On February 4, 2009, the Treasury Department announced it was issuing a new set of “guidelines” on executive pay for financial institutions receiving governmental assistance. The Treasury states that its new guidelines are intended to strike a balance between the need for monitoring and accountability with the need for financial institutions to fully function and attract needed talent.
The new guidelines provide only minimal additional obligations for companies that have participated (or will participate) under the TARP Capital Purchase Program. The majority of new restrictions are limited to new “exceptional assistance” or future programs that are “generally available capital access programs.” However, the guidelines also provide a road map for future reforms that would affect all financial institutions, whether they receive governmental assistance or not.
New Requirements for All Companies Receiving Assistance
All companies that have received governmental assistance, or that will receive any assistance, must provide an annual certification signed by it chief executive officer that the company has “strictly complied” with all statutory, Treasury and contractual executive compensation restrictions. In addition, the compensation committee of such companies must “provide an explanation” of how their senior executive compensation arrangements do not encourage excessive and unnecessary risk-taking.
On February 2, 2009, the Treasury announced the completion of the twelfth round of TARP Capital infusions. The Treasury purchased a total of approximately $1.2 billion in securities from 42 financial institutions on Friday, January 30, 2009, and has now invested in 361 institutions, totaling $195.3 billion.
Ojai Community Bank, of Ojai, California, received the smallest capital infusion: $2.08 million. The largest infusion went to the Flagstar Bancorp, Inc., Troy, Michigan: $266.7 million.
Of note in this twelfth round, an Arizona-based bank (Goldwater Bank, N.A.) and two Nebraska-based banks (Country Bank Shares, Inc. and Adbanc, Inc.) received TARP infusions. In total, institutions in 45 states and Puerto Rico have received TARP Capital infusions. This leaves only Alaska, Montana, New Mexico, Vermont, and Wyoming without an institution to have received TARP Capital.
Click here to view our updated TARP Map.
On January 30, 2009, the Government Accounting Office (GAO) released its second report on the Troubled Asset Relief Program (TARP).
The report indicates that “thousands of applications are under review.” As of January 16, 2009, the Treasury was in the process of reviewing approval recommendations from fewer than 150 financial institutions; however, the bank regulators reported that they are reviewing applications “from more than 2,000 institutions that have not yet been forwarded to Treasury.” Furthermore, there is a backlog of closings due to the need for some institutions to require shareholder approval and/or to finalize closing documents.
The report follows up on the nine recommendations from its prior report, finding that Treasury has yet to fully address eight of the recommendations, and includes further recommendations on how to monitor TARP funds and more clearly articulate and communicate a strategic vision for the program.
On January 30, 2009, Rob Klingler presented An Update on All Things TARP at the Alabama Bankers Association Community Bank Directors College. The presentation gives an overview of the TARP Capital Purchase Program and FDIC’s Temporary Liquidity Guarantee Program.