FDIC to bonus-loving banks: Pay up!

By David Ellis, CNNMoney.com staff writer


NEW YORK (CNNMoney.com) -- The nation's top banking regulator is considering a new rule which could require lenders to pony up if they rely on potentially risky pay practices.

In a proposal made Tuesday, the Federal Deposit Insurance Corporation said it wants employee compensation to be another factor in how it determines payments banks are required to make in order to support the agency's deposit insurance fund.

In essence, banks that continue to dangle lucrative incentives in front of employees for making questionable loans, for example, would have to pay more than their fair share.

Many critics have cited that risky pay practices were not only a factor in the collapse of such large financial institutions as Bear Stearns and Lehman Brothers but also many of the regional and community lenders that have gone under over the past two years.

FDIC Chairman Sheila Bair noted however, that the proposal would not seek to limit pay of bank employees or its executives. Instead, the FDIC wants to push banks to tie pay with the company's long-term performance.

"This is not about levels, it is about structure," Bair said during a press conference Tuesday.

The FDIC's proposed move could help prevent the agency deposit insurance fund, which was designed to protect consumer bank deposits, from being at risk in the future. The rash of failures in 2009 pushed the fund into the red for the first time since 1991.

Hoping to combat that shortfall, the agency ordered banks at the end of last year to prepay their insurance premiums for the next three years. The move is expected to generate roughly $45 billion for the FDIC.

The FDIC's latest proposal, which is still very much in the infancy stages and could take at least a year to implement, is the latest federal effort to combat what some view as excessive banker pay. Bonuses and other forms of compensation in the financial services industry has become a source of populist anger in the wake of multiple bank bailouts in 2008 and 2009.

The Federal Reserve has already suggested that it review compensation programs at 28 of the nation's largest banks in an effort to make sure firms were not encouraging employees to take excessive risks.

And earlier this week, there was chatter that the White House may impose a tax on financial institutions to ensure that taxpayers who bailed out banks get paid back. To top of page

Frontline troops push for solar energy
The U.S. Marines are testing renewable energy technologies like solar to reduce costs and casualties associated with fossil fuels. Play
25 Best Places to find rich singles
Looking for Mr. or Ms. Moneybags? Hunt down the perfect mate in these wealthy cities, which are brimming with unattached professionals. More
Fun festivals: Twins to mustard to pirates!
You'll see double in Twinsburg, Ohio, and Ketchup lovers should beware in Middleton, WI. Here's some of the best and strangest town festivals. Play
Index Last Change % Change
Dow 17,159.52 128.38 0.75%
Nasdaq 4,555.77 36.87 0.82%
S&P 500 2,002.13 18.00 0.91%
Treasuries 2.58 -0.01 -0.50%
Data as of 2:35pm ET
Company Price Change % Change
Apple Inc 100.34 -1.29 -1.27%
Bank of America Corp... 16.73 -0.01 -0.06%
Yahoo! Inc 42.85 0.30 0.71%
Facebook Inc 75.80 1.22 1.64%
Alcoa Inc 16.43 0.04 0.24%
Data as of 2:21pm ET

Sections

House report says federal safety regulators knew enough to order recall of GM cars with flawed ignition system as early as 2007. More

Scotland's independence vote is too close to call but those who want to keep Britain united won this year's campaign funding race by some distance. More

AT&T has developed a software platform that can transcribe and offer near-real-time analysis on customer service calls. More

Atlanta has the country's highest level of income inequality, but civic entrepreneurs can close the gap. Here's how. More

What do all 401K millionaires have in common? Christine Romans explains what it takes to be a member of the club. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.