Regulation of Golden Parachutes and Other Benefits Which May Be Subject to Misuse

FEDERAL DEPOSIT INSURANCE CORPORATION

12 CFR Parts 303 and 359

RIN 3064-AB11

Regulation of Golden Parachutes and Other Benefits Which May Be

Subject to Misuse

AGENCY: Federal Deposit Insurance Corporation (FDIC or Corporation).

ACTION: Notice of proposed rulemaking.

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SUMMARY: The FDIC is proposing a rule limiting golden parachute and

indemnification payments to institution-affiliated parties by insured

depository institutions and depository institution holding companies.

The purpose of this rule is to prevent the improper disposition of

institution assets and to protect the financial soundness of insured

depository institutions, depository institution holding companies, and

the federal deposit insurance funds.

DATES: Comments must be received by May 30, 1995.

ADDRESSES: Send comments to Robert E. Feldman, Acting Executive

Secretary, Federal Deposit Insurance Corporation, 550 17th Street,

N.W., Washington, D.C. 20429. Comments may be hand-delivered to room

400, 1776 F Street, N.W., Washington, D.C. 20429, on business days

between 8:30 a.m. and 5:00 p.m. [FAX number: (202) 898-3838.]

FOR FURTHER INFORMATION CONTACT: Robert F. Miailovich, Associate

Director, Division of Supervision, (202) 898-6918, 550 17th Street,

N.W., Washington, D.C.; Michael D. Jenkins, Examination Specialist,

Division of Supervision, (202) 898-6896, 1776 F Street, N.W.,

Washington, D.C. 20429; Jeffrey M. Kopchik, Counsel, Legal Division,

(202) 898-3872; Federal Deposit Insurance Corporation, 550 17th Street,

N.W., Washington, D.C. 20429.

SUPPLEMENTARY INFORMATION:

Paperwork Reduction Act

No collection of information pursuant to section 3504(h) of the

Paperwork Reduction Act (44 U.S.C. 3501 et seq.) is contained in the

proposed rule. Consequently, no information was submitted to the Office

of Management and Budget for review.

Regulatory Flexibility Act

Pursuant to section 605(b) of the Regulatory Flexibility Act (Pub.

L. 96-354, 5 U.S.C. 601 et seq.), it is certified that the proposed

rule will not have a significant impact on a substantial number of

small entities.

Background

Section 2523 of the Comprehensive Thrift and Bank Fraud Prosecution

and Taxpayer Recovery Act of 19901 (Fraud Act) amended the Federal

Deposit Insurance Act (FDI Act) by adding a new section 18(k). Pub. L.

No. 101-647, Sec. 2523 (1990). This section 18(k)(1) provides that

``[t]he Corporation may prohibit or limit, by regulation or order, any

golden parachute payment or indemnification payment''. 12 U.S.C.

1828(k)(1). The terms ``golden parachute payment'' and

``indemnification payment'' are defined in sections 18(k)(4) and (5)(A)

of the FDI Act, respectively. Id. at 1828(k) (4) and (5)(A). The

statute's proscriptions are applicable to insured depository

institutions and depository institution holding companies. Id.

\1\ The Comprehensive Thrift and Bank Fraud Prosecution and

Taxpayer Recovery Act of 1990 is title XXV of the Crime Control Act

of 1990, S. 3266, which was passed by Congress on October 27, 1990

and signed by the President on November 29, 1990.

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On October 7, 1991, the FDIC published a notice of proposed

rulemaking entitled ``Regulation of Golden Parachutes and Other

Benefits Which Are Subject to Misuse'' to implement this provision of

the Fraud Act. 56 FR 50529 (1991) (to be codified at 12 CFR Part 359).

By the end of the sixty day comment period, the FDIC received 186

letters commenting on the proposed regulation. The majority of these

comment letters suggested that the FDIC revise the proposed rule in

order to strike a more equitable balance between the protection of the

deposit insurance funds and the needs of depository institutions and

depository institution holding companies to attract and retain

qualified directors and management. Many of the comment letters also

suggested certain technical amendments to the proposed rule to make it

reflect more accurately the FDIC's intentions as stated in the

preamble. A few comment letters requested that no regulation be

promulgated. These letters expressed the opinion that abuses should be

dealt with on a case-by-case basis through the use of enforcement

proceedings. It should be noted that the FDIC was gratified to observe

the exceptionally high level of preparation and thought which went into

many of the comment letters.

Due to the significant amount of time which has passed since the

publication of the first proposed rule (the First Proposal), the FDIC

has decided to publish a second proposal for public comment (the Second

Proposal). The Second Proposal incorporates many of the suggestions

which were made by the commenters to the First Proposal.

Summary of the Second Proposal

The golden parachute portion of the Second Proposal affects insured

depository institutions seeking to make the golden parachute

payments2 only if the institution is in a ``troubled''

condition.3 The proposed regulation would apply to affiliated

depository institution holding companies either if the holding company

itself is troubled or if it seeks to make a golden parachute payment to

an institution-affiliated party (IAP) of a troubled subsidiary insured

depository institution. The indemnification portion of the Second

Proposal is applicable to all insured depository institutions and their

holding companies regardless of their financial condition.

\2\ The terms ``golden parachute payment'' and ``golden

parachute'' are used interchangeably throughout this discussion.

\3\ The use of the term ``troubled'' in this preamble shall

refer to an institution or holding company which meets any of the

criteria set forth in Secs. 359.1(f)(1)(ii) (A) through (E) of the

Second Proposal.

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Generally, the Second Proposal prohibits institutions which are

insolvent, in conservatorship or receivership, rated ``4'' or ``5'', in

a troubled condition as defined in the regulations of the appropriate

federal banking agency, or which are subject to a proceeding to

terminate deposit insurance from making any payment to an institution-

affiliated party which is contingent on the termination of that

person's affiliation with the institution, except payments of death or

disability benefits, payments pursuant to qualified retirement plans

and employee welfare [[Page 16070]] benefit plans and two other

exceptions which are described in more detail below. The Second

Proposal also prohibits institutions from paying or reimbursing an

institution-affiliated party's legal and other professional expenses

incurred in administrative or civil proceedings instituted by any

federal banking agency unless certain criteria are satisfied. Under no

circumstances does the Second Proposal allow the reimbursement or

payment of fines or penalties assessed against an institution-

affiliated party as a result of such a proceeding.

The Second Proposal recognizes several ``exceptions'' to the

prohibition against golden parachute payments.4 First,

Sec. 359.4(b) of the Second Proposal allows an insured depository

institution or its depository institution holding company to make a

golden parachute payment to an institution-affiliated party who is

hired by an institution or holding company with the written consent of

the appropriate federal banking agency at a time when the institution

or holding company satisfies or is expected to satisfy any of the

criteria set forth in Sec. 359.1(f)(1)(ii) of the Second

Proposal,5 and whose golden parachute agreement is approved by the

FDIC in its corporate capacity as the regulator of operating state

nonmember banks. These criteria are taken from section 18(k) of the FDI

Act. (12 U.S.C 1828(k)(4)(A)(ii)).

\4\ More precisely, only two of these are actual exceptions to

the prohibition in that they permit a payment or agreement which is

covered by the statutory language. The others are definitions of

statutory terms which have been developed or refined by the

Corporation.

\5\ These criteria are that the institution or holding company

is insolvent, in conservatorship of receivership, troubled, rated

``4'' or ``5'', or subject to a proceeding to terminate deposit

insurance.

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Second, Sec. 359.4(c) of the Second Proposal permits a golden

parachute payment, not to exceed twelve months salary, to an

institution-affiliated party in the event of an unassisted change in

control, with the prior consent of the appropriate federal banking

agency.

The third ``exception'' is contained in Sec. 359.1(f) of the Second

Proposal, which defines a ``golden parachute payment''. The FDIC

recognizes that one important tool in restoring an institution to

financial health may be institutional downsizing through personnel

reductions in force. In such situations, institutions may choose to

employ an existing severance pay plan or adopt a new plan to assist

employees whose employment is terminated. In addition, many

corporations (in various industries) maintain severance pay plans which

pay benefits to employees who lose their jobs through no fault of their

own, for reasons such as an overall reduction in force. Thus,

Sec. 359.1(f)(2)(v) of the Second Proposal provides that the term

``golden parachute payment'' does not include any payment made pursuant

to a nondiscriminatory severance plan or arrangement which provides for

the payment of severance benefits to all eligible employees upon

involuntary termination for other than cause, or early retirement, in

conjunction with a reduction in force. However, the Second Proposal

limits the maximum severance benefit that any employee may receive

pursuant to such a plan to twelve months' base salary, although an

institution may request consent to make larger payments. In the event

that any senior executive officer, as defined in Sec. 303.14(a)(3) of

these regulations, is eligible for such severance benefits, the

depository institution or holding company must provide 30 days prior

written notice to its primary regulator and the FDIC before making such

a payment to those individuals.

The fourth ``exception'' to the golden parachute payment

prohibition is contained in Sec. 359.1(d) of the Second Proposal which

defines ``bona fide deferred compensation plan or arrangement''.

Section 18(k) of the FDI Act explicitly authorizes the FDIC to define,

by regulation or order, permissible bona fide deferred compensation

plan[s] or arrangement[s]. (12 U.S.C. 1828(k)(4)(C)(ii)).

The definition of ``golden parachute payment'' contained in

Sec. 359.1(f) of the Second Proposal also sets forth several other

straightforward exceptions which do not require further discussion

here.

Section 18(k)(2) of the FDI Act provides that the FDIC ``shall

prescribe, by regulation, the factors to be considered by the

Corporation in taking any action pursuant to paragraph (1) [its

authority to prohibit or limit golden parachute payments and

indemnification payments]''. The section also sets forth a number of

illustrative factors that should be considered. The Corporation has

carefully considered these factors in arriving at the conclusion that

golden parachute payments generally should be prohibited, except in the

narrow circumstances delineated in Sec. 359.4 of the Second Proposal.

