The US' Federal Deposit Insurance Corporation is thinking of linking bank levies to pay plans
The FDIC – a multibillion-dollar fund that insures depositors' savings up to $250,000 – is considering proposals that would see US bank contributions to the fund linked to regulators' assessment of bank pay plans, according to a story in the Financial Times.
The FDIC's board, comprising top banking regulators is set to meet on Tuesday 12 January to discuss proposed rules on employee compensation. The FDIC declined to comment to the UK newspaper.
However, according to the story, people briefed on the discussions say that one of the issues under consideration is whether regulators should seek information about lenders’ compensation policies, how they affect banks’ risk profiles and whether certain pay structures should be taken into account when assessing FDIC insurance fees.
Proposals will likely focus on structures that are believed to increase or reduce risk. For example, so-called clawback provisions that allow a bank to recoup bonuses if they were based on trades or deals that subsequently prove unprofitable could reduce a lender’s assessment, under one of the proposals being discussed. Other pay structures could lead to higher fees.
This is the latest attempt by financial regulators to address the pay and compensation policies which many argue are to blame for innappropriate risk-taking and therefore fuelling the crisis.
The US' Federal Reserve and the Securities and Exchange Commission, as well as international bodies, have already issued guidelines aimed at reining in excessive pay and linking compensation to long-term performance. The SEC passed rules last month forcing companies to provide much more information on pay. But the FDIC’s initiative is seen as important because it could provide the incentive to bring bank pay structures in line with the regulators’ wishes and hefty penalties if they do not.
The FDIC's move could also be more wide-reaching than other proposals, because most US lenders have to pay the FDIC levy. Last year, US banks paid more than $17bn into the FDIC fund.
