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  • European Lawmakers Agree to New Capital Rules and Caps on Bank Executive Pay

    Federal Issues

    On February 28, the European Parliament announced that negotiators from the Parliament and the European Council agreed to alter bank capital rules and limit executive pay. The capital requirements, developed to implement aspects of Basel III, would raise to eight percent the minimum thresholds of high quality capital that banks must retain. The announcement does not specify what types of capital would satisfy the requirement, but does indicate that good quality capital would be mostly Tier 1 capital. With regard to executive pay, the base salary-to-bonus ratio would be 1:1, but the ratio could increase to a maximum of 1:2 with the approval of at least 65 percent of shareholders owning half the shares represented, or of 75 percent of votes if there is no quorum. Further, if a bonus is increased above 1:1, then a quarter of the whole bonus would be deferred for at least five years. Finally, the legislation would require banks to disclose to the European Commission certain information that subsequently would be made public, including profits, taxes paid, and subsidies received country by country. The European Parliament is expected to vote on the legislation in mid-April, and each member state also must approve the legislation. Once approved, member states must implement the rules through their national laws by January 2014.

    Compensation Capital Requirements Basel European Union

  • CFPB Proposes Mortgage Originator Compensation and Qualification Rule

    Lending

    On August 17, the CFPB proposed the latest rule in a series of mortgage-related rules mandated by the Dodd-Frank Act. This latest proposal seeks to amend regulations regarding upfront points and fees and loan originator compensation, and to implement other Dodd-Frank Act provisions regarding mortgage credit. Generally, for closed-end mortgages, the rule would prohibit a creditor or mortgage broker from imposing upfront points or fees unless the creditor or broker first offers the consumer an alternative loan with no such fees (a zero-zero alternative). If the upfront fees are passed on to independent third parties, or if the consumer is unlikely to qualify for the alternative loan, this requirement would not be triggered. The proposal provides separate safe harbors for transactions that involve mortgage brokers and those that do not. The rule also would refine an existing ban on loan originator commissions to allow reductions in compensation to cover certain increases in closing costs and to clarify when a factor used as a basis for compensation is prohibited as a “proxy.” Also with regard to compensation, the rule proposes to revise restrictions on pooled compensation and to amend the general ban on compensation of originators by both parties. Additionally, the CFPB seeks to (i) establish originator qualification requirements, (ii) restrict agreements that require consumer disputes to be resolved through mandatory arbitration, and (iii) prohibit the financing of premiums for credit insurance. The CFPB is accepting comments through October 16, 2012 and plans to finalize the rule by January 2013.

    CFPB Dodd-Frank Mortgage Origination Compensation

  • Financial Stability Board Enhances Compensation Practices Monitoring

    Federal Issues

    On April 30, the Financial Stability Board established a new group of national experts from member jurisdictions to monitor and report to the FSB on implementation of the Principles and Standards on Sound Compensation Practices adopted by the FSB in 2009. The FSB also announced a new mechanism for member jurisdictions to bilaterally report, verify, and address specific compensation-related complaints by financial institutions.

    Compensation

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