Section 359.4 of the Second Proposal also sets forth a procedure to

allow an institution or institution-affiliated party which desires to

make a payment or enter into an agreement which it determines should

not be prohibited, but which is not clearly covered by any of the

express ``exceptions'' to the prohibition, to solicit appropriate

regulatory approvals. In so doing, the institution or institution-

affiliated party will be required to address certain of the factors

enumerated in section 18(k) of the FDI Act, and the appropriate federal

banking agency and the Corporation may consider the remaining factors

and any other circumstances which bear on the issue of whether the

proposed payment would be contrary to the intent of the prohibition.

Section 18(k) of the FDI Act also authorizes the FDIC to prohibit

or limit indemnification payments. (12 U.S.C. 1828(k)(5).) A

``prohibited indemnification payment'' is defined in the Second

Proposal as payment by an insured depository institution or its

depository institution holding company for the benefit of an IAP in

order to pay or reimburse such person for any liability or legal

expense sustained with regard to an administrative or civil enforcement

action which results in a final order or settlement pursuant to which

the IAP is assessed a civil money penalty, removed from office,

prohibited from participating in the conduct of the affairs of an

insured depository institution or required to cease and desist from or

take any affirmative action described in section 8(b) of the FDI Act.

The legislative history of the Fraud Act, which added section 18(k) to

the FDI Act, makes it clear that this section is intended (i) to

preserve the deterrent effects of administrative enforcement or civil

actions by insuring that institution-affiliated parties who are found

to have violated the law, engaged in unsafe or unsound banking

practices or breached any fiduciary duty to the institution, pay any

civil money penalties and associated legal expenses out of their own

pockets without reimbursement from the institution or its holding

company and (ii) to safeguard the assets of financial institutions by

prohibiting the expenditure of funds to defend, pay penalties imposed

on or reimburse institution-affiliated parties who have been found to

have violated the law. 136 Cong. Rec. E3687 (daily ed. November 2,

1990) (statement of Rep. Schumer).

The FDIC is of the opinion that it would be inconsistent with the

intent of the Fraud Act categorically to prohibit insured depository

institutions and holding companies from advancing funds to pay or

reimburse IAP's for reasonable legal or other professional expenses

incurred in defending against an administrative or civil action brought

by a federal banking agency prior to the entry of a final order.

Therefore, Sec. 359.5 of the Second Proposal sets forth the

circumstances under which such indemnification payments may be

[[Page 16071]] made. The FDIC is of the opinion that five criteria must

be satisfied in order to permit an institution to make or agree to make

any indemnification payment to or for the benefit of any IAP prior to

the entry of a final order in the IAP's favor. However, an institution

or its holding company may purchase commercial insurance policies or

fidelity bonds, at a reasonable cost, which may pay the cost of

defending an administrative proceeding or civil action. Such insurance

cannot pay any penalty or judgement. However, it may pay restitution to

the insured depository institution, depository institution holding

company or the receiver.

Issues Raised By Commentators--Golden Parachutes

The FDIC has carefully reviewed and analyzed the substantial number

of comment letters which it received in response to the First Proposal.

With regard to the golden parachute portion of the First Proposal, the

most significant issues raised by the comment letters are discussed

below.

1. Bona Fide Deferred Compensation Plans

A substantial number of commenters raised the issue of whether the

requirement that bona fide deferred compensation plans be ``funded'' in

order to be excluded from the regulation's proscriptions is

appropriate. Section 359.1(d)(2) of the First Proposal established a

requirement that a nonqualified6 deferred compensation plan be

``funded'' in order to be considered a ``bona fide deferred

compensation plan or arrangement'' which is excluded from the

definition of golden parachute payment. The term funded was defined as

meaning that ``specific assets are segregated or otherwise set aside so

that such assets are not available to the institution or holding

company for any purpose other than distribution to the participating

employee(s) and are not available to satisfy claims of the

institution's or holding company's creditors''. First Proposal

Sec. 359.1(d)(2). The vast majority of comment letters which the FDIC

received raised the issue of the appropriate definition of bona fide

deferred compensation plan and virtually every letter which raised this

issue disagreed with the Corporation's imposition of the funding

requirement. The predominant argument against such a requirement is

that when Congress drafted section 18(k)(4)(C)(ii) of the FDI Act to

exclude bona fide deferred compensation plans from the definition of

golden parachute, it was aware and approved of the established industry

practice of utilizing unfunded, nonqualified deferred compensation

plans (commonly referred to as elective, excess or supplemental plans)

to supplement the traditional tax qualified defined benefit or defined

contribution retirement plan. Many of the comment letters also pointed

out that the Internal Revenue Code (26 U.S.C. 1 et seq.) (the ``Code'')

recognizes these types of nonqualified deferred compensation plans and

urged the FDIC to look to the Code as being dispositive. Almost all of

the relevant comment letters expressed grave concerns that the FDIC's

imposition of the funding requirement would upset established deferred

compensation plans and prompt depository institutions and holding

companies to incur significant unwanted expenses by terminating these

plans and making cash payments to the beneficiaries. Nonetheless,

Congress chose not to define the term ``bona fide deferred compensation

plan'', but explicitly left that task to the FDIC.

\6\ The term ``nonqualified'' refers to a benefit plan which is

not qualified (or is not intended within a reasonable period of time

to be qualified) under section 401 of the Internal Revenue Code of

1986 (26 U.S.C. 401).

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First, it should be pointed out that the FDIC is not bound by the

provisions of the Internal Revenue Code, or any other federal statute,

in defining the term bona fide deferred compensation plan or

arrangement. While the Code's explanation and treatment of such plans

may be instructive, it is not binding on the Corporation in the context

of this rulemaking. Similarly, the fact that the industry has utilized

unfunded, non-qualified plans for a period of time and would be

inconvenienced by the implementation of the proposed regulation is

insufficient to compel the change that the majority of comments

advocate. The FDIC's responsibility is to ascertain the proper meaning

of the term bona fide deferred compensation plan, while ensuring that

such definition does not permit depository institutions, holding

companies or institution-affiliated parties to circumvent the intent of

the statute by exploiting an imprecisely drafted definition. On the

other hand, if the Corporation can accomplish its purposes in a manner

that is less disruptive but just as effective as the scheme set forth

in the First Proposal, such an alternative bears close scrutiny.

The FDIC has been persuaded by the many comments it received with

regard to the definition of bona fide deferred compensation plan that

the funding requirement which was contained in Sec. 359.1(d)(2) of the

First Proposal is not necessary and should be deleted. Thus, the

definition of bona fide deferred compensation plan or arrangement,

which appears in Sec. 359.1(d) of the Second Proposal, does not contain

such a requirement. This provision of the Second Proposal permits

unfunded, nonqualified deferred compensation plans provided the

institution or holding company utilizes either a rabbi or a secular

trust (which are properly accounted for) or the benefits or payments

are expensed as an accrued liability according to generally accepted

accounting principles (GAAP). Second Proposal Sec. 359.1(d). It is the

FDIC's judgment that these requirements will permit depository

institutions and holding companies to utilize deferred compensation

plans for legitimate purposes, while ensuring that such plans can not

be used as a vehicle to make what would otherwise be considered a

prohibited golden parachute payment.

2. Severance Pay Plans

All the comment letters which raised the issue expressed support

for the FDIC's decision to except traditional severance pay plans which

cover reductions in force from the definition of golden parachute

payment. However, a substantial percentage of these letters urged the

Corporation to increase the allowable amount of severance pay from six

to twelve months salary and to expand the exception to include payments

pursuant to voluntary resignations or early retirements which occur in

conjunction with a reduction in force instituted by a depository

institution or holding company. After careful consideration, the

Corporation has elected to increase the permissible amount of severance

pay from six to twelve months' salary. In addition, the regulation has

been amended to permit institutions to request consent to pay greater

severance benefits. Second Proposal Sec. 359.1(f)(2)(v). The FDIC

requests public comment on this new alternative. The inclusion in the

exception of voluntary resignations and early retirements in

conjunction with a reduction in force provides depository institutions

and holding companies with more flexibility in achieving an optimum

workforce size and cost savings. Second Proposal Sec. 359.1(f)(2)(v).

The FDIC has also decided to include a definition of the term

``nondiscriminatory'' in Sec. 359.1(j) of the Second Proposal in an

effort to make it clear how this term should be applied in the context

of this regulation. The Corporation emphasizes that this exception is

only applicable to institution-affiliated parties who are

[[Page 16072]] terminated, resign or retire due to a reduction in force

and receive severance benefits pursuant to a existing nondiscriminatory

severance pay plan.

3. White Knight Exception

Section 359.4 of the First Proposal sets forth what is commonly

referred to as the ``white knight'' exception to the golden parachute

prohibition. This provision permits a troubled depository institution

or holding company to hire an individual and agree to pay him/her a

golden parachute payment upon termination of employment, provided that

the amount and terms of the golden parachute payment receive the prior

written consent of the appropriate federal banking agency and the FDIC.

As we stated in the preamble to the First Proposal:

The purpose of this exception is to permit a troubled

institution or holding company to attempt to reverse its slide

toward economic failure by attracting competent, new management

which enjoys the confidence of that institution's primary federal

regulator and the FDIC. . . . [T]he FDIC is aware that individuals

who possess the experience and expertise which qualify them for such

a position are highly sought after business persons who, in most

circumstances, already have established successful careers with

other financial institutions. In order to induce such an individual

to leave an established, stable career for a job in a troubled

institution which may not survive regardless of that individual's

efforts, it is generally necessary to agree to pay that individual

some sort of severance payment in the event that the efforts of the

individual for the institution are not successful. It is the FDIC's

view that . . . such agreements reflect good business judgment,

recognize the realities of the marketplace and may benefit both the

institution and the deposit insurance funds.

