New law will limit salaries for bankers.Bankers are bracing for a new law that allows federal regulators to dictate their pay and benefits. The new rule was signed into law late last year as part of the Federal Deposit Insurance Corp. Improvement Act of 1991. Under the terms of the rule, federal regulators must prohibit any agreement that would provide "excessive compensation" for directors, executive officers, employees or principal shareholders of a federally insured financial institution. This includes banks, savings and loans savings and loan n. a banking and lending institution, chartered either by a state or the Federal government. Savings and loans only make loans secured by real property from deposits, upon which they pay interest slightly higher than that paid by most banks. , and credit unions. It may take about a year, however, before the agency defines excessive compensation and determines how it will enforce the regulation, said Steve Scholzen, deputy director for the San Francisco San Francisco (săn frănsĭs`kō), city (1990 pop. 723,959), coextensive with San Francisco co., W Calif., on the tip of a peninsula between the Pacific Ocean and San Francisco Bay, which are connected by the strait known as the Golden regional office of the FDIC FDIC See: Federal Deposit Insurance Corporation FDIC See Federal Deposit Insurance Corporation (FDIC). . Bankers say the compensation limit was added to the FDIC recapitalization Recapitalization Restructuring a company's debt and equity mixture often with the aim of making a company's capital structure more stable. Notes: Companies often want to diversify their debt-to-equity ratio to improve liquidity. bill because Congress wanted to prevent the abuses that fueled the savings and loan crisis The Savings and Loan crisis of the 1980s was a wave of savings and loan association failures in the United States in which over 1,000 savings and loan institutions failed in "the largest and costliest venture in public misfeasance, malfeasance and larceny of all time. . Other industry watchers are criticizing the new legislation, calling it the first step by Congress to turn the financial industry into a public utility. "We will be the only private industry that has its compensation set by government bureaucracy," said Janet Lamkin, the California Bankers Association's chief advocate for federal government relations. "It's such an imposition on a private enterprise. How can you attract good talent (to work for a financial institution) if this is in place?" Lamkin said she expects the regulators to draw up pay schedules based on the size of an institution. To judge if an executive's salary is out of line, the new rule tells regulators to consider the combined value of all cash and non-cash benefits, the executive's compensation history in relation to others with comparable expertise at the institution, and the financial condition of the institution. In addition, regulators should compare the executive's compensation package to those earned by officials at comparable institutions, based on asset size, geographic location and the "complexity of the loan portfolio." "If you had a troubled bank and (the executives) turned it around, you couldn't reward them," Lamkin said. Hock hock: see wine. is a staff reporter for the San Diego San Diego (săn dēā`gō), city (1990 pop. 1,110,549), seat of San Diego co., S Calif., on San Diego Bay; inc. 1850. San Diego includes the unincorporated communities of La Jolla and Spring Valley. Coronado is across the bay. Business Journal. |
|
||||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion