Fed Proposes New Rules for Bailout Banks

October 22, 2009 12:00:00 AM PDT
It's likely to be a blue holiday season at companies that still owe Uncle Sam. Executives at seven major firms that haven't paid back taxpayer bailout money are about to see big cuts in their paychecks, and the government has more changes in mind for how banks pay their top brass.

While the Obama administration's pay czar ordered big pay cuts at seven bailed-out U.S. companies, the Federal Reserve also issued a proposal to regulate incentives and compensation at 28 large banks.

The fed's proposal, which would push banks to develop rules against employees' taking excessive risk, could dramatically change the way banks' top performers are paid. Congress must approve the Fed's proposal.

There is concern on Wall Street that the pay cuts for the seven companies that received exceptional taxpayer assistance went too far. The top 25 earners at those companies will see their salaries cut by an average of 90 percent.

"Hopefully others will see the wisdom of this and follow suit voluntarily," said Kenneth Feinberg with the Treasury Department.

"You've got Goldman, you've got Morgan. They don't have the same restrictions. You're going to see these guys who don't believe they are going to get paid what they're worth so they're going to leave," said Paul Miller with FBR Capital Markets.

Not everyone sympathizes with the financial industry.

"Oh, I just don't buy that if they're only making a million dollars a year, instead of $10 million for the next year that they're all going to disappear and go work where?" said Senator Sherrod Brown (D) Ohio.

Exemptions to the compensation rules can be granted. It's already happened for three executives at AIG and Chrysler Financial.


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