(56 FR 50531, October 7, 1991). While every comment letter which

addressed this exception supported it, a significant percentage of

those letters urged the FDIC to broaden the exception in certain

respects. First, it was recommended that the Corporation revise

Sec. 359.4 of the First Proposal to automatically grandfather

institution-affiliated parties who were hired to assist troubled

depository institutions and holding companies prior to the effective

date of the final regulation. The FDIC has carefully considered this

suggestion and is of the opinion that such an across-the-board

grandfathering would not be prudent. Section 359.4 is structured so

that the appropriate federal banking agency and the FDIC have an

opportunity to review the amount and terms of any proposed severance

arrangement prior to it being entered into. To grandfather all such

existing severance agreements would deny the appropriate federal

banking agency and the FDIC the opportunity to conduct this review.

However, institution-affiliated parties, insured depository

institutions and holding companies are of course free to request review

and approval of existing agreements for institution-affiliated parties

who were hired at a time when the depository institution or holding

company already met any of the criteria listed in Sec. 359.1(f)(1)(ii)

of the Second Proposal.

Second, a significant number of commentators also suggested that

the white knight exception be broadened to encompass individuals who

are hired ``in contemplation of'' the depository institution or holding

company becoming troubled. These letters urged this revision as a way

to allow depository institutions to address their problems sooner and,

thus, more effectively. The FDIC concurs in this line of reasoning. It

makes good sense that the value of this exception can be enhanced by

not restricting its coverage to institutions which are already

categorized as troubled. If existing management or a board of directors

is of the reasoned opinion that the institution in question is sliding

toward becoming troubled and that new management is needed to arrest

that slide, then prudent business practice would suggest that it is

better to hire such new management sooner rather than later. Therefore,

the exception has been expanded to allow applicants to apply for an

exemption prior to becoming troubled when they are of the opinion that

they are approaching a troubled condition and new management is needed.

Second Proposal Sec. 359.4(b).

Third, several comment letters suggested that the FDIC broaden the

Sec. 359.4 exception of the First Proposal to include current officers

and employees of a depository institution who are promoted to executive

positions at a time when the institution is troubled. While the FDIC

agrees that ``it is not axiomatic that competent new management can

only be found outside of an institution'', the underlying reason for

allowing what would otherwise be a prohibited golden parachute payment

is not present in the case of a current employee who is promoted to an

executive position. As we stated earlier, this type of severance

payment will be approved in limited circumstances as a way to entice

competent management to sever established ties with their current

employer and take a calculated risk that they can assist in bringing a

troubled institution back to financial health. This rationale does not

apply to the case of a current employee of a troubled institution since

he/she does not need to be enticed to give up an established, stable

career with another employer.

The FDIC's experience since the publication of the First Proposal

has made it clear that some confusion exists concerning the proper

procedure to request and the effect of obtaining prior written consent

for a white knight exception. Interested parties are referred to new

Sec. 359.6 of the Second Proposal, ``Filing Instructions''. In terms of

effect, the FDIC would like to clarify that approval of a white knight

exception does not improve the white knight's position in the event of

the insolvency of the institution as the FDIC (in its corporate

capacity) can neither bind a receiver nor affect the provability of

receivership claims. In the event that the insured depository

institution is placed into receivership or conservatorship, the FDIC

(in its corporate capacity) would not be obligated to pay the promised

severance benefit and the white knight would be accorded no

preferential treatment on the basis of such prior approval.

4. Permissible Golden Parachutes in Changes in Control

Several comment letters noted that the First Proposal does not

provide an exception to the prohibition against golden parachute

payments in the case of a change in control where the depository

institution to be acquired is troubled. These letters raised the

arguments which were briefly mentioned in the preamble to the First

Proposal (56 FR 50529, October 7, 1991) concerning the benefits of

protecting executive officers of companies which are the subject of

hostile takeovers so that their business decisions concerning what is

best for their company are not influenced by the acquisition's ultimate

effect on their employment. While the FDIC agrees that golden parachute

payments can serve a useful purpose in such circumstances, expanding

the exceptions permitted pursuant to Sec. 359.4 of the First Proposal

to include golden parachute payments made in the context of changes in

control would open the door to the possibility of payments being made

to institution-affiliated parties who are substantially responsible for

the depository institution's troubled condition. After balancing the

relative advantages and disadvantages of expanding Sec. 359.4 to

include this exception, the FDIC is of the opinion that the safety of

the deposit insurance funds and the soundness of the banking system in

general is best served by permitting limited golden parachute payments

with prior regulatory approval in the context of

[[Page 16073]] unassisted changes in control.\7\ While this decision

does not adopt completely the position advocated by the majority of

comment letters, the FDIC is concerned that a more open-ended exception

would have the unfortunate result of allowing institution-affiliated

parties who are substantially responsible for the troubled condition of

their depository institutions to receive golden parachute payments.

\7\Obviously, this analysis does not apply to situations where

the Corporation is assisting in the acquisition of a troubled

insured depository institution pursuant to section 13 of the FDI

Act.

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5. Definition of Golden Parachute Payment

A significant number of comment letters pointed out that a literal

reading of the definition of golden parachute payment contained in

Sec. 359.1(g) of the First Proposal would include certain forms of

retirement payments being made to former institution-affiliated parties

who retired and began collecting such payments at a time when the

depository institution or its holding company did not satisfy any of

the circumstances delineated in Secs. 359.1(g)(1)(ii) (A) through (E)

of the First Proposal, but which institution or holding company

subsequently became troubled. It was also brought to our attention that

a literal reading of the definition seemed to provide that even when a

troubled depository institution or its holding company ceased

satisfying any of the criteria delineated in Secs. 359.1(g)(1)(ii) (A)

through (E) of the First Proposal, golden parachute payments to

institution-affiliated parties who leave the institution subsequent to

its return to financial health would continue to be prohibited. It is

not the FDIC's intent that the regulation produce either of these

results. Institution-affiliated parties who retire from an insured

depository institution or holding company at a time when it is not

troubled and begin collecting periodic retirement payments should not

have to worry that the subsequent deterioration of the institution or

holding company will jeopardize their continuing to receive such

payments, at least as far as this regulation is concerned.\8\

Similarly, if a depository institution or holding company recovers from

its troubled condition, then it is no longer covered under the scope of

the regulation with respect to its existing institution-affiliated

parties, and what might have been considered prohibited golden

parachute payments would no longer be unlawful and could be paid to an

institution-affiliated party whose employment is terminated once the

institution or holding company is no longer troubled.\9\ It is our

opinion that the revised definition of bona fide deferred compensation

plan or arrangement contained in Sec. 359.1(d) of the Second Proposal

should alleviate these concerns since the revised definition recognizes

and includes well-established forms of deferred compensation. However,

the FDIC has also chosen to revise the definition of golden parachute

payment, which is contained in Sec. 359.1(f) of the Second Proposal, to

make it clear that to be a golden parachute, an institution-affiliated

party's employment by or affiliation with an insured depository

institution or holding company must terminate at a time when the

institution or holding company is troubled or in contemplation of it

becoming troubled. Second Proposal Sec. 359.1(f)(1)(iii). If an

institution-affiliated party's employment is terminated at a time when

the depository institution or holding company is troubled, the payment

of prohibited golden parachute payments to that individual will

continue to be prohibited even after the institution or holding company

ceases to be troubled.

\8\Obviously, the financial deterioration of the institution or

holding company may adversely affect the institution's or holding

company's ability to make the payments regardless of the regulation.

\9\This payment could include benefits which continued to accrue

during the tenure of the institution's or holding company's troubled

condition.

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6. Definition of Depository Institution Holding Company

Section 359.1(f) of the First Proposal, the definition of

``depository institution holding company'', includes any bank holding

company, savings and loan holding company and any direct or indirect

subsidiary thereof, other than an insured depository institution. A

number of comment letters raised the concern that the definition in the

First Proposal is not consistent with the definition of depository

institution holding company contained in section 3(w)(1) of the FDI

Act. A number of comment letters also argued that the broader

definition used in the First Proposal would improperly include non-

financial services affiliates that are not involved with the business

conducted by the insured depository institution within the purview of

the regulation. Pursuant to the First Proposal, golden parachute

payments by a non-financial services company to one of its executives

would be restricted simply because that company was ultimately owned by

a holding company which also owned an insured depository institution.

After considering this point, the FDIC agrees that the definition of

depository institution holding company in the Second Proposal should

mirror the definition contained in section 3(w)(1) of the FDI Act.

Second Proposal Sec. 359.1(b).

7. Scope of Rule

Section 359.1(j) of the First Proposal contains the definition of

institution-affiliated party. A number of comment letters raised the

issue that the regulatory definition proposed by the FDIC goes beyond

the statutory definition contained in section 3(u) of the FDI Act by

including persons who have a certain relationship with a depository

institution holding company. However, in carefully reviewing the

language of section 18(k)(4)(A) of the FDI Act, the FDIC is of the

opinion that Congress intended to include within the statute's scope

individuals who are institution-affiliated parties of depository

institution holding companies.

The term ``golden parachute payment'' means any payment * * * by

any insured depository institution or depository institution holding

company for the benefit of any institution-affiliated party pursuant

to an obligation of such institution or holding company that * * *

is contingent on the termination of such party's affiliation with

the institution or holding company * * * [Emphasis added].

12 U.S.C. 1828(k)(4)(A). This interpretation is consistent with section

8(b)(3) of the FDI Act which provides that the Act's enforcement

provisions are equally applicable to bank holding companies. Our

consultations with the Federal Reserve Board staff have established

that the Federal Reserve Board's established position is that it has

the authority to take enforcement action against institution-affiliated

parties of bank holding companies pursuant to section 8(b)(3) of the

FDI Act.

