FDIC seeks comment on bank pay plan

WASHINGTON — Federal banking regulators moved Tuesday to seek public input on a plan to link the insurance premiums levied on U.S. banks to the degree of risk-taking encouraged by their executive pay policies.

A divided board of the Federal Deposit Insurance Corp. voted to make public a preliminary proposal for using executive compensation as a factor in assessing the fees that banks must pay for the deposit insurance fund. The plan could involve both rewards and penalties for banks.

"This is something we cannot ignore," FDIC Chairman Sheila Bair said. But two heads of Treasury Department agencies, who also sit on the five-member board, voted against floating the proposal.

John Dugan, director of the Office of the Comptroller of the Currency, and John Bowman, acting director of the Office of Thrift Supervision, said it would be premature because Congress and the Federal Reserve were addressing the bank compensation issue.

The FDIC is seeking public comment on the plan for 30 days. If there is a final rule, it isn't expected to be adopted until late in the year.

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.

"We're really just asking questions at this point," Bair said. She stressed that the regulators weren't seeking to dictate compensation levels for banks but were exploring whether certain pay practices encourage banks to take excessive risk.

The FDIC proposal seeks input on a possible model for banks' compensation policies that would include payment in restricted company stock for a large portion of pay for employees whose work is deemed potentially risky. In addition, significant awards of company stock only would become vested over a multi-year period.

The plan could involve both rewards and penalties for banks. A possible reward: Banks that are able to "claw back" compensation from executives under pay contracts could get reductions in their insurance premiums. Penalties, on the other hand, would call for increased fees for banks with pay deals that involve more risk.

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. The idea is for institutions deemed to be higher-risk to pay bigger insurance fees.