§ 1831p-1. — Standards for safety and soundness.
[Laws in effect as of January 24, 2002]
[Document not affected by Public Laws enacted between
January 24, 2002 and December 19, 2002]
[CITE: 12USC1831p-1]
TITLE 12--BANKS AND BANKING
CHAPTER 16--FEDERAL DEPOSIT INSURANCE CORPORATION
Sec. 1831p-1. Standards for safety and soundness
(a) Operational and managerial standards
Each appropriate Federal banking agency shall, for all insured
depository institutions, prescribe--
(1) standards relating to--
(A) internal controls, information systems, and internal
audit systems, in accordance with section 1831m of this title;
(B) loan documentation;
(C) credit underwriting;
(D) interest rate exposure;
(E) asset growth; and
(F) compensation, fees, and benefits, in accordance with
subsection (c) of this section; and
(2) such other operational and managerial standards as the
agency determines to be appropriate.
(b) Asset quality, earnings, and stock valuation standards
Each appropriate Federal banking agency shall prescribe standards,
by regulation or guideline, for all insured depository institutions
relating to asset quality, earnings, and stock valuation that the agency
determines to be appropriate.
(c) Compensation standards
Each appropriate Federal banking agency shall, for all insured
depository institutions, prescribe--
(1) standards prohibiting as an unsafe and unsound practice any
employment contract, compensation or benefit agreement, fee
arrangement, perquisite, stock option plan, postemployment benefit,
or other compensatory arrangement that--
(A) would provide any executive officer, employee, director,
or principal shareholder of the institution with excessive
compensation, fees or benefits; or
(B) could lead to material financial loss to the
institution;
(2) standards specifying when compensation, fees, or benefits
referred to in paragraph (1) are excessive, which shall require the
agency to determine whether the amounts are unreasonable or
disproportionate to the services actually performed by the
individual by considering--
(A) the combined value of all cash and noncash benefits
provided to the individual;
(B) the compensation history of the individual and other
individuals with comparable expertise at the institution;
(C) the financial condition of the institution;
(D) comparable compensation practices at comparable
institutions, based upon such factors as asset size, geographic
location, and the complexity of the loan portfolio or other
assets;
(E) for postemployment benefits, the projected total cost
and benefit to the institution;
(F) any connection between the individual and any fraudulent
act or omission, breach of trust or fiduciary duty, or insider
abuse with regard to the institution; and
(G) other factors that the agency determines to be relevant;
and
(3) such other standards relating to compensation, fees, and
benefits as the agency determines to be appropriate.
(d) Standards to be prescribed
(1) In general
Standards under subsections (a), (b), and (c) of this section
shall be prescribed by regulation or guideline. Such regulations or
guidelines may not prescribe standards that set a specific level or
range of compensation for directors, officers, or employees of
insured depository institutions.
(2) Applicability of other laws
Paragraph (1) shall not affect the authority of any appropriate
Federal banking agency to restrict the level of compensation,
including golden parachute payments (as defined in section
1828(k)(4) of this title), paid to any director, officer, or
employee of an insured depository institution under any other
provision of law.
(3) Senior executive officers at undercapitalized
institutions
Paragraph (1) shall not affect the authority of any appropriate
Federal banking agency to restrict compensation paid to any senior
executive officer of an undercapitalized insured depository
institution pursuant to section 1831o of this title.
(4) Safety and soundness or enforcement actions
Paragraph (1) shall not be construed as affecting the authority
of any appropriate Federal banking agency under any provision of
this chapter other than this section, or under any other provision
of law, to prescribe a specific level or range of compensation for
any director, officer, or employee of an insured depository
institution--
(A) to preserve the safety and soundness of the institution;
or
(B) in connection with any action under section 1818 of this
title or any order issued by the agency, any agreement between
the agency and the institution, or any condition imposed by the
agency in connection with the agency's approval of an
application or other request by the institution, which is
enforceable under section 1818 of this title.
(e) Failure to meet standards
(1) Plan required
(A) In general
If the appropriate Federal banking agency determines that an
insured depository institution fails to meet any standard
prescribed under subsection (a) or (b) of this section--
(i) if such standard is prescribed by regulation of the
agency, the agency shall require the institution to submit
an acceptable plan to the agency within the time allowed by
the agency under subparagraph (C); and
(ii) if such standard is prescribed by guideline, the
agency may require the institution to submit a plan
described in clause (i).
(B) Contents of plan
Any plan required under subparagraph (A) shall specify the
steps that the institution will take to correct the deficiency.
If the institution is undercapitalized, the plan may be part of
a capital restoration plan.
(C) Deadlines for submission and review of plans
The appropriate Federal banking agency shall by regulation
establish deadlines that--
(i) provide institutions and companies with reasonable
time to submit plans required under subparagraph (A), and
generally require the institution to submit a plan not later
than 30 days after the agency determines that the
institution fails to meet any standard prescribed under
subsection (a), (b), or (c) of this section; and
(ii) require the agency to act on plans expeditiously,
and generally not later than 30 days after the plan is
submitted.
(2) Order required if institution fails to submit or
implement plan
If an insured depository institution fails to submit an
acceptable plan within the time allowed under paragraph (1)(C), or
fails in any material respect to implement a plan accepted by the
appropriate Federal banking agency, the agency, by order--
(A) shall require the institution to correct the deficiency;
and
(B) may do 1 or more of the following until the deficiency
has been corrected:
(i) Prohibit the institution from permitting its average
total assets during any calendar quarter to exceed its
average total assets during the preceding calendar quarter,
or restrict the rate at which the average total assets of
the institution may increase from one calendar quarter to
another.
(ii) Require the institution to increase its ratio of
tangible equity to assets.
(iii) Take the action described in section
1831o(f)(2)(C) of this title.
