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Compensation regulationsDepository institutions whose stock or the stock of their subsidiaries is publiclytraded are subject to new compensation disclosure rules adopted and enforced bythe SEC. 32 The new rules are designed to provide investors with a clearer and morecomplete picture of the compensation of executive officers and directors, refinecompensation related disclosures, expand disclosures related to beneficial ownership,improve disclosures regarding related-party transactions, and consolidate existingdisclosure requirements regarding director independence and corporate governance.A company’s annual report must now include a Compensation Disclosure andAnalysis that discusses the material factors underlying the company’s compensationpolicies and decisions for executive officers.Privacy requirementsThe Gramm-Leach-Bliley Act sets forth requirements regarding an institution’s disclosureof their consumers’ non-public 33 financial information. 34 For example, all financialinstitutions must develop a privacy policy and disclose that policy to consumers. Afinancial institution may not disclose non-public personal information about consumersto nonaffiliated third parties, unless the financial institution has previously informed theconsumer that such information may be disclosed and the consumer has been giventhe opportunity to direct that such information not be disclosed. States may enact (andenforce) even more stringent financial privacy protection.Enforcement actionsDirectors of depository institutions may be the subject of other administrative andcriminal sanctions, including:1. Cease and desist orders12 U.S.C. § 1818(b) authorizes the appropriate federal regulatory agency, afternotice and an administrative hearing, to issue a cease and desist order (which mayinclude requiring the respondent to take affirmative action to correct the violation)against any institution affiliated party who: (1) has engaged, is engaging, or thereis reasonable grounds to believe will engage, in any unsafe or unsound practice; or(2) has violated, is violating, or there is reason to believe will violate, any law, rule orregulation or any written condition imposed by the agency in connection with thegrant of an application or other request.32 SEC Release No. 33-8732.33 The privacy provisions under the Gramm-Leach-Bliley Act of 1999 do not apply to publiclyavailable information – i.e., titles to property,tax liens, bankruptcy filings and judgments– or to depersonalized information, such asdemographic data. Caution should be paid,however, when non-public information andpublicly available information are combined.34 A “consumer” is defined as an “individual whoobtains from a financial institution, financialproducts or services that are to be usedprimarily for personal, family, or householdpurposes.” 15 U.S.C. § 6809(9). The definitiondoes not extend to a financial institution’sbusiness customers.2. Removal, prohibition and suspension12 U.S.C. § 1818(e) provides that the appropriate federal regulatory agencymay initiate proceedings to remove an institution-affiliated party from office andto prohibit any further participation by that party in the affairs of any insuredinstitution. Prohibition orders may be entered even where the institution-affiliatedparty is no longer affiliated with the institution. To issue a removal and prohibitionorder, the agency must determine: (1) that the institution-affiliated party has, directlyor indirectly, committed a violation of law, regulation, written agreement with orwritten condition imposed by the agency, or final cease and desist order, or hasparticipated in an unsafe or unsound practice or has committed a breach of fiduciary13Financial institutions guide
duty; (2) that such violation, practice or breach has resulted, or probably will result,in financial loss or other damage to the institution, has prejudiced or could prejudice,the interests of depositors, or has produced a pecuniary gain or other benefit tothe institution-affiliated party; and (3) that such violation, practice or breach eitherinvolves personal dishonesty or demonstrates a willful or continuing disregard for thesafety and soundness of the institution.3. Prompt corrective actionThe Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA)established a regulatory system allowing regulators to commence disciplinary actionas soon as an institution becomes undercapitalized. Pursuant to the directivescontained in FDICIA, each of the federal regulatory agencies developed two capitalstandards: (1) a leverage limit, which measures capital as a percentage of totalassets; and (2) a risk-based capital standard, which measures capital as a percentageof an institution’s risk-adjusted assets. Using these standards, regulatory agenciescategorize financial institutions as “well capitalized,” “adequately capitalized,”“undercapitalized,” “significantly undercapitalized” or “critically undercapitalized.”With respect to institutions classified as undercapitalized and lower, the appropriateregulator may order a range of disciplinary actions, including restricting the paymentof bonuses or raises to senior executive officers, requiring the replacement of seniorexecutive officers or directors and placing the institution in receivership.4. Criminal liabilityA number of criminal charges may be brought against directors, officers oremployees of federally-insured depository institutions, including the followingcommonly prosecuted offenses:• Misapplication or embezzlement of funds (18 U.S.C. §§ 656 and 657)• False entries in books (18 U.S.C. §§ 1005 and 1006)• False statements to a financial institution (18 U.S.C. § 1014)• False statements in any matter within the jurisdiction of the United Statesgovernment (18 U.S.C. § 1001)• Perjury (18 U.S.C. § 1621)• Violations of Bank Bribery Act (18 U.S.C. § 215)• Fraud (18 U.S.C. § 1344)14Financial institutions guide
Page 6 and 7: • Reviewing how appropriate finan
Page 8: While the scope and application of
Page 11 and 12: agents, or servants of the [bank] t
Page 13: Sarbanes-OxleyThe Sarbanes-Oxley Ac
Page 17 and 18: • employ any device, scheme or ar
Page 19 and 20: Claims by or on behalf ofthe instit
Page 21 and 22: “In recent years, there hasbeen a
Page 23 and 24: • Copies of regulators’ examina
Page 25 and 26: Most indemnification statutes disti
Page 27 and 28: • An institution may be insolvent
Page 29 and 30: ConclusionCorporate indemnification

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