors to act on certain applications, requests, and
notices of acquisition of control.
* * * * *
(g) Requests pursuant to section 18(k) of the Act. Authority is
delegated to the Executive Director, the Director, and where confirmed
in writing by the Executive Director or Director, to an associate
director, or to the appropriate regional director or deputy regional
director, to approve or deny requests pursuant to section 18(k) of the
Act to make:
(1) Excess nondiscriminatory severance plan payments as provided by
12 CFR 359.1(f)(2)(v); and
(2) Golden parachute payments permitted by 12 CFR 359.4.
3. New part 359 is added to read as follows:
PART 359--GOLDEN PARACHUTE AND INDEMNIFICATION PAYMENTS
Sec.
359.0 Scope.
359.1 Definitions.
359.2 Golden parachute payments prohibited.
359.3 Prohibited indemnification payments.
359.4 Permissible golden parachute payments.
359.5 Permissible indemnification payments.
359.6 Filing instructions.
359.7 Applicability in the event of receivership.
Authority: 12 U.S.C. 1828(k).
Sec. 359.0 Scope.
(a) This part limits and/or prohibits, in certain circumstances,
the ability of insured depository institutions, their subsidiaries and
affiliated depository institution holding companies to make golden
parachute and indemnification payments to institution-affiliated
parties (IAP).
(b) The limitations on golden parachute payments apply to troubled
insured depository institutions which seek to make golden parachute
payments to their IAPs. The limitations also apply to depository
institution holding companies which are troubled and seek to make
golden parachute payments to their IAPs as well as healthy holding
companies which seek to make golden parachute payments to IAPs of a
troubled insured depository institution subsidiary. A ``golden
parachute payment'' is generally considered to be any payment to an IAP
which is contingent on the termination of that person's employment and
is received when the insured depository institution making the payment
is troubled or, if the payment is being made by an affiliated holding
company, either the holding company itself or the insured depository
institution employing the IAP, is troubled. The definition of golden
parachute payment does not include payments pursuant to qualified
retirement plans, nonqualified bona fide deferred compensation plans,
nondiscriminatory severance pay plans, other types of common benefit
plans, state statutes and death benefits. Certain limited exceptions to
the golden parachute payment prohibition are provided for in cases
involving the hiring of a ``white knight'' and unassisted changes in
control. A procedure is also set forth whereby an institution or IAP
can request permission to make what would otherwise be a prohibited
golden parachute payment.
(c) The limitations on indemnification payments apply to all
insured depository institutions, their subsidiaries and affiliated
depository institution holding companies regardless of their financial
health. Generally, this part prohibits insured depository institutions,
their subsidiaries and affiliated holding companies from indemnifying
an IAP for costs sustained with regard to an administrative or civil
enforcement action commenced by any federal banking agency which
results in a final order or settlement pursuant to which the IAP is
assessed a civil money penalty, removed from office, prohibited from
participating in the affairs of an insured depository institution or
required to cease and desist from or take an affirmative action
described in section 8(b) (12 U.S.C. 1818(b)) of the Federal Deposit
Insurance Act (FDI Act). However, there are exceptions to this general
prohibition. First, an institution or holding company may purchase
commercial insurance to cover such expenses, except judgments and
penalties. Second, the institution or holding company may indemnify an
IAP directly, except for judgments and penalties, if its board of
directors makes certain specific findings.
Sec. 359.1 Definitions.
(a) Act means the Federal Deposit Insurance Act, as amended (12
U.S.C. 1811, et seq.).
(b) Appropriate federal banking agency, bank holding company,
depository institution holding company and savings and loan holding
company have the meanings given to such terms in section 3 of the Act.
(c) Benefit plan means any plan, contract, agreement or other
arrangement which is an ``employee welfare benefit plan'' as that term
is defined in section 3(1) of the Employee Retirement Income Security
Act of 1974, as amended (29 U.S.C. 1002(1)), or other usual and
customary plans such as dependent care, tuition reimbursement, group
legal services or cafeteria plans; provided however, that such term
shall not include any plan intended to be subject to paragraphs
(f)(2)(iii) and (v) of this section.
