WASHINGTON-The House recently rejected a protest from the credit union lobby and passed a bill that will allow NCUA and the bank regulators to rein in excessive executive pay packages at credit unions and banks.
The bill, introduced by House Financial Services Chairman Barney Frank (D-MA) allows NCUA and the banking regulators to ban payments that give workers what the legislation calls "perverse incentives" to take risks that could hurt the nation's financial system.
The vote came a day after New York regulators released data showing that almost 4,800 executives earned at least $1 billion in bonuses last year, even as many were working for failing institutions that were receiving billions of dollars in government bailout funds.
In a rare joint lobbying effort, CUNA and NAFCU told House leaders in a letter that credit unions, as not-for-profit institutions, are not motivated to "chase profits" like their for-profit counterparts and therefore should not be treated the same way.
House leaders, responding to protests form community bankers and credit unions, did agree to exempt institutions under $1 billion from the bill. But CUNA and NAFCU said it wasn't enough. "We believe it is critical that not-for-profit institutions be treated differently than for-profit entities in this legislation," they said.
The bill would require NCUA and the other regulators to develop rules to prevent credit unions and banks form adopting executive compensation plans to encourage excessive risk-taking. Those with more than $1 billion in assets would have to disclose any incentive-based compensation plans.
"Unlike for-profit institutions, credit unions do not chase profit; therefore, they should not be grouped in legislation aimed at discouraging incentives that encourage risk-taking to chase profits," said the joint CUNA/NAFCU letter. "While the adoption of an amendment during Committee mark-up that would exempt institutions under $1 billion in assets from the scope of Section 4 of the legislation was a step in the right direction, we continue to believe it is the structure, and not the size, of credit unions that is the reason why they should be exempted."
"Including credit unions as covered institutions under Section 4 of the legislation and having the NCUA prescribe regulations in conjunction with other regulators who supervise for-profit, stock-issuing entities does not seem to make for good policy. Quite frankly, those running for-profit entities have different motives, which can open the door for abuse," they said.
The bill gives regulators nine months to propose rules for regulating compensation packages at institutions whose assets total more than $1 billion.
The bill is expected to be taken up by the Senate in the fall as part of an overall regulatory reform package. The package will include creation of the Consumer Financial Protection Agency and mild regulatory consolidation.