The FDIC is also of the opinion that to interpret section 18(k) to

not apply to institution-affiliated parties of holding companies would

subvert the statute's intent by leaving a significant gap in its

coverage. Federal Reserve staff has advised the Corporation that some

of the most abusive golden parachute payments which were made prior to

the enactment of the statute and were known to Congress at the time

involved IAPs of holding companies. Thus, the FDIC has decided not to

revise the definition of IAP contained in the First Proposal, except

for a minor technical change. [[Page 16074]]

8. Limitation to Executive Officers and Directors

Several comment letters suggested that the scope of the regulation

should be limited to cover only executive officers and directors of

insured depository institutions and depository institution holding

companies, as opposed to institution-affiliated parties of institutions

and holding companies. On the other hand, section 18(k)(4) of the FDI

Act explicitly refers to ``institution-affiliated party''.

While potential golden parachute abuses could theoretically involve

non-executive officers and non-directors, it has been the FDIC's

experience that such instances are extremely rare. It is not the FDIC's

intent to place unfair and inappropriate limits on payments to a bank

or holding company's non-official or non-managerial staff. This is

evidenced, for example, by the severance pay exception which is

contained in Sec. 359.1(f)(2)(v) of the Second Proposal. In the

Corporation's view, it is very unlikely that a bank teller (or other

non-executive/non-director) would come within the scope of this rule

since bank tellers generally do not get paid golden parachutes. That

being the case, and in view of the fact that the statute uses the term

``institution-affiliated party'', the FDIC has chosen not to explicitly

exclude employees who are not senior executive officers or directors

from the Second Proposal's scope. It should also be pointed out that

any such employee who feels that he/she is being unfairly affected by

the rule could apply for permission to receive a payment pursuant to

Sec. 359.4 of the Second Proposal.

9. Golden Parachute Agreements Entered Into Prior to Effective Date of

Final Regulation

The First Proposal took the position that the regulation could

limit or prohibit golden parachute and/or indemnification payments

which are sought to be made pursuant to contracts and agreements which

were entered into prior to the effective date of the final regulation,

i.e., as of the effective date of the statute. A number of comment

letters briefly asserted that the regulation could not lawfully affect

such agreements since to do so would be ``unconstitutional''. However,

the vast majority of comment letters which raised this issue did not

explain in any detail the basis for this alleged unconstitutionality.

The FDIC has examined this issue in greater depth and while we

remain convinced that ample precedent exists to support the position

which was taken in the First Proposal, no compelling need exists to

apply the regulation in this fashion. However, the FDIC views the

Second Proposal as putting institutions and IAPs on notice of the

Corporation's views with regard to these types of agreements and the

FDIC will look unfavorably upon any golden parachute agreement which is

entered into after the date of this proposal but before the effective

date of the final regulation as an attempt to circumvent the

regulation.

10. Prior Approval of Otherwise Prohibited Golden Parachutes

Section 359.2(b) of the First Proposal permits the payment of a

golden parachute provided that such payment is approved by the

institution's appropriate federal banking agency, with the written

concurrence of the FDIC. Several comment letters pointed out, however,

that this subsection afforded only depository institutions and holding

companies the right to request such an exception. In the interest of

fairness, the FDIC has revised this subsection to permit institution-

affiliated parties to also request permission to receive such a

payment.10

\10\ Such a request should be in letter form to the FDIC's

Regional Director (DOS) for the region in which the depository

institution or holding company is headquartered.

---------------------------------------------------------------------------

Section 359.2(b) of the First Proposal also requires that

applicants requesting permission to make or receive an otherwise

prohibited golden parachute payment shall provide the appropriate

federal banking agency and the FDIC with certain information. First

Proposal Secs. 359.2(b) (1) through (4). A significant number of

commentators asserted that this section of the First Proposal

improperly reverses the burden of proof as delineated in section

18(k)(2) of the FDI Act to compel the applicant to demonstrate that the

applicant has no reasonable basis to believe that the institution-

affiliated party to whom the payment is to be made has committed any

fraudulent act, is substantially responsible for the insolvency of the

institution or holding company, has materially violated any banking law

or regulation or has violated certain specific federal criminal laws.

These comment letters also asserted that the structure of the proposed

regulation requires the applicant to ``prove a negative'', an

impossible task.

The FDIC is of the opinion that the arguments advanced in the

comment letters concerning an inappropriate reversal of the burden of

proof are misplaced. First, a careful reading of section 18(k)(2) of

the FDI Act reveals that it does not establish a burden of proof, in

the traditional legal sense, at all. What this subsection does is to

delineate certain factors which Congress suggests that the FDIC

consider in evaluating a request to pay or receive an otherwise

prohibited golden parachute payment. This list of factors is not

mandatory, nor is it exclusive. The only mandatory language in section

18(k)(2) requires the FDIC to prescribe whatever factors it ultimately

decides to consider in any regulation it promulgates. The statute does

not address the question of which party bears the burden of producing

evidence or the burden of proof. What the FDIC has chosen to do in the

First Proposal is to place the burden of production of evidence where

it most reasonably belongs, with the party that possesses or has the

most complete access to the information which is necessary for the

Corporation to make an informed and equitable judgment. The FDIC is not

requiring that a party seeking to make or receive a golden parachute

payment ``prove his or her innocence''.

In response to the comment letters, the FDIC has revised

Sec. 359.2(b) of the First Proposal in an effort to clarify how this

section will function. These revisions make it clear that the

depository institution, holding company or institution-affiliated party

seeking a determination that an otherwise prohibited golden parachute

payment is permissible is required to inform the appropriate federal

banking agency and the FDIC of any information of which it is aware

that would indicate that there is a reasonable basis to believe that

the institution-affiliated party in question satisfies any of the

criteria set forth in Secs. 359.4(d) (1) through (4) of the Second

Proposal. If the applicant is not aware of any such information, it

shall so certify.

11. Condition of Institution at Time of Termination of Employment Is

Crucial

Previously in this preamble, we clarified that the Second Proposal

should not be construed to cut off the payment of retirement benefits

to former institution-affiliated employees who retired and began

receiving retirement payments at a time when the depository institution

or its holding company was not troubled, in the event that such

institution or holding company subsequently becomes troubled. This same

question arises in the case of non-retirement benefits. For example,

while most golden parachute payments are lump sum, the Corporation is

aware of instances where such payments are made in periodic

installments. The [[Page 16075]] FDIC is of the opinion that as long as

the institution-affiliated party did not terminate his/her employment

in contemplation of the depository institution or holding company

becoming troubled in an effort to circumvent the regulation's

proscriptions, such payments should be allowed to continue because the

nexus between the institution-affiliated party and the institution's or

holding company's troubled condition would not be present. However,

this is not meant to suggest that such retirement benefits or

permissible golden parachute payments will be continued in the event

that the institution is placed into conservatorship or receivership.

12. Other Golden Parachute Issues

A number of comment letters took issue with the fact that the First

Proposal prohibits the payment of a golden parachute by both an insured

depository institution and its holding company when either of those

entities is troubled. These letters suggested that the First Proposal

should be revised to provide that only the troubled entity be

prohibited from making a golden parachute payment. The FDIC has

carefully considered this suggestion and has decided to scale back its

original proposal and to adopt a modified version of the commenters'

suggestion. Thus, a troubled insured depository institution may not

make a golden parachute payment to any of its IAPs, excluding any of

the exceptions described previously. In addition, a depository

institution holding company may not make a golden parachute payment to

any of its IAPs if it is troubled and may not pay a golden parachute to

an IAP of an affiliated insured depository institution if that

institution is troubled.

The FDIC received several comment letters which suggested that the

Corporation make an exception to the golden parachute prohibition for

depository institutions with a composite rating of ``4'', but which

exceed all applicable regulatory capital requirements. The FDIC has

decided not to incorporate this exception into the Second Proposal

since an institution's capital level is only one indication of its

overall financial health.

A significant number of comment letters expressed concern that the

criteria delineated in Sec. 359.1(g)(1)(ii)(C) of the First Proposal

(that the depository institution or holding company be designated

troubled by its primary federal regulator) is overly broad since it

would include any institution or holding company which is subject to a

written supervisory agreement even if that institution or holding

company is not experiencing significant financial difficulties. Since

the nature of written supervisory agreements vary and that the facts of

each case are so individual, the FDIC prefers not to make a blanket

exception to the rule in this case. Rather, the Corporation will

consider exceptions on a case by case basis pursuant to Sec. 359.4(d)

of the Second Proposal.

Issues Raised By Commentators--Indemnification Payments

The FDIC has carefully reviewed and analyzed the comment letters

with regard to the indemnification portion of the First Proposal.

1. Criteria for Making Indemnification Payments

Section 359.5 of the First Proposal delineates the circumstances

under which an insured depository institution or depository institution

holding company may make or agree to make indemnification payments to

institution-affiliated parties. The comment letters made it clear that

this section of the First Proposal is viewed as being just as

significant as the sections dealing with golden parachute payments. The

overwhelming majority of comment letters expressed the opinion that the

prohibitions contained in this section of the First Proposal would make

it unreasonably difficult for depository institutions and holding

companies to attract and retain competent officers, directors and

employees.

Section 359.5(a) of the First Proposal sets forth six criteria

which must be met in order for a depository institution or holding

company to make or agree to make indemnification payments to an

institution-affiliated party. The majority of comment letters which

raised indemnification issues focused on Sec. 359.5(a)(1) of the First

Proposal. This subsection provides that in order to indemnify an

institution-affiliated party, the institution's or holding company's

board of directors, in good faith, must determine in writing that the

institution-affiliated party has a ``substantial likelihood of

prevailing on the merits''. The consensus of commentators' opinions was

that this standard is so difficult to meet that a board of directors

very rarely, if ever, would be able to authorize indemnification. Many

comment letters pointed out that requests for indemnification are

customarily made at the commencement of an administrative action or

civil proceeding when the institution-affiliated party and his/her

counsel are just beginning to assemble their case. Thus, many of the

facts and circumstances surrounding the conduct in question are not yet

known. This being the case, the commentators argued that it would be

very difficult for a board of directors to find that an institution-

affiliated party had a substantial likelihood of prevailing on the

merits. Too many unanswered questions would be present for such a

finding to be realistically made. The commentators recommended a

variety of lesser standards, most notably that the institution-

affiliated party ``acted in good faith and in a manner he/she believed

to be in the best interests of the institution'', that there is a

``reasonable likelihood of prevailing on the merits'' or that the FDIC

defer to the applicable state law standard.