(d) Bona fide deferred compensation plan or arrangement means any
plan, contract, agreement or other arrangement whereby:
(1) An IAP voluntarily elects to defer all or a portion of the
reasonable compensation, wages or fees paid for services rendered which
otherwise would have been paid to such party at the time the services
were rendered (including a plan that provides for the crediting of a
reasonable investment return on such elective deferrals) and
[[Page 16079]] the insured depository institution or depository
institution holding company either:
(i) Recognizes compensation expense and accrues a liability for the
benefit payments according to generally accepted accounting principles
(GAAP); or
(ii) Segregates or otherwise sets aside assets in a trust which may
only be used to pay plan and other benefits, except that the assets of
such trust may be available to satisfy claims of the institution's or
holding company's creditors in the case of insolvency; or
(2) An insured depository institution or depository institution
holding company establishes a nonqualified deferred compensation or
supplemental retirement plan, other than an elective deferral plan
described in paragraph (e)(1) of this section:
(i) Solely for the purpose of providing benefits for certain IAPs
in excess of the limitations on contributions and benefits imposed by
sections 415, 401(a)(17), 402(g) or any other applicable provision of
the Internal Revenue Code of 1986 (26 U.S.C. 415, 401(a)(17), 402(g));
or
(ii) Primarily for the purpose of providing supplemental retirement
benefits or other deferred compensation for a select group of
directors, management or highly compensated employees (excluding
severance payments described in paragraph (f)(2)(v) of this section and
permissible golden parachute payments described in Sec. 359.4); and
(3) In the case of any nonqualified deferred compensation or
supplemental retirement plans as described in paragraphs (d)(1) and (2)
of this section, the following requirements shall apply:
(i) The plan was in effect at least one year prior to any of the
events described in paragraph (f)(1)(ii) of this section;
(ii) Any payment made pursuant to such plan is made in accordance
with the terms of the plan as in effect no later than one year prior to
any of the events described in paragraph (f)(1)(ii) of this section and
in accordance with any amendments to such plan during such one year
period that do not increase the benefits payable thereunder;
(iii) The IAP has a vested right, as defined under the applicable
plan document, at the time of termination of employment to payments
under such plan;
(iv) Benefits under such plan are accrued each period only for
current or prior service rendered to the employer (except that an
allowance may be made for service with a predecessor employer);
(v) Any payment made pursuant to such plan is not based on any
acceleration of vesting or accrual of benefits which occurs at any time
later than one year prior to any of the events described in paragraph
(f)(1)(ii) of this section;
(vi) The insured depository institution or depository institution
holding company has previously recognized compensation expense and
accrued a liability for the benefit payments according to GAAP or
segregated or otherwise set aside assets in a trust which may only be
used to pay plan benefits, except that the assets of such trust may be
available to satisfy claims of the institution's or holding company's
creditors in the case of insolvency; and
(vii) Payments pursuant to such plans shall not be in excess of the
accrued liability computed in accordance with GAAP.
(e) Corporation means the Federal Deposit Insurance Corporation, in
its corporate capacity.
