Financial Regulatory Forum

U.S. Fed to propose wide-ranging bank pay rules

September 18, 2009

WASHINGTON, Sept 18 (Reuters) – The U.S. Federal Reserve is close to proposing wide-ranging rules on bankers’ pay that would apply to any employee able to take risks that could threaten the safety and soundness of the institution, a Fed source said on Friday.

The source, speaking on condition of anonymity, said the guidelines would apply to all firms regulated by the Fed and would be enforceable under its existing supervisory powers.

Massive losses inflicted by risky bets on U.S. subprime mortgage loans last year destroyed some of the oldest names in U.S. banking and pushed the global financial system to the brink of collapse.

The rules would aim to curb excess short-term risk-taking by any employee, not just bank executives, and would take a two-pronged approach.

Larger firms would be subject to a horizontal review process to compare their practices against rivals, while the compensation review for smaller banks would be part of their regular bank exams, the Fed source said.

The proposal has not yet been voted on by the Fed’s Board of Governors in Washington, but the timeline for the guidelines to advance was weeks, not months, the Fed source said.

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