U.S. Limits on Wall Street Bonuses Appear Doomed Ahead of Trump

For years the White House has pushed U.S. regulators to finish writing tough new rules that would restrict bonuses for Wall Street executives, one of the most contentious parts of the Dodd-Frank banking reform law. The chances of that actually happening are becoming slimmer by the day.

Banking agency officials have privately conceded that finishing the sweeping changes to financial industry pay during Barack Obama’s presidency will be close to impossible for two reasons: opposition from a Republican board member at the little-known regulator of credit unions; and a bureaucratic quirk that gives the lone Republican commissioner at the Securities and Exchange Commission the power to block the rules, according to three people with knowledge of the matter.

The regulation was included in Dodd-Frank to prevent banks from offering incentive pay that encourages traders to take the kinds of dangerous risks that Wall Street critics say contributed to the 2008 financial crisis. Because Congress wanted the rules to apply to a wide swath of financial firms, lawmakers required six agencies overseeing everything from giant lenders to credit unions to fund managers to sign off on them.

For six years, the regulators worked on the bonus standards in fits and starts, blowing through a nine-month deadline required under the 2010 law. A version released in 2011 was scrapped after it drew a flood of criticism from Democrats. The agencies then re-proposed the rules this year, hoping they could wrap them up during the Obama administration. In February, Obama reminded regulators at a White House meeting of their obligation to rein in pay practices that he said lead to “big, reckless risks.”

Short-Handed Regulators

Now, as Donald Trump prepares to move into the White House, many of these regulators are short-handed — with attrition sapping them of their full complements of commissioners, governors or board members who vote on agency actions. That’s a particular problem at the National Credit Union Administration. The obscure regulator is left with one Democrat and one Republican on what’s normally a three-member board.

The NCUA’s Republican, J. Mark McWatters, used to work for House Financial Services Committee Chairman Jeb Hensarling, a vocal critic of Dodd-Frank who has warned regulators not to move ahead with any more rules before Trump takes office.

Though McWatters reluctantly voted in April to solicit public comments on bonus restrictions, he said at the time that people shouldn’t mistake that for support. NCUA officials have told staff members of other agencies that the credit union regulator won’t take action on the rules before Trump becomes president, said one of the people, who like others asked not to be named because the discussions were private.

At the SEC, Republican Michael Piwowar was the lone commissioner to vote against the agency’s proposal earlier this year. The regulator is down to three commissioners from its usual five. Were the SEC to schedule a final vote, all Piwowar would have to do is not participate, leaving the agency short of a quorum to officially approve new regulations. He hasn’t threatened to boycott any meetings, according to a person familiar with the situation, but his fellow commissioners are well aware of his ability to do it.