Fed Has Begun Bank Bonus Audit
NEW YORK (
) -- 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) - Get Report
and
Merrill Lynch
, which required large government bailouts. Other major banks, including
Goldman Sachs
(GS) - Get Report
,
Morgan Stanley
(MS) - Get Report
,
JPMorgan Chase
(JPM) - Get Report
and
Wells Fargo
(WFC) - Get Report
, have been called to task by lawmakers and regulators over the issue and revised pay policies.
Bank of America
(BAC) - Get Report
and
Citigroup
(C) - Get Report
, 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.
While the
Financial Times
says bank executives were surprised by the request, it will help the Fed assess each firm's risk profile and ensure that pay practices are in line. Fed examiners are perhaps the most familiar with banks' exposure and trading practices already, having gone through balance sheets and off-balance sheet assets with a fine-tooth comb for the stress tests last spring.
-- Written by Lauren Tara LaCapra in New York
.
