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Statement of CFPB Director Rohit Chopra, Member, FDIC Board of Directors, on Proposed Rules Regarding Wall Street Compensation and Bonuses

When Congress enacts legislation ordering a regulatory agency to issue rules, this is not simply a suggestion.

The law requires that the Federal Reserve Board of Governors, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the National Credit Union Administration, the Federal Housing Finance Agency, and the Securities and Exchange Commission implement rules prohibiting compensation arrangements that encourage inappropriate risk-taking. The rules were supposed to be completed thirteen years ago.

Today, the Federal Deposit Insurance Corporation and other agencies are proposing rules to ensure that financial industry bonus plans do not lead to bailouts and other costs to the public. This is an important – though highly delayed – step forward.

The Wells Fargo fake accounts scandal is just one of many examples of compensation incentives that create risks to the public. Wells Fargo created a pressure cooker culture where executives and employees at all levels were incentivized to hit unrealistic cross-selling targets. This led to a breathtaking level of identity theft and fraud to create fake accounts.

More recently, we saw how bonuses and executive compensation incentives played a role in the failure of Silicon Valley Bank, which put a premium on short-term profits over long-term sustainability.

The FDIC Board of Directors is voting to republish a 2016 proposal, but also including some alternative options for public feedback. I want to highlight a few aspects of the proposal, along with some considerations that would strengthen the rule for the largest financial firms, many of whom were the beneficiaries of emergency actions and public bailouts.

First, the proposal requires a delay in paying out a portion of an executive’s or employee’s bonus package. We will be particularly interested in feedback about whether a larger portion of these bonuses should be delayed and whether it should pay out over a longer period of time. These provisions are especially important to ensure that highly paid executives and employees have enough skin in the game, putting their own financial stakes at risk if their financial institution is plagued by scandal.

Second, the 2016 proposal required firms to consider lowering or forfeiting that deferred compensation in a range of negative scenarios, such as big losses or misconduct. Similarly, firms would have to consider clawing back compensation that was already paid out within seven years if negative scenarios later played out. Instead of having firms simply consider these actions, it may be more appropriate to require firms to recover or lower bonuses.

Third, the 2016 proposal prohibited firms from buying hedges for employees, which would render many of the rule’s provisions to be useless. We will be closely looking at input on this aspect to determine whether highly paid employees should also be prohibited from acquiring hedges or other financial instruments to blunt the effect of the rule.

Finally, the 2016 proposal prohibited incentive compensation arrangements based solely on revenue or volume metrics. It may be appropriate to expand that prohibition to all compensation arrangements that are based on revenue or volume targets without regard to quality of performance or risk management considerations.

I look forward to the remaining agencies authorizing the publication of this required rule so that it can be quickly finalized.

The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces Federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive. For more information, visit