Would delaying bonuses for top bank CEOs reduce the number of risky deals they accept? The FDIC thinks so. The five-member board of the Federal Deposit Insurance Corporation (the people who have to bail out consumers when bankers take too many risky bets) voted recently to force the leaders of America’s largest financial institutions to wait three years before receiving the second half of their performance bonuses.
Federal investigators, including the bipartisan Financial Crisis Inquiry Commission, have pointed to outsized bonuses as one of the major reasons for the 2007-2010 Great Recession. Executives who stood to make millions of dollars in a matter of months might not care what happens to their institution years down the line.
Big, immediate bonuses “induce excessive risk-taking within financial organizations” that “contributed to the recent financial crisis,” FDIC Chairman Sheila C. Bair said in a press release.
As an example many people point to Richard Fuld, who received a $22-million bonus in 2007. Nine months later, his investment house went bankrupt.
The rule would only apply to institutions with more than $1 billion in assets. Now it must be accepted by an alphabet soup of federal agencies, including the Federal Financial Institutions Examination Council (FFIEC), the Securities Exchange Commission (SEC) and the Federal Housing Finance Agency (FHFA).
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