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Dear John,
It’s been 14 years since Dodd-Frank was passed, in the wake of the 2008 financial crisis, with the intention of fixing the structural flaws that contributed to the meltdown of over two dozen banks that year.
A particular section of the law addresses the incentive-based executive pay arrangements that rewarded excessive risk taking with multi-million dollar bonuses. This is Section 956, and it directed six agencies, including the Office of the Comptroller, the SEC, and the FDIC, to jointly develop rules to curtail this practice.
Now over a decade later, no such rule has yet been published. A Notice of Proposed Rulemaking (NPR) was issued in 2016, but it went nowhere. In the meantime, five banks collapsed in 2023, including Silicon Valley Bank and Signature Bank, and there was the potential for another wildfire of bank failures to break out.
In May 2024, a new NPR was issued, and now five of the six agencies have agreed to a proposed rule, but the one regulatory agency that has not signed on is the Federal Reserve. This rule is needed to prevent CEOs from recklessly gambling with other people’s money. We must step up the pressure to ensure that the Fed will finally make this happen.
Send a direct message to your senators and representative in Congress and tell them to demand the Federal Reserve limit exorbitant CEO pay linked to excessive risk-taking!
When Senators Sherrod Brown, Elizabeth Warren, and Chris Van Hollen brought Federal Reserve Chair Jerome Powell before Congress this month to ask why the Fed had not agreed to the regulations designed to enforce Section 956, he had no good answers.
Senator Warren noted that the law declares executive pay is a problem that threatens the stability of our economy. She pressed Chairman Powell to explain why, 14 years after Dodd-Frank was passed, the Fed has not joined the other regulators to finalize the rule:
“Chair Powell, I understand why the ten biggest banks in the country like your approach. You let them do whatever they want, but you don't work for the giant banks. You work for the American people. I urge you to do your job.”
Dodd-Frank co-sponsor, former Rep. Barney Frank (the “Frank” in “Dodd-Frank”) also emphasizes the importance of addressing the “perverse incentives” that result in “executives receiving grossly disproportionate compensation based on decisions they themselves take.”
In other words, we can’t trust the banks to regulate themselves. This is why we must demand that the Federal Reserve sign on to the final rule on Dodd-Frank Section 956. It’s essential to prevent the Big Bank CEOs from taking unwise risks that jeopardize the economy while padding their own portfolios.
Urge your members of Congress today to demand the Federal Reserve issue a final rule on Section 956 now!
Thank you for helping to strengthen the stability of our financial system.
Robert Reich
Inequality Media Civic Action
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