Rep. Tulsi Gabbard Bill to Protect American Taxpayers, Hold Wall Street Executives Accountable
July 24, 2019
Washington, DC—Yesterday, Rep. Tulsi Gabbard (HI-02) introduced H.R. 3885, the Wall Street Banker Accountability for Misconduct Act, which would require senior executives at Wall Street’s biggest banks to defer a portion of their compensation to be held for 10 years to be used to pay penalties for violations occurring on their watch. The bill is endorsed by the AFL-CIO, Public Citizen, and the Institute for Policy Studies, Global Economy Project.
“In the aftermath of the 2008 financial crisis, families had their life savings wiped out and millions still have yet to fully recover. The American taxpayer was left holding the bag, bailing out America’s biggest banks that failed due to the illegal, negligent, and risky behavior by its executives,” said Rep. Tulsi Gabbard. “We need to change the culture of Wall Street and ensure that big banks and their executives are accountable to their account holders, shareholders, and the American taxpayer. This bill will do just that by holding bank executives directly responsible through their compensation.”
“Public Citizen enthusiastically welcomes this vital reform that puts banker pay at risk for misconduct. It says clearly that bank managers, not shareholders, should be responsible for paying fines. Far from radical, that’s how it worked when the likes of Goldman Sachs were partnerships and any fines effectively came out of their ownership stake,” said Bartlett Naylor, financial policy advocate, Public Citizen’s Congress Watch division. “Ideally, this pay structure will attract bankers who want to keep Wall Street honest, instead of the generation that brought us the fraud-infested financial crash of 2008.”
“Even the worst financial crisis since the Great Depression did not significantly alter Wall Street executive pay practices. This legislation would help change the reckless bonus culture that continues to put us all at risk,” said Sarah Anderson, Global Economy Project Director, Institute for Policy Studies.
Background: The 2008 financial crisis saw the savings and assets of hard-working families drastically diminished or even wiped out because of risky practices in the financial services industry by its top executives. The Department of Justice and the Securities Exchange Commission found extensive fraud among Wall Street banks. However, only one Wall Street executive was charged by the federal government. Instead, financial regulators imposed massive fines on culpable banks like JP Morgan Chase, Bank of America, and Citigroup — a cost they passed onto shareholders and taxpayers, the victims of their crimes and bad practices. After further misconduct and scandal, the New York Federal Reserve began to examine the culture at large financial firms.
Specifically, the Wall Street Banker Accountability for Misconduct Act of 2019 will:
Require covered banks (bank holding companies and their subsidiaries with more than $250 billion in assets) to establish a deferment fund.
Senior executives in covered banks who receive compensation that is more than 10 times the compensation of the median paid employee of the covered bank, have a total compensation of more than $1 million, receive one of the 100 largest compensation packages, and with the authority to expose more than 0.5% of covered bank’s capital will be required to defer a portion of their pay each year into the deferment fund.
If a covered bank is subject to criminal or civil fines, the deferment fund must be used to pay for such fines.
If sufficient funds remain, the covered bank will pay back senior executives’ compensation 10 years after the date the compensation amount was deferred. The bill prohibits a covered bank from using deferred funds of an ex-employee for wrongdoing that occurred after the ex-employee’s departure from the covered bank.
Require each bank holding company to establish a policy that cancels any deferred compensation that cannot be repaid due to insufficient funding from the deferment fund.
H.R. 3885, the Wall Street Banker Accountability for Misconduct Act is endorsed by the AFL-CIO, Public Citizen, and the Institute for Policy Studies.
Some examples of the problems this bill hopes to tackle include:
In 2018, Wells Fargo paid the Department of Justice a $2.09 billion civil penalty for misrepresenting the type of mortgages it sold to investors leading up to the 2008 financial crisis. As further demonstrated by Wells Fargo fake account scandal, the bank has consistently had a failed culture that rewards bad behavior. The Sales Practices Investigation Report (SPIR) issued by Wells Fargo revealed that the bank's board of directors and bank executives knew of many of the issues underlying the fake accounts scandal as far back as 2002, but did not take corrective action and did not fully disclose the issues until September 2016.
In 2010 the New York Times reported that the SEC reached a $75 million settlement with Citigroup. The S.E.C. had accused Citigroup of failing to inform shareholders of more than $40 billion of subprime mortgage investments — the same kind of investments that led the bank to require a huge bailout from taxpayers. Yet, it was the shareholders — the people defrauded — as well as the American taxpayer who has a stake in the bank due to the 2008 financial crisis bailout who were left to pay the fine.
In 2009, the Wall Street Journal covered a decision by Judge Jed S. Rakoff of Federal District Court in Manhattan who rejected a proposed $33 million settlement between the S.E.C. and Bank of America over claims that the bank had defrauded investors by not disclosing Merrill Lynch’s losses before a merger of the two firms was completed. The settlement, he wrote, “is not fair, first and foremost, because it does not comport with the most elementary notions of justice and morality, in that it proposes that the shareholders who were the victims of the bank’s alleged misconduct now pay the penalty for that misconduct.”
Rep. Tulsi Gabbard has been a long, outspoken critic of the lack of accountability and corporate responsibility in the financial sector, especially in the wake of the 2008 financial crisis — the effects of which can still be felt in this country. She has voted against and urged her colleagues to oppose measures that would weaken consumer protections against financial industry bad actors.
Rep. Gabbard believes that Dodd-Frank reforms needed to be stronger — noting that the big bank bad actors that led to the 2008 financial crisis have only gotten bigger since while the limited protections against the risky behavior that caused the problem has been under constant assault by deregulators.
Rep. Gabbard supports the reinstatement of Glass-Steagall, a safeguard that prevented too-big-to-fail banks from gambling with savings of millions of Americans families. She has fought to protect the Consumer Financial Protection Bureau as well as pushed back against efforts to reduce protective measure capital requirements for the nation’s biggest banks.
About Rep. Tulsi Gabbard: Congresswoman Tulsi Gabbard is serving her fourth term in the United States House representing Hawaii’s Second District, and serves on the House Armed Services and Financial Services Committees. She previously served on the House Foreign Affairs Committee and Homeland Security Committee. She was elected to the Honolulu City Council in 2010, and prior to that at age 21, was elected to the Hawaiʻi State Legislature in 2002, becoming the youngest person ever elected in the state. Tulsi Gabbard has served in the Hawaiʻi Army National Guard for 16 years, is a veteran of two Middle East deployments, and continues to serve as a Major. Learn more about Rep. Tulsi Gabbard...
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