Lobby Groups Urge Expanded NCUA Role In Executive Compensation

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ALEXANDRIA, Va. – Numerous reform groups are urging NCUA to tighten proposals on executive compensation, posing new dangers of credit unions being swept up in efforts to rein in pay practices on Wall Street.

Americans for Financial Reform, a broad-based coalition of dozens of groups, including the American Association of Retired People, Consumer Federation of America and unions, called on NCUA to toughen reporting of executive compensation, mandate public reporting of executive pay and extend deferral of pay at the largest credit unions.

“Without these steps, it is doubtful whether the goal of eliminating inappropriate financial risk-taking due to excessive short-term compensation will be met,” said the group in a comment letter submitted to NCUA in regards to its proposal on executive compensation.

And, taking a page out of the CUNA playbook, individuals have filed more than 800 form letters to NCUA urging tighter restrictions on executive compensation.

“One way to change the incentives so they don’t collapse our economy again would be to delay the bonuses for several years, at least five or seven,” wrote Alec Mento of Philadelphia, in one letter. “That way, we’ll know if the loans they made in year one remain good. In the bad days, bankers paid themselves on the volume of loans (mortgages) they generated, not on their quality.”

The deluge of comments are in response to proposals by NCUA and the other financial regulators to implement provisions of last year’s Wall Street reform bill requiring efforts to rein in runaway compensation practices that were cited by many experts as encouraging risky practices that brought down some of the nation’s biggest financial institutions. Among those, according to NCUA, was WesCorp, which continued to invest in ever-riskier securities in order to maximize profits that earned its top executives greater bonuses. The risky investments resulted in the 2009 failure of the one-time $34 billion corporate credit union.

NCUA’s proposal would ban credit unions from tying executive compensation to “inappropriate” risky practices that could expose credit unions to significant losses, would enable NCUA to monitor compensation paid to credit union executives, and require credit unions with more than $10 billion in assets to defer half of cash bonuses for as long as three years to determine whether an executive’s practices have exposed the credit union to big losses.

In arguing for an expansion of the executives that should be included in those NCUA would monitor, the American Federation of Labor and Congress of Industrial Organizations noted that compensation tied to risk-taking was not limited to top executives. “Rather, as the Financial Crisis Inquiry Commission says, ‘This was the case up and down the line – from the corporate boardroom to the mortgage broker on the street,’” wrote Daniel Pedrotty, director of office of investment for the nationwide union.

Gerald McEntee, international president of the American Federation of State, County and Municipal Employees, told NCUA the nexus of federal deposit insurance gives the government the right and the obligation to monitor executive pay for the potential for encouraging risky practices.

“Moral hazard,” wrote the union leader, “is created by the expectation that larger financial institutions are ‘too big to fail’ and that the government will step in to shield them from failure through capital injections, guarantees, liquidity programs and similar measures.”

Americans for Financial Reform suggested to NCUA that reporting of executive compensation be extended to offer public disclosure. “Given the central significance of this issue to financial reform, AFR believes that this is not appropriate,” the group wrote in its NCUA comment letter.

 

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