Lenders Wary of TARP Regs Even Before Plan for $500K Pay Cap
Some financial institutions fearful of restrictions on federal bailout money are backing out of the Troubled Asset Relief Program or deciding not to apply.
Lawyers spoke to the American Lawyer about how banks are responding to TARP provisions before news broke that President Barack Obama plans to cap annual pay at $500,000 for top executives at institutions that receive large amounts of bailout money.
Some lawyers are advising their clients not to participate in the program, and some lenders are heeding the advice, the American Lawyer article says. “There are going to be more and more institutions that just back out of it,” Nixon Peabody lawyer Raymond Gustini told the publication.
Anonymous sources told the New York Times and the Wall Street Journal that the $500,000 pay limit will be announced today. The executives subject to salary caps would still be eligible to receive company stock that vests after TARP money has been repaid, the Wall Street Journal says. Golden parachutes for outgoing executives would also be limited.
Companies that already received TARP money would not be subject to the new salary cap. But lawyers who spoke to the American Lawyer noted that the TARP agreement allows Congress to amend lending rules at any time, even for financial institutions already participating in the program.
One regulation troubling many lawyers was issued by the Office of Thrift Supervision. It requires holding companies to maintain minimum capital reserves for any of their thrifts that receive TARP money. The so-called source of strength regulation also says the holding companies are responsible for losses if the thrifts fail.
Lawyer David Baris told the American Lawyer that at least four out of a his couple dozen TARP clients decided they will back out of their applications. “There are just so many others who don’t wish to bother with it,” he said.
