September 18, 2009

Fed considers new rules for bank pay

The U.S. Federal Reserve is considering new rules on bank pay that would remove incentives for bankers to make risky investments, sources said.

The rule changes would guide policy, not dictate how much banks pay employees, The New York Times reported Friday.

The proposed rules, expected in the next few weeks, are aimed at turning bonus pay policies away from encouraging pursuit of deals that garner high commission checks regardless of long-term consequences. In one possible scenario, the Fed is contemplating comparing pay policies at the nation's 20 largest banks to the rest of the field, perhaps coming up with a two-tiered approach to reigning in careless risk, the Times reported.

The Fed is extending its regulatory reach under the premise that its mission is to keep banks sound, The Wall Street Journal reported.

The idea is to tweak policies to steer banks away from providing incentives for taking risks, rather then set pay limits.

Domestically, the Treasury Department has appointed a pay czar Kenneth Feinberg, to review pay for executives at banks that accepted Troubled Asset Relief Program funds.

Internationally, European leaders intend to press the Group of 20 nations to an accord on pay policies at the Sept. 24-25 meeting in Pittsburgh.