Banker bonuses will have to wait three years, says FDIC
Big banks are going to have to wait before doling out annual bonuses, reports the Associated Press. In order to minimize risky transactions that could damage the United States’ ongoing economic recovery, the Federal Deposit Insurance Corp. voted Monday on a rule that would require half of bankers’ bonuses to be postponed by at least three years. The rule would apply to financial institutions with $50 billion or more in assets.
Big banks to pay bigger insurance fees
In addition to the proposed banker bonuses provision, a clause within the Dodd-Frank Act will require the same large U.S. financial institutions to contribute more in insurance costs to the FDIC in order to protect bank deposits nationwide. Those banks that hold the most in assets – rather than deposits – minus tangible equity will contribute more to the deposit insurance fund. In general, those institutions that pose the greatest risk to the U.S. financial system due to high-risk assets and less stable liquidity will be charged more.
Startlingly, the insurance fund has run in the red for some time, going as low as $15.2 billion in the hole during the height of bank closures and bailouts. On the bright side, by the end of the third quarter 2010, the deficit had been cut nearly in half to $8 billion.
Smaller banks will pay less
According to small bank trade group the Independent Community Bankers of America, 98 percent of banks that possess less than $10 billion in assets will pay less money into the insurance fund, thanks to various rule changes. The ICBA says this will save smaller U.S. banks $4.5 billion over the next three years.
“ICBA led the charge throughout the Wall Street reform debate to create fairness within the deposit insurance system so that Main Street community banks can continue to serve their customers and keep money where it belongs — in the community,” said chairman James MacPhee.
The need to improve
With the assistance of greater deposit insurance contributions, Bair believes that the FDIC will be able to bring the fund back to a positive balance. Once that happens, banks should be able to depend upon more predictable rates for unsecured loans.
“The financial crisis provided ample evidence of the need to improve the assessment system,” said Bair. “The banking industry, the Deposit Insurance Fund and the financial system will benefit from this rule in both the short and long term.”