The Board of Directors of the Federal Deposit Insurance Corporation, or FDIC, today approved a joint proposed rulemaking to implement Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. Section 956 prohibits incentive-based compensation arrangements that encourage inappropriate risk taking by covered financial institutions and are deemed to be excessive, or that may lead to material losses.

Consistent with Dodd-Frank, the proposed rule does not apply to banks with total consolidated assets of less than $1 billion, and contains heightened standards for institutions with $50 billion or more in total consolidated assets. For these larger institutions, the rule requires that at least 50 percent of incentive-based payments be deferred for a minimum of three years for designated executives. Moreover, boards of directors of these larger institutions must identify employees who individually have the ability to expose the institution to substantial risk, and must determine that the incentive compensation for these employees appropriately balances risk and rewards according to enumerated standards.

Although the FDIC Board acted on the proposal today, the proposal is a joint rule making by the five federal members of the Federal Financial Institutions Examination Council, or FFIEC, the Securities Exchange Commission, or SEC, and the Federal Housing Finance Agency, or FHFA, who must each independently approve the proposed rule before it is published in the Federal Register.

Check frequently for updates on the Dodd-Frank Act and other important securities law matters.