FDIC backs delayed bonuses at banks
Rule would deter risky transactions
WASHINGTON — Federal regulators have proposed making top executives at large financial firms wait at least three years to be paid half of their annual bonuses, a move designed to cut down on risky financial transactions.
The Federal Deposit Insurance Corp. voted yesterday to advance the rule, which builds on more general requirements in last year’s financial regulatory law to curtail risk-taking. The rule targets firms with $50 billion or more in assets, seeking to tie bonuses with financial performance over a longer time period.
The FDIC also moved to make larger banks pay a greater portion of fees to insure all US banks.
The bonus requirement would apply to major financial institutions, such as Bank of America Corp., JPMorgan Chase & Co., Citigroup Inc., Goldman Sachs Group Inc., and Wells Fargo & Co.
Lawmakers and government officials have blamed outsize bonuses for helping to fuel the financial crisis, saying they encouraged short-term risk-taking. The financial regulatory law enacted last year simply directed government regulators to put in rules to prohibit incentive-based payments that encourage excessive risks.
Other financial regulators — including the Federal Reserve, two Treasury Department agencies, and the Securities Exchange Commission — must also vote to send out the bonus rule for public comment before it is finalized. They are expected to act in the next few weeks; the final rule could take effect by the fall, officials said.
FDIC officials stressed that the agency isn’t looking to limit compensation.
“This proposed rule will help address a key safety-and-soundness issue which contributed to the recent financial crisis,” FDIC chairwoman Sheila Bair said before the vote.
The FDIC’s proposal to make larger banks pay a greater portion of fees to insure all banks was required under the new law. The rule changes the basis for assessing a bank’s premiums, from the amount of its deposits to its assets.
Officials say that will more clearly reflect the risks to the insurance fund.