FDIC will seek input on pay plan for banks

WASHINGTON — Federal regulators moved Tuesday to get public input on a plan to link the insurance premiums levied on U.S. banks to the degree of risk-taking encouraged by their executive pay policies.
A divided board of the Federal Deposit Insurance Corp. voted to make public a preliminary proposal for using executive compensation as a factor in assessing the fees that banks must pay for the deposit insurance fund. The plan could involve both rewards and penalties for banks. The idea is for institutions deemed to be higher-risk to pay bigger insurance fees.

"The recent crisis has shown that compensation practices that encourage excessive risk can create significant losses in the financial system and the deposit insurance fund," FDIC Chairman Sheila Bair said before the 3-2 vote. But two heads of Treasury Department agencies, who also sit on the five-member board, voted against floating the proposal.

John Dugan, director of the Office of the Comptroller of the Currency, and John Bowman, acting director of the Office of Thrift Supervision, said it would be premature because Congress and the Federal Reserve were addressing the bank compensation issue.

Smaller banks, especially, could be hurt by a new regulatory burden even though they had little to do with the high-flying compensation of Wall Street institutions leading up to the financial crisis, the two regulators said.

The FDIC is seeking public comment on the plan for 30 days. If there is a final rule, it isn't expected to be adopted until late in the year.

Policies are blamed

Company policies that encouraged excessive risk-taking and rewarded executives for delivering short-term profits were blamed for fueling the financial crisis, and big banks especially were considered to have engaged in the practice.

The FDIC move comes amid public anger over compensation and Wall Street excess at a time of economic stress and a wide range of actions across the government targeting banks and executive pay. President Barack Obama is considering a new levy aimed at recovering tax dollars from bailed-out financial institutions, and calls for a hefty tax on bank bonuses have risen in Congress.

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