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Making banks pay

In return for the FDIC insuring bank deposits, banks are assessed a regular fee. It's a lot like paying for insurance, actually. And in what seems like a sensible move, the FDIC wants banks engaging in risky behavior to pay a bit more:

The FDIC, which collects fees from all banks to repay depositors in failed banks, is considering a plan to impose higher fees on banks with compensation practices that the agency regards as encouraging reckless pursuit of short-term profits without sufficient regard for the risk of long-term losses. [...]

The proposal would push companies to compensate employees with awards of deferred stock -- shares that they cannot sell immediately. The FDIC also wants companies to include "clawback" provisions requiring employees to repay bonuses if short-term gains curdle into long-term losses. Finally, the FDIC wants pay decisions made by independent members of a company's board of directors.

Alongside news that the White House is considering a new tax or fee on banks, we might be seeing the beginning of the administration's effort to show they're not soft on the banks.

By Ezra Klein  |  January 13, 2010; 8:05 AM ET
Categories:  Financial Regulation  
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Comments

G-d bless Sheila Bair, she's running FDIC and gets it. That these big banks make a lot of money by glorified gambling is fine, so long as it costs them a risk premium to do so.

Contrast this with the current Treasury Secretary, who frets that daring to tax these needless, and parasitic financial transactions the banks engage in for no reason other than to generate profits unto themselves at tremendous risk, that somehow this is unworthy of taxation because the fees will get passed on. It boggles the mind with Tim Geithner.

Maybe Bair oughta take up dual roles.

Posted by: zeppelin003 | January 13, 2010 9:47 AM | Report abuse

In rational economic world, these fees will get passed on to customers of the banks in some way. But in that same rational economic world, customers can decide to pay those fees or move their business to a more competitive bank. I vote this is a great move by the FDIC. The cost of FDIC insurance to the banks should not be one-size-fits-all.

Posted by: scott1959 | January 13, 2010 10:55 AM | Report abuse

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