Title 12, Banks and BankingRelease 119-73not60

§2277a–10b Authority to Regulate Golden Parachute and Indemnification Payments

Title 12 › Chapter 23— FARM CREDIT SYSTEM › Subchapter V— FARM CREDIT ADMINISTRATION ORGANIZATION › Part E— Farm Credit System Insurance Corporation › § 2277a–10b

Last updated Apr 3, 2026|Official source

Summary

The Farm Credit System’s regulator may stop or limit big exit payouts and payments that pay someone’s legal costs when a Farm Credit institution is in trouble. Those limits apply when the payment is tied to someone leaving and is paid after the institution is insolvent, after a conservator or receiver is appointed, after the institution gets a CAMEL rating of 4 or 5, or when the Corporation finds the institution troubled. A “golden parachute payment” is a pay‑out tied to ending a person’s job and paid under the trouble conditions above. It also covers payments made earlier if they were planned because trouble was expected. It does not cover payments from a retirement plan under section 401 of title 26, certain approved supplemental retirement or deferred‑pay plans, or payments for death or disability. An “indemnification payment” is money paid to cover legal costs or liabilities for a person who is fined or removed after a Farm Credit Administration action. An “institution‑related party” means directors, officers, employees, agents, conservators or receivers, certain stockholders or partners and other participants, and contractors who knowingly or recklessly caused significant loss. “Liability or legal expense” means lawyer fees, settlements, judgments, and related costs. The regulator must make rules listing what to consider when blocking payments. Factors can include evidence of fraud, breach of duty, insider abuse, responsibility for insolvency or a troubled condition, serious legal violations (including violations of title 18 sections 215, 657, 1006, 1014, 1344, 1341, or 1343), the person’s managerial role, how long they worked for the institution, and whether the payment fairly reflects earned and reasonable compensation. Institutions may not prepay salaries or legal costs if the payment is made because insolvency is expected and the payment would improperly protect or favor one creditor. Buying insurance or fidelity bonds is allowed so long as they do not cover the indemnification payments described, and these rules do not limit the Farm Credit Administration’s other powers.

Full Legal Text

Title 12, §2277a–10b

Banks and Banking, Source: USLM XML via OLRC

(a)In this section:

(1)The term “golden parachute payment”—

(A)means a payment (or any agreement to make a payment) in the nature of compensation for the benefit of any institution-related party under an obligation of any Farm Credit System institution that—

(i)is contingent on the termination of the party’s relationship with the institution; and

(ii)is received on or after the date on which—

(I)the institution is insolvent;

(II)a conservator or receiver is appointed for the institution;

(III)the institution has been assigned by the Farm Credit Administration a composite CAMEL rating of 4 or 5 under the Farm Credit Administration Rating System, or an equivalent rating; or

(IV)the Corporation otherwise determines that the institution is in a troubled condition (as defined in regulations issued by the Corporation); and

(B)includes a payment that would be a golden parachute payment but for the fact that the payment was made before the date referred to in subparagraph (A)(ii) if the payment was made in contemplation of the occurrence of an event described in any subclause of subparagraph (A); but

(C)does not include—

(i)a payment made under a retirement plan that is qualified (or is intended to be qualified) under section 401 of title 26 or other nondiscriminatory benefit plan;

(ii)a payment made under a bona fide supplemental executive retirement plan, deferred compensation plan, or other arrangement that the Corporation determines, by regulation or order, to be permissible; or

(iii)a payment made by reason of the death or disability of an institution-related party.

(2)The term “indemnification payment” means a payment (or any agreement to make a payment) by any Farm Credit System institution for the benefit of any person who is or was an institution-related party, to pay or reimburse the person for any liability or legal expense with regard to any administrative proceeding or civil action instituted by the Farm Credit Administration that results in a final order under which the person—

(A)is assessed a civil money penalty; or

(B)is removed or prohibited from participating in the conduct of the affairs of the institution.

(3)The term “institution-related party” means—

(A)a director, officer, employee, or agent for a Farm Credit System institution or any conservator or receiver of such an institution;

(B)a stockholder (other than another Farm Credit System institution), consultant, joint venture partner, or any other person determined by the Farm Credit Administration to be a participant in the conduct of the affairs of a Farm Credit System institution; and

(C)an independent contractor (including any attorney, appraiser, or accountant) that knowingly or recklessly participates in any violation of any law or regulation, any breach of fiduciary duty, or any unsafe or unsound practice that caused or is likely to cause more than a minimal financial loss to, or a significant adverse effect on, the Farm Credit System institution.

(4)The term “liability or legal expense” means—

(A)a legal or other professional expense incurred in connection with any claim, proceeding, or action;

(B)the amount of, and any cost incurred in connection with, any settlement of any claim, proceeding, or action; and

(C)the amount of, and any cost incurred in connection with, any judgment or penalty imposed with respect to any claim, proceeding, or action.

(5)The term “payment” means—

(A)a direct or indirect transfer of any funds or any asset; and

(B)any segregation of any funds or assets for the purpose of making, or under an agreement to make, any payment after the date on which the funds or assets are segregated, without regard to whether the obligation to make the payment is contingent on—

(i)the determination, after that date, of the liability for the payment of the amount; or

(ii)the liquidation, after that date, of the amount of the payment.

(b)The Corporation may prohibit or limit, by regulation or order, any golden parachute payment or indemnification payment by a Farm Credit System institution (including any conservator or receiver of the Federal Agricultural Mortgage Corporation) in troubled condition (as defined in regulations issued by the Corporation).

(c)The Corporation shall prescribe, by regulation, the factors to be considered by the Corporation in taking any action under subsection (b). The factors may include—

(1)whether there is a reasonable basis to believe that an institution-related party has committed any fraudulent act or omission, breach of trust or fiduciary duty, or insider abuse with regard to the Farm Credit System institution involved that has had a material effect on the financial condition of the institution;

(2)whether there is a reasonable basis to believe that the institution-related party is substantially responsible for the insolvency of the Farm Credit System institution, the appointment of a conservator or receiver for the institution, or the institution’s troubled condition (as defined in regulations prescribed by the Corporation);

(3)whether there is a reasonable basis to believe that the institution-related party has materially violated any applicable law or regulation that has had a material effect on the financial condition of the institution;

(4)whether there is a reasonable basis to believe that the institution-related party has violated or conspired to violate—

(A)section 215, 657, 1006, 1014, or 1344 of title 18; or

(B)section 1341 or 1343 of title 18, affecting a Farm Credit System institution;

(5)whether the institution-related party was in a position of managerial or fiduciary responsibility; and

(6)the length of time that the party was related to the Farm Credit System institution and the degree to which—

(A)the payment reasonably reflects compensation earned over the period of employment; and

(B)the compensation represents a reasonable payment for services rendered.

(d)No Farm Credit System institution may prepay the salary or any liability or legal expense of any institution-related party if the payment is made—

(1)in contemplation of the insolvency of the institution or after the commission of an act of insolvency; and

(2)with a view to, or with the result of—

(A)preventing the proper application of the assets of the institution to creditors; or

(B)preferring 1 creditor over another creditor.

(e)Nothing in this section—

(1)prohibits any Farm Credit System institution from purchasing any commercial insurance policy or fidelity bond, so long as the insurance policy or bond does not cover any legal or liability expense of an institution described in subsection (a)(2); or

(2)limits the powers, functions, or responsibilities of the Farm Credit Administration.

Reference

Citations & Metadata

Citation

12 U.S.C. § 2277a–10b

Title 12, Banks and Banking

Last Updated

Apr 3, 2026

Release point: 119-73not60