Fed Has Begun Bank Bonus Audit

NEW YORK (TheStreet) -- The Federal Reserve already has begun its charge to restrict bank bonuses by poring over balance-sheet data, according to a report.

The Fed is seeking vastly broader powers as part of the Obama administration's regulatory overhaul plan, including the ability to regulate Wall Street pay. As part of that effort, the Fed has been examining banks' trading positions and asking for a balance-sheet breakdown, according to the Financial Times.

The overhaul seeks to force banks to put a higher premium on risk when assessing bonus payments. In the past, traders were paid based on their performance without much consideration toward what might happen if their positions could not be unwound. Therefore, the risk made clear by the credit-markets freeze-up and stock market nose dive last year during the crisis wasn't necessarily reflected in pay packages.

Pay has become a hot-button issue because of bonuses at extremely troubled firms like American International Group (AIG) and Merrill Lynch, which required large government bailouts. Other major banks, including Goldman Sachs (GS), Morgan Stanley (MS), JPMorgan Chase (JPM) and Wells Fargo (WFC), have been called to task by lawmakers and regulators over the issue and revised pay policies.

Bank of America (BAC) and Citigroup (C), which required more assistance than others, have received added scrutiny. BofA faces several probes over Merrill Lynch, and pressure on Citi has heated up since the disclosure that Andrew Hall, head of Citi's Phibro energy-trading unit, was set to receive $100 million in bonuses.

Fed examiners are trying to come up with a liquidity breakdown to determine how much of a bank's profit is based on assets that can be sold quickly, and how much may not be known for a long time. The market for certain types of derivatives and complex debt securities remains tight after last year's tumult.