How do you stamp out Wall Street greed? Maybe by charging for it

Hmmm, maybe, finally, a good idea on how to curb the worst excesses of Wall Street pay.

Regulators at the Federal Deposit Insurance Corp. (FIDC), the Financial Times reports, are talking about linking the amount that banks have to pay into the fund that provides government insurance to bank depositors with risky pay policies at banks. The more that a pay structure encourages short-term risk taking—like that which led to and then deepened the U.S. mortgage and mortgage-backed securities bust—the more a bank would have to pay into the fund.

For example, a pay policy that gave big cash bonuses to bank executives on the basis of one-year performance targets would lead to a higher FDIC fee because that kind of policy rewards executives for taking short-term risks even if the long-term result (say, in two or three years) is a disastr. A pay policy that paid out bonuses in stock that vested over time might be deemed neutral to the bank’s FDIC fee payment—since it does at least make a bonus payout depend on the longer-term performance of the stock. And a pay policy with claw-back provisions that lets a bank take back bonuses if long-term performance falls below short-term results might get a discount on fees paid to the FDIC.

This idea would get around what strike me as the three main drawbacks of the excessive-pay rules that I’ve seen so far. Read more