Federal Reserve Chairman Ben Bernanke on Friday called for banking supervisors to pay “close attention” to compensation practices as they examine the soundness of financial institutions.
Federal Reserve Chairman Ben Bernanke on Friday called for banking supervisors to pay “close attention” to compensation practices as they examine the soundness of financial institutions.
Banking regulators have observed that “poorly designed compensation policies can create perverse incentives that can ultimately jeopardize the health of the banking organization,” Bernanke told a meeting of smaller “community” banks in Phoenix, Ariz.
The Fed chief’s remarks come amid public and congressional outrage over millions of dollars in bonuses paid to employees of American International Group Inc., which has been bailed out by the government four times. The situation has created a public relations headache for President Barack Obama and unleashed fresh congressional furor over the handling of AIG’s bailout by the Treasury Department and the Fed.
Bernanke, who will appear before Congress on the AIG flap next week, didn’t mention any companies by name in his speech. He made a fresh pitch for an overhaul of banking regulations to prevent another financial crisis like the one gripping the U.S. and other countries worldwide.
Regulatory gaps need to be closed, he said. Regulators must make sure financial companies have a sufficient capital cushion against potential losses.
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In photo: With Federal Reserve Chairman Ben Bernanke at right, President Barack Obama speaks to reporters, Monday, March 23, 2009, in the Cabinet Room at the White House in Washington.
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