Federal Deposit Insurance Corporation
550 17th Street NW, Washington, DC 20429 Division of Supervision
Executive Benefits
FIL-8-96
February 16, 1996
TO: CHIEF EXECUTIVE OFFICER
SUBJECT: Final Rule Limiting "Golden Parachutes" and Indemnification
The FDIC Board of Directors has issued a final rule that, with certain exceptions, prohibits troubled
holdinq companies, hanks and thrifts from making "golden parachute" payments. These are typically large
cash payments to executives who resign Just before an institution is closed or sold. The new rule also
limits the ability of any holding company or FDIC-insured institution to pay the liabilities or legal expenses
of an employee or director who is subject to an enforcement proceeding. A copy of the final rule is
attached.
The regulation was issued under authority granted by the Crime Control Act of 1990, which includes
provisions designed to stop abuses in golden parachutes and indemnification payments. The law permits
the FDIC to prohibit or limit golden parachute and indemnification payments but provides several
exceptions. The agency first proposed rules in this area in 1991, and then issued a second proposal for
additional comment in March of last year. The final rule, which is similar to the 1995 proposal, becomes
effective on April 1, 1996. It applies to all FDIC-insured financial institutions and their holding companies.
Golden Parachutes
For purposes of this regulation, a golden parachute generally is defined as any payment to an "institution-
affiliated party" (typically an officer or director) while an institution is in a troubled condition and is
contingent on this person's resignation. The FDIC has encountered past abuses with golden parachutes
when institutions pay substantial sums to top executives who decide to resign after the institution is
troubled or immediately before the institution is sold or closed.
With certain exceptions, the FDIC's final rule prohibits golden parachute agreements or payments by
troubled institutions, by troubled holding companies or by healthy holding companies on behalf of a
troubled subsidiary. The exceptions include what may be considered legitimate business expenses, such
as: qualified retirement plans: nonqualified "bona fide" deferred compensation plans: nondiscriminatory
severance pay plans: other types of common benefit plans: certain payments required by state law; and
death benefits.
Other limited exceptions are provided for in cases involving the hiring of a "white knight" (a new manager
to improve the institution's condition) or when a troubled institution is sold without FDIC assistance. Under
the final rule, an institution or an institution-affiliated party also can request FDIC permission to make or
receive what would otherwise be a prohibited golden parachute payment, or to enter into an agreement to
do so.
Indemnification Payments
The FDIC believes that individuals who violate banking laws should pay penalties and legal expenses out
of their own pockets and not be reimbursed by insured institutions. This helps deter fraud and protect the
deposit insurance funds.
The new rule limiting indemnification payments applies to all FDIC- insured institutions, their subsidiaries
and affiliated depository institution holding companies regardless of their financial health. Generally, the
rule prohibits indemnification payments made to or for an institution-affiliated party in connection with a
federal administrative or civil enforcement action that results in a civil money penalty, removal from office,
prohibition from service or other penalties described in the attached Federal Register notice.
However, there are exceptions to this general prohibition. An institution or holding company may
purchase commercial insurance to cover expenses other than judgments and penalties. Also, an
institution or holding company can pay "up front" for an employee's legal or other professional expenses
if: (1) its board of directors makes certain findings, and (2) the employee agrees in writing to reimburse
the institution if the alleged violations of law, regulation or fiduciary duty are upheld.Inactive
550 17th Street NW, Washington, DC 20429 Division of Supervision
Executive Benefits
FIL-8-96
February 16, 1996
TO: CHIEF EXECUTIVE OFFICER
SUBJECT: Final Rule Limiting "Golden Parachutes" and Indemnification
The FDIC Board of Directors has issued a final rule that, with certain exceptions, prohibits troubled
holdinq companies, hanks and thrifts from making "golden parachute" payments. These are typically large
cash payments to executives who resign Just before an institution is closed or sold. The new rule also
limits the ability of any holding company or FDIC-insured institution to pay the liabilities or legal expenses
of an employee or director who is subject to an enforcement proceeding. A copy of the final rule is
attached.
The regulation was issued under authority granted by the Crime Control Act of 1990, which includes
provisions designed to stop abuses in golden parachutes and indemnification payments. The law permits
the FDIC to prohibit or limit golden parachute and indemnification payments but provides several
exceptions. The agency first proposed rules in this area in 1991, and then issued a second proposal for
additional comment in March of last year. The final rule, which is similar to the 1995 proposal, becomes
effective on April 1, 1996. It applies to all FDIC-insured financial institutions and their holding companies.
Golden Parachutes
For purposes of this regulation, a golden parachute generally is defined as any payment to an "institution-
affiliated party" (typically an officer or director) while an institution is in a troubled condition and is
contingent on this person's resignation. The FDIC has encountered past abuses with golden parachutes
when institutions pay substantial sums to top executives who decide to resign after the institution is
troubled or immediately before the institution is sold or closed.
With certain exceptions, the FDIC's final rule prohibits golden parachute agreements or payments by
troubled institutions, by troubled holding companies or by healthy holding companies on behalf of a
troubled subsidiary. The exceptions include what may be considered legitimate business expenses, such
as: qualified retirement plans: nonqualified "bona fide" deferred compensation plans: nondiscriminatory
severance pay plans: other types of common benefit plans: certain payments required by state law; and
death benefits.
Other limited exceptions are provided for in cases involving the hiring of a "white knight" (a new manager
to improve the institution's condition) or when a troubled institution is sold without FDIC assistance. Under
the final rule, an institution or an institution-affiliated party also can request FDIC permission to make or
receive what would otherwise be a prohibited golden parachute payment, or to enter into an agreement to
do so.
Indemnification Payments
The FDIC believes that individuals who violate banking laws should pay penalties and legal expenses out
of their own pockets and not be reimbursed by insured institutions. This helps deter fraud and protect the
deposit insurance funds.
The new rule limiting indemnification payments applies to all FDIC- insured institutions, their subsidiaries
and affiliated depository institution holding companies regardless of their financial health. Generally, the
rule prohibits indemnification payments made to or for an institution-affiliated party in connection with a
federal administrative or civil enforcement action that results in a civil money penalty, removal from office,
prohibition from service or other penalties described in the attached Federal Register notice.
However, there are exceptions to this general prohibition. An institution or holding company may
purchase commercial insurance to cover expenses other than judgments and penalties. Also, an
institution or holding company can pay "up front" for an employee's legal or other professional expenses
if: (1) its board of directors makes certain findings, and (2) the employee agrees in writing to reimburse
the institution if the alleged violations of law, regulation or fiduciary duty are upheld.Inactive
For More Information
Questions about the new regulation may be directed to Michael D. Jenkins, an Examination
Specialist in the Division of Supervision (202-898-6896), or Jeffrey M. Kopchik, a Counsel in the
Legal Division (202-898-3872).
Nicholas J. Ketcha Jr.
Director
Attachment: PDF Format (69 kb, PDF help or hard copy),HTML Format
Distribution: Insured Banks and Savings Associations
Last Updated 11/13/2018 communications@fdic.govInactive
Questions about the new regulation may be directed to Michael D. Jenkins, an Examination
Specialist in the Division of Supervision (202-898-6896), or Jeffrey M. Kopchik, a Counsel in the
Legal Division (202-898-3872).
Nicholas J. Ketcha Jr.
Director
Attachment: PDF Format (69 kb, PDF help or hard copy),HTML Format
Distribution: Insured Banks and Savings Associations
Last Updated 11/13/2018 communications@fdic.govInactive