Fed releases comments about bank risk/compensation packages
The Fed has issued a statement saying they are beginning a review of the compensation policies at 28 large banks and 3002 smaller banks. They cite in the release that banks compensation practices led to excessive risk taking that helped lead to losses and instability. They ordered banks to address risk, compensation and address any deficiencies in each.
This news is nothing a reasonable person would assume. It is somewhat sad banks have to be regulated additionally, even if one can blame the past regulation (or lack thereof) for some of the problems. However, the fact is there is plenty of opportunity to “pull the wool over auditors eyes” and although sometimes the auditors are guilty of not seeing or acting on known issues (ie. Maddoff, credit derivative as examples) , it was a banks obligation to protect itself, its shareholders and in this sad case, the economies of the USA/world and understand its risk - even if it meant lower potential earnings. Now greater regulation will be enacted and salaries are likely to be lowered. The regulation may overdo it, but that is the cycle one can almost expect.
The shot fired across the bow by the Treasury yesterday for those firms who are controlled by TARP and whose senior officials salaries were slashed by up to 90%, is an indication that the government means business. The dollar may not like it, but to say all can continue to be largely self regulated, will not be believed by Washington (until that time down the road regulations are lessened once again).
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