WASHINGTON — The Federal Deposit Insurance Corp. issued updated procedures Thursday for how troubled banks can get approval to making "golden-parachute" payments.
Under existing rules, a bank with a 4 or 5 Camels rating cannot make such payments to parties terminating their affiliation with the institution.
But the bank can apply for an exemption under three scenarios: when regulators concur a payment is allowed, the employee was brought in late to try and save the institution, or an employee is terminated following an open-bank merger.
As an increasing number of troubled institutions have sought such approvals, the FDIC issued guidance Thursday to better outline the application process.
The agency said petitions made for a bank's senior management "will be subject to heightened scrutiny that will include an evaluation of the individual's performance as well as his or her influence and involvement over major corporate initiatives and policy decisions, especially any actions that may have facilitated high-risk banking strategies."
Under the guidance, an applicant must show the party terminating affiliation with the bank "has not committed any fraudulent act or omission, or breach of trust or fiduciary duty or insider abuse, that has had a material adverse effect on the institution or covered company." The employee also must not be "substantially responsible" for an insolvency or troubled condition, and not have violated laws that had a material impact on the company.
To reduce the number of applications, the guidance also allows for "de minimus" golden parachute payments of up to $5,000 to lower-level employees, which in most cases would not require a supervisory application.