US Regulators Propose Reviving Rules on Bank Executive Pay Deferrals and Clawbacks

US banking regulators are planning to propose reviving rules that would require large banks to defer executive compensation and expand bonus clawbacks if losses mount, according to a report by the Wall Street Journal. The proposal is being developed by six agencies, including the Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC), and could be introduced in the coming days. "The Federal Reserve is not involved in drafting the proposal," the Journal noted.

The proposed measures aim to address unfinished business from the 2010 financial overhaul and curb risky behavior by forcing executives to wait longer to cash out their bonuses. Under the rules, big banks would need to delay paying out executive bonuses and take back more of those bonuses if the banks suffer significant losses. Previous attempts to implement such rules in 2011 and 2016 were unsuccessful.

Why this matters: The proposed rules on executive compensation at big banks have the potential to reshape incentives and risk-taking in the financial industry. By tying executive pay more closely to long-term performance and expanding clawback provisions, regulators hope to promote greater stability and accountability in the banking sector.

Finalizing the executive compensation rules would still be a significant challenge, as it would require action and approvals from several agencies, including the FDIC, OCC, Securities and Exchange Commission, Federal Housing Finance Agency, and National Credit Union Administration. There is no guarantee that all the agencies would complete the process before the November elections, which could bring a change in administration.

Executive pay on Wall Street has long been a controversial issue, with critics pushing for more restrictions and stringent clawback provisions. The FDIC, OCC, and Federal Reserve declined to comment on the Wall Street Journal report. If the proposed rules are successfully implemented, they would enhance transparency by mandating the disclosure of compensation details to regulatory bodies and possibly the public, aligning executives' incentives with long-term performance and risk management.

Key Takeaways

• US regulators plan to revive rules requiring large banks to defer exec compensation
• Proposed rules aim to curb risky behavior by tying exec pay to long-term performance
• Previous attempts to implement such rules in 2011 and 2016 were unsuccessful
• Finalizing the rules faces challenges, as it requires approvals from multiple agencies
• Proposed rules would enhance transparency and align exec incentives with risk management