U.S. bank regulators to consider pay rule next week

Tue Feb 1, 2011 10:53am EST

* Deferred compensation expected to be part of rule

* Large banks to pay more into deposit insurance fund

By Dave Clarke

WASHINGTON, Feb 1 (Reuters) - U.S. banking regulators will meet next week to consider a proposal that would ban bonus payments that promote "inappropriate" risk-taking by financial industry executives and employees.

Federal Deposit Insurance Corp Chairman Sheila Bair has said the rule on incentive-based pay practices will probably require financial firms to defer some of their executives' compensation.

The rule is required by the Dodd-Frank reform law and was included in response to complaints that financial institutions were paying executives based on short-term profit gains and without thinking about the long-term implications for the companies and markets.

The FDIC board meets on Monday to consider the pay proposal as well as a final rule, also required by the new law, requiring large banks to pay more into the government fund used to cover the cost of seizing failed banks.

The law requires the FDIC to base the assessments it charges for its deposit insurance fund on a bank's total liabilities rather than on the amount of domestic deposits held by an institution.

Due to this change, Bank of America (BAC.N), JPMorgan Chase & Co (JPM.N) and Citigroup (C.N) combined would pay about $1 billion more annually in assessments under the new liabilities-based system, according to industry estimates.

"At least from the impacts of Dodd-Frank that are measurable right now, the change in FDIC assessment is the single largest impact on us," Citigroup Chief Financial Officer John Gerspach told analysts during a Jan. 18 conference call. (Reporting by Dave Clarke, Editing by Lisa Von Ahn)