- In addition to the Biden administration's campaign to increase taxes on the very wealthy, regulators may revive efforts to put restrictions on Wall Street bankers' pay, a part of the Dodd-Frank Act that has never been implemented.
- Formulating such rules, which are intended to make sure that banks' compensation policies don't incentivize executives for risky practices, stalled during the Trump administration.
- Now consumer advocacy groups and progressive Democrats are pushing to move forward with the regulations.
- Massachusetts Senator Elizabeth Warren, a long-time critic of excessive bonuses, said in a statement to Bloomberg News that such restrictions are "critical to reining in the reckless Wall Street culture that encourages executives to juice their pay with risky, short-term gains."
- "It's long past time regulators revisit the rule and use it to prevent greedy executives from crashing our economy again," she added.
- Even under the Obama administration regulators were hesitant to tell private companies how to compensate their employees. For one thing, the economy won't function properly if bankers don't take any risk. Also, lobbying over the issue has been intense for a decade due to the importance of annual bonuses to financial executives.
- Unlike tax increases, stricter rules on bank bonuses won't have to go through Congress. Instead, regulatory agencies, including the Securities and Exchange Commission and the Federal Reserve, will likely be urged by Capitol Hill to implement effective regulations.
- Consumer group Public Citizen's Barrett Naylor said the group met with Biden administration officials, who gave the impression that "they don't want to let four years pass and not get this done," Bloomberg News reported.
- For their part, banks say they've proactively adjusted their own compensation practices in the wake of the 2008 crisis. Such examples include clawing back bonuses after big losses and allegations of wrongdoing and making executives wait longer to receive performance-based pay.
- Case in point: Goldman Sachs (G -1.0%) CEO David Solomon got a $10M pay cut due to the 1MDB scandal.
- They also say that putting such restrictions on financial industry executive pay will encourage talent to pursue careers in other industries and will end up increasing annual pay when bonuses are restricted.
- Other obvious banks that would be affected: JPMorgan (JPM -1.2%), Morgan Stanley (MS -1.1%), Bank of America (BAC -1.4%), Citi (C -3.2%), and Wells Fargo (WFC -1.8%).
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