Fed to Limit Executive Pay of Bank Employees

[The Straight Story]

Fed to Limit Executive Pay of Bank Employees

The Federal Reserve is moving to restrict compensation practices at the nation's large banks, aiming to rein in pay practices that threaten to distort incentives for everyone from chief executives to loan officers.

The Fed, in its role as the lead regulator of the nation's biggest banks, is looking to monitor pay practices at those institutions as part of its responsibility for ensuring their safety and soundness, sources familiar with the plans said. It aims not to set caps on the amount of pay any given employee can receive, but to restrict banks from paying employees in ways that create long-term risks to the institution.

Private analysts -- and Fed officials -- argue that pay practices emphasizing short-term performance contributed to the excessive risks that large banks took during the run-up to the financial crisis.

For example, a trader who receives bonuses based solely on short-term performance may take irresponsible long-term risks, and a loan officer paid solely based on the volume of loans issued might not pay enough attention to the quality of those loans. Under the approach envisioned by the Fed, banks would have to explain these pay practices to their regulator, and adjust them if examiners believe they create excessive risk.

http://www.washingtonpost.com/wp-dyn/content/article/2009/09/18/AR2009091802045.html?hpid=topnews

[napi21]

1. I also heard yesterday that they were going to mandate the issuing lender bank

MUST retain the majority value of any loan they initiated. No more lend it & sell the loan to someone else. Both ideas are a good move.

[The Wielding Truth]

2. Good. Those shouldn't have been practiced anyway. n/t

[imdjh]

3. I'd still like to see a lot of people dispossessed and sent to jail.

Assuming they could be convicted of something. It doesn't seem right that most of the people who have put the economy and other people's money down the toilet will walk away with personal fortunes skimmed off the top.

Disclaimer: I have no objection whatsoever to a proprietor earning as much as he can in a business he owns. I do believe that the officers of shareholder corporations and board members conspiring to enrich themselves while shareholders and customers lose value is a crime.

[Carni]

4. Thank God!

It's about time someone pulled the reigns in!

[steven johnson]

5. They HAVE to change the incentives toward excessive risk nt