The Federal Deposit Insurance Corporation has released a proposal that would require financial institutions to defer senior executives' bonuses for three years to prevent them from taking excessive risks. In a five-to-zero vote yesterday, the FDIC board voted to issue a joint proposal that would ban institutions from having incentive compensation plans which encouraged excessive risk-taking or could lead to the institution suffering serious financial losses.
The FDIC proposal has fulfilled a provision in the Dodd Frank Wall Street Reform and Consumer Protection Act which was passed in July. If the proposal is approved, it would affect institutions with at least $1bn in assets. Sheila Bair, chairman of the FDIC, said: "This proposed rule will help address a key safety and soundness issue which contributed to the recent financial crisis: that poorly designed compensation structures can misalign incentives and induce excessive risk-taking within financial organizations." Under the plan,
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