(iv) Require the institution to take any other action
that the agency determines will better carry out the purpose
of section 1831o of this title than any of the actions
described in this subparagraph.
(3) Restrictions mandatory for certain institutions
In complying with paragraph (2), the appropriate Federal banking
agency shall take 1 or more of the actions described in clauses (i)
through (iii) of paragraph (2)(B) if--
(A) the agency determines that the insured depository
institution fails to meet any standard prescribed under
subsection (a)(1) or (b)(1) of this section;
(B) the institution has not corrected the deficiency; and
(C) either--
(i) during the 24-month period before the date on which
the institution first failed to meet the standard--
(I) the institution commenced operations; or
(II) 1 or more persons acquired control of the
institution; or
(ii) during the 18-month period before the date on which
the institution first failed to meet the standard, the
institution underwent extraordinary growth, as defined by
the agency.
(f) Definitions
For purposes of this section, the terms ``average'' and ``capital
restoration plan'' have the same meanings as in section 1831o of this
title.
(g) Other authority not affected
The authority granted by this section is in addition to any other
authority of the Federal banking agencies.
(Sept. 21, 1950, ch. 967, Sec. 2[39], as added Pub. L. 102-242, title I,
Sec. 132(a), Dec. 19, 1991, 105 Stat. 2267; amended Pub. L. 102-550,
title IX, Sec. 956, Oct. 28, 1992, 106 Stat. 3895; Pub. L. 103-325,
title III, Sec. 318(a)-(c), Sept. 23, 1994, 108 Stat. 2223, 2224.)
Codification
Section was formerly classified to section 1831s of this title.
Another section 2[39] of act Sept. 21, 1950, was renumbered section
2[42] and is classified to section 1831r-1 of this title.
Amendments
1994--Subsec. (a). Pub. L. 103-325, Sec. 318(c)(1), struck out ``and
depository institution holding companies'' before ``, prescribe'' in
introductory provisions.
Subsec. (b). Pub. L. 103-325, Sec. 318(a), amended heading and text
of subsec. (b) generally. Prior to amendment, text read as follows:
``Each appropriate Federal banking agency shall, for all insured
depository institutions and depository institution holding companies,
prescribe--
``(1) standards specifying--
``(A) a maximum ratio of classified assets to capital;
``(B) minimum earnings sufficient to absorb losses without
impairing capital; and
``(C) to the extent feasible, a minimum ratio of market
value to book value for publicly traded shares of the
institution or company; and
``(2) such other standards relating to asset quality, earnings,
and valuation as the agency determines to be appropriate.''
Subsec. (d). Pub. L. 103-325, Sec. 318(b)(1), struck out ``by
regulation'' after ``Standards to be prescribed'' in heading.
Subsec. (d)(1). Pub. L. 103-325, Sec. 318(b)(2), inserted ``or
guideline'' before period at end of first sentence and inserted ``or
guidelines'' after ``Such regulations'' in second sentence.
Subsec. (e)(1)(A). Pub. L. 103-325, Sec. 318(c)(2)(A)-(C), struck
out ``or depository institution holding company'' after ``insured
depository institution'', substituted ``or (b) of this section--
``(i) if such standard is prescribed by regulation of the
agency, the agency shall require''
for ``or (b) of this section the agency shall require'', struck out ``or
company'' before ``to submit an acceptable plan'', substituted ``; and''
for period at end of cl. (i), and added cl. (ii).
Subsec. (e)(1)(B), (C). Pub. L. 103-325, Sec. 318(c)(2)(A), struck
out ``or company'' before ``will take to correct'' in subpar. (B) and
before ``to submit a plan'' and ``fails to meet any standard'' in
subpar. (C).
Subsec. (e)(2). Pub. L. 103-325, Sec. 318(c)(2)(B), struck out ``or
depository institution holding company'' after ``insured depository
institution'' in introductory provisions.
Subsec. (e)(2)(A), (B). Pub. L. 103-325, Sec. 318(c)(2)(A), struck
out ``or company'' after ``institution'' wherever appearing.
1992--Subsec. (d). Pub. L. 102-550, Sec. 956(1), added subsec. (d)
and struck out former subsec. (d) which read as follows: ``Standards
under subsections (a), (b), and (c) of this section shall be prescribed
by regulation.''
Subsec. (e)(1)(A). Pub. L. 102-550, Sec. 956(2), substituted ``(a)
or (b)'' for ``(a), (b), or (c)''.
Effective Date of 1994 Amendment
Section 318(d) of Pub. L. 103-325 provided that: ``The amendments
made by this section [amending this section] shall be construed to have
the same effective date as section 39 of the Federal Deposit Insurance
Act [this section], as provided in section 132(c) of the Federal Deposit
Insurance Corporation Improvement Act of 1991 [Pub. L. 102-242, set out
as an Effective Date note below].''
Effective Date
Section 132(c) of Pub. L. 102-242 provided that: ``The amendment
made by subsection (a) [enacting this section] shall become effective on
the earlier of--
``(1) the date on which final regulations promulgated in
accordance with subsection (b) [set out below] become effective
[Final rules were published July 10, 1995, 60 F.R. 35674, eff. Aug.
9, 1995.]; or
``(2) December 1, 1993.''
Regulations
Section 132(b) of Pub. L. 102-242 provided that: ``Each appropriate
Federal banking agency (as defined in section 3 of the Federal Deposit
Insurance Act [12 U.S.C. 1813]) shall promulgate final regulations under
section 39 of the Federal Deposit Insurance Act [12 U.S.C. 1831p-1] (as
added by subsection (a)) not later than August 1, 1993.''
Section Referred to in Other Sections
This section is referred to in sections 1464, 1818 of this title;
title 15 section 6805.
