A wave of regulation that targets Wall Street paychecks will drive more bankers to leave the industry, Promontory Consulting Group founder and CEO Eugene Ludwig said.
The regulations could include so-called deferred-compensation requirements that would delay a full bonus payout for as much as 10 years, Ludwig expects. Regulators could announce these rules before the end of the year.
“We’re in for five to 10 years of increasing rules,” he told attendees of The Clearing House’s annual conference in midtown Manhattan. “It can have a profound impact on the industry.”
Banker bonuses have been a hot topic ever since the financial crisis. While US banks have largely avoided any kind of restriction on how and when employees are paid, their European counterparts face much tighter restrictions on compensation. In the US, as many as six regulatory agencies are considering restrictions under the mandate of the Dodd-Frank financial reform act, the Wall Street Journal has reported.
Ludwig’s Promontory is staffed by executives poached from bank boards and from D.C. regulators including the Treasury Department’s Office of the Comptroller of the Currency and the Federal Reserve. They advise banks on regulatory matters, among other issues. Ludwig himself was vice chairman of Bankers Trust through its merger with Deutsche Bank and was President Bill Clinton’s comptroller of the currency.
The company has landed in some hot water with regulators this year, finding itself fined for editing a client’s reports for language that might prompt regulatory inquiries, even though New York regulators were relying on the reports as part of an investigation.
New regulations on pay — specifically deferred compensation and bonus clawbacks — have the potential to drive more young financial services professionals to Silicon Valley, Ludwig said.
Rules yet to be implemented could defer compensation between five and 10 years, and Ludwig said he was upset by the notion that reducing the total timeline on executive pay down to five years would be considered a ‘win.’
“It could get worse,” he told the audience, adding “we’ve created regulatory standing armies around the world.”
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