Daily Archives: Thursday, July 8, 2010

Corporate Governance and Executive Compensation Provisions of the Dodd-Frank Act

David Huntington is a partner in the Capital Markets and Securities Group at Paul, Weiss, Rifkind, Wharton & Garrison LLP. This post is based on a Paul Weiss client memo by Mr. Huntington, Mark S. Bergman, Lawrence I. Witdorchic and Frances Mi. Other memoranda on the corporate governance and executive compensation provisions of the Dodd-Frank Act by Forum contributors are available here (from Wachtell, Lipton, Rosen & Katz) and here (from Sullivan & Cromwell LLP); a chart summarizing those provisions by Forum contributors from Kirkland & Ellis LLP is available here. Additional posts relating to the Dodd-Frank Act are available here.

On June 25, 2010, a House and Senate conference committee negotiating the blueprint for the reform of the U.S. financial system agreed on text of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Act”). The Act as embodied in the conference report is currently scheduled to be approved by Congress this week before being sent to President Obama for signature.

The Act includes a number of significant corporate governance and executive compensation provisions that will apply to all U.S. public companies. We discuss these measures below and will be covering other aspects of this legislation in separate client memoranda. A copy of the entire Act is available here; however, for ease of use, we have excerpted the relevant corporate governance and executive compensation provisions here.

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Collins Amendment Sets Minimum Capital Requirements

Margaret E. Tahyar is a partner and member of the New York Financial Institutions Group at Davis Polk & Wardwell LLP. This post is based on a Davis Polk client memorandum by Ms. Tahyar, Daniel N. Budofsky, Luigi L. De Ghenghi, John L. Douglas, Randall D. Guynn, Arthur S. Long, and Reena Agrawal Sahni. Additional posts on the Dodd-Franks Act are available here.

The Collins Amendment, originally drafted by the FDIC staff and reflecting views held by Chairwoman Bair, imposes, over time, the leverage and risk-based standards currently applicable to U.S. insured depository institutions on U.S. bank holding companies, including U.S. intermediate holding companies of foreign banking organizations, thrift holding companies and systemically important nonbank financial companies. One of the effects of the Collins Amendment is to eliminate trust preferred securities as an element of Tier 1 capital. Implementing regulations must be issued no later than 18 months from the bill’s effective date. As with all changes in capital requirements, there are highly negotiated transition periods and grandfathering exemptions, which we describe below. Please see a more complete implementation timeline at the end of this memorandum.

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