After considerable review, the FDIC agrees with the position

expressed by the majority of commentators that the standard contained

in Sec. 359.5(a)(1) of the First Proposal imposes too significant an

obstacle to reasonable and fair indemnification payments. However, the

Corporation does not agree with the commentators who suggested that it

should defer to the applicable state law standard. In enacting section

18(k) of the FDI Act, Congress made it quite clear that there was to be

one uniform federal standard to govern the making of indemnification

payments by insured depository institutions and depository institution

holding companies. In an effort to balance the need of depository

institutions to attract and retain qualified directors and management

with the protection of the deposit insurance funds, the FDIC has

decided to revise Sec. 359.5(a)(1) of the First Proposal to utilize a

somewhat less stringent standard. Therefore, Sec. 359.5 of the Second

Proposal requires that the depository institution's or holding

company's board of directors determines in writing that the

institution-affiliated party requesting indemnification ``acted in good

faith and in a manner which he/she believed to be in the best interests

of the institution''. Of course, the FDIC expects that an institution's

board of directors will make such a finding only after due

investigation.

2. Continual Monitoring by Board of Directors Not Required

A significant number of comment letters also took issue with the

FDIC's requirement, contained in Sec. 359.5(a)(3) of the First

Proposal, that the institution's or holding company's board of

directors continually monitor actions against institution-affiliated

parties so that it can reassess its [[Page 16076]] decision to permit

indemnification. These commentators expressed the opinion that such a

requirement places an unfair and undue burden on both the board of

directors and the institution-affiliated party seeking indemnification.

The proposed standard would mean that a board's decision would never be

``final'', regardless of the amount of time, effort and painstaking

review that went into it. It would also mean that an institution-

affiliated party could never depend on indemnification since a prior

decision to approve indemnification could be revoked at any time. The

FDIC agrees that there is value in encouraging an amount of certainty

in such cases. Thus, this requirement has been deleted from the Second

Proposal.

3. Permissible Indemnification Payments

Section 359.5(a)(4) of the First Proposal prohibits the use of

indemnification payments to pay or reimburse an institution-affiliated

party for the amount of, or any cost incurred in connection with, any

settlement of an administrative proceeding or civil action instituted

by any federal banking agency or any judgment or penalty imposed with

respect to any such matter where the IAP is assessed a civil money

penalty, removed from office or made subject to a cease and desist

order. The FDIC received a substantial number of comment letters which

addressed this particular restriction. Interestingly, however, while

the proscription of the use of indemnification to pay for settlements

was criticized, the arguments against it were often diametrically

opposed. For example, a number of comment letters made the argument

that to prohibit the use of indemnification to pay for costs associated

with settlements would force institution-affiliated parties to litigate

every action to its ultimate conclusion in the hope of earning the

right to be indemnified. On the other hand, an approximately equal

number of comment letters argued just as vociferously that this

requirement would compel institution-affiliated parties to settle

actions immediately before costs became prohibitively high, thereby

denying them an opportunity to defend themselves. Other comment letters

pointed out that negotiated settlements benefit all parties involved

and that a settlement where the institution-affiliated party does not

admit to wrongdoing should not come within the definition of

indemnification payment contained in section 18(k)(5)(A) of the FDI Act

because the settlement agreement would not contain any penalty or

require any affirmative action that would, if embodied in a final

order, preclude indemnification under FDI Act section 18(k)(5)(A) and

Sec. 359.5(a)(5) of the First Proposal.

After considerable review, the FDIC has chosen not to permit

indemnification of settlement costs by the depository institution or

holding company where the IAP is assessed a civil money penalty,

removed from office or prohibited from participating in the conduct of

the affairs of the insured depository institution or required to cease

and desist from or take any affirmative action described in section

8(b) of the Act.11 However, insured depository institutions and

depository institution holding companies may purchase commercial

insurance policies or fidelity bonds, at a reasonable cost, which may

pay all costs incurred in an action or proceeding which is settled,

except civil money penalties and judgements. As we noted earlier, it is

also permissible for insurance policies and bonds to pay restitution to

the depository institution, holding company or receiver.

\11\If indemnification was authorized and paid by the depository

institution or holding company pursuant to section 359.5 of this

part, the IAP is obligated to reimburse the institution or holding

company, respectively.

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4. Involvement by Majority or All of Board of Directors

A significant number of comment letters pointed out that

Sec. 359.5(b) of the First Proposal, which prohibits an institution-

affiliated party who is requesting indemnification from participating

in any way in the board's discussion and approval of such payments,

does not take into account situations where the majority or all the

members of the board of directors are the subject of an enforcement

action or civil proceeding. Thus, consistent with several

recommendations we received, the FDIC has added new Secs. 359.5 (c) and

(d) to the Second Proposal. Section 359.5(c) provides that if a

majority of the members of an institution's or holding company's board

of directors are named as respondents in an administrative proceeding

or civil action commenced by any federal banking agency the remaining

board member(s) may either make an independent decision concerning

authorization of indemnification payments or retain independent legal

counsel to provide an opinion as to whether the conditions contained in

Sec. 359.5(a) of the Second Proposal have been met. If the entire board

of directors is subject to the administrative action or civil

proceeding, Sec. 359.5(d) of the Second Proposal requires the board to

retain independent legal counsel to opine as to whether the conditions

set forth in Sec. 359.5(a) have been met. If independent legal counsel

is of the opinion that these conditions have been met, the board may

rely on such an opinion in authorizing the requested

indemnification.12 The FDIC would regard legal counsel as being

``independent'' (for purposes of this regulation) if the attorney(s) is

not a member of the depository institution's or holding company's in-

house legal staff, does not have an ongoing relationship with the

depository institution or holding company and no other conflict of

interest is present. The FDIC is of the opinion that these procedures

effectively address the difficulties inherent in situations where the

majority of or the entire board of directors of an institution or

holding company are the subjects of an enforcement proceeding. The use

of independent legal counsel ensures an unbiased review of the five

criteria necessary to approve indemnification and does not impose any

undue hardship upon the depository institution or holding company in

question.

\12\Of course, the board of directors could decline to approve

the indemnification request despite counsel's favorable opinion.

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5. Definition of Indemnification Payment

Section 359.1(h) of the First Proposal contained the definition of

``indemnification payment''. A number of comment letters expressed

concern that even if an institution or holding company could qualify to

purchase a commercial insurance policy or fidelity bond which would

cover the costs of defending and/or settling an administrative action

or civil proceeding commenced by a federal banking agency, the proposed

regulation prohibited an institution or holding company from purchasing

such coverage. First Proposal Sec. 359.1(h)(2). Upon further

consideration, as we noted earlier herein, the FDIC is of the opinion

that if a depository institution or holding company can purchase, at

reasonable rates, a commercial insurance policy or fidelity bond which

will pay the costs of defending and/or settling an administrative

action or civil proceeding commenced by a federal banking agency,

neither the statute nor any consideration of safe and sound banking

practice require the Corporation to interfere with such an arrangement.

Section 359.1(l)(2) of the Second Proposal reflects this change. This

revision should address the concerns [[Page 16077]] raised by numerous

comment letters that the proposed regulation's restriction would impair

the ability of depository institutions and holding companies to attract

and retain competent management and directors. It is important to

emphasize that the Second Proposal would prohibit such an insurance

policy or bond from being used to pay or reimburse an institution-

affiliated party for the amount of any judgment or civil money penalty

assessed against him/her.

6. Fees Incurred During Investigations

The First Proposal did not address the question of whether

indemnification for counsel fees incurred during the investigative

stage of a potential administrative enforcement action should be

permitted. In view of the definition of indemnification payment

contained in section 18(k)(5)(A) of the FDI Act and its specific

reference to ``any administrative proceeding or civil action instituted

by the appropriate Federal banking agency'', the FDIC is of the opinion

that indemnification of such expenses incurred prior to the

commencement of a formal action should not be prohibited.

Technical Amendments

The comment letters also suggested a number of technical revisions

to the First Proposal to clarify certain provisions or avoid certain

anomalies. The definition of golden parachute payment contained in

section 18(k)(4)(A) of the FDI Act refers to ``any payment (or any

agreement to make any payment) in the nature of compensation * * *.''

The definition contained in section 359.1(g)(1) of the First Proposal

deleted the phrase ``in the nature of compensation''. Several comment

letters pointed out that the deletion of this phrase from the

regulatory definition could be construed to prohibit the customary

payment of certain accrued benefits upon termination of employment

(e.g., accrued vacation, sick leave, etc.). Since it is not the FDIC's

intent to prohibit depository institutions and holding companies, even

those that are troubled, from paying terminating employees for accrued

but unused benefits such as vacation or sick time, this phrase has been

added to the Second Proposal.13 Second Proposal Sec. 359.1(f)(1).

\13\ Claims for certain benefits may not be provable or

constitute ``actual direct compensatory damages'' under 12 U.S.C.

1821(e)(3) if the institution is placed into receivership. This

regulation does not provide otherwise.

---------------------------------------------------------------------------

Several comment letters also pointed out that the definition of

``bona fide deferred compensation plan or arrangement'' contained in

Sec. 359.1(d)(1) of the First Proposal did not allow for reasonable

earnings on elective deferred compensation. Section 359.1(d)(1) of the

Second Proposal makes it clear that a bona fide deferred compensation

plan includes the reasonable investment return on such elective

deferrals.

