Ben Bernanke isn't waiting for Congress to expand the Fed's regulatory powers. Instead, he wants to put regulators directly inside banks to monitor (and possibly reject) pay packages.
The new proposal from the Fed requires a vote by the central bank's board but no congressional approval.
If enacted, pay for tens of thousands of bank employees nationwide would require approval from the Federal Reserve, empowering the Fed to reject any compensation policies it believes encourage bank employees to take too much risk.
"Given the changes the industry has already done, if the restrictions on income-producers or salespeople are too draconian, it will actually undermine the strength of the institution," Scott Talbott of the Financial Services Roundtable, a trade group of financial companies, told The Wall Street Journal.
Bernanke's proposal would, for the first time, inject government regulators deep into compensation decisions traditionally reserved for the banks' corporate boards and executives.
Though it wouldn't set salaries, the proposal would enable the Fed to review and amend each bank's salary and bonus policies. The U.S.'s largest banks, about 25 in number, would get especially close scrutiny.
Ron Paul, Republican of Texas, says the Fed is already doing too much.
“The Fed not only creates our problems, they perpetuate the problems” and the sooner we all understand that, the better, says Rep. Paul.
According to figures posted at the politician’s Web site, Paul’s bill to audit the Federal Reserve (HR 1207) now has 290 co-sponsors and a companion bill in the Senate (S 604) has already attracted 25 co-sponsors.
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