The Obama administration has begun an ambitious project to overhaul compensation practices across the financial sector, including at firms that received no bailout, reports the Wall Street Journal. The government may use the powers of the Fed or the SEC, as well as congressional legislation, to prevent banks from rewarding damaging practices, such as making dangerous loans or offering inaccurate risk ratings.
Barack Obama and Tim Geithner have both blamed the structure of executive pay, particularly the bonus system, for exacerbating the financial crisis. The new effort is still in the early stages and is designed "to align compensation with sound risk management," said officials. The head of the American Bankers Association said that while financial companies might accept general new rules, "what would never work is detailed regulation of compensation."