NEW YORK (CNNMoney.com) — The nation’s top banking regulator is considering a new rule which could require lenders to pony up if they rely on potentially risky pay practices. In a proposal made Tuesday, the Federal Deposit Insurance Corporation said it wants employee compensation to be another factor in how it determines payments banks are required to make in order to support the agency’s deposit insurance fund.
In essence, banks that continue to dangle lucrative incentives in front of employees for making questionable loans, for example, would have to pay more than their fair share. Many critics have cited that risky pay practices were not only a factor in the collapse of such large financial institutions as Bear Stearns and Lehman Brothers but also many of the regional and community lenders that have gone under over the past two years. 0:00 /2:16FDIC fund on red alert
FDIC Chairman Sheila Bair noted however, that the proposal would not seek to limit pay of bank employees or its executives. Instead, the FDIC wants to push banks to tie pay with the company’s long-term performance.
“This is not about levels, it is about structure,” Bair said during a press conference Tuesday.
The FDIC’s proposed move could help prevent the agency deposit insurance fund, which was designed to protect consumer bank deposits, from being at risk in the future. The rash of failures in 2009 pushed the fund into the red for the first time since 1991.