FDIC Releases Details on Its Liquidation Authority

The board of the Federal Deposit Insurance Corp. is offering more details on how it plans to treat certain creditor claims under its new authority to liquidate failed nonbank financial institutions, including when the FDIC will seek to claw back compensation of executives and directors, the Deal Pipeline reported today. In one new element approved yesterday, a company's receiver could seek up to two years of compensation from executives and directors who are "substantially responsible" for the financial condition of a failed company. While the receiver would have to consider whether lower level executives performed their responsibilities with the requisite degree of skill and care, and whether they caused a loss that materially contributed to the failure, it would be far easier to get clawback from top executives and board chairmen. The Dodd-Frank Act allows for the FDIC to be appointed receiver for a financial company if the entity's failure cannot be dealt with under the U.S. Bankruptcy Code without posing significant risk to U.S. financial stability.