Financial execs will pay for failure

By MARK DeCAMBRE

Last Updated: 4:11 AM, July 7, 2011

Posted: 12:21 AM, July 7, 2011

It's a Wall Street cash grab -- for Uncle Sam.

The Federal Deposit Insurance Corp., which was granted authority in the massive Dodd-Frank legislation to dig into the prodigiously deep pockets of Wall Street bankers and claw back compensation in the event their firm mounts a Lehman Brothers-like collapse, voted yesterday to pursue such penalties.

The move allows the FDIC to recover cash from bonuses and other compensation as far back as two years from executives deemed "substantially responsible" for the collapse.

The government agency also approved rules under Dodd-Frank that grant it authority to oversee the dismantling of any institution on the brink of collapse -- not just banks that it regulates.

Bloomberg

Sheila Bair

The FDIC vote marked the last meeting over which Chairwoman Sheila Bair will preside. She is expected to step down by week's end. Vice Chairman Martin Gruenberg is expected to replace Bair.

The once-sleepy FDIC has grown into one of the more powerful regulators under Bair's tenure, and bankers have bristled as it has grown in stature.

Indeed, the agency's new ability to recover cash from bankers has proved controversial for the industry; some have voiced concerns that the rule is vague and may be difficult to enforce.

The FDIC is expected to determine the amount that it claws back based on the agency's assessment on how much of a role that official played and the size of the liquidation costs.

According to the language of the new rule, an executive would be deemed liable if he failed to act "with the degree of skill and care an ordinarily prudent person in a like position would exercise under similar circumstances."

"This rule will have a direct impact on market interactions, and that's kind of the idea," Bair told Bloomberg during a TV interview.

In the coming weeks, the FDIC also is expected to hash over plans that would force some of the largest banks to create their own so-called living wills, in the event that they have to be wound down in an orderly fashion during a crisis. mark.decambre@nypost.com