Section 18(k)(4)(C) of the FDI Act and Sec. 359.1(g)(2) of the

First Proposal delineate certain types of payments which are not

included within the definition of golden parachute. In describing such

payments, the words ``nondiscriminatory'' and ``benefit plan'' are

used. In view of the fact that the precise definition of these terms is

very important, the FDIC has added them to the list of definitions

contained in the Second Proposal. Second Proposal Secs. 359.1 (c) and

(j). In a similar vein, several comment letters suggested that the term

``indemnification payment'' contained in Sec. 359.1(h) of the First

Proposal be changed to ``prohibited indemnification payment'' in order

to avoid confusion with certain types of indemnification payments which

are permissible. The FDIC agrees with and has adopted this suggestion.

Second Proposal Sec. 359.1(l).

A significant number of comment letters pointed out that while the

definition of an excess deferred compensation plan contained in

Sec. 359.1(d)(2)(i) of the First Proposal correctly referenced the

limitations imposed by section 415 of the Internal Revenue Code of

1986, sections 401(a)(17) and 402(g) of the Code are also applicable,

but were not referenced. The FDIC has revised the Second Proposal to

include references to these two provisions of the Internal Revenue

Code, as well as any other applicable provisions. Second Proposal

Sec. 359.1(d)(2)(i).

A very small number of comment letters informed us that certain

states, particularly California, have statutes which require all

covered employers to pay severance benefits in certain circumstances.

These commentators were concerned that the definition of golden

parachute payment in the First Proposal would conflict with such state

statutes. In order to avoid such a conflict, the FDIC revised the

definition of golden parachute payment to explicitly exclude any

severance or similar payment which is required to be paid pursuant to

state law which applies to all employers, except those that are

exempted due to their small number of employees or other similar

criteria. Second Proposal Sec. 359.1(f)(2)(vi).

The FDIC has also chosen to clarify the definition of ``payment''

contained in Sec. 359.1(l) of the First Proposal by making it explicit

that the phrase ``the conferring of any benefit'' includes the granting

of stock options and stock appreciation rights. Second Proposal

Sec. 359.1(k)(3).

The FDIC has added a new subsection to the proposed regulation,

Sec. 359.6, entitled ``Filing Instructions''. This new subsection

contains instructions on where and how to file written requests for

prior approval to make certain payments which are otherwise not

permitted.

Closed Bank/Receivership Issues

The FDIC has added a new Sec. 359.7 to the proposed regulation to

make it clear that this regulation would not bind any receiver of a

failed insured depository institution. The fact that the FDIC or any

other federal banking agency consents to certain types of payments does

not imply that the approving agency or the receiver will be responsible

for making the payments in event of the insolvency of the institution

or that the recipient will receive some sort of preference over other

creditors from the receivership.

Other Enforcement Authority

The FDIC notes that its authority to regulate golden parachutes and

indemnification payments pursuant to section 18(k) of the FDI Act is in

addition to its safety and soundness enforcement authority pursuant to

section 8 of the FDI Act.

Delegations of Authority

The FDIC is also proposing to amend Sec. 303.7 of its regulations,

12 CFR 303.7, to add a new paragraph (g) which would delegate the

Board's authority to the Executive Director, Supervision and

Resolutions, Director of the Division of Supervision, and where

confirmed in writing by the Director, to an associate director, or to

the appropriate regional director or deputy regional director, to

approve or deny requests to make excess nondiscriminatory severance

plan payments as permitted by Sec. 359.1(f)(2)(v) and golden parachute

payments to ``white knights'', in change of control situations and

other golden parachute payments which are not covered under any of the

regulation's explicit exceptions, as permitted by Sec. 359.4.

Request for Public Comment

The FDIC hereby requests comment on all aspects of the Second

Proposal, including both legal and policy considerations. In

particular, the Corporation is especially interested in whether the

revisions to the First Proposal in response to the first set of

[[Page 16078]] public comment letters adequately address the concerns

which were raised. Of course, commenters should discuss any new issues

which have been raised as a result of these revisions by the FDIC.

Interested parties are invited to submit comments during a 60 day

comment period.

List of Subjects

12 CFR Part 303

Administrative practice and procedure, Authority delegations

(Government agencies), Bank deposit insurance, Banks, Banking,

Reporting and recordkeeping requirements, Savings associations.

12 CFR Part 359

Banks, Banking, Golden parachute payments, Indemnity payments.

For the reasons set out in the preamble, the FDIC Board of

Directors hereby proposes to amend 12 CFR part 303 and to add part 359

to title 12, chapter III, subchapter B, of the Code of Federal

Regulations as follows:

PART 303--APPLICATIONS, REQUESTS, SUBMITTALS, DELEGATIONS OF

AUTHORITY, AND NOTICES REQUIRED TO BE FILED BY STATUTE OR

REGULATION

1. The authority citation for part 303 continues to read as

follows:

Authority: 12 U.S.C. 378, 1813, 1815, 1816, 1817(a)(2)(b),

1817(j), 1818, 1819 (``Seventh'', ``Eighth'' and ``Tenth''), 1828,

1831e, 1831o, 1831p-1(a); 15 U.S.C. 1607.

2. In Sec. 303.7, the section heading is revised and a new

paragraph (g) is added to read as follows:

Sec. 303.7 Delegation of authority to the Executive Director for

Supervision and Resolutions, the Director of the Division of

Supervision and to the associate directors, regional directors and

deputy regional directors to act on certain applications, requests, and

notices of acquisition of control.

* * * * *

(g) Requests pursuant to section 18(k) of the Act. Authority is

delegated to the Executive Director, the Director, and where confirmed

in writing by the Executive Director or Director, to an associate

director, or to the appropriate regional director or deputy regional

director, to approve or deny requests pursuant to section 18(k) of the

Act to make:

(1) Excess nondiscriminatory severance plan payments as provided by

12 CFR 359.1(f)(2)(v); and

(2) Golden parachute payments permitted by 12 CFR 359.4.

3. New part 359 is added to read as follows:

PART 359--GOLDEN PARACHUTE AND INDEMNIFICATION PAYMENTS

Sec.

359.0 Scope.

359.1 Definitions.

359.2 Golden parachute payments prohibited.

359.3 Prohibited indemnification payments.

359.4 Permissible golden parachute payments.

359.5 Permissible indemnification payments.

359.6 Filing instructions.

359.7 Applicability in the event of receivership.

Authority: 12 U.S.C. 1828(k).

Sec. 359.0 Scope.

(a) This part limits and/or prohibits, in certain circumstances,

the ability of insured depository institutions, their subsidiaries and

affiliated depository institution holding companies to make golden

parachute and indemnification payments to institution-affiliated

parties (IAP).

(b) The limitations on golden parachute payments apply to troubled

insured depository institutions which seek to make golden parachute

payments to their IAPs. The limitations also apply to depository

institution holding companies which are troubled and seek to make

golden parachute payments to their IAPs as well as healthy holding

companies which seek to make golden parachute payments to IAPs of a

troubled insured depository institution subsidiary. A ``golden

parachute payment'' is generally considered to be any payment to an IAP

which is contingent on the termination of that person's employment and

is received when the insured depository institution making the payment

is troubled or, if the payment is being made by an affiliated holding

company, either the holding company itself or the insured depository

institution employing the IAP, is troubled. The definition of golden

parachute payment does not include payments pursuant to qualified

retirement plans, nonqualified bona fide deferred compensation plans,

nondiscriminatory severance pay plans, other types of common benefit

plans, state statutes and death benefits. Certain limited exceptions to

the golden parachute payment prohibition are provided for in cases

involving the hiring of a ``white knight'' and unassisted changes in

control. A procedure is also set forth whereby an institution or IAP

can request permission to make what would otherwise be a prohibited

golden parachute payment.

(c) The limitations on indemnification payments apply to all

insured depository institutions, their subsidiaries and affiliated

depository institution holding companies regardless of their financial

health. Generally, this part prohibits insured depository institutions,

their subsidiaries and affiliated holding companies from indemnifying

an IAP for costs sustained with regard to an administrative or civil

enforcement action commenced by any federal banking agency which

results in a final order or settlement pursuant to which the IAP is

assessed a civil money penalty, removed from office, prohibited from

participating in the affairs of an insured depository institution or

required to cease and desist from or take an affirmative action

described in section 8(b) (12 U.S.C. 1818(b)) of the Federal Deposit

Insurance Act (FDI Act). However, there are exceptions to this general

prohibition. First, an institution or holding company may purchase

commercial insurance to cover such expenses, except judgments and

penalties. Second, the institution or holding company may indemnify an

IAP directly, except for judgments and penalties, if its board of

directors makes certain specific findings.

Sec. 359.1 Definitions.

(a) Act means the Federal Deposit Insurance Act, as amended (12

U.S.C. 1811, et seq.).

(b) Appropriate federal banking agency, bank holding company,

depository institution holding company and savings and loan holding

company have the meanings given to such terms in section 3 of the Act.

(c) Benefit plan means any plan, contract, agreement or other

arrangement which is an ``employee welfare benefit plan'' as that term

is defined in section 3(1) of the Employee Retirement Income Security

Act of 1974, as amended (29 U.S.C. 1002(1)), or other usual and

customary plans such as dependent care, tuition reimbursement, group

legal services or cafeteria plans; provided however, that such term

shall not include any plan intended to be subject to paragraphs

(f)(2)(iii) and (v) of this section.

