Senators on Thursday put pressure on the Federal Reserve’s vice chair for supervision, calling on the central bank to follow other agencies in issuing a long-delayed rule on incentive-based compensation for bank executives.
The Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Federal Housing Finance Agency issued a notice of proposed rulemaking last week to curb incentive-based compensation arrangements, an as-yet-unfulfilled requirement of the 2010 Dodd-Frank Act. It would also force banks to claw back pay from executives who show an insensitivity to risk.
Similar measures failed to gain traction in both 2011 and 2016. The rule would revamp CEO pay packages so they don’t incentivize excessive risk-taking — an essential move because the CEOs of last year’s failed banks “walked away with millions of dollars each after they ran their banks into the ground,” Sen. Elizabeth Warren, D-MA, contended during Thursday’s Senate Banking Committee hearing.
For the rule to become effective, it also has to be proposed and adopted by the Federal Reserve, the Securities and Exchange Commission and the National Credit Union Administration. The NCUA and SEC have signaled their intent to move forward on the rule, as well.
That leaves the Fed, senators noted Thursday. Warren and Sen. Chris Van Hollen, D-MD, both pressed Barr on the Fed’s plans to join its sister agencies.
Barr assured lawmakers the Fed is “committed to following the law,” but in discussions with colleagues, “it became apparent that, at the board, we believe we need to conduct some further analysis before deciding what steps to take.”
“We have further work to do,” Barr added.
The senators, in response, made clear their frustration with the delay.
“Let’s get it done, your statutory deadline passed 13 years ago,” Warren said pointedly. “I hope you do not allow Chair Powell to stop you from following the law.”
Van Hollen noted the amount of time that’s elapsed since Dodd-Frank was passed.
“This is a case where non-compliance with the requirement is a real problem, and a lot of us have lost patience, so I hope you’ll communicate that back to folks on the board and your colleagues,” Van Hollen told Barr.
