Though the attention to the vital Volcker Rule restriction on bank gambling is incredibly important, there is another foundational statute meant to redress the causes of the 2008 financial crash—compensation and its connection to risky behavior that is dangerous to Main Street—that has been overlooked.  We aim to correct that.

One reason that bankers crashed the economy is because, in effect, they were paid to. CEOs and other highly paid bankers were literally motivated in their pay structures to take inappropriate risks. (One very obvious example: mortgage lenders, who pumped dubious product into the securitization pipeline regardless of borrower qualification.)


The Volcker Rule, which was the last multi-agency rulemaking, is meant to curb the gambling activity of bankers.  With this rulemaking -- Section 956 of Dodd-Frank -- Congress approved an important mandate to curb pay structure. The law “prohibit[s] any types of incentive-based payment arrangement, or any feature of any such arrangement, that the regulators determine encourages inappropriate risks.”

Moreover, Congress established a deadline: May 21, 2011. That was two years and seven months ago.  That’s more than 1,000 days. That’s the length of the Kennedy administration, or the rule of Julius Caesar. It is time for agencies to take this rule back up and finalize a comprehensive regulation.

A draft rule was published in March 2011, but it lacks teeth. It only requires firms to release bonuses after a short delay. Mortgages may go bad well after the banker has pocketed this bonus.

To move forward, this rule must win approval of six agencies and 27 separate presidentially-nominated,  Senate-confirmed officials: seven Federal Reserve Governors, five commissioners of the Securities and Exchange Commission, five from  the Commodity Futures Trading Commission , five from the Federal Deposit Insurance Corp, three board members of the National Credit Union Administration,  the director of the Federal Housing Financial Agency, and the Comptroller of the Currency.

(So old is this reform that the proposed rule originally required approval of the Office of Thrift Supervision, which ceased to exist October 19, 2011.)

Below the surface, Wall Street has visited regulators numerous times. Representatives of the Financial Services Roundtable, Investment Company Institute and US Chamber of Commerce have met with staff of the Federal Reserve.  They urged the Fed to be flexible and avoid “rigidity.”

Since the reform should have been instituted, bank bonuses have remained robust. According to Johnson Associates, a compensation consulting firm, big banks set aside $91.44 billion for 2013 bonuses in the first nine months of 2013, little changed from $92.49 billion in the period a year earlier.

We need the 6 agencies responsible for this rulemaking to turn their attention to systemic risk promoted by out of control compensation.  America ‘s heartland can’t afford another financial crash brought on by risk-loving bankers paid to bet the farm.

Gilbert is director of the Congress Watch Division at Public Citizen. Naylor is a financial policy advocate at Public Citizen.