FDIC approves rule allowing it to 'claw back' executive pay at failed firms

The Federal Deposit Insurance Corporation (FDIC) approved rules Wednesday that would allow the government to "claw back" up to two years of pay to top executives that drove a financial firm to failure.

In a 5-0 vote, the FDIC approved the rules, mandated by the Dodd-Frank financial reform law. The vote also marked one of the final actions of Sheila Bair as the head of the agency; her term expires Friday.

Under the rule, the FDIC could recoup two years of pay made to top executives and directors if it is found they were "substantially responsible" for the downfall of a firm.

Those rules are part of a set of new powers granted to the FDIC by Dodd-Frank, which are intended to help the regulator wind down large failing financial institutions in the future.

A related aspect of Dodd-Frank, which requires large financial firms to submit "living wills" to the FDIC laying out how they could be wound down, was not ready for a final vote at Wednesday's meeting. FDIC officials said that proposal was still a few weeks away from being finalized.

Under Dodd-Frank, banks with $50 billion or more in assets must submit such a plan every year to banking regulators. In addition, nonbank financial institutions that are deemed to be significant to the financial system — a designation that has not been fleshed out yet — also would have to submit a blueprint.

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