(f)(1) The term golden parachute payment means any payment (or any
agreement to make any payment) in the nature of compensation by any
insured depository institution or an affiliated depository institution
holding company for the benefit of any current or former IAP pursuant
to an obligation of such institution or holding company that:
(i) Is contingent on, or by its terms is payable on or after, the
termination of such party's primary employment or affiliation with the
institution or holding company; and
(ii) Is received on or after, or is made in contemplation of, any
of the following events:
(A) The insolvency (or similar event) of the insured depository
institution which is making the payment or bankruptcy or insolvency (or
similar event) of the depository institution holding company which is
making the payment; or
(B) The appointment of any conservator or receiver for such insured
depository institution; or
(C) A determination by the insured depository institution's or
depository institution holding company's appropriate federal banking
agency, respectively, that the insured depository institution or
depository institution holding company is in a troubled condition, as
defined in the applicable regulations of the appropriate federal
banking agency (Sec. 303.14(a)(4) of this chapter); or
(D) The insured depository institution is assigned a composite
rating of 4 or 5 by the appropriate federal banking agency or informed
in writing by the Corporation that it is rated a 4 or 5 under the
Uniform Financial Institutions Rating System of the Federal Financial
Institutions Examination Council, or the depository institution holding
company is assigned a composite rating of 4 or 5 or unsatisfactory by
its appropriate federal banking agency; or
(E) The insured depository institution is subject to a proceeding
to terminate or suspend deposit insurance for such institution; and
(iii)(A) Is payable to an IAP whose employment by or affiliation
with an insured depository institution is terminated at a time when the
insured depository institution by which the IAP is employed or with
which the IAP is affiliated satisfies any of the conditions enumerated
in paragraphs (f)(1)(ii)(A) through (E) of this section, or in
contemplation of any of these conditions; or
(B) Is payable to an IAP whose employment by or affiliation with an
insured depository institution holding company is terminated at a time
when the insured depository institution holding company by which the
IAP is employed or with which the IAP is affiliated satisfies any of
the conditions enumerated in paragraphs (f)(1)(ii)(A), (C) or (D) of
this section, or in contemplation of any of these conditions.
(2) Exceptions. The term golden parachute payment shall not
include:
(i) Any payment made pursuant to a pension or retirement plan which
is qualified (or is intended within a reasonable period of time to be
qualified) under section 401 of the Internal Revenue Code of 1986 (26
U.S.C. 401) or pursuant to a pension or other retirement plan which is
governed by the laws of any foreign country; or
(ii) Any payment made pursuant to a benefit plan as that term is
defined in paragraph (c) of this section; or
(iii) Any payment made pursuant to a bona fide deferred
compensation plan or arrangement as defined in paragraph (d) of this
section; or
(iv) Any payment made by reason of termination caused by the death
or disability of an institution-affiliated party; or
(v) Any payment made pursuant to a nondiscriminatory severance pay
plan or arrangement which provides for payment of severance benefits to
all eligible employees upon involuntary termination other than for
cause, voluntary resignation, or early retirement, in conjunction with
a reduction in force instituted by the insured depository institution
or depository institution holding company; [[Page 16080]] provided,
however, that no employee shall receive any such payment which exceeds
the base compensation paid to such employee during the twelve months
(or such longer period or greater benefit as the Corporation shall
consent to) immediately preceding termination of employment,
resignation or early retirement, and such severance pay plan or
arrangement shall not have been adopted or modified to increase the
amount or scope of severance benefits at a time when the insured
depository institution or depository institution holding company was in
a condition specified in paragraph (f)(1)(ii) of this section or in
contemplation of such a condition without the prior written consent of
the appropriate federal banking agency; provided further, however, that
no such payment shall be made to any senior executive officer (as
defined in Sec. 303.14(a)(3) of this chapter) of any insured depository
institution or depository institution holding company without providing
30 days prior written notice to the appropriate federal banking agency
and the FDIC; or
(vi) Any severance or similar payment which is required to be made
pursuant to a state statute or foreign law which is applicable to all
employers within the appropriate jurisdiction (with the exception of
employers that may be exempt due to their small number of employees or
other similar criteria); or
(vii) Any other payment which the Corporation determines to be
permissible in accordance with Sec. 359.4 of this part.
(g) Insured depository institution means any bank or savings
association the deposits of which are insured by the Corporation
pursuant to the Act, or any subsidiary thereof.
(h) Institution-affiliated party (IAP) means:
(1) Any director, officer, employee, or controlling stockholder
(other than a depository institution holding company) of, or agent for,
an insured depository institution or depository institution holding
company;
(2) Any other person who has filed or is required to file a change-
in-control notice with the appropriate federal banking agency under
section 7(j) of the Act (12 U.S.C. 1817(j));
(3) Any shareholder (other than a depository institution holding
company), consultant, joint venture partner, and any other person as
determined by the appropriate federal banking agency (by regulation or
case-by-case) who participates in the conduct of the affairs of an
insured depository institution or depository institution holding
company; and
(4) Any independent contractor (including any attorney, appraiser,
or accountant) who knowingly or recklessly participates in: Any
violation of any law or regulation, any breach of fiduciary duty, or
any unsafe or unsound practice, which caused or is likely to cause more
than a minimal financial loss to, or a significant adverse effect on,
the insured depository institution or depository institution holding
company.
