FDIC Wants to Shoot Down |Parachutes' at Ailing Banks

WASHINGTON -- The Federal Deposit Insurance Corp. moved Tuesday to outlaw golden parachutes for executives of troubled banks and thrifts.

The agency proposed a rule that would give it the authority to revoke severance agreements at ailing institutions.

"You can blame this one on me," FDIC Chairman L. William Seidman said at a meeting of the agency's board. "I just got tired of seeing guys run banks into the ground and then disappear with a fortune."

The proposed rule, which aims to protect the Bank Insurance Fund from losses, permits golden parachutes if they are used to recruit new executives, to compensate fired employees who will not be replaced, or to pay off deferred compensation plans.

Definition of |Troubled'

The FDIC would define a troubled institution as one that is insolvent, in conservatorship or receivership, or has a so-called Camel regulatory rating of 4 or 5.

The proposal also would require all institutions to meet six criteria before paying the legal fees of directors and officers. One step: providing evidence that paying the fees would not adversely effect the institution's safety and soundness. The institution's board also must certify in writing that it has a strong legal case, according to the proposal, which is out for public comment for 60 days.

An FDIC board member said that the agency is sensitive to complaints that the plan could deter people from sitting on bank boards.

Mixed Response from Industry

While trade groups generally support the FDIC's approach, they expressed concern that the proposed rule is too strict.

"We worry that while they are trying to nab the looters, they are going to make it more difficult for banks to offer a legitimate retirement package," said John O. Alderman, regulatory counsel with the Independent Bankers Association of America. "It comes just a little bit too close to telling the people how to run their bank."

David H. Baris, executive director of the American Association of Bank Directors, said limitations on indemnifying directors from lawsuits smack of overregulation.

"It will discourage directors from serving on boards if the FDIC drafts a provision that is too restrictive," he said.

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