News Release: Executive Pay Rule Could Reduce Incentives for Reckless Bank Risk Taking


May 6, 2024

Carter Dougherty

Executive Pay Rule Could Reduce Incentives for Reckless Bank Risk Taking

Washington, D.C. – The Federal Deposit Insurance Corporation (FDIC) and the Office of the Comptroller of the Currency (OCC) voted to propose a rule implementing an important statutory mandate to ban incentive-based executive compensation that encourages reckless risk-taking, but two other regulators – the Federal Reserve and the Securities and Exchange Commission – have yet to do the same.

“The directive from Congress to write this regulation has been in statute for almost 14 years, and while we waited, the country experienced another banking crisis last year, and misaligned incentive compensation was once again a contributing factor,” said Natalia Renta, senior policy counsel for corporate governance and power at Americans for Financial Reform Education Fund. “The other financial regulators need to follow suit as soon as possible before we have yet another crisis for the same reason.”

Congress tasked six agencies with promulgating this critical rule when it passed the Dodd-Frank Act in 2010. But only four out of the six were part of today’s proposal — the FDIC, the OCC, the National Credit Union Administration (NCUA),  and the Federal Housing Finance Agency (FHFA).

Today’s notice of proposed rulemaking formally resuscitates a 2016 plan while adding questions for comment and identifying specific alternatives the agencies are considering. Those alternatives include applying the most stringent requirements to financial institutions with over $50 billion in assets (as opposed to only institutions with over $250 billion in assets); strengthening important provisions related to limits on stock options, forfeiture of deferred compensation, and clawbacks; and bans on executives’ hedging of their own incentive pay.

Public interest groups have strongly pushed for this rule, as have Sen. Van Hollen and Rep. Velazquez. A Public Citizen report detailed the ongoing problems with executive pay that incentivizes inappropriate risk-taking. President Biden and Ranking Member Waters also urged the agencies to finalize the rule.