GAO: Agencies should finalize executive compensation rule

WASHINGTON — The Government Accountability Office issued a report finding that financial regulatory agencies should finalize the executive compensation rule required by Dodd-Frank. 

The report was requested by Rep. Maxine Waters, R-Calif., the ranking member of the House Financial Services Committee, in the aftermath of the Silicon Valley Bank failure. There was rising momentum in Congress at the time to impose tougher rules for executives of failed banks. 

Former President Joe Biden had urged the agencies to complete the long overdue part of Dodd-Frank that requires the Federal Reserve, Federal Deposit Insurance Corp., the Federal Housing Finance Agency, National Credit Union Association, Office of the Comptroller of the Currency and Securities and Exchange Commission to lay out rules for compensation plans that encourage bankers and other finance executives from taking excessive and reckless risks. 

“The act required the six agencies to issue these  regulations or guidelines by April 21, 2011,” the GAO said in a letter to Waters. “However, they have yet to  fulfill this requirement.” 

Regulators made two attempts at writing a rule, one in 2011 and another in 2016. 

The failures of Silicon Valley Bank, Signature Bank and First Republic had spurred some lawmakers to offer bills that would have targeted the Federal Deposit Insurance Act to give the FDIC more ability to claw back executive compensation. 

Those bills included one from then-Senate Banking Committee Chairman Sen. Sherrod Brown, D-Ohio. The bill with the most bipartisan support was one co-sponsored by now-Senate Banking Committee ranking member Sen. Elizabeth Warren of Massachusetts and Sen. Catherine Cortez Masto of Nevada, alongside Republican Sens. Josh Hawley of Missouri and Mike Braun of Idaho, which would require that federal regulators claw back all or part of the compensation received by a failed bank executive in the five-year period preceding the failure.

The prospects of regulators finalizing an executive compensation rule in the near term are dim, however, as the current Trump administration has undertaken an effort to reduce the federal workforce and paused pending rules.