Two Years of Wall Street Executives’ Pay To Be Seized For Role Played in a Financial Firm’s Collapse, Says FDIC

Federal regulators have approved a plan that would make Wall Street executives forfeit two years’ pay if it was discovered that he/she played a part in a major financial firm’s collapse. Executives who are considered “negligent” and “substantially responsible” are subject to this rule, which clarifies that “negligence,” rather than “gross negligence,” is the standard.

Banks had complained that an earlier version of the rule, which said that any executive who had made strategic decisions could be found responsible for a financial firm’s failure. They were worried that key executives would quit upon initial signs of trouble rather than risk their pay.

The provision is part of a Federal Deposit Insurance Corporation rule, which is supposed to help retain stability within the economy by unwinding beleaguered firms in a manner that is less disruptive than major bankruptcies and taxpayer-financed bailouts. The rule lets the government take over a failing financial company, break it apart, and sell it off.

The liquidation authority is a significant part of the Dodd-Frank financial oversight law. It also designates the order that creditors will be paid whenever a government liquidates a large financial firm. For example, FDIC or the receiver that carried part of the expense of taking over a firm, administrative costs, and employees that are owed money for benefits are among those that would top the list. General creditors fall lower down in order of priority.

It is not enough that a Wall Street executive pay the government or other entities for any misconduct that caused a financial firm to fail. There are also the investors who sustained financial losses as a result of his/her negligence. Here is where our securities fraud attorneys step in. We are committed to helping institutional investors recoup their money.

Related Web Resources:
FDIC allows seizure of failed bank execs’ pay, Pittsburgh Live/AP, July 7, 2011

F.D.I.C. Rule Puts at Risk 2 Years of Executives’ Pay, Reuters/NY Times, July 6, 2011

Federal Deposit Insurance Corporation

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