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FDIC Eyes Exec Pay Clawbacks Amid Banking Turmoil

FDIC to propose executive pay clawbacks for risky behavior, facing industry resistance and regulatory hurdles.

By Mackenzie Crow

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5/3, 18:34 EDT
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Key Takeaway

  • FDIC's new proposal mandates clawbacks from executives for excessive risk-taking, shifting from bank discretion to regulatory requirement.
  • Despite previous failures in 2011 and 2016, the proposal aims to curb risky behavior post-2022 banking turmoil but faces Federal Reserve opposition.
  • Implementation requires agreement from multiple agencies, including the Fed, FHFA, OCC, SEC, and NCUA, complicating its enactment.

Regulatory Revival on Executive Pay

The Federal Deposit Insurance Corp. (FDIC) is poised to introduce a proposal that could significantly alter the landscape of executive compensation within the banking sector. This initiative aims to mandate the clawback of pay from executives who engage in overly risky behavior, a shift from previous versions where such actions were left to the discretion of the banks. The proposal, which could be announced as early as next Monday, seeks to tighten the regulatory framework around executive bonuses, particularly in light of last year's banking turmoil that saw the collapse of three major regional lenders.

Opposition and Coordination Challenges

Despite the FDIC's renewed efforts, the proposal faces a rocky path to implementation. Historical resistance from the banking industry, coupled with the necessity for approval from an array of U.S. regulatory agencies, underscores the complex regulatory landscape. Notably, the Federal Reserve, a key player in this process, has not endorsed the current version of the proposal. The coordination required among the Federal Housing Finance Agency, the Office of the Comptroller of the Currency, the Securities and Exchange Commission, and the National Credit Union Administration further complicates the proposal's journey towards enactment.

Accountability and Transparency

The proposed rules aim to enhance accountability in the banking sector by delaying the payout of vested bonuses to executives, thereby ensuring that the consequences of their decisions are fully realized. Additionally, the proposal includes provisions for the potential public disclosure of pay package details, offering a layer of transparency previously unseen. This move towards greater accountability and transparency is seen as a direct response to the financial instability and executive missteps that have plagued the industry.