Banks push bank against regulators’ plan to ‘claw-back’ pay

Mitchell Hartman Jul 6, 2011

Banks push bank against regulators’ plan to ‘claw-back’ pay

Mitchell Hartman Jul 6, 2011


JEREMY HOBSON: Well today, the Federal Deposit Insurance Corporation — the FDIC — is expected to finalize rules forcing executives to return pay and bonuses if their institution fails.

Marketplace’s Mitchell Hartman explains the ‘claw-back’ and why banks don’t like the idea.

Mitchell Hartman: Top executives at AIG and Merrill Lynch got to keep hundreds of millions in pay after their firms got rescued. Under the FDIC’s proposal, when regulators seize and liquidate a giant financial institution on the brink of collapse, they’ll be able to snatch back two years’ pay from the CEO, CFO, and chairman of the board.

Banks say the rule’s too vague. Scott Talbott represents big banks at the Financial Services Roundtable.

Scott Talbott: There’s a presumption against the officers of the institution based on their title, that they’ve done something wrong. So the proposed rule fails to take into account other factors that could lead to a company’s demise.

Advocates of tougher regulation say the new claw-back rules should reach farther down the food chain, to mid-level executives who actually do sketchy deals that put a firm’s finances at risk.

I’m Mitchell Hartman for Marketplace.


STEVE CHIOTAKIS: The FDIC is expected to finalize today a proposal that would ask for a large chunk of big bank executive pay to be paid back if that CEO’s bank fails. But a lot of folks in the banking industry say the so-called ‘claw-backs’ plan goes too far.

Marketplace’s Mitchell Hartman is with us live, and has the latest on that story. Good morning Mitchell.


CHIOTAKIS: Exactly what does the ‘claw-back’ rule say?

HARTMAN: Well, it’s part of the Dodd-Frank financial reform passed last year. Now keep in mind the goal here is to try and make sure that top executives pay the consequences when their firms endanger the rest of us. So we’re talking the biggest banks — like Goldman Sachs, JPMorgan-Chase — these are the ones that, if they collapsed would pose a systemic risk to the financial system. The CEO and CFO and Chairman of the Board could have their whole pay-and-bonus package — going back two years– clawed back by bank regulators if those regulators have to take over and then liquidate the company.

CHIOTAKIS: Why do these banks and their lobbyists think that that’s a bad idea?

HARTMAN: They say it’s way too vague. How will regulators going to know if it’s a CEO’s the one at fault if the company got in trouble? You know, maybe it’s just a bad market for mortgages or derivatives or whatever they’re investing in?

Scott Talbott is with the Financial Services Roundtable, and that represents big banks.

SCOTT TALBOTT: It could lead an executive who sees a company starting to get into trouble for whatever reason to simply leave and walk away before the company fails, and thus excluding him or herself from the rule.

You know, and then getting to keep their $100-million-dollar pay packages. Affirming these claw-back rules could be one of the last actions of FDIC Chair Sheila Bair, by the way. She steps down on Friday.

CHIOTAKIS: Marketplace’s Mitchell Hartman reporting. Mitchell thanks.

HARTMAN: You’re welcome.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.