Senate Democrats on Wednesday called on regulators to tighten the rules on how to claw back pay from financial executives, citing the lax treatment of Wells Fargo’s leaders in the wake of the bank’s fake accounts scandal.
Sixteen Democratic senators wrote to the heads of the financial regulatory agencies that wrote rules on bank executive pay this spring, and asked them to strengthen those rules to prevent further scandals.
Allowing the Wells Fargo officials to keep their bonuses “sends an dangerous signal to other executives that you can oversee excessive risk-taking and widespread fraud and still get a multi-million dollar payout,” the letter read. “Therefore, we need tough rules that will ensure that executives who engage in this type of misconduct will have their bonuses clawed back so we can deter similar actions in the future.”
The letter specifically mentioned the “hundreds of millions” of dollars that former Wells Fargo CEO John Stumpf and vice president for community banking Carrie Tolstedt received during the time that the bank created millions of unwanted accounts for customers, a scandal for which thousands of employees were later fired and that ultimately prompted Stumpf to step down.
The bank’s board only reclaimed a “small fraction” of Stumpf’s compensation, the letter claimed.
The pending rule on executive compensation, they argued, should be amended to mandate that banks wait longer to pay out bonuses, to allow more time to establish wrongdoing. The rule, which was required by the 2010 Dodd-Frank financial reform law, should also make clawbacks mandatory, and establish lower hurdles for implementing those clawbacks.
Proposing the rule was a major interagency effort, as would be revising it. Six agencies are involved: The Federal Reserve, the Federal Deposit Insurance Corporation, the Office of the Comptroller of the Currency, the Securities and Exchange Commission, the National Credit Union Administration and the Federal Housing Finance Agency.
Among the Democrats signing the letter were Sherrod Brown, the ranking Democrat on the Senate Banking Committee, and Elizabeth Warren, the Wall Street critic who has called for Stumpf to return all his compensation and face criminal prosecution.
