WFC Wells Fargo and Company

By Yuka Hayashi 

WASHINGTON -- Fifteen Democratic senators urged federal regulators to strengthen proposed rules governing Wall Street pay practices, saying the recent scandal at Wells Fargo & Co. underscored the need to hold executives accountable for misconduct.

The request comes as policy makers rush to complete the rules before President Barack Obama leaves office in January. The rules on pay represent one of the big remaining pieces of the Obama administration's regulatory overhaul of the financial industry.

The senators laid out their ideas in a letter addressed to the heads of six federal agencies responsible for crafting the pay rules.

The lawmakers who signed the letter include Sens. Robert Menendez of New Jersey; Sherrod Brown of Ohio, the top Democrat on the Senate Banking Committee; and Elizabeth Warren of Massachusetts, the leading congressional critic of Wall Street. If Democrats regain a majority in the Senate in the November elections, as many analysts forecast, these lawmakers would have stronger clout to influence policy debates at the powerful banking panel.

The rules, proposed in April, are aimed at curbing what regulators see as excessive risk-taking. The rules would require the biggest financial firms to defer payment of at least half of executives' bonuses for four years, a year longer than common industry practice. The plan also would require a minimum period of seven years for the biggest firms to claw back bonuses if it turns out an executive's actions hurt the institution or if a firm has to restate financial results.

In the letter, the lawmakers asked for bonus pay to be deferred longer than four years and for clawbacks and pay reductions to be mandatory rather than optional.

The senators said four years is too short for clawbacks, considering that it might take much longer for the full scope of wrongdoing to become apparent. They also asked for failures in risk management and culpable negligence in employee oversight to be added to the conditions that could trigger clawbacks. The current proposal only cites malfeasance by an individual employee as such a condition.

A number of lawmakers had initially praised a decision last month by the Wells Fargo board to recoup an estimated $60 million in pay from two top executives who presided over the scandal, which resulted in the opening of as many as two million unauthorized accounts and the firing of more than 5,000 low-level employees. The 15 lawmakers who signed the letter, however, described the reclaimed amount as a "small fraction" of the compensation paid to the executives and that even that action might not have happened without "unusual public pressure."

"Your current work in crafting new executive pay rules...offers a unique opportunity to address these accountability issues at major banks," the senators wrote to the regulators. "However, we have concerns that a number of specific weaknesses in the proposed rule could render the new rule ineffective in creating accountability for top executives."

House Democrats have also asked the regulators for tougher rules on clawbacks.

The proposed rules were jointly crafted by six agencies: the Federal Reserve, Securities and Exchange Commission, Office of the Comptroller of the Currency, Federal Deposit Insurance Corp., National Credit Union Administration and Federal Housing Finance Agency.

Write to Yuka Hayashi at yuka.hayashi@wsj.com

(END) Dow Jones Newswires

October 26, 2016 19:03 ET (23:03 GMT)

Wells Fargo (NYSE:WFC)
Historical Stock Chart
From Mar 2024 to Apr 2024

Wells Fargo (NYSE:WFC)
Historical Stock Chart
From Apr 2023 to Apr 2024