(i) Liability or legal expense means:
(1) Any legal or other professional fees and expenses incurred in
connection with any claim, proceeding, or action;
(2) The amount of, and any cost incurred in connection with, any
settlement of any claim, proceeding, or action; and
(3) The amount of, and any cost incurred in connection with, any
judgment or penalty imposed with respect to any claim, proceeding, or
action.
(j) Nondiscriminatory means that the plan, contract or arrangement
in question applies to all employees of an insured depository
institution or depository institution holding company who meet
reasonable and customary eligibility requirements applicable to all
employees, such as minimum length of service requirements. A
nondiscriminatory plan, contract or arrangement may provide different
benefits to IAPs based only upon length of service and/or position. In
the event that an employee's position is used as a basis for providing
a different level of benefits, employees who are not senior executive
officers (as defined in Sec. 303.14(a)(3) of this chapter) of the
insured depository institution or depository institution holding
company shall be treated more favorably than senior executive officers.
(k) Payment means:
(1) Any direct or indirect transfer of any funds or any asset;
(2) Any forgiveness of any debt or other obligation;
(3) The conferring of any benefit, including but not limited to
stock options and stock appreciation rights; and
(4) Any segregation of any funds or assets, the establishment or
funding of any trust or the purchase of or arrangement for any letter
of credit or other instrument, for the purpose of making, or pursuant
to any agreement to make, any payment on or after the date on which
such funds or assets are segregated, or at the time of or after such
trust is established or letter of credit or other instrument is made
available, without regard to whether the obligation to make such
payment is contingent on:
(i) The determination, after such date, of the liability for the
payment of such amount; or
(ii) The liquidation, after such date, of the amount of such
payment.
(l) Prohibited indemnification payment. (1) The term prohibited
indemnification payment means any payment (or any agreement or
arrangement to make any payment) by any insured depository institution
or an affiliated depository institution holding company for the benefit
of any person who is or was an IAP of such insured depository
institution, to pay or reimburse such person for any liability or legal
expense with regard to any administrative proceeding or civil action
instituted by any federal banking agency which results in a final order
or settlement pursuant to which such person:
(i) Is assessed a civil money penalty;
(ii) Is removed from office or prohibited from participating in the
conduct of the affairs of the insured depository institution; or
(iii) Is required to cease and desist from or take any affirmative
action described in section 8(b) of the Act with respect to such
institution.
(2) Exception. The term prohibited indemnification payment shall
not include any reasonable payment by an insured depository institution
or depository institution holding company which is used to purchase any
commercial insurance policy or fidelity bond, provided that such
insurance policy or bond shall not be used to pay or reimburse an IAP
for the cost of any judgment or civil money penalty assessed against
such person in an administrative proceeding or civil action commenced
by any federal banking agency, but may pay the amount of any
restitution to the insured depository institution, depository
institution holding company or receiver.
Sec. 359.2 Golden parachute payments prohibited.
No insured depository institution or depository institution holding
company shall make or agree to make any golden parachute payment,
except as provided in this part.
Sec. 359.3 Prohibited indemnification payments.
No insured depository institution or depository institution holding
company shall make or agree to make any prohibited indemnification
payment, except as provided in this part. [[Page 16081]]
Sec. 359.4 Permissible golden parachute payments.
