The Federal Reserve is gathering the heads of the largest banks it supervises Monday to discuss its proposal to limit incentive pay and bonuses to promote financial stability, a Fed official said.
"Federal Reserve officials will be meeting with bank executives Monday to discuss the process for the reviews of incentive compensation arrangements at large, complex banking organizations," a central bank spokesman told AFP.
On October 22 the Fed released recommendations calling for banks to ensure their compensation polices "do not undermine the safety and soundness of their organizations."
The proposed rules, still in provisional form and subject to comment, are part of an effort to toughen supervision to avoid a recurrence of the near-meltdown of the financial system last year.
The proposed rules stop short of specific pay caps or dollar targets for bonuses or commissions, but instead offer guidance for compliance with the rules.
Lavish pay and bonuses at financial institutions are blamed for encouraging excessive risk taking that fueled the global credit crisis that brought the US financial sector to the brink of collapse a year ago.
The Fed proposed that its supervisors review 28 large, complex banking organizations to determine whether their policies are in line with its principles for risk-appropriate compensation incentives.
The Fed would incorporate the review findings into the banking organization's supervisory ratings.
In certain cases, the central bank "may require" an organization to develop a corrective action plan to address unsatisfactory compensation policies.
