US to seize pay at failed banks
Posted on 9:44am Thursday 7th Jul 2011
Bank executives whose behavior is deemed negligent by US authorities could have up to two years’ worth of pay confiscated by the state under proposals voted into the America rulebook yesterday.
The Federal Deposit Insurance Corp voted five to one in favour of a “clawback” clause in new regulations, which will allow the government to reclaim compensation paid to executives whose banks have to be taken over and wound up by the state.
The rule puts flesh on the bones of a proposal included in the 2010 Dodd – Frank Act, which overhauls American financial regulation. It gives some clarity to a major question as to when circumstances executive’s pay should be confiscated, with the broader “ negligence” favoured over “ gross negligence”.
The vote also established a debt hierarchy in winding up a firm, with The Federal Deposit Insurance Corp’s cost incurred in resolving the company and debt to the government topping the list, along with any money owed to employees.
Other creditors will be paid off afterwards.
The status of clawback clauses in Europe is unclear at present, with EU authorities suggesting that firms write clawback clauses into their contracts.