July 25, 2024

Warren Slams Powell for Inaction on Executive Pay, “Disdain For the Law and the American Public”

Rule Required by Dodd-Frank Law Still in Limbo 14 Years Later

To Chair Powell: “Your unwillingness to act to reform the role of risky CEO pay structures…can only be explained as a refusal to hold bank executives accountable.”

Text of Letter (PDF)

Washington, D.C. – In a new letter this week, U.S. Senator Elizabeth Warren (D-Mass.) criticized Federal Reserve Chair Jerome Powell for his continued inaction on addressing out-of-control compensation for bank executives—inaction which has enabled CEOs of the country’s largest banks to gamble with their bank’s finances and risk the stability of the American economy. The letter follows Senator Warren’s questions at a Senate Banking Committee hearing earlier this month in which Powell attempted to dodge accountability.

The letter highlights Powell’s refusal to implement Section 956 of the Dodd-Frank Act, which directs financial regulators to adopt regulations prohibiting incentive-based compensation arrangements that encourage inappropriate risk-taking by CEOs and other top executives. Regulators published a proposal in May, but the Federal Reserve has stymied the rulemaking by refusing to join the effort. Section 956 required regulators to establish these guidelines no later than 9 months after the date of the bill’s enactment in 2010. Fourteen years later, Section 956 still has not been implemented.

“Your unwillingness to act to reform the role of risky CEO pay structures that contributed to both the 2008 financial crisis and the 2023 series of bank collapses can only be explained as a refusal to hold bank executives accountable,” wrote Senator Warren. “And your ongoing blindness to the legal requirement that the Federal Reserve act to promulgate this rule reveals a disdain for the law and the American public.”

In the letter, Senator Warren demanded that Chair Powell stop blocking the implementation of Section 956 and allow the Fed Board to convene for a vote on the proposal by August 15th. Senator Warren also underscored the importance of executive pay reform in light of the Spring 2023 bank collapses.

“(W)hen I questioned you after the 2023 bank collapses, you said: “the main responsibility I take is to learn the right lessons from this and to undertake to address them.” Among those lessons is the role of executive compensation structures in encouraging excessive risk-taking and the failures of Fed oversight to appropriately monitor the banks’ stability. Finalizing congressionally mandated rulemaking is one way to address the Fed’s failures,” wrote Senator Warren.

Senator Warren has led extensive oversight efforts to hold the Federal Reserve accountable for various ethics, supervision, and regulation failures:

