Some Regulatory Agencies Propose Placing Limits on Incentive Compensation


Banking and Housing Regulators reintroduced a 2016 proposed rule that would establish limits on incentive compensation for banks with at least $1B in assets. The FDIC and SEC did not join the other regulatory agencies in this proposal, despite the Dodd-Frank requirement that all agencies must work together. In addition, FDIC Chairman Martin Gruenberg said the proposal won’t advance unless all of the required agencies sign on.

The Dodd-Frank Act requires the Fed, FDIC, Office of the Comptroller of the Currency, National Credit Union Administration, SEC and Federal Housing Finance Agency to jointly issue regulations or guidelines to prohibit incentive-based compensation arrangements that encourage excessive risk-taking at financial institutions with at least $1 billion in assets. The 2016 draft being re-proposed creates a three-tiered approach based on asset size, from $1 billion to $50 billion, $50 billion to $250 billion and more than $250 billion, with larger institutions subject to stricter requirements.

Gruenberg said that the FDIC and other banking agencies have continued to address incentive-based compensation practices at supervised institutions since the rule was first proposed in 2016. “The agencies are proposing to meet that mandate under this proposal by applying a consistent set of enforceable standards to covered institutions.”

Gruenberg also acknowledged the absence of the Fed and SEC, saying the proposal would only move forward once it is adopted by all six agencies. In an accompanying statement, FDIC Vice Chairman Travis Hill said he opposed the proposal, calling the decision to advance it “extremely odd” when the Dodd-Frank Act states that the rulemaking must include participation by all the agencies. 

OBL will continue to monitor the proposal and will provide members with timely updates.