New Pay Rules May Hurt Banks, but Protect Public

They'll discourage commercial banks from being investment banks
By John Johnson,  Newser Staff
Posted Oct 23, 2009 8:33 AM CDT
Pay czar Kenneth R. Feinberg in a 2007 file photo.   (AP Photo/Charles Dharapak, File)
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(Newser) – Steven Pearlstein isn't exactly wowed by the new salary rules being proposed for Wall Street. "Don't get carried away. By themselves, these measures won't prevent future crises, nor will they likely do much to lower the prevailing pay levels on Wall Street or in corporate America." But, he writes, they do have elements of meaningful reform. It's time, after all, for commercial bankers to stop behaving like investment bankers.

Under the Fed rules, banks would no longer be able to give sky-high bonuses to traders who work in risky fields such as derivatives. Banks will no doubt complain that this puts them at an unfair advantage against unregulated hedge funds and the like. "They may be right," writes Pearlstein in the Washington Post. "But if it turns out that these pay rules wind up steering the riskiest activity to smaller, more focused institutions whose failure won't require them to be bailed out by the taxpayer, that might be a good thing."