Interagency Guidance on Incentive Compensation

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The Federal Reserve System, the Office of the Comptroller of the Currency, the Office of Thrift Supervision and the Federal Deposit Insurance Corporation (the “Agencies”) recently issued its “Final Guidance on Sound Incentive Compensation Policies” (the “Guidance”).

Intended to assist banking organizations in designing and implementing incentive compensation arrangements and related

policies and procedures that effectively consider potential risks and risk outcomes, the Guidance will form the basis for

supervisory examinations of a banking organization’s incentive compensation practices and will influence CAMELs ratings.

The Guidance places additional requirements on “Large Banking Organizations (“LBO”). LBOs are those classified as “large, complex banking organizations” for supervisory purposes by the Agencies. The Agencies believe that LBOs and other significant users of incentive compensation warrant the most intensive supervisory attention because flawed compensation arrangements at these organizations are more likely to adversely effect the broader fi nancial system. While each Agency has its own definition of “large and complex”, LBOs will most likely include the top 25-30 insured depository institutions (ones with the most assets) and the 25-30 largest and most complex bank holding companies.

The additional requirements for LBOs are woven throughout the Guidance. They are discussed in an addendum to this

document.

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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.

© Brooks Pierce | Attorney Advertising

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