Peters Urges Federal Regulators to Swiftly Implement Long-Delayed Dodd-Frank Rule to Prohibit Banker Incentives that Encourage Financial Risk

WASHINGTON, D.C. – U.S. Senator Gary Peters (MI) is pushing federal financial regulators to implement a provision of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) that would prohibit incentives for bankers that encourage risky financial transactions. As a member of the U.S. House of Representatives, Peters helped write and finalize the Dodd-Frank law as a member of the conference committee and has worked to hold Wall Street accountable while protecting consumers, Main Street community banks and credit unions.

The Dodd-Frank provision, Section 956, required financial regulators to issue a rule by May 2011 to mandate disclosure and prohibit some incentive-based executive compensation arrangements that encourage excessive risk-taking that may lead to financial loss for consumers. Nearly 12 years later, the rule still is not finalized and regulators are not using authority provided by Congress through the Dodd-Frank law. In a letter to the six relevant federal financial agencies, Peters urged “swift and long overdue” implementation of this critical provision to protect consumers and discourage bankers from making risky financial transactions that could result in personal financial gain.   

“The recent bank failure of Silicon Valley Bank and reported bonuses issued to its leadership further underscore the urgency and importance of this rule’s implementation,” wrote Senator Peters. “Given how incentive-based compensation can continue to lead to certain financial institutions and professionals taking excessive and reckless risks, implementation of this long-delayed rule is an important reform to ensure reckless financial risks and financial mismanagement do not put our banking system at risk.”  

“Although various attempts have been made to move the rulemaking forward, Section 956 has remained stalled for too long. Addressing commonsense financial regulation is essential to supporting families in Michigan and across the U.S., growing our economy, and creating jobs. Please consider advancing regulations as swiftly and collaboratively as possible,” the letter continued.

Full text of the letter to U.S. Securities and Exchange Commission Gary Gensler, Federal Reserve Chair Jerome Powell, Federal Deposit Insurance Corporation Chairman Martin Gruenberg, National Credit Union Administration Chairman Todd Harper, Federal Housing Finance Agency Director Sandra Thompson, and Office of the Comptroller of the Currency Acting Comptroller Michael Hsu is available here and below.

Dear Chair Gensler, Chair Powell, Chairman Gruenberg, Chairman Harper, Director Thompson, and Acting Comptroller Hsu:

I write to you today to urge swift and long overdue implementation of Section 956 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) regarding incentive-based compensation arrangements. Of the nearly 400 rules in Dodd-Frank, few placed deadlines on the regulators. However, Congress did mandate deadlines for certain rules, including Section 956, which was designed to combat incentive compensation arrangements that might encourage “inappropriate” risks at financial institutions. The deadline for finalizing Section 956 was May 2011. However, it’s been over twelve years since the passage of Dodd-Frank, yet this rule remains unimplemented.

Section 956 of Dodd-Frank was intended to require financial regulators to quickly and collaboratively issue rules requiring financial institutions to disclose any incentive-based executive compensation arrangements that encourage excessive risk-taking at financial institutions or that may lead to financial loss. The recent bank failure of Silicon Valley Bank and reported bonuses issued to its leadership further underscore the urgency and importance of this rule’s implementation. Given how incentive-based compensation can continue to lead to certain financial institutions and professionals taking excessive and reckless risks, implementation of this long-delayed rule is an important reform to ensure reckless financial risks and financial mismanagement do not put our banking system at risk.  

Although various attempts have been made to move the rulemaking forward, Section 956 has remained stalled for too long. Addressing commonsense financial regulation is essential to supporting families in Michigan and across the U.S., growing our economy, and creating jobs. Please consider advancing regulations as swiftly and collaboratively as possible. I appreciate your leadership and I remain committed to working to ensure financial regulators have the necessary tools to keep our economy stable and growing.

I thank you for your consideration and response.

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