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The Fed To Review All Bank Compensation

From a giddy New York Times:

Fed to Step Up Reviews of Compensation at Banks

By STEPHEN LABATON

October 23, 2009

WASHINGTON — The Federal Reserve announced a plan on Thursday to eliminate pay packages that in the past have encouraged bankers to take the kinds of reckless risks that contributed to the housing bubble.

The move, a response to the public outrage over the bailout of banks and other companies whose executives received lucrative paychecks, reflects a sharp departure from the hands-off approach that has dominated bank regulations for decades. In particular, pay packages at the nation’s largest banks will now come under regular review by federal examiners

“Compensation practices at some banking organizations have led to misaligned incentives and excessive risk-taking, contributing to bank losses and financial instability,” the Federal Reserve chairman, Ben S. Bernanke, said in a statement. “The Federal Reserve is working to ensure that compensation packages appropriately tie rewards to longer-term performance and do not create undue risk for the firm or the financial system.” …

Officials acknowledged that it could be months or longer before they would be able to tell whether it will change the pay practices at the banks. At a minimum, it will require a large effort to train bank examiners to become experts on compensation. Moreover, compensation consultants at many companies have historically been adept at finding innovative ways of getting around any efforts at restrictions.

Officials emphasized that the plan was not intended to make pay packages equitable or fulfill some other social goal but was part of a broader plan by the Fed to shore up the stability of the banking system. That plan has included tighter supervision and requirements that institutions hold more capital as cushions against losses…

The money-center bank holding companies, like JPMorgan Chase and Goldman Sachs, would have to present their compensation plans to bank regulators, who would then evaluate them to see if the pay incentives properly balanced goals of short-term growth and long-term stability. Bank regulators would have the authority to demand changes in the pay packages, and they would monitor pay practices as part of their regular examination.

The plan would apply to senior executives as well as to employees like traders, and groups of employees like loan officers, whose individual or collective decisions could expose the firm to significant losses.

But the review of the compensation practices, including discussions between regulators and the companies over pay issues, would remain confidential, making it difficult for outsiders to glean any disagreements or changes in pay practices prompted by regulators

The Fed’s plan for the banks it supervises has some important similarities with the Treasury plan for the seven companies…

Just a few years ago this would have been hard to believe.

Now it seems inevitable.

Officials emphasized that the plan was not intended to make pay packages equitable or fulfill some other social goal but was part of a broader plan by the Fed to shore up the stability of the banking system.

Oh, our sides!

This article was posted by Steve on Thursday, October 22nd, 2009. Comments are currently closed.

3 Responses to “The Fed To Review All Bank Compensation”

  1. Right of the People says:

    “The Federal Reserve announced a plan on Thursday to eliminate pay packages that in the past have encouraged bankers to take the kinds of reckless risks that contributed to the housing bubble.” That Bwaney Fwank and his sidekick, Chrissy Dodd helped create by encouraging them to give loans to people who had no business buying homes to begin with.

    Bad, bad capitalists!

    Where’s my Wild Turkey?

  2. canary says:

    There was an article couple of days ago, that most likely the bail-outs would never be paid back, but it disappeared before I could post it. The WH button pushers. click. click.

  3. TwilightZoned says:

    “…that in the past have encouraged bankers to take the kinds of reckless risks that contributed to the housing bubble.”

    Shameful the buck didn’t stop with Congress, who ordered the reckless risk.

    Watching the news today I heard an interview from the commerce czar, I believe. He claims the cap would be $500,000 to help get the companies back on their feet to repay the taxpayer bailout. P u l e e z e…we will never see a penny of that money. It will go straight to pet pork projects. Or perhaps even toward the cost to print more money. With as much as we’re printing supplies have to be costly. (sarcasm strikes again)


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