Seal of the Board of Governors of the Federal Reserve System
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM

WASHINGTON, D. C.  20551

DIVISION OF BANKING
SUPERVISION AND REGULATION


SR 96-21 (SUP)
September 12, 1996

TO THE OFFICER IN CHARGE OF SUPERVISION
          AT EACH FEDERAL RESERVE BANK


SUBJECT: FDIC Final Rule Regarding "Golden Parachutes" and Indemnification Payments

                        The FDIC issued a final rule, effective April 1, 1996, that prohibits, with certain exceptions, troubled holding companies, banks and thrifts from making "golden parachute" payments to executives who leave just before an institution is closed or sold. The rule applies only to those contracts entered into after April 1, 1996.

                         The rule provides guidance to the industry on which payments are considered legitimate and which are considered abusive or improper. The rule also limits the ability of any holding company or FDIC-insured institution to pay the liabilities or legal expenses of an employee or director who is subject to an enforcement proceeding.

                        The FDIC sent a copy of its final rule to all insured banks and savings associations in April. Because it also applies to contracts entered into by bank holding companies, it is recommended that a copy be forwarded to each bank holding company in your District. A suggested cover letter for transmitting the rule is attached, along with a copy of the FDIC's rule.

James I. Garner
Deputy Associate Director

ATTACHMENTS:
Suggested letter transmitted electronically below
Copy of Rule may be obtained in Federal Register, Vol. 61, No. 32, page 5926


--SUGGESTED LETTER--

September __, 1996

Bank Holding Company
__________________
__________________
__________________

SUBJECT: FDIC Final Rule Regarding "Golden Parachutes" and Indemnification Payments

The FDIC issued a final rule, effective April 1, 1996, that prohibits, with certain exceptions, troubled holding companies, banks and thrifts from making "golden parachute" payments to executives who leave just before an institution is closed or sold. The rule applies only to those contracts entered into after April 1, 1996.

The rule provides guidance to the industry on which payments are considered legitimate and which are considered abusive or improper. The rule also limits the ability of any holding company or FDIC-insured institution to pay the liabilities or legal expenses of an employee or director who is subject to an enforcement proceeding.

Because the FDIC's rule applies to bank holding companies as well as insured banks, we are sending a copy of the rule for your information and guidance.

If you have any questions regarding this policy, please contact Cary H. Hiner, Associate Director, Division of Supervision, (202) 898-6814, at the FDIC.

Sincerely,

Enclosure


SR letters | 1996