Associated Press
WASHINGTON -- Federal banking regulators are considering a plan to link the insurance premiums U.S. banks must pay to the degree of risk-taking encouraged by their executive compensation policies.
The board of the Federal Deposit Insurance Corp. is expected to make public Tuesday a preliminary proposal for using executive compensation as a factor in assessing the fees paid by banks for the deposit insurance fund, a person with direct knowledge of the matter said Thursday.
The move comes amid a public outcry over compensation and recent actions by other regulators, including the Federal Reserve and the Securities and Exchange Commission. 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 discussions on a new FDIC plan are at an early stage that may lead to a formal rule being proposed and eventually adopted by the agency, two people familiar with the matter said. They spoke on condition of anonymity because the process is still preliminary.
The plan could involve both carrots and sticks for banks, one of those people said. A carrot: Banks that are able to "claw back" compensation from executives under pay contracts could get their insurance premiums reduced.
If the plan were adopted, banks' compensation structures would be added to the other risk factors now taken into account by the FDIC in assessing fees, including diminished reserves against risk and reliance on higher-risk so-called brokered deposits.
