Bankers Call on Regulators to Withdraw Compensation Rule Until Agencies Agree

NCUA is among the agencies that have not signed on to plan

Banking trade groups are calling for federal banking regulators to withdraw their proposed rule governing incentive-based compensation at financial institutions, saying that not all of the relevant agencies have sign onto the proposal.

While the banking trade groups did not specifically mention the National Credit Union Administration, that agency has not signed on yet. NCUA officials have said they expect to agree to the proposed rule soon. The Federal Reserve and the Securities and Exchange Commission also have not agreed to the proposal yet.

“Today’s unorthodox decision by the [Federal Deposit Insurance Corp.] and other regulators to issue a notice of proposed rulemaking on incentive compensation without all the relevant agencies participating is a disappointing political exercise,” American Bankers Association President/CEO Rob Nichols said.

The Dodd-Frank Act required the regulators to issue the rule by May 2011. The agencies issued proposals in 2011 and 2016, but they never were finalized. The proposal issued Monday is identical to the one proposed in 2016.

The proposed rule includes prohibitions intended to make incentive-based compensation arrangements at financial institutions with more than $1 billion in assets more sensitive to risk.

As the proposal was issued, FDIC Chairman Martin Greunberg said the proposed rule will not be published in the Federal Register until all the relevant agencies have agreed to the plan.

However, FDIC Vice Chairman Travis Hill said he was troubled that the proposed rule was issued without everyone being on board. “It is extremely odd to issue this proposal without all the relevant agencies participating,” Hill said. “Should commenters invest time and resources to respond to this proposal, or wait until all the relevant agencies are in agreement?” 

The Independent Community Bankers of America also called on the agencies to withdraw the proposal. “ICBA and the nation’s community banks urge federal banking regulators to withdraw their incomplete proposed rule on incentive-based compensation, which lacks the support from all of the regulatory agencies that must participate in the rulemaking according to statute,” the trade group said.

Consumer advocates, on the other hand, said the proposed rule was long overdue.

“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,” Natalia Renta, senior policy counsel for corporate governance and power at Americans for Financial Reform Education Fund, said. “The other financial regulators need to follow suit as soon as possible before we have yet another crisis for the same reason.”

Bartlett Naylor, financial policy advocate for Public Citizen, agreed. He said, “Credit these four banking agencies for moving this necessary, statutorily mandated, and long overdue reform.”