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Friday, September 25, 2009

Limits on pay will spawn 'innovation'

Bob Eisenbeis, the chief monetary economist for Cumberland Advisors in Vineland, N.J., definitely sees the G-20 imposing limits on bankers pay, but he's convinced that banks will get around them.

How? Through innovation or by redefining pay, he said.

Great, that'll restore faith in banking.

"Clearly, pay wasn't the main cause of the crisis or so many small banks wouldn't have gotten into the trouble they did and failed," said Eisenbeis, who had been director of research at the Federal Reserve Bank of Atlanta before joining Cumberland.

Still executive pay was the "headline issue" heading into the G-20 Summit in Pittsburgh. Treasury Secretary Timothy Geithner wasn't inching away from trying to "limit the risk that compensation practices in the world's largest institutions encourage excessive risk-taking."

But who will do it? Eisenbeis does not think it should be the Federal Reserve. Rather, the Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency "could do it just as well and they are into many more banks than the Fed is."

To Eisenbeis, the focus on compensation is a sideline to the roles leverage, lack of real capital and lack of regulatory enforcement played in escalating the financial crisis to history book status.

And no G-20 communique can substitute for flexing regulatory muscles and wringing out the excess from the system.
Posted by Mike Armstrong @ 2:59 PM  Permalink | Post a comment
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About Mike Armstrong
Mike Armstrong, a business editor and writer for nearly two decades, is the Inquirer's business columnist and PhillyInc blog editor. Contact Mike via e-mail or at 215-854-2980
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