U.S. Senator Tammy Baldwin Leads Call for Accountability on Risky Wall Street Compensation Practices
Senators urge financial leaders to finalize mandatory rules that are 1,000 days overdue
WASHINGTON, D.C. – U.S. Senator Tammy Baldwin today led a call to prohibit compensation practices that incentivize excessive risk-taking beneficial to Wall Street in the short-term, but damaging to the long-term growth and health of the economy and middle class. In a letter joined by nine other senators, Senator Baldwin urged financial leaders in the United States to finalize the overdue mandatory rules included in section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
“Financial institutions play a crucial role in our economy by directing otherwise passive capital to more productive investments. However, when financial entities become more concerned with the pursuit of irresponsible short-term profit than benefits resulting from support for long-term productive investments, the economy suffers,” the senators wrote. “This rule will allow shareholders and the American public to understand what is motivating leaders in the financial industry and what these implications could have for the broader economy.”
The letter was signed by U.S. Senators Jeff Merkley (D-OR), Elizabeth Warren (D-MA), Jack Reed (D-RI), Mazi Hirono (D-HI), Bernie Sanders (I-VT), Sheldon Whitehouse (D-RI), Barbara Boxer, (D-CA), Richard Blumenthal (D-CT), and Tom Udall (D-NM) addressed to Federal Reserve Chair Janet Yellen, Securities and Exchange Commission (SEC) Chair Mary Jo White, Federal Housing Finance Agency (FHFA) Director Mel Watt, Comptroller of the Currency Thomas Curry, Federal Deposit Insurance Corporation (FDIC) Chairman Martin Gruenberg, and National Credit Union Administration (NCUA) Chair Debbie Matz.
Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, approved by Congress in 2010, is a pay reform provision enacted to address concerns raised by regulators, consumer advocates, and even industry representatives in multiple hearings in both the House and Senate. The rule combats the systemic risk posed by financial industry compensation arrangements that incentivize high-risk and short-term actions that endanger the overall economy. The mandatory rule was due nine months after the enactment of Dodd-Frank and is now more 1,000 days late.
The effort to finalize rules on compensation packages that encourage short-term and high-risk behavior by financial institutions has been supported by a wide range of advocacy groups and organizations.
"The pursuit of short-term bonuses at the expense of long-term responsibility was a crucial contributor to the 2008 financial crisis. Section 956 of the Dodd-Frank Act requires regulators to address this problem by banning incentive pay that creates inappropriate incentives,” said Americans for Financial Reform Communications Director Jim Lardner. “Regulators have so far failed to implement this requirement and strong action in this area is long overdue. We support the efforts of Senator Baldwin and other legislators in urging regulators to move forward with a strong rule."
“The financial crash turned on disastrous banker compensation structures. Congress directed the agencies to correct those structures by May, 2011,” said Public Citizen Financial Policy Advocate Bartlett Collins Naylor. “Regulatory attention is critical so that financial risk-takers don’t endanger a financial system that’s important for sustainable Main Street business growth and average American financial security.
“The AFL-CIO strongly supports the efforts led by Senator Baldwin to encourage the financial regulators to strengthen and finalize this important provision of the Dodd-Frank Act banning incentive compensation practices that heighten risk at financial institutions,” said AFL-CIO Office of Investment Director Heather L. Slavkin Corzo. “The rule is already four years overdue.”
“Wall Street compensation packages that put a premium on high-risk, short-term strategies over sustainability wreak havoc on our economy by destroying good jobs, eroding long-term shareholder value and devastating hardworking Americans’ retirement security,” said Teamsters General President James P. Hoffa. “In 2010, Dodd-Frank created critical reform for Wall Street compensation and it is time financial regulators implement these reforms and protect working families from the risky behavior that sparked the financial crisis.”
An online version of the letter is available here.
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