Watching Wall Street, Gabbard Introduces Accountability Act

July 24, 2019, 5:35 PM HST (Updated July 24, 2019, 5:35 PM)
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US Rep. Tulsi Gabbard (Hawai‘i—District 2) on Tuesday, July 23, 2019, introduced House Resolution 3885, the Wall Street Banker Accountability for Misconduct Act, which would require senior executives at Wall Street’s biggest banks to defer a portion of their compensation to be held for 10 years to be used to pay penalties for violations occurring on their watch.

The bill is endorsed by the AFL-CIO, Public Citizen and the Institute for Policy Studies, Global Economy Project, according to a release from Rep. Gabbard’s office.

“In the aftermath of the 2008 financial crisis, families had their life savings wiped out and millions still have yet to fully recover,” Rep. Gabbard said. “The American taxpayer was left holding the bag, bailing out America’s biggest banks that failed due to the illegal, negligent and risky behavior by its executives. We need to change the culture of Wall Street and ensure that big banks and their executives are accountable to their account holders, shareholders and the American taxpayer. This bill will do just that by holding bank executives directly responsible through their compensation.”

The 2008 financial crisis saw the savings and assets of hard-working families drastically diminished or even wiped out because of risky practices in the financial services industry by its top executives, the release stated.

The Department of Justice and the Securities Exchange Commission found extensive fraud among Wall Street banks. However, only one Wall Street executive was charged by the federal government, the release said. Instead, financial regulators imposed massive fines on culpable banks like JP Morgan Chase, Bank of America and Citigroup—a cost they passed onto shareholders and taxpayers, the victims of their crimes and bad practices, the release continued. After further misconduct and scandal, the New York Federal Reserve began to examine the culture at large financial firms.

“Public Citizen enthusiastically welcomes this vital reform that puts banker pay at risk for misconduct. It says clearly that bank managers, not shareholders, should be responsible for paying fines,” said Bartlett Naylor, financial policy advocate, Public Citizen’s Congress Watch division. “Far from radical, that’s how it worked when the likes of Goldman Sachs were partnerships and any fines effectively came out of their ownership stake. Ideally, this pay structure will attract bankers who want to keep Wall Street honest, instead of the generation that brought us the fraud-infested financial crash of 2008.”

Specifically, the Wall Street Banker Accountability for Misconduct Act of 2019 will:

  • Require covered banks (bank holding companies and their subsidiaries with more than $250 billion in assets) to establish a deferment fund.
  • Senior executives in covered banks who receive compensation that is more than 10 times the compensation of the median paid employee of the covered bank, have a total compensation of more than $1 million, receive one of the 100 largest compensation packages and with the authority to expose more than 0.5% of covered bank’s capital will be required to defer a portion of their pay each year into the deferment fund.
  • If a covered bank is subject to criminal or civil fines, the deferment fund must be used to pay for such fines.
  • If sufficient funds remain, the covered bank will pay back senior executives’ compensation 10 years after the date the compensation amount was deferred. The bill prohibits a covered bank from using deferred funds of an ex-employee for wrongdoing that occurred after the ex-employee’s departure from the covered bank.
  • Require each bank holding company to establish a policy that cancels any deferred compensation that cannot be repaid due to insufficient funding from the deferment fund.
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