In an interesting response to the FDIC rules I blogged on two weeks ago ("FDIC Finalizes Rules for the Recoupment of Compensation from Executives of Failed Financial Institutions"), I read last week that a major insurance broker plans to begin offering "policies that would cover financial firms against both their legal costs in the event that they underwent investigation by the FDIC and any compensation that their executives had to hand back as a result of action by the agency." [Emphasis added.] See blog by Steve Seelig of Towers Watson "Clawbacks in the News as Companies Await SEC Regulations," which links to a July blog in The Economist.
In case you missed it, the FDIC rules grant exceptionally broad powers to the FDIC to recover [clawback] compensation from senior executives or directors deemed materially responsible for the failure of a financial institution (and create a rebuttable presumption that the chairman of the board, chief executive officer, president, chief financial officer, and those in similar positions are "substantially responsible" for any failure!).
Of course, the same type of insurance, if allowed by the SEC, also could become useful for all public companies, which will become subject to the Dodd-Frank Act clawback provisions sometime next year. Will the SEC allow companies to purchase this insurance for their executives (i.e., with disclosure)? Will the FDIC allow financial institutions to purchase this insurance for their executives? Will either agency allow executives to purchase the insurance for themselves? Can the agencies legally prevent it? (Has that ever stopped them before?)
This is a development we will follow closely. Stay tuned for further developments as we learn them (and please let me know if you learn of them first!).