At last a sensible change is being considered by the Fed. The banks will lobby their butts off against it, but yes Virgina this should happen. And not just for bank execs, but for all publicly traded companies to force management away from their OCD-short-term fixation with leveraging up to increase shares prices (and their own personal fortunes) at the expense of the long-term stability and productivity of the business.
“The Federal Reserve is considering a requirement that the biggest banks add their bonds to pay packages for top executives.
The goal would be to align bankers’ compensation more closely with their institutions’ financial stability. Stock awards provide incentives to boost profits, while bonds would decline in value if a bank takes too much risk.
The concept has support from other regulators who are growing impatient with continued abuses on Wall Street.
“When you are talking about encouraging proper behavior,” incentives are “very important, and certainly compensation is a huge factor on how people conduct themselves,” Thomas Curry, the comptroller of the currency, said in an interview.
During the global financial crisis, “some risks were taken that may not have been in the best long-term interest of the banking organization, its shareholders or the deposit-insurance fund that backs it all up,” added Curry, whose agency supervises 1,212 national banks with $9.4 trillion in assets.” See: Fed Citing Wall Street lapses leads drive on bonds as pay.
Next crucial step: get investment bank divisions separated away from the deposit insured backing of taxpayers.
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