  • In March 2024, in a bipartisan letter to the Federal Reserve’s Office of Inspector General, Senators Warren and Scott (R-Fla.) called out the Fed IG’s failure to hold officials accountable for violating Fed rules and fostering a culture in which severe conflicts of interests go consistently unchecked. 
  • In July 2023, United States Senator Elizabeth Warren (D-Mass), Chair of the Senate Banking, Housing, and Urban Affairs Subcommittee on Economic Policy, and Senator Rick Scott (R-Fla.) sent a letter to Mark Bialek, Inspector General (IG) of the Federal Reserve (Fed), highlighting his inherent conflicts of interest and the need to make the position a Presidential-appointed, Senate-confirmed role.
  • In May 2023, chairing a hearing of the Senate Banking, Housing, and Urban Affairs Committee Subcommittee on Economic Policy, Senator Elizabeth Warren (D-Mass.) questioned Federal Reserve Inspector General Mark Bialek and a panel of academic experts on the independence of the IG office and the regulatory and supervisory failures that contributed to Silicon Valley Bank’s collapse.
  • In May 2023, Senators Warren and Rick Scott (R-Fla.) sent a letter to Federal Reserve (Fed) Inspector General (IG) Mark Bialek, reiterating the need to make his position a presidentially-appointed, Senate-confirmed role to provide greater accountability at the Fed.
  • In May 2023, Senator Warren sent a letter to Mark Bialek, IG of the Federal Reserve, rebuking him for his failure to hold Fed Chair Powell and senior Fed officials accountable for major ethics breaches, and the IG’s sham investigation of the Fed trading scandal, both of which undermine his recommendations for strengthening the Fed’s disturbingly weak ethics rules.
  • In May 2023, Senator Warren and John Kennedy (R-La.) sent a letter to the Fed IG, inviting him to testify at their hearing on the Fed’s role overseeing Silicon Valley Bank (SVB) before its failure and to consider legislative reforms that strengthen transparency and accountability at the Fed. 
  • In April 2023, following the Fed’s report on SVB’s failure, Senator Warren released a statement calling on the Fed to immediately adopt stricter bank oversight and called out Chair Powell’s failure to supervise and regulate banks that posed a systemic risk to the economy. 
  • In March 2023, Senator Warren and Thom Tillis (R-N.C.) led a bipartisan group of senators to reintroduce the Financial Regulators Transparency Act, bipartisan legislation that would subject regional Federal Reserve Banks to the Freedom of Information Act (FOIA) and ensure their responsiveness to congressional and public information requests.
  • In March 2023, Senators Warren and Rick Scott (R-Fla.) introduced bipartisan legislation to require a presidentially-appointed and Senate-confirmed Inspector General to the Board of Governors of the Federal Reserve System and the Bureau of Consumer Financial Protection.
  • In March 2023, Senator Warren led 11 senators in a letter to Fed’s Vice Chair for Supervision, Michael Barr, calling on him to exercise the Fed’s authority to apply stronger regulation and supervision to banks with assets totaling $100 to $250 billion. 
  • In March 2023, Senator Warren sent a letter to Fed Chair Powell, criticizing his leadership failures at the Fed that directly contributed to the failures of SVB and Signature Bank, and the significant risk to the banking system and the economy unleashed by those collapses. 
  • In March 2023, Senator Warren delivered a speech on the Senate Floor about the failures of SVB and Signature, spoke about her new legislation, the Secure Viable Banking Act, which would reverse the mistakes that Congress and President Trump made with rollbacks of Dodd-Frank
  • In March 2023, Senator Warren called on Chair Powell to recuse himself from the Fed’s review of the SVB failure. 
  • In December 2022, Senator Warren and then-Senator Pat Toomey (R-Pa.) introduced the bipartisan Financial Regulators Transparency Act, legislation that would strengthen Federal Reserve accountability and ensure that no financial regulator can withhold critical ethics-related information from Congress.
  • Senator Warren has previously sent letters to Chair Powell on November 7, 2022, August 11, 2022, January 10, 2022, December 7, 2021, and October 21, 2021, and requested that the Fed publicly release additional information about its trading scandal, but the Fed has failed to adequately respond. 
  • In May 2022, Senator Warren also secured ethics commitments from Michael Barr, who was ultimately confirmed as Fed Vice Chair for Supervision.
  • In February 2022, Senator Warren secured significant ethics commitments from several Fed Board nominees, including: Dr. Lael Brainard, nominee to serve as Vice Chair on the Federal Reserve Board, Sarah Bloom Raskin, nominee to serve as Vice Chair for Supervision on the Federal Reserve Board of Governors, and Drs. Lisa Cook and Philip Jefferson, nominees to serve as members of the Board of Governors. Bloom Raskin, Cook, and Jefferson agreed to a four year recusal period from matters which they oversee on the Board of Governors, not to seek a waiver from these recusals, and not to seek employment or compensation from financial services companies for four years after leaving government service. 
  • In January 2022, Senator Warren called on Chair Powell to immediately release information related to Fed officials' trades and changes to the Fed’s ethics policy after new and troubling revelations about then-Vice Chair Richard Clarida’s trades in March 2020.
  • As the ethics scandals involving top level Fed officials unfolded in September and October of 2021, Senator Warren called out the culture of corruption at the Fed and raised deep concerns over conflicts of interests that have undermined public confidence in the Federal Reserve System. 
  • In an October 2021 speech on the floor of the Senate, Senator Warren called out the culture of corruption among high-ranking Fed after recent reports of ethically questionable financial activity by high-ranking Fed officials, including then-Vice Chair Clarida and two regional Fed presidents. 

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