(d) Bona fide deferred compensation plan or arrangement means any

plan, contract, agreement or other arrangement whereby:

(1) An IAP voluntarily elects to defer all or a portion of the

reasonable compensation, wages or fees paid for services rendered which

otherwise would have been paid to such party at the time the services

were rendered (including a plan that provides for the crediting of a

reasonable investment return on such elective deferrals) and

[[Page 16079]] the insured depository institution or depository

institution holding company either:

(i) Recognizes compensation expense and accrues a liability for the

benefit payments according to generally accepted accounting principles

(GAAP); or

(ii) Segregates or otherwise sets aside assets in a trust which may

only be used to pay plan and other benefits, except that the assets of

such trust may be available to satisfy claims of the institution's or

holding company's creditors in the case of insolvency; or

(2) An insured depository institution or depository institution

holding company establishes a nonqualified deferred compensation or

supplemental retirement plan, other than an elective deferral plan

described in paragraph (e)(1) of this section:

(i) Solely for the purpose of providing benefits for certain IAPs

in excess of the limitations on contributions and benefits imposed by

sections 415, 401(a)(17), 402(g) or any other applicable provision of

the Internal Revenue Code of 1986 (26 U.S.C. 415, 401(a)(17), 402(g));

or

(ii) Primarily for the purpose of providing supplemental retirement

benefits or other deferred compensation for a select group of

directors, management or highly compensated employees (excluding

severance payments described in paragraph (f)(2)(v) of this section and

permissible golden parachute payments described in Sec. 359.4); and

(3) In the case of any nonqualified deferred compensation or

supplemental retirement plans as described in paragraphs (d)(1) and (2)

of this section, the following requirements shall apply:

(i) The plan was in effect at least one year prior to any of the

events described in paragraph (f)(1)(ii) of this section;

(ii) Any payment made pursuant to such plan is made in accordance

with the terms of the plan as in effect no later than one year prior to

any of the events described in paragraph (f)(1)(ii) of this section and

in accordance with any amendments to such plan during such one year

period that do not increase the benefits payable thereunder;

(iii) The IAP has a vested right, as defined under the applicable

plan document, at the time of termination of employment to payments

under such plan;

(iv) Benefits under such plan are accrued each period only for

current or prior service rendered to the employer (except that an

allowance may be made for service with a predecessor employer);

(v) Any payment made pursuant to such plan is not based on any

acceleration of vesting or accrual of benefits which occurs at any time

later than one year prior to any of the events described in paragraph

(f)(1)(ii) of this section;

(vi) The insured depository institution or depository institution

holding company has previously recognized compensation expense and

accrued a liability for the benefit payments according to GAAP or

segregated or otherwise set aside assets in a trust which may only be

used to pay plan benefits, except that the assets of such trust may be

available to satisfy claims of the institution's or holding company's

creditors in the case of insolvency; and

(vii) Payments pursuant to such plans shall not be in excess of the

accrued liability computed in accordance with GAAP.

(e) Corporation means the Federal Deposit Insurance Corporation, in

its corporate capacity.

(f)(1) The term golden parachute payment means any payment (or any

agreement to make any payment) in the nature of compensation by any

insured depository institution or an affiliated depository institution

holding company for the benefit of any current or former IAP pursuant

to an obligation of such institution or holding company that:

(i) Is contingent on, or by its terms is payable on or after, the

termination of such party's primary employment or affiliation with the

institution or holding company; and

(ii) Is received on or after, or is made in contemplation of, any

of the following events:

(A) The insolvency (or similar event) of the insured depository

institution which is making the payment or bankruptcy or insolvency (or

similar event) of the depository institution holding company which is

making the payment; or

(B) The appointment of any conservator or receiver for such insured

depository institution; or

(C) A determination by the insured depository institution's or

depository institution holding company's appropriate federal banking

agency, respectively, that the insured depository institution or

depository institution holding company is in a troubled condition, as

defined in the applicable regulations of the appropriate federal

banking agency (Sec. 303.14(a)(4) of this chapter); or

(D) The insured depository institution is assigned a composite

rating of 4 or 5 by the appropriate federal banking agency or informed

in writing by the Corporation that it is rated a 4 or 5 under the

Uniform Financial Institutions Rating System of the Federal Financial

Institutions Examination Council, or the depository institution holding

company is assigned a composite rating of 4 or 5 or unsatisfactory by

its appropriate federal banking agency; or

(E) The insured depository institution is subject to a proceeding

to terminate or suspend deposit insurance for such institution; and

(iii)(A) Is payable to an IAP whose employment by or affiliation

with an insured depository institution is terminated at a time when the

insured depository institution by which the IAP is employed or with

which the IAP is affiliated satisfies any of the conditions enumerated

in paragraphs (f)(1)(ii)(A) through (E) of this section, or in

contemplation of any of these conditions; or

(B) Is payable to an IAP whose employment by or affiliation with an

insured depository institution holding company is terminated at a time

when the insured depository institution holding company by which the

IAP is employed or with which the IAP is affiliated satisfies any of

the conditions enumerated in paragraphs (f)(1)(ii)(A), (C) or (D) of

this section, or in contemplation of any of these conditions.

(2) Exceptions. The term golden parachute payment shall not

include:

(i) Any payment made pursuant to a pension or retirement plan which

is qualified (or is intended within a reasonable period of time to be

qualified) under section 401 of the Internal Revenue Code of 1986 (26

U.S.C. 401) or pursuant to a pension or other retirement plan which is

governed by the laws of any foreign country; or

(ii) Any payment made pursuant to a benefit plan as that term is

defined in paragraph (c) of this section; or

(iii) Any payment made pursuant to a bona fide deferred

compensation plan or arrangement as defined in paragraph (d) of this

section; or

(iv) Any payment made by reason of termination caused by the death

or disability of an institution-affiliated party; or

(v) Any payment made pursuant to a nondiscriminatory severance pay

plan or arrangement which provides for payment of severance benefits to

all eligible employees upon involuntary termination other than for

cause, voluntary resignation, or early retirement, in conjunction with

a reduction in force instituted by the insured depository institution

or depository institution holding company; [[Page 16080]] provided,

however, that no employee shall receive any such payment which exceeds

the base compensation paid to such employee during the twelve months

(or such longer period or greater benefit as the Corporation shall

consent to) immediately preceding termination of employment,

resignation or early retirement, and such severance pay plan or

arrangement shall not have been adopted or modified to increase the

amount or scope of severance benefits at a time when the insured

depository institution or depository institution holding company was in

a condition specified in paragraph (f)(1)(ii) of this section or in

contemplation of such a condition without the prior written consent of

the appropriate federal banking agency; provided further, however, that

no such payment shall be made to any senior executive officer (as

defined in Sec. 303.14(a)(3) of this chapter) of any insured depository

institution or depository institution holding company without providing

30 days prior written notice to the appropriate federal banking agency

and the FDIC; or

(vi) Any severance or similar payment which is required to be made

pursuant to a state statute or foreign law which is applicable to all

employers within the appropriate jurisdiction (with the exception of

employers that may be exempt due to their small number of employees or

other similar criteria); or

(vii) Any other payment which the Corporation determines to be

permissible in accordance with Sec. 359.4 of this part.

(g) Insured depository institution means any bank or savings

association the deposits of which are insured by the Corporation

pursuant to the Act, or any subsidiary thereof.

(h) Institution-affiliated party (IAP) means:

(1) Any director, officer, employee, or controlling stockholder

(other than a depository institution holding company) of, or agent for,

an insured depository institution or depository institution holding

company;

(2) Any other person who has filed or is required to file a change-

in-control notice with the appropriate federal banking agency under

section 7(j) of the Act (12 U.S.C. 1817(j));

(3) Any shareholder (other than a depository institution holding

company), consultant, joint venture partner, and any other person as

determined by the appropriate federal banking agency (by regulation or

case-by-case) who participates in the conduct of the affairs of an

insured depository institution or depository institution holding

company; and

(4) Any independent contractor (including any attorney, appraiser,

or accountant) who knowingly or recklessly participates in: Any

violation of any law or regulation, any breach of fiduciary duty, or

any unsafe or unsound practice, which caused or is likely to cause more

than a minimal financial loss to, or a significant adverse effect on,

the insured depository institution or depository institution holding

company.

(i) Liability or legal expense means:

(1) Any legal or other professional fees and expenses incurred in

connection with any claim, proceeding, or action;

(2) The amount of, and any cost incurred in connection with, any

settlement of any claim, proceeding, or action; and

(3) The amount of, and any cost incurred in connection with, any

judgment or penalty imposed with respect to any claim, proceeding, or

action.

(j) Nondiscriminatory means that the plan, contract or arrangement

in question applies to all employees of an insured depository

institution or depository institution holding company who meet

reasonable and customary eligibility requirements applicable to all

employees, such as minimum length of service requirements. A

nondiscriminatory plan, contract or arrangement may provide different

benefits to IAPs based only upon length of service and/or position. In

the event that an employee's position is used as a basis for providing

a different level of benefits, employees who are not senior executive

officers (as defined in Sec. 303.14(a)(3) of this chapter) of the

insured depository institution or depository institution holding

company shall be treated more favorably than senior executive officers.

(k) Payment means:

(1) Any direct or indirect transfer of any funds or any asset;

(2) Any forgiveness of any debt or other obligation;

(3) The conferring of any benefit, including but not limited to

stock options and stock appreciation rights; and

(4) Any segregation of any funds or assets, the establishment or

funding of any trust or the purchase of or arrangement for any letter

of credit or other instrument, for the purpose of making, or pursuant

to any agreement to make, any payment on or after the date on which

such funds or assets are segregated, or at the time of or after such

trust is established or letter of credit or other instrument is made

available, without regard to whether the obligation to make such

payment is contingent on:

(i) The determination, after such date, of the liability for the

payment of such amount; or

(ii) The liquidation, after such date, of the amount of such

payment.

