FDIC approves claw back rule for systemically important financial institutions

The Federal Deposit Insurance Corp. approved a final rule that allows regulators to claw back some of the pay for executives of systemically important financial institutions if their companies were liquidated by the government.

The rule further implements the Dodd-Frank financial reform law, which expands the agency’s liquidation authority from winding down the operations of a failed organization to also untangling the affairs of systemically important non-banks when they collapse, according to Bloomberg.

The rule creates a two-year recoupment period of any compensation for senior executives that were “substantially responsible” for the condition of the failed institution.

The updated provision creates an order of claims procedure and ensures the receiver is able to avoid fraudulent transfers, according to the American Bankers Association.  

In the event of fraud, the rule allows for unlimited recoupment beyond two years.

The rule is effective 30 days after publication in the Federal Register.

The FDIC’s new liquidation authority stemmed from the September 2008 bankruptcy of Lehman Brothers Holdings Inc., which played a large role in the credit crisis and highlighted the interconnectedness of U.S.’s main financial companies.

Departing FDIC Chairman Sheila Bair said the agency’s new resolution authorities can help prevent a repeat of massive government bailouts during the 2007-2009 financial crisis, according to CNN.

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