ALERT: Financial Services Chair Introduces TARP Reform and Accountability Legislation

Friday, January 9, 2009

Financial Services Committee Chair Barney Frank this week released a letter to colleagues announcing his possible plans to draft legislation that would attach conditions to the next draw-down of $350 billion funds for Treasury. Here are details of Frank's plans:

Executive Compensation

Notably, the outline of the legislation includes stricter executive compensation limits (crafted from the auto bill) to apply to new recipients of TARP funds, including:

1)  prohibition on paying or accruing any bonus or incentive compensation to the 25 most highly compensated employees;

2)  prohibition on  any compensation plan that would encourage manipulation of earnings to enhance compensation; and

3)  requirement for divestment of private aircraft or leases.Among other things, the  conditions include (1) Reporting, Monitoring and Accountability (2) limits on executive compensation

Further, for any new receipt of TARP funds (except small financial institutions), the measure would apply EESA's most stringent executive compensation restrictions across the board, including:

1) Treasury to prohibit incentives that encourage excessive risks,

2)  Claw-back of compensation received based on materially inaccurate statements

3)   Prohibition on  all golden parachute payment for the duration of the investment .

Commercial Real Estate Loans and MBS

The outline also clarifies Treasury’s authority to provide support for commercial real estate loans and mortgage-backed securities

Muni bonds

Muni bonds/bond insurers - Clarifies Treasury’s authority to provide support to issuers of municipal securities for new issuance or remarketing of existing auction rate securities.