WASHINGTON — The Federal Reserve for the first time would police banks’ pay policies to ensure they don’t encourage excessive risk taking under a plan it is drafting.
The proposal is the Fed’s latest response to criticism that it failed to crack down on lax lending, reckless gambles and other practices that led to the financial crisis.
The central bank’s more activist stance carries a risk, though: It could intensify accusations from lawmakers and other critics that the Fed is overstepping its bounds and should be reined in.
The compensation issue is likely to surface when President Barack Obama meets with his counterparts from other major industrialized countries in Pittsburgh next week. French President Nicolas Sarkozy is leading a European attempt to rein in banker bonuses at the Group of 20 summit.
G20 leaders promised at their London meeting in April to pass “tough new principles on pay and compensation.” But little progress has been made.
Under its proposal, the Fed would review — and could reject — pay policies that could cause too much risk taking by executives or others, according to two people familiar with the plan. The Fed would not actually set compensation, however.
