FDIC's Bair Says European Bonus Rules Move in `Good' Direction
Federal Deposit Insurance Corp. Chairman Sheila Bair said rules adopted in Europe to restrict bankers’ bonus payments are a move in the right direction.
“As a matter of principle, yes, the direction it goes is a good one,” Bair said today in an interview for Bloomberg Television’s “Political Capital with Al Hunt” that will be broadcast this weekend.
The proposals adopted by the European Union that would require a percentage of the bonuses be deferred for at least three years and allow companies to claw back bonus money in the event of a business downturn “are all very important principles of compensation that as best practices should apply more generally,” she said.
Bair, 56, said the financial regulation bill moving through Congress has “many important new tools” to identify loopholes in the system.
The legislation awaiting Senate approval after being passed by the House last month has features that are “very important and are timely and directly responsive to the things that led to this crisis,” she said.
Bair, in a separate interview today, said the FDIC plans to launch a website that will list the new rules the agency will be required to promulgate, as well as posting information on visits by industry representatives and other government officials.
“Anyone who comes in to meet with us, we will post their name and their affiliation,” she said.
Bair said FDIC economists have seen no indication of a double-dip recession amid economic indicators that have suggested a slowing of recovery from the worst financial crisis since the Great Depression.
“The recovery is slow and sluggish, but it is recovering,” she said.
U.S. and European regulators are seeking to curb executive pay practices that encourage the kind of excessive risk-taking blamed for causing the collapse of the U.S. mortgage market and the 2008 credit crisis. The FDIC is considering a proposal that would punish banks that have risky pay practices with higher insurance premiums.
Bair, a Republican appointee named FDIC chairman in 2006 by President George W. Bush, declined to address House Minority Leader John Boehner’s comments that the financial regulation bill produced by the Democrat-dominated Congress was akin to “killing an ant with a nuclear weapon.”
“Everybody’s got their perspective and it is certainly a long bill, but I think it probably needs to be because it was a big crisis and a lot of things went wrong,” Bair said. She said she disagreed with the perception that the bill was too big.
Bair has spent much of the past year advocating for stronger powers for the FDIC, most of which she will get if the Senate approves the bill.
The FDIC, which is responsible for maintaining the nation’s deposit insurance fund and resolving failed banks, will gain the power to resolve the failing non-banks, like Lehman Brothers Holdings Inc. or American International Insurance Group Inc., that don’t hold deposits. Bair’s agency will also get backup supervisory authority over any of the institutions it may be forced to resolve.
“The ball will really be in the regulators’ court to effectively use these new tools,” said Bair, whose term as chairman ends in June 2011.
The agency will require an increase of $30 million to $50 million in its budget and an increase in staff.
“We will need to hire new staff that has more experience in investment banking, the securities side as well as the insurance side,” Bair said.
Bair said the banking industry continues to recover from the 2008 collapse, and the agency is still forecasting 2010 to be the peak year for bank failures. The FDIC has closed more than 250 banks since 2008, pushing the agency’s deposit insurance fund into a deficit for the first time since the savings-and-loan crisis in the 1990s.
The FDIC included 775 banks with $431 billion in assets on the confidential list of problem lenders as of March 31, an increase from 702 banks with $402.8 billion at the end of the fourth quarter, the agency said in its quarterly banking report.
Bair also said that Elizabeth Warren, the Harvard professor who has pushed the Obama administration and Congress for stronger rules to protect consumers, would be qualified to run a new consumer bureau designed to regulate financial products such as mortgages and credit cards.
“It’s not my call, but I think she certainly has all the qualifications and credentials for that job,” Bair said.