Source: United States Senator for Maryland Chris Van Hollen
Today, U.S. Senator Chris Van Hollen (D-Md.) and Congresswoman Nydia M. Velázquez (D-N.Y.) urged the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), Office of the Comptroller of the Currency (OCC), Securities and Exchange Commission (SEC), Federal Housing Finance Agency (FHFA), and National Credit Union Administration (NCUA) to finalize Section 956 of the Dodd-Frank Act, which governs executive incentive-based compensation arrangements, before the end of the year.
The letter comes after the collapse of Silicon Valley Bank (SVB), where executives sold millions of dollars’ worth of stock options in the weeks leading up to the bank’s failure, and employees took regularly scheduled bonuses almost immediately before the Federal Deposit Insurance Corporation’s takeover. Public reports also indicate SVB Chief Executive Officer Greg Becker was able to significantly increase his compensation award year over year because his bonus awards were tied to the bank’s return on equity.
Observers have speculated that SVB sacrificed long-term strategy to boost profits in the short term, leading to unhedged risk at the bank. Experts have questioned whether the failure of SVB could have been avoided had the incentive-based compensation rules under Section 956 been in place.
“As we sift through the failures of another American bank and another apparent example of the bank’s CEO and senior executives pursuing a strategy for their own enrichment at the apparent expense of the bank’s overall health, it is clear that it is well past time to change the culture and incentives for the industry’s top executives,” wrote the lawmakers. “We must change these motivations to avert a similar disaster in the future. It is time for your agencies to finalize the Section 956 rulemaking.”
The letter also urges regulators to include a requirement in the final rule for deferral amounts of 100 percent of incentive-based compensation, a ban on stock options in executive compensation packages, and a prohibition on the hedging of bonus pay.
“The public is outraged by the massive pay Silicon Valley Bank and Signature Bank executives were receiving while putting our financial stability at risk. We applaud Representative Velazquez and Senator Van Hollen for their leadership in demanding regulators act on their long-standing congressional mandate to protect consumers, depositors, and the public from executives’ excessive risk-taking,” said Natalia Renta, Senior Policy Counsel for Corporate Governance and Power, Americans for Financial Reform.
“These financial policy leaders offer an ingenious way to turn banker pay from an incentive to engage in reckless and even fraudulent behavior to an incentive to keep banks clean and safe,” said Bartlett Naylor, Financial Policy Advocate, Public Citizen.
“The American people are tired of watching Wall Street executives walk away unscathed from crises they create. These recommendations would encourage executives to prioritize long-term prosperity and stability over reckless actions to fatten their own paychecks while putting the rest of us at risk,” said Sarah Anderson, Global Economy Project Director and Inequality.org Co-editor, Institute for Policy Studies.
For a full copy of the letter, click here.