WASHINGTON — Banks that accepted capital injections from the Treasury Department could repay the government without penalty under the latest draft of the economic stimulus bill circulating late Thursday.
Under the revised bill, which the House plans to take up Friday, banks that received capital from the $700 billion Troubled Asset Relief Program would be able to pay back the government immediately and extinguish any warrants Treasury held at the current market price.
At a House Financial Services Committee hearing Wednesday JPMorgan Chase & Co. CEO James Dimon made a point of noting that Tarp's original terms require banks seeking to repay government funds to replace that capital from other sources.
Bankers that took Tarp money have cried foul over policymakers’ interest in adding new restrictions after the fact such as further limits on executive compensation.
Besides giving banks the opportunity to disentangle themselves from the strings that go along with government assistance, the latest version of the stimulus bill weakens executive compensation restrictions the Senate added by giving greater discretion to the Treasury secretary; ensuring most limitations do not apply retroactively; and by providing greater flexibility to offer incentive compensation at smaller institutions receiving Tarp funds.
Under the revised bill, effective for Tarp recipients after Feb. 11, a company would face certain restrictions against letting its top salaried employees accrue or receive any bonus, retention award, or incentive compensation.
The number of employees affected would depend on how much money the company received from Tarp.
Companies taking between $25 million and $250 million from Tarp would have to ban incentive compensation for the five highest-paid employees. For companies that got $250 million to $500 million, incentive compensation would be banned for the 15 highest-paid employees; and for those receiving more than $500 million, incentive compensation would be banned for the top 25 employees. There are certain exceptions for long-term restricted stock.
The Treasury secretary has discretion to expand the group of employees that are barred from receiving incentive pay.
Golden parachutes were also banned for a company's five most highly paid employees.
The restrictions apply as long as the Tarp recipient is benefiting from government assistance.
Companies are banned from developing compensation plans designed to get around the rules by manipulating earnings reports, but they must create compensation committees that meet at least twice a year to determine whether the compensation rules are increasing the company’s risks.
The Tarp recipients must have in place rules against excessive spending on luxury items as defined by the Treasury secretary including entertainment and events, office renovations, aviation, or other transportation, and any other activity or event considered “not reasonable.”
Shareholders would get a non-binding vote and Treasury would have one year to promulgate rules implementing the law.
A "clawback" provision remained, which gives the Treasury secretary authority to review all Tarp recipients’ compensation and negotiate the return of any compensation determined to be inconsistent with the purposes of Tarp; contrary to the public interest; or based on false earnings.
These changes represent a big step back from the Senate bill,which would have applied many of these provisions retroactively. It would have capped annual salaries at all Tarp recipient companies at $400,000 per year and forced companies to repay the government for any incentive bonus of $100,000 or more.
The House and Senate hope to have the bill on the president’s desk before the President's Day recess next week.