Wall Street executives would be subject to "clawback" of their bonuses as punishment for misbehavior under a coming rule on incentive compensation at the largest U.S. banks, Federal Reserve Gov. Jerome Powell said Tuesday.
The rule will focus on "deferral of larger amounts of compensation over a longer period of time for people who are senior in these companies or important risk takers," Powell said, responding to audience questions after a speech at the Brookings Institution in Washington.
The Fed and other U.S. financial regulators are preparing a new rule on incentive compensation at large U.S. banks to help discourage a repeat of the excessive risk-taking that contributed to the 2008 financial crisis.
Powell, 61, a former partner at Washington-based private equity firm Carlyle Group LP, said the proposal may spell out circumstances in which bankers must forfeit deferred bonuses they have yet to receive "where there appears to have been risk management errors, let alone malfeasance, and even clawback in some cases."
Clawback refers to taking back compensation after it has been paid out. Fed Gov. Daniel Tarullo also discussed this issue in a speech in October in New York.
The Dodd-Frank Act, passed in 2010, charged regulators with passing rules that demand that financial firms disclose how they pay employees in ways that limit the risk of major financial losses and banned certain types of bonus arrangements that encourage inappropriate risk-taking.
Powell said he expects the group of agencies to ask for public comment on a proposed rule this year.
Additional scandals involving Wall Street banks, including manipulation of the London Interbank Offered Rate, a benchmark for about $300 trillion in debt securities, and the rigging of certain foreign-exchange rates have also added pressure for change.
"The conduct is, in hindsight, clearly reprehensible and wrong," Powell said. "A big part of our project is to make sure the CEOs and boards know they own this problem and they are accountable for this problem."
Information for this article was contributed by Ian Katz and Jesse Hamilton of The Associated Press.
Business on 01/21/2015