The Federal Deposit Insurance Corp. (FDIC) has proposed new rules that will mandate large financial institutions to delay payment of 50 percent of executive bonuses for a period of three years in order to discourage risky financial activities.
The board of the regulatory agency will vote shortly on whether or not they will to formally propose the rules, which were part of Dodd-Frank financial reform law from last year.
However, the FDIC proposal goes beyond the law passed last year which just asked regulators to put in place rules to ban incentive-based payments that encourage excessive risks.
This proposed rule will help address a key safety and soundness issue which contributed to the recent financial crisis – that poorly designed compensation structures can misalign incentives and induce excessive risk-taking within financial organizations,” said FDIC chairman Sheila Bair.
“Importantly, we believe the rule will accomplish its objectives in a way that appropriately reflects the size and complexity of individual institutions. Importantly, this inter-agency proposal will apply across all types of US financial institutions, limiting the opportunity for regulatory arbitrage. Similarly, it will better align US compensation standards with those which have been adopted internationally under the framework approved by the Financial Stability Board in 2009.
The FDIC is also seeking to require larger banks pay a larger portion of fees to insure all U.S. banks, as required under the new law.