A year after Silicon Valley Bank’s collapse revived scrutiny of bad bank management, Washington isn’t much closer to ratcheting up restrictions on financial executive pay. Six independent agencies have been in talks for months about following through on a long-overdue congressional mandate to prohibit compensation plans that encourage excessive risk-taking at financial firms, and they’ve strongly considered putting out a new draft closely resembling a 2016 proposal that was never finalized. But Federal Reserve officials aren’t on board with that approach, leaving the outlook for such a rule uncertain, government officials tell MM. Their reasoning is at least partially process-based, since the banking agencies are focused on a slew of other rules, including the Basel III endgame proposal that would increase capital on the largest banks. “The Federal Reserve is currently focused on the Basel endgame proposal,” a Fed spokesperson told MM. But Fed Chair Jerome Powell has also signaled substantive concerns. “I would like to understand the problem we’re solving, and then I would like to see a proposal that addresses that problem,” he said at a hearing last week when pressed on the prospects for the rule by Rep. Rashida Tlaib (D-Mich.). He didn’t explain exactly what he meant, but in previous years Powell has told Congress that the Fed already has supervisory standards to ensure that banks’ compensation plans for their executives don’t ensure excessive risk-taking. Financial agencies have struggled for years to implement the relevant provision in the 2010 Dodd-Frank Act, though they’ve taken a crack at it twice – once in 2011 and again in 2016. In the meantime, incentive-based pay packages have shifted over the years in response to regulatory guidance and feedback from examiners. The potential rules would prescribe “clawback” provisions where banks and other financial firms could recover compensation in the event of misconduct by the employee, as well as “deferral periods,” during which the employee must gradually receive the incentive-based benefits. Efforts to pass legislation strengthening clawback rules have also stalled, even though it was Congress’ most bipartisan response to the regional bank crisis a year ago. “It's time for us to take this up,” Sen. Elizabeth Warren (D-Mass.) said in an interview. “Here we are a year later, with no better accountability standards for these corporate executives that load up on risk, boost their own salaries, and then wreck these banks.” In more than a dozen interviews, lawmakers, staff and lobbyists say the bill from Senate Banking Chair Sherrod Brown (D-Ohio) and ranking member Tim Scott (R-S.C.), which would give regulators more tools to claw back compensation and bar executives from the industry, has seen zero momentum since the committee approved it 21-2 in June. Senate Majority Leader Chuck Schumer has listed the bill as a priority for floor consideration multiple times in the last year — including last week. Yet many are beginning to concede that Wall Street, which hates the bill, may be winning its fight. Democrats including Brown and Sen. Jack Reed (D-R.I.) point to the short supply of floor time as Congress strives to fund the government. “The chaos in the House has caused a logjam in the Senate on floor time,” Brown said. “I'm not giving up.” Brown added that he’s touting the bill’s broad bipartisan support to other members as he pushes for a vote: “Even in a committee where clearly many people ... side with the banks on so many things, we still passed it 21 to two — so that tells you how important it is.” But others on the left say there are bigger issues with the bill. For one, free-market Republicans may be resistant to enacting more rules now that the bank failures’ sting has faded. “Adding anything that even remotely approaches regulation, at this point, is an uphill challenge with a lot of our colleagues,” Sen. Mark Warner (D-Va.) said. House Republicans also remain unconvinced that Congress should do anything in response to the failures. “I don't think there's some particular proactive … action by Congress other than to hold our supervisors accountable for being active and engaged with the risks as appropriate for a given institution, period,” Rep. French Hill (R-Ark.), vice chair of the House Financial Services Committee, told the Institute of International Bankers on Monday. The free-market Competitive Enterprise Institute led a letter to Congress in February urging members against taking up the bill. CEI’s director of finance policy, John Berlau, said he’s spent the months since the bill’s approval arguing two things to members: that the House hasn’t passed anything similar, and that recent reports of workplace misconduct at regulators mean they aren’t fit to enforce the policies. “Do you really want to give agencies that much power, especially before we get to the bottom of this?” Berlau said. He added that he’s spoken with the staffs of committee Republicans who voted for the bill in committee — but have since indicated they are rethinking their support. “It was put together very quickly; as the market has had time to absorb it, as people had time to read it, review it and understand it — I think that my decision has aged very well,” Sen. Bill Hagerty (R-Tenn.), one of two committee Republicans who voted against the bill, said. “And I don't think it'll see the light of day.” It’s Wednesday – Send tips to zwarmbrodt@politico.com.
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