Powell ‘solely responsible’ for delays on banker compensation reform: Warren

Sen. Elizabeth Warren (D-Mass.) is growing increasingly aggravated with regulatory delays at the Federal Reserve and is calling on Fed Chair Jerome Powell to step on the gas.

Warren’s latest point of frustration is the banker compensation section of the Dodd-Frank reforms, which were enacted in 2010 after Congress bailed out the financial sector and demanded that Wall Street take fewer risks.

Fourteen years later, the Section 956 regulations that would block bankers from getting bonuses as a result of placing high risk bets with company assets are still not in place and Warren is putting the blame squarely on Powell’s shoulders.

“You appear to be solely responsible for blocking Section 956’s implementation,” Warren wrote to Powell in a letter dated July 24. 

“Your ongoing blindness to the legal requirement … reveals a disdain for the law and the American public,” she wrote.

In a comment to The Hill, Warren said that Powell's delays prioritize “his CEO friends” over regular Americans.

“With each day that passes, Chair Powell is choosing to make his CEO friends richer rather than protecting American families,” she said.

A representative for the Fed told The Hill it had received Warren's letter and plans to respond.

The failures of Silicon Valley Bank (SVB) and Signature Bank last year, which nearly caused the sector to collapse before the government stepped in with a taxpayer-backed line of credit for the banking industry, were exacerbated by the banks’ payment structures, Warren observed.

“The CEOs of SVB, Signature, and First Republic siphoned as much as they could from the businesses,” Warren said. “All three took big risks to juice their banks’ short-term stock value — and then offloaded their inflated shares in the final hours before their banks collapsed.”

Last year, the Fed found “major weaknesses” in SVB payment plans in their post collapse review, in which central bankers acknowledged a “shift in culture” that allowed them to miss the standard interest rate exposure that ultimately tanked SVB.

“The exam team identified major weaknesses in [SVB’s] incentive compensation program and board oversight of the program that had not been uncovered in [a previous] exam, and this

resulted in the issuance of [a Matter Requiring Immediate Attention memorandum] on board effectiveness,” Fed supervision boss Michael Barr said last year.

This is the only time in recent weeks that Sen. Warren has called the Fed out for other extensive delays related to the 2008 financial crisis.

In June, she tapped her watch on the so-called Basel III endgame, a series of international reforms that would require banks to hold more capital and cash on hand, effectively making them less profitable as businesses but also sturdier in the event of a wider collapse.

“You should do your job and allow the Board to convene for a vote on a 16% capital increase by June 30th, as global regulators determined was necessary to prevent another financial crisis,” Warren wrote in a June letter to Powell.

Those reforms were also first published in 2010, the same years that Dodd-Frank was enacted, but have languished in regulatory purgatory.

“Progress in implementing the G20 financial regulatory reforms continues but remains uneven,” the Swiss Financial Stability Board concluded in its latest annual report.

“The banking turmoil in March 2023 highlighted issues for financial stability and initial lessons for the implementation of the international resolution framework,” the group said, remarks that were echoed by Warren in her Wednesday letter.