FDIC Compensation Crackdown: Risky Pay Practices Face Penalties

By Nitya

Jan 12, 2010 10:54am

ABC News Matthew Jaffe Reports: Joining a growing government crackdown on compensation in the wake of the financial crisis, the Federal Deposit Insurance Corporation today started looking into implementing penalties for banks whose pay plans encourage excessive risk-taking. At a board meeting this morning in Washington the FDIC’s board of directors voted three to two in favor of proceeding with a proposal to charge higher deposit premiums on banks with risky pay practices: the riskier the pay practices, the higher the fees. The fees would then help replenish the agency’s dwindling deposit insurance fund, which last year briefly fell into the red for the first time since 1992 as the recent rash of bank failures took its toll. “There were a lot of causes to the financial crisis and we think risky pay was one factor,” FDIC chief Sheila Bair said. According to the agency’s document on the proposed rule, the FDIC does not want to impose a specific compensation cap, but rather make sure that compensation practices align employee performance with the interests of the firm and its stakeholders. The agency will now proceed with a 30-day period of public comment on the proposal, with a final rule unlikely to be adopted until the fall or early next year.

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