(l) Prohibited indemnification payment. (1) The term prohibited

indemnification payment means any payment (or any agreement or

arrangement to make any payment) by any insured depository institution

or an affiliated depository institution holding company for the benefit

of any person who is or was an IAP of such insured depository

institution, to pay or reimburse such person for any liability or legal

expense with regard to any administrative proceeding or civil action

instituted by any federal banking agency which results in a final order

or settlement pursuant to which such person:

(i) Is assessed a civil money penalty;

(ii) Is removed from office or prohibited from participating in the

conduct of the affairs of the insured depository institution; or

(iii) Is required to cease and desist from or take any affirmative

action described in section 8(b) of the Act with respect to such

institution.

(2) Exception. The term prohibited indemnification payment shall

not include any reasonable payment by an insured depository institution

or depository institution holding company which is used to purchase any

commercial insurance policy or fidelity bond, provided that such

insurance policy or bond shall not be used to pay or reimburse an IAP

for the cost of any judgment or civil money penalty assessed against

such person in an administrative proceeding or civil action commenced

by any federal banking agency, but may pay the amount of any

restitution to the insured depository institution, depository

institution holding company or receiver.

Sec. 359.2 Golden parachute payments prohibited.

No insured depository institution or depository institution holding

company shall make or agree to make any golden parachute payment,

except as provided in this part.

Sec. 359.3 Prohibited indemnification payments.

No insured depository institution or depository institution holding

company shall make or agree to make any prohibited indemnification

payment, except as provided in this part. [[Page 16081]]

Sec. 359.4 Permissible golden parachute payments.

(a) An insured depository institution or depository institution

holding company may agree to make or may make a golden parachute

payment if and to the extent that:

(1) The appropriate federal banking agency, with the written

concurrence of the Corporation, determines that such a payment or

agreement is permissible; or

(2) Such an agreement is made in order to hire a person to become

an IAP either at a time when the insured depository institution or

depository institution holding company satisfies or in an effort to

prevent it from imminently satisfying any of the criteria set forth in

Sec. 359.1(f)(1)(ii), and the institution's appropriate federal banking

agency and the Corporation consent in writing to the amount and terms

of the golden parachute payment. Such consent by the FDIC and the

institution's appropriate federal banking agency shall not improve the

IAP's position in the event of the insolvency of the institution since

such consent can neither bind a receiver nor affect the provability of

receivership claims. In the event that the institution is placed into

receivership or conservatorship, the FDIC and/or the institution's

appropriate federal banking agency shall not be obligated to pay the

promised golden parachute and the IAP shall not be accorded

preferential treatment on the basis of such prior approval; or

(3) Such a payment is made pursuant to an agreement which provides

for a reasonable severance payment, not to exceed twelve months salary,

to an IAP in the event of a change in control of the insured depository

institution; provided, however, that an insured depository institution

or depository institution holding company shall obtain the consent of

the appropriate federal banking agency prior to making such a payment

and this paragraph (a)(3) shall not apply to any change in control of

an insured depository institution which results from an assisted

transaction as described in section 13 of the Act (12 U.S.C. 1823) or

the insured depository institution being placed into conservatorship or

receivership; and

(4) An insured depository institution, depository institution

holding company or IAP making a request pursuant to paragraphs (a)(1)

through (3) of this section shall demonstrate that it does not possess

and is not aware of any information, evidence, documents or other

materials which would indicate that there is a reasonable basis to

believe, at the time such payment is proposed to be made, that:

(i) The IAP has committed any fraudulent act or omission, breach of

trust or fiduciary duty, or insider abuse with regard to the depository

institution or depository institution holding company that has had or

is likely to have a material adverse effect on the institution or

holding company;

(ii) The IAP is substantially responsible for the insolvency of,

the appointment of a conservator or receiver for, or the troubled

condition, as defined by applicable regulations of the appropriate

federal banking agency, of the insured depository institution,

depository institution holding company or any insured depository

institution subsidiary of such holding company;

(iii) The IAP has materially violated any applicable federal or

state banking law or regulation that has had or is likely to have a

material effect on the insured depository institution or depository

institution holding company; and

(iv) The IAP has violated or conspired to violate section 215, 656,

657, 1005, 1006, 1007, 1014, 1032, or 1344 of title 18 of the United

States Code, or section 1341 or 1343 of such title affecting a

federally insured financial institution as defined in title 18 of the

United States Code.

(b) In making a determination under paragraphs (a)(1) through (3)

of this section, the appropriate federal banking agency and the

Corporation may consider:

(1) Whether, and to what degree, the IAP was in a position of

managerial or fiduciary responsibility;

(2) The length of time the IAP was affiliated with the insured

depository institution or depository institution holding company, and

the degree to which the proposed payment represents a reasonable

payment for services rendered over the period of employment; and

(3) Any other factors or circumstances which would indicate that

the proposed payment would be contrary to the intent of section 18(k)

of the Act or this part.

Sec. 359.5 Permissible indemnification payments.

(a) An insured depository institution or depository institution

holding company may make or agree to make reasonable indemnification

payments to an IAP with respect to an administrative proceeding or

civil action initiated by any federal banking agency if:

(1) The insured depository institution's or depository institution

holding company's board of directors, in good faith, determines in

writing after due investigation and consideration that the institution-

affiliated party acted in good faith and in a manner he/she believed to

be in the best interests of the institution;

(2) The insured depository institution's or depository institution

holding company's board of directors, respectively, in good faith,

determines in writing after due investigation and consideration that

the payment of such expenses will not materially adversely affect the

institution's or holding company's safety and soundness;

(3) The indemnification payments are limited to the payment or

reimbursement of reasonable legal, professional or other expenses

incurred in connection with an IAP's involvement in an administrative

proceeding or civil action instituted by any federal banking agency;

but in no event shall such indemnification pay or reimburse an IAP for

the amount of, or any cost incurred in connection with, any judgment,

penalty or settlement with respect to any such claim, proceeding or

action, pursuant to which the IAP:

(i) Is assessed a civil money penalty;

(ii) Is removed from office or prohibited from participating in the

conduct of the affairs of the insured depository institution; or

(iii) Is required to cease and desist from or take any affirmative

action described in section 8(b) of the Act with respect to such

institution;

(4) The IAP agrees in writing to reimburse the insured depository

institution or depository institution holding company for such

indemnification payments in the event that the proceeding or action

results in a final order or is settled on terms under which the IAP:

(i) Is assessed a civil money penalty;

(ii) Is removed from office or prohibited from participating in the

conduct of the affairs of the insured depository institution; or

(iii) Is required to cease and desist from or take any affirmative

action described in section 8(b) of the Act with respect to such

institution; and

(5) The insured depository institution or depository institution

holding company provides the appropriate federal banking agency and the

FDIC with prior written notice of its board of directors' authorization

of such indemnification.

(b) An IAP requesting indemnification payments shall not

participate in any way in the board's discussion and approval of such

payments; provided, however, that such IAP may present his/her request

to the board and respond to any inquiries from the board concerning

his/her involvement in the circumstances giving rise to the

[[Page 16082]] administrative proceeding or civil action.

(c) In the event that a majority of the members of the board of

directors are named as respondents in an administrative proceeding or

civil action and request indemnification, the remaining members of the

board may authorize independent legal counsel to review the

indemnification request and provide the remaining members of the board

with an opinion of counsel as to whether the conditions delineated in

paragraph (a) of this section have been met. If independent legal

counsel opines that said conditions have been met, the remaining

members of the board of directors may rely on such opinion in

authorizing the requested indemnification.

(d) In the event that all of the members of the board of directors

are named as respondents in an administrative proceeding or civil

action and request indemnification, the board shall authorize

independent legal counsel to review the indemnification request and

provide the board with an opinion of counsel as to whether the

conditions delineated in paragraph (a) of this section have been met.

If independent legal counsel opines that said conditions have been met,

the board of directors may rely on such opinion in authorizing the

requested indemnification.

Sec. 359.6 Filing instructions.

Requests to make excess nondiscriminatory severance plan payments

pursuant to Sec. 359.1(f)(2)(v) and golden parachute payments permitted

by Sec. 359.4 shall be submitted in writing to the FDIC regional

director (Supervision) for the region in which the institution is

located. The request shall be in letter form and shall contain all

relevant factual information as well as the reasons why such approval

should be granted. In the event that the consent of the institution's

primary federal regulator is required in addition to that of the FDIC,

the requesting party shall submit a copy of its letter to the FDIC to

the institution's primary federal regulator. In the case of national

banks, such written requests shall be submitted to the OCC district

office where the institution is located. In the case of state member

banks and bank holding companies, such written requests shall be

submitted to the Federal Reserve district bank where the institution or

holding company, respectively, is located. In the case of savings

associations and savings association holding companies, such written

requests shall be submitted to the OTS regional office where the

institution or holding company, respectively, is located. In cases

where the prior consent of only the institution's primary federal

regulator is required and that agency is not the FDIC, a written

request satisfying the requirements of this paragraph shall be

submitted to the primary federal regulator as described in this

paragraph.

Sec. 359.7 Applicability in the event of receivership.

The provisions of this part, or any consent or approval granted

hereunder by the FDIC (in its corporate capacity), shall not in any way

bind any receiver of a failed insured depository institution. Any

consent or approval granted hereunder by the FDIC or any other federal

banking agency shall not in any way obligate such agency or receiver to

pay any claim or obligation pursuant to any golden parachute,

severance, indemnification or other agreement. Claims for employee

welfare benefits or other benefits which are contingent, even if

otherwise vested, when the FDIC is appointed as receiver for any

depository institution, including any contingency for termination of

employment, are not provable claims or actual, direct compensatory

damage claims against such receiver. Nothing in this part may be

construed to permit the payment of salary or any liability or legal

expense of any IAP contrary to 12 U.S.C. 1828(k)(3).

By order of the Board of Directors, dated at Washington, D.C.,

this 21st day of March, 1995.

Federal Deposit Insurance Corporation

Robert E. Feldman,

Acting Executive Secretary.

[FR Doc. 95-7603 Filed 3-28-95; 8:45 am]

BILLING CODE 6714-01-P