FDIC's Bair blasts Wall Street's values on pay
Daniel Hagy, 53, protests outside Goldman Sachs headquarters building in the financial district of New York January 21, 2010.
Credit: Reuters/Jessica Rinaldi
WASHINGTON |
WASHINGTON (Reuters) - An outspoken U.S. bank regulator on Tuesday rebuked Wall Street firms for only paring huge bonuses after a public outcry, saying she wished they had a better "propriety compass."
Sheila Bair, chairman of the Federal Deposit Insurance Corp, said executives and traders at big financial firms need to get a better sense of values and pride in their work.
"I just wish these institutions had a better, should I say, propriety compass," Bair said in an interview with Reuters.
"They should have some commitment to the corporation or the bank that they work for, and take some pride in whether they're doing a good job and making the money the right way. ... I would like to think those are the cultural values that go into why you wake up and go to work in the morning."
Bair, an activist regulator who has blasted Wall Street excesses, animatedly criticized the mentality of making money for money's sake.
She compared FDIC employees, who make a moderate government salary but get a lot of pride in their work stabilizing the banking industry, with bankers who made massive paychecks even as their firms were bleeding money.
"I would hang my head in shame to get paid a lot of money when my bank did not do well," said Bair, who once worked as a bank teller in Kansas in between college and law school.
Wall Street pay has been a major sore point in the wake of a financial meltdown that brought global markets to the brink of collapse and prompted multibillion-dollar taxpayer bailouts for individual financial firms.
Anger has simmered as Wall Street executives have returned to huge bonuses so soon after the height of the crisis that they played a role in.
A government report last week revealed that bonuses on Wall Street rose 17 percent last year to $20.3 billion, with the average taxable bonus rising to $123,850.
Those bonus levels are well below the level set in 2007 and are now more closely tied to company performance through clawbacks and long-term restricted stock.
But even top Wall Street figure John Mack, the chairman of Morgan Stanley (MS.N), said last week that pay levels are very high. "I still don't think the industry gets it," he said.
Bair said she was doubtful that any newfound prudence would last. "It got dialed back a little bit this year after mammoth public outrage, but they're still paying some pretty good ... incentive compensation," she said.
She stopped short of advocating that government shrink outsized pay packages, but said regulators could intervene if excessive pay levels threaten the safety and soundness of a firm.
LAWMAKERS GETTING "HUNG UP" ON REFORMS
Bair also touched on regulatory reform, saying lawmakers should not focus too much on how to "arrange the deck chairs."
One of the last sticking points in the Senate Banking Committee is over the proposed Consumer Financial Protection Agency, and whether to house it in an existing agency or create a stand-alone entity.
Lately senators have discussed making the CFPA a part of the Federal Reserve, which many senior Democrats in Congress quickly dismissed, considering the Fed's spotty record of consumer protections.
"We should not get hung up too much on who's doing what. And I don't think it should be about punishing somebody," Bair said. "I think it should be forward-looking and aligning regulatory responsibilities according to what makes sense for institutional structure itself."
Bair reiterated the FDIC's support for an independent agency.
She said the FDIC is still focused on ensuring that the government gets the power to wind down a large financial firm if it becomes insolvent, a debate which she said is "going in the right direction."
Such an authority would prevent the government from creating massive bailouts for institutions like insurer AIG (AIG.N), or having to deal with the fallout from letting Lehman Brothers LEHMQ.PK fail.
Bair expressed skepticism about other reform proposals that would put outright bans on risky activities, such as the "Volcker rule" proposal that would eliminate proprietary trading at big banks.
She said requiring banks to hold more capital against risky activities could be more effective.
"Anything that helps protect insured deposits from high risk behavior is something we're for, but I think for prescriptive rules, there are a lot of creative lawyers that find a way around it," Bair said.
(Reporting by Karey Wutkowski; Editing by Robert MacMillan)
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Once ‘the music’ stops, the FDIC will be delaying payment to those foolish enough to have over $10k in a bank with this ultra-low 1% or less interest payment. Consumers are far better off buying gold and keeping only the bare minimum within their bank account to ‘keep the lights on’ for a few months.
Bottom line, the banks are insolvent and the FDIC will need to ‘borrow’ far more money from taxpayers to pay out for all the bank failures. Banks need to start giving 4%+ in interest to depositors due to the high risk of bank failure. Anything less and you are better off investing in gold as a safe haven just like all major central banks do.
Go read this.
Sheila Bair should not be claiming any kudos as a manager. This is the FDIC under her aegis:
This FDIC OIG Report clearly states that FDIC employees spent more than 8000 hours onsite from 2001 – 2003 noting IndyMac Bank’s (IMB’s) high risk behaviors which continued to be monitored through on/off-site and renewed onsite examinations over a period of years. The Report repeatedly notes that the FDIC was entirely aware of the bank’s continuously deteriorating condition, and that a variety of FDIC personnel recommended the FDIC’s continued participation in onsite IMB examinations beginning in 2004 and then again in 2006.
However, the Report signals that the FDIC took no remedial actions for the following reasons:
1. (page 19) by 2007, FDIC case managers were “new to their job”, lacking the requisite experience to fully understand IMB risks;
2. (page 20) FDIC case managers had too many institutions in their portfolios, too large workloads, and insufficient familiarity with IndyMac, as FDIC case managers transitioned their workloads and IMB monitoring responsibilities, from one to the other;
3. IMB was already paying the highest insurance premiums possible and there was no logistical way to move it into a further higher premium [or new lower] category; and
4. There was a prolonged series of “monkey in the middle” activities between the FDIC and OTS where each passed the ball back and forth to the other, each noting accelerated risks, requests for action, conflicting criteria for determining a “sufficiently well-capitalized” bank, and ultimately a string of behaviors by both agencies that left the bank in takeover mode with one particular set of depositors lacking $240 million of their savings, business funds, and cash deposits, of which no mention whatsoever is made in this report.
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