Banking regulators are setting their sights on renewing efforts to tighten executive compensation at large banks. The regulatory agencies aim to restart a prior proposal that would require big banks, such as JPMorgan, Goldman Sachs and Morgan Stanley, to defer compensation for executives and claw back bonuses if losses at their companies become too high, the Wall Street Journal reported.
The average Wall Street bonus last year was $176,500, according to New York State Comptroller Thomas DiNapoli. Bonus pay for workers in New York City’s securities industry hit a record high of $240,400 in 2021.
For decades, traders, brokers, bankers and other financial services employees could roll the dice in hopes of winning big. However, if they lost money, they didn’t suffer the ramifications.
The new potential rule may be thwarted as previous attempts, such as the 2010 Dodd-Frank Act, didn’t gain enough traction due to pushback from Wall Street. The last proposal in 2016 required the biggest financial institutions to defer payment of at least half of executives’ bonuses for four years and establish a seven-year clawback period.
Why Regulators Are Dropping The Hammer
The new push to revive the executive compensation rules comes amid renewed scrutiny of bank practices following the collapses of Silicon Valley Bank and Signature Bank.
The proposal was made by six agencies, including the Federal Deposit Insurance Corporation and the Office of the Comptroller of the Currency, but the Federal Reserve bank under Chair Jerome Powell has expressed reluctance to consider the measure this year.
Banks argue that they have already tightened compensation practices since the 2008 financial crisis and new rules are not needed. However, banker pay became a big issue during the Great Recession, with critics blaming executives’ upfront cash bonuses for encouraging risky, short-term behavior that contributed to the crisis.
The financial crisis, triggered by the collapse of the subprime mortgage market, shook Wall Street and the global economy, leading to further financial regulation, like Dodd-Frank. Wall Street has faced criticism for its role in growing income inequality, leading to calls for greater oversight and reform.
Source: Forbes