(a) An insured depository institution or depository institution
holding company may agree to make or may make a golden parachute
payment if and to the extent that:
(1) The appropriate federal banking agency, with the written
concurrence of the Corporation, determines that such a payment or
agreement is permissible; or
(2) Such an agreement is made in order to hire a person to become
an IAP either at a time when the insured depository institution or
depository institution holding company satisfies or in an effort to
prevent it from imminently satisfying any of the criteria set forth in
Sec. 359.1(f)(1)(ii), and the institution's appropriate federal banking
agency and the Corporation consent in writing to the amount and terms
of the golden parachute payment. Such consent by the FDIC and the
institution's appropriate federal banking agency shall not improve the
IAP's position in the event of the insolvency of the institution since
such consent can neither bind a receiver nor affect the provability of
receivership claims. In the event that the institution is placed into
receivership or conservatorship, the FDIC and/or the institution's
appropriate federal banking agency shall not be obligated to pay the
promised golden parachute and the IAP shall not be accorded
preferential treatment on the basis of such prior approval; or
(3) Such a payment is made pursuant to an agreement which provides
for a reasonable severance payment, not to exceed twelve months salary,
to an IAP in the event of a change in control of the insured depository
institution; provided, however, that an insured depository institution
or depository institution holding company shall obtain the consent of
the appropriate federal banking agency prior to making such a payment
and this paragraph (a)(3) shall not apply to any change in control of
an insured depository institution which results from an assisted
transaction as described in section 13 of the Act (12 U.S.C. 1823) or
the insured depository institution being placed into conservatorship or
receivership; and
(4) An insured depository institution, depository institution
holding company or IAP making a request pursuant to paragraphs (a)(1)
through (3) of this section shall demonstrate that it does not possess
and is not aware of any information, evidence, documents or other
materials which would indicate that there is a reasonable basis to
believe, at the time such payment is proposed to be made, that:
(i) The IAP has committed any fraudulent act or omission, breach of
trust or fiduciary duty, or insider abuse with regard to the depository
institution or depository institution holding company that has had or
is likely to have a material adverse effect on the institution or
holding company;
(ii) The IAP is substantially responsible for the insolvency of,
the appointment of a conservator or receiver for, or the troubled
condition, as defined by applicable regulations of the appropriate
federal banking agency, of the insured depository institution,
depository institution holding company or any insured depository
institution subsidiary of such holding company;
(iii) The IAP has materially violated any applicable federal or
state banking law or regulation that has had or is likely to have a
material effect on the insured depository institution or depository
institution holding company; and
(iv) The IAP has violated or conspired to violate section 215, 656,
657, 1005, 1006, 1007, 1014, 1032, or 1344 of title 18 of the United
States Code, or section 1341 or 1343 of such title affecting a
federally insured financial institution as defined in title 18 of the
United States Code.
(b) In making a determination under paragraphs (a)(1) through (3)
of this section, the appropriate federal banking agency and the
Corporation may consider:
(1) Whether, and to what degree, the IAP was in a position of
managerial or fiduciary responsibility;
(2) The length of time the IAP was affiliated with the insured
depository institution or depository institution holding company, and
the degree to which the proposed payment represents a reasonable
payment for services rendered over the period of employment; and
(3) Any other factors or circumstances which would indicate that
the proposed payment would be contrary to the intent of section 18(k)
of the Act or this part.
Sec. 359.5 Permissible indemnification payments.
(a) An insured depository institution or depository institution
holding company may make or agree to make reasonable indemnification
payments to an IAP with respect to an administrative proceeding or
civil action initiated by any federal banking agency if:
(1) The insured depository institution's or depository institution
holding company's board of directors, in good faith, determines in
writing after due investigation and consideration that the institution-
affiliated party acted in good faith and in a manner he/she believed to
be in the best interests of the institution;
(2) The insured depository institution's or depository institution
holding company's board of directors, respectively, in good faith,
determines in writing after due investigation and consideration that
the payment of such expenses will not materially adversely affect the
institution's or holding company's safety and soundness;
(3) The indemnification payments are limited to the payment or
reimbursement of reasonable legal, professional or other expenses
incurred in connection with an IAP's involvement in an administrative
proceeding or civil action instituted by any federal banking agency;
but in no event shall such indemnification pay or reimburse an IAP for
the amount of, or any cost incurred in connection with, any judgment,
penalty or settlement with respect to any such claim, proceeding or
action, pursuant to which the IAP:
(i) Is assessed a civil money penalty;
(ii) Is removed from office or prohibited from participating in the
conduct of the affairs of the insured depository institution; or
(iii) Is required to cease and desist from or take any affirmative
action described in section 8(b) of the Act with respect to such
institution;
(4) The IAP agrees in writing to reimburse the insured depository
institution or depository institution holding company for such
indemnification payments in the event that the proceeding or action
results in a final order or is settled on terms under which the IAP:
(i) Is assessed a civil money penalty;
(ii) Is removed from office or prohibited from participating in the
conduct of the affairs of the insured depository institution; or
(iii) Is required to cease and desist from or take any affirmative
action described in section 8(b) of the Act with respect to such
institution; and
(5) The insured depository institution or depository institution
holding company provides the appropriate federal banking agency and the
FDIC with prior written notice of its board of directors' authorization
of such indemnification.
