US to seize pay at failed banks

BANK executives whose behaviour is deemed “negligent” by US authorities could have up to two years’ worth of pay confiscated by the state under proposals voted into the American rulebook yesterday.

In the last meeting under its current chief Sheila Bair, the Federal Deposit Insurance Corp (FDIC) voted five to one in favour of a “clawback” clause in new regulations, which will allow the government to reclaim compensation paid to execs 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 execs’ 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 FDIC’s costs 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 them into contracts.