FDIC ISSUES FINAL RULE ON "GOLDEN PARACHUTES" AND INDEMNIFICATION PAYMENTS
FOR IMMEDIATE RELEASE PR-8-96 (2-6-96)
The FDIC Board of Directors today issued a final rule that, with
certain exceptions, prohibits troubled holding companies, banks 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 regulation was issued under authority granted by the Crime
Control Act of 1990.
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.
The statute permits the FDIC to prohibit or limit golden parachute
and indemnification payments, but provides several exceptions, such as for
qualified pension and retirement plans. Other exceptions have been added
by the FDIC with the recognition that such payments have reasonable
business purposes. The rule provides guidance to the industry on which
payments are considered legitimate and which are considered abusive or
The agency first proposed rules in this area in 1990, 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.
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Congress created the Federal Deposit Insurance Corporation in 1933 to
maintain public confidence in the nation's banking system. The FDIC
insures deposits at the nation's 12,000 banks and savings associations and
it promotes the safety and soundness of these institutions by identifying,
monitoring and addressing risks to which they are exposed.