(b) An IAP requesting indemnification payments shall not
participate in any way in the board's discussion and approval of such
payments; provided, however, that such IAP may present his/her request
to the board and respond to any inquiries from the board concerning
his/her involvement in the circumstances giving rise to the
[[Page 16082]] administrative proceeding or civil action.
(c) In the event that a majority of the members of the board of
directors are named as respondents in an administrative proceeding or
civil action and request indemnification, the remaining members of the
board may authorize independent legal counsel to review the
indemnification request and provide the remaining members of the board
with an opinion of counsel as to whether the conditions delineated in
paragraph (a) of this section have been met. If independent legal
counsel opines that said conditions have been met, the remaining
members of the board of directors may rely on such opinion in
authorizing the requested indemnification.
(d) In the event that all of the members of the board of directors
are named as respondents in an administrative proceeding or civil
action and request indemnification, the board shall authorize
independent legal counsel to review the indemnification request and
provide the board with an opinion of counsel as to whether the
conditions delineated in paragraph (a) of this section have been met.
If independent legal counsel opines that said conditions have been met,
the board of directors may rely on such opinion in authorizing the
requested indemnification.
Sec. 359.6 Filing instructions.
Requests to make excess nondiscriminatory severance plan payments
pursuant to Sec. 359.1(f)(2)(v) and golden parachute payments permitted
by Sec. 359.4 shall be submitted in writing to the FDIC regional
director (Supervision) for the region in which the institution is
located. The request shall be in letter form and shall contain all
relevant factual information as well as the reasons why such approval
should be granted. In the event that the consent of the institution's
primary federal regulator is required in addition to that of the FDIC,
the requesting party shall submit a copy of its letter to the FDIC to
the institution's primary federal regulator. In the case of national
banks, such written requests shall be submitted to the OCC district
office where the institution is located. In the case of state member
banks and bank holding companies, such written requests shall be
submitted to the Federal Reserve district bank where the institution or
holding company, respectively, is located. In the case of savings
associations and savings association holding companies, such written
requests shall be submitted to the OTS regional office where the
institution or holding company, respectively, is located. In cases
where the prior consent of only the institution's primary federal
regulator is required and that agency is not the FDIC, a written
request satisfying the requirements of this paragraph shall be
submitted to the primary federal regulator as described in this
paragraph.
Sec. 359.7 Applicability in the event of receivership.
The provisions of this part, or any consent or approval granted
hereunder by the FDIC (in its corporate capacity), shall not in any way
bind any receiver of a failed insured depository institution. Any
consent or approval granted hereunder by the FDIC or any other federal
banking agency shall not in any way obligate such agency or receiver to
pay any claim or obligation pursuant to any golden parachute,
severance, indemnification or other agreement. Claims for employee
welfare benefits or other benefits which are contingent, even if
otherwise vested, when the FDIC is appointed as receiver for any
depository institution, including any contingency for termination of
employment, are not provable claims or actual, direct compensatory
damage claims against such receiver. Nothing in this part may be
construed to permit the payment of salary or any liability or legal
expense of any IAP contrary to 12 U.S.C. 1828(k)(3).
By order of the Board of Directors, dated at Washington, D.C.,
this 21st day of March, 1995.
Federal Deposit Insurance Corporation
Robert E. Feldman,
Acting Executive Secretary.
[FR Doc. 95-7603 Filed 3-28-95; 8:45 am]
BILLING CODE 6714-01-P
