FDIC Issues Guidance on Golden Parachute Applications

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On October 14, the Federal Deposit Insurance Corporation (FDIC) issued revised guidance on golden parachute payments made to “institution-affiliated parties” (IAPs), such as bank employees, officers and directors, when such institutions are in a “troubled condition” (i.e., such institution is rated a composite “4” or “5” or meets other criteria). Certain golden parachute payments may be made in such circumstances, although application to the FDIC must be made and certain materials must be provided.

In the guidance, the FDIC notes that, in order for an institution to make or agree to make a golden parachute payment when it is in a troubled condition, the applicant institution must demonstrate that: (1) the IAP 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; (2) that the IAP is not “substantially responsible” for the insolvency or troubled condition of the institution or covered company; and (3) that the IAP has not violated any applicable federal or state banking law that has had or is likely to have a material effect